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Medicare Rationing Begins in January, 2011


Richard Amerling
Medical Progress Today
January 8, 2010

House and Senate Democrat leaders, and President Obama, argue that they can "pay for" health insurance "reform" by cutting $500 billion from Medicare spending over the next decade—largely through arbitrary reimbursement cuts,— without reducing the quality of care delivered to beneficiaries.

Yet, in January, 2011, Medicare will implement a new payment system for patients receiving dialysis for end stage kidney disease that will severely ration care to this vulnerable (and largely minority) population based on equally arbitrary payment reductions. These patients will be the unfortunate canary in the Medicare coal mine: "reform" legislation will expose millions of Medicare patients to rationing and reduced quality of care.

In 1972, Congress passed legislation creating an entitlement to Medicare for patients diagnosed with end stage renal disease. The bill allocated about $140 per treatment (or $1820 per month) per patient. This facility fee was large enough to incentivize the creation of dialysis centers, the expansion of dialysis treatment to all patients, and an end to what were very real "death panels." The ESRD program became a model for what good government could accomplish. There was broad consensus that payment for this catastrophic illness was a legitimate federal function and use of taxpayer funds. Unfortunately, Congress neglected to index the payment for inflation, leading the constant-dollar value to dwindle to around $14 per treatment. Dialysis units were able to survive, and even prosper, by aggressive cost-cutting (substituting technicians for nurses), consolidation into ever-larger chains, boosting efficiency (sometimes by cutting treatment times with a negative impact on outcomes), and by generating revenue from sales of drugs used during dialysis.

In the late 1980s and early 1990s, recombinant erythropoietin (Epogen®, manufactured by Amgen) was introduced to treat the anemia associated with chronic kidney failure. An active vitamin D analog (Calcijex®, by Abbott) was also synthesized to replace deficiencies associated with kidney disease. Both drugs were administered during each dialysis session intravenously, and were paid for separately by Medicare. Medicare paid dialysis units 95% of the average wholesale price for these drugs. The units, especially the large chains, were able to buy at deep discounts below the AWP, generating significant margins. These margins became the major source of profit for dialysis units over time. A debate of the scientific merit of using these agents and their clinical outcome benchmarks is beyond the scope of this article. But clearly the payment model that had evolved led to incentives to prescribe that were potentially hazardous, and needed reform.

Evidence that treatment of anemia might not be beneficial or benign emerged in 2006, and this led to partial payment reform. Congress, in 2003, also instructed the Center for Medicare and Medicaid Services to come up with a "bundled" payment system for dialysis in which one payment per treatment would cover these additional medications. Under contract with CMS, the University of Michigan Kidney Epidemiology and Cost Center provided early in 2008 a detailed report on how this could be instituted. Congress then mandated implementation of a bundled payment system by 2011.

The UM-KECC model proposed payment of roughly $235 per treatment, with some adjustment for local wages and patient case-mix variables. Using this methodology, small dialysis providers Premila and Ganesh Bhat modeled their patient population in an article published in Nephrology News and Issues in June, 2009. They estimated losses in excess of $100,000 per year.

Last month CMS shocked the nephrology and dialysis community when they issued the final rule: Payment would be $198 per treatment. In addition, oral drugs typically used by dialysis patients were to be included in the bundle, with only an extra $14 per treatment thrown in to cover this added burden.

Nephrologists prescribe medications to dialysis patients to limit absorption of phosphorous from foods, and other drugs to treat the bone disease that accompanies kidney failure. Some of these are expensive, but are often covered under private insurance, Medicaid, or Medicare Part D (Full disclosure: I have received honoraria from companies that manufacture several of these drugs). Again, this is not the forum to debate the relative merits of these medications. However, no one in the medical community thinks they should be banned, or their use severely curtailed.

Yet that is what will almost certainly happen if the current scenario is enacted (The official comment period ended on December 16). Dialysis providers have already been looking at different strategies to lower the use of epogen and vitamin D analogs to minimize the financial impact of bundling. There is no question that similar cost-saving strategies will be used for these outpatient drugs. Formularies will almost certainly be introduced that will make it difficult for physicians to prescribe expensive oral medications since these will now be coming out of the dialysis unit budget.

The new rule contains even more disincentives for high quality dialysis care, including higher levels of federal micromanagement, lack of incentives for home dialysis, pressure to limit laboratory testing and hospitalizations, and increased staffing that would be required to administer outpatient medications. The end result is a highly restrictive practice environment that imposes de facto rationing of care to the most vulnerable population of Medicare patients.

Remember that the current payment structure is a result of congressional mismanagement of the basic dialysis payment. The "solution" now being proposed will greatly increase financial pressure on the dialysis industry and will very likely lead to bankruptcies and closures of many independent units, further limiting the availability of dialysis. Even the large dialysis chains will struggle to remain afloat. Their situation will worsen dramatically if private insurance (which covers dialysis at rates well above Medicare) disappears as a result of the added costs and regulatory burdens imposed on them by ObamaCare. In effect, this legislation sets the stage for an eventual nationalization of the dialysis industry.

The dialysis community has been under the heavy hand of federal regulation since the beginning. We are the first victims of Congress' misguided price control schemes. Whatever happens to us will eventually be extended to other segments of health care that come under government control. Medicare rationing is well under way.

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