How is dialysis paid for?

Here is an article I wrote for a dialysis patient advocates newsletter - a dialysis reimbursement primer.

How is dialysis paid for in the United States? That seems like a simple question but it's a complicated situation so there really is not a simple answer. In 2007 nearly 500,000 people have CKD5 (kidney disease so severe that to live a person needs either a kidney transplant or regular dialysis), over 350,000 individuals treat their CKD5 with dialysis. Medicare calls it End Stage Renal Disease (ESRD), while the FDA uses the term Chronic Renal Failure, no surprise I prefer the term CKD5 instead of End Stage or Chronic ... Failure.

With nearly 500,000 people needing treatment it should be no surprise that there is now a giant industry involved in providing care for all of those people. There are the manufacturers who make the equipment and supplies (from dialysis machines to the needles), there are drug makers (Amgen, Ortho Pharmaceutical) because in addition to dialysis or transplant treatment of CKD5 requires various medication therapies, and there are the providers who provide dialysis and transplantation (Davita, Fresenius and your local hospital transplant center). It is those providers of dialysis that we think of when we talk about how dialysis is paid for but we should remember that they are just a part of a very large industry.

The care experienced by an individual dialysis patient is the same no matter how their dialysis is reimbursed. Once you're in the door you get the same treatment varying only by doctor's order. Payment for dialysis comes from three main sources: Medicare (the federal insurance program), Medicaid (insurance available through states) and private insurance. Depending on your age, employment status and years with CKD5 your treatment will be reimbursed at a variety of rates depending on which insurance program is your primary payer.

Medicare
75% of all US dialysis patients are Medicare primary. This means that Medicare sets the reimbursement amount and pays 80% of that set reimbursement amount. Medicare actually pays one rate for routine dialysis services and a separate, per dose rate for dialysis medications. The routine dialysis services (everything needed for a single treatment) are paid based on a Composite Rate (CR). The CR varies somewhat depending on a person's gender, age and body size and the CR is adjusted by a geographic wage index (the CR is higher in an expensive wage city vs. an inexpensive wage rural area). On average the CR is $150 +/- $30. The per dose rate for medications (e.g. Epogen, vitamin D, Iron) varies but it is in addition to the CR. In general about two thirds of the per patient revenue comes from the CR and one third comes from medications.

Medicare always pays just 80% of the allowed charges, which leaves 20% to be paid by a secondary insurer. About 50% of the people who are Medicare primary have the remaining 20% picked up by Medicaid, these are the so called dual eligible's (whether or not Medicaid pays the 20% depends on the state, in some state Medicaid will pay the 20%, in others no) the other 50% of Medicare primary patients either have insurance through work as their secondary insurance or or they are covered by a Medicare supplemental insurance plan.

Medicaid
About 10% of all dialysis patients are Medicaid primary. In this case the state may pay what Medicare pays:  80% of the allowed charges,  the state may pay 100% of what Medicare allows or even some higher amount based on audited costs. People who are Medicaid primary do not have additional insurance to pay what their state's Medicaid program does not pay.

Private Insurance
About 10% of all dialysis patients are covered through employer group health plans or other private insurance. These private payers are reportedly charged multiples (of  2 to 10) of the Medicare allowed rates. What private insurance is charged and what they pay is a closely held secret but all dialysis providers charge private insurance payers more than what Medicare would allow. (The remaining 5% is rounding error and about 2-3% without insurance. Those without insurance are mostly moment in time situations but there is a growing number of "never eligibles" particularly as Medicaid rules change regarding undocumented patients.)

Depending on the state and the particular unit, 100% of Medicare's allowed rate could be the lowest amount received by the dialysis unit or among the highest amounts. In general states with generous Medicaid dialysis reimbursement rules or a large group of patients with private insurance will have a higher average reimbursement rate than states with dysfunctional dialysis Medicaid programs. Remember: the care experienced by an individual patient is the same no matter what their payment method. Everyone's care is based on the average rate of reimbursement. This is why each of us should care what Medicaid pays for dialysis even if we are covered by Medicare or private insurance. If Medicaid pays too little it will drag down the average reimbursement rate and everyone's care will have to be adjusted to cost less than the lower average reimbursement rate.

Bundling
Bundling refers to paying just one amount for all services received through a dialysis unit. Instead of the CR and separate medication reimbursement, Medicare would bundle medication reimbursement with the CR. This would mean that your unit would receive the same amount of money no matter how much medication you did, or did not, receive during treatment. The Government Accounting Office and Medicare Payment Advisory Commission both say that bundling medications with the CR would save money but the GAO and MedPAC's primary evaluation criteria is fiscal not clinical.

Bundling raises clinical concerns because there would be financial incentives to use less medications which may mean that patients do not receive the optimal medication dose. Some patients need large doses of medication to achieve clinical targets, while other patients need low doses. How a new bundled CR would address the needs of patients who require more medications than average is not clear.

I am in favor of being good stewards of the tax payers money but bundling is the wrong way to save money on Medicare's dialysis program. It is not in the patient's interest to turn medications into a cost to be controlled along with 4x4s, band-aids & staff time. Let's improve Medicare reimbursement without sacrificing clinical outcomes.

Tags: kidney dialysis, dialysis reimbursement bundling, Medicare, US ESRD program (all tags)

Comments

4 Comments

A good primer, thank you! n/t

by GeckoBlue 2007-05-21 11:15AM | 0 recs
Re: How is dialysis paid for?

Thanks GB. I'll keep trying to post about what the US dialysis program is teaching me - for instance I think the 35 year old dialysis entitlement is retarding clinical advancement. I think about that when I think about what would constitute an optimal healthcare system.

by billp830 2007-05-24 04:33PM | 0 recs
Re: How is dialysis paid for?

I should clarify that the revenue breakdown is closer to 60/40 - 40 percent for the CR and 60 percent for the rest which would include some laboratory fees.

The latest publicaly available data is from 2004 through the USRDS but it seems like the GAO and Stark are using 2006 data.

Here is the US Renal Data System $ for 2004 - this points up another frustration - total Medicare spending per patient is reported to be $68,000 in the USRDS Precis but less than $15,000 is spending on actual dialysis - the CR. The solution to slow total per dialysis patient spending is more dialysis!

Total outpatient ($)         6,927,949,410
Outpatient hemodialysis         3,104,599,503
Outpatient peritoneal dialysis       233,507,225
Outpatient other dialysis         1,845,949
Outpatient ESA             1,823,371,054
Outpatient vitamin D hormones      429,283,122
Outpatient iron               278,382,204
Outpatient other injectables        77,506,962
Radiology               157,158,107
Pharmacy                    60,150,454
Ambulance                   18,557,457
Laboratory/pathology           150,924,851
Outpatient other               592,662,522

by billp830 2007-05-24 04:57PM | 0 recs
Re: How is dialysis paid for?
Sorry ... here is the link for the USRDS
http://www.usrds.org/
by billp830 2007-05-24 04:59PM | 0 recs

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