Congress Must Ensure that Medicare Payments to Dialysis Facilities Cover the Costs of Providing Patient Care

Medicare reimburses facilities that provide dialysis treatment services to patients with kidney failure, also known as End Stage Renal Disease (ESRD), using: (1) a composite payment rate per treatment that covers routine dialysis services and includes a drug add-on payment, and (2) a separate payment for certain drugs that are not included in the composite payment rate. The composite payment does not have a statutory update mechanism that annually adjusts for inflation.

MedPAC analysis of dialysis facility margins supports an update to Medicare payments.

Historically, MedPAC has recognized that the composite rate amount does not cover the cost of providing dialysis services to patients. Since 2003, MedPAC has recommended updates to the ESRD payment system. In its March 2008 Report to Congress, MedPAC estimated the Medicare margins to be 6 percent in 2006 and projected the margins to be 3 percent in 2008. MedPAC recommended an update of 1.0 percent for calendar year 2009.

Working with a more comprehensive data set, The Moran Company analysis shows that Medicare margins for dialysis facilities are even lower than those estimated by MedPAC.

The Moran Company analysis used more comprehensive cost and revenue data from 2006. Data were collected from 71 percent of freestanding dialysis facilities and included treatment costs from 10 companies representing 3,254 facilities.

• The Moran Company estimated the 2006 Medicare margin to be 0 percent and projected the 2007 and 2008 margins to be negative 3 percent and negative 6 percent, respectively.

The Moran Company analysis reflects the true cost of providing dialysis patient care.

The detailed cost data used in the The Moran Company analysis are critically important to understanding the true costs of care. This analysis used more complete data from facilities and:

• Incorporated data from non-reimbursed bad debt and medical director fees for Medicare patients, which MedPAC does not include.
• Included data on costs and revenue information regarding separately billable drugs
  for Medicare ESRD patients, which is not available in the MedPAC cost report analysis.

Given the current Medicare margins, dialysis facilities clearly deserve an update to the composite rate to account for inflation in the costs of providing needed services.

• As Congress examines dialysis payment reforms, the design of a new payment system for freestanding renal dialysis facilities must assure adequate payments to cover the cost of providing services to patients with kidney failure.
• Most importantly, Congress must provide an update to the composite rate, even if larger reform does not occur this year.