The commitment of HCFA to cost reduction is nowhere more eloquently stated than in a memo in the early fall of 1981 from Carolyne K. Davis, Administrator of HCFA, to Richard Schweiker, Secretary of HHS, in which she states: "Where to set the reimbursement rates for outpatinet maintenance dialysis depends upon the savings that must be achieved and the type of facility from whose present reimbursement the savings will be taken" (p.4, underlining by the author of this evaluation). Indeed, this statement clearly indicates that the end result is paramount, and the means by which it is achieved is secondary. The proposed regulations, and their totally, and erroneously, contrived methodology, amply support this concept.

We concur that reimbursement should be based on the cost of efficiently and economically operating a facility. We agree that a payment per treatment session is the most obvious unit of reimbursement and approve this concept. We deplore the fact that HCFA does not have accurate or current cost data, and proposes, therefore, to establish a reimbursement level "at what appears to be an adequate level to reimburse an efficiently and economically operated facility."

We believe the audits conducted in 1980, of 1978 and 1979 cost data, and from which costs were adjusted, should be made readily available to ESRD providers and interested organizations. We also believe the criteria by which "adjustments" were made to audited costs should be made readily available. Finally, the major identified adjustment to independent facility costs is identified as in the area of compensation to administrators and medical directors of ESRD facilities. A limit of $32,000 was "applied." We question whether this limit is reasonable, since the cost of salaries and fringe benefits for many individuals in the health care field with lesser responsibility and who supervise fewer individuals, some funded by federal funds, now clearly exceeds this compensation.

It is unacceptable that HCFA does not have accurate cost data on home dialysis, since all billings and payments are approved by HCFA. A survey covering only 5% of ESRD facilities with home programs is not representative, even though it covers 30% of home patients, because it includes ten of the thirteen largest programs, and is therefore biased by the largest programs, which should operate more efficiently and cost effectively by economies of scale alone. Thus, the real costs of a truly representative sample of home dialysis facilities would be underestimated by the survey, and do not accurately reflect the average cost per treatment of home dialysis as represented in the proposed regulations. Moreover, because all net growth in home dialysis is now in the rapidly growing areas of CAPD, and since CAPD may be as costly as home hemodialysis, and since CAPD supply costs are increasing at an extremely rapid rate, any survey of home dialysis facilities is of no value without knowledge of the proportion of patients on home hemodialysis vs. CAPD.

First, as indicated above, we believe the cost of home dialysis has been significantly underestimated by the survey conducted. Second, "the composite rate would pay marginally less than the full cost for in-facility dialysis (1978-1979 costs) because of the home component in the facility.' This would mandate that, to survive financially with the composite rate, facilities would be forced to send more patients home. We are concerned that the savings to the facility of sending patients home, having been overestimated by HCFA, will not offset the loss suffered by the facility in its in-facility operation, particularly since out-dated cost information without any adjustment for inflation was used to estimate in-facility costs.

The use of the median of Medicare-audited and Medicare-approved facility costs, based on 1977, 1978, and 1979 cost data (never made public) with no allowance for the 12% or greater annual inflation in the intervening 3-4 years, would result in reimbursement rates less than those costs to 46% of hospital-based and 28% of independent facilities, applying the erroneously calculated reimbursement rates of $132 per treatment for hospital-based and $128 per treatment for independent facilities. Application of the average area wage rate factor of 1.0418 to the published costs, correctly calculated, would result in an average reimbursement of only $124.58 (p.6565, $49.61 x 1.0418+ $72.90 = $124.58) for independent facilities and only $128.33 (p. 6565, $46.31 x 1.0418+ $80.09 = $128.33) for hospital-based facilities.

I.

These corrected calculated costs would result in reimbursement of less than 1977-19781979 actual costs to approximately 50% of hospital-based and 31% of independent facilities. We seriously doubt that such a large percent of facilities can achieve sufficient cost reductions, even by increasing home dialysis substantially, to survive without sharply limiting quality of care, and without beginning to limit access to care. A survey of ESRD Network 8 indicates an average decrease in current reimbursement levels of 25%, with a range of decrease from 10% to 38%, and an average per-treatment decrease in reimbursement of $40. The decrease is disproportionately great for rural facilities. We are deeply concerned that some facilities will cease operation nationwide, and that a disproportionate number of rural facilities will close. This is not acceptable in a humanitarian sense or as a matter of public policy.

It is inconceivable and unacceptable that HCFA has no reliable cost data concerning self-
care dialysis training, since HCFA purports to advocate home dialysis so strongly as a
means of reducing costs. Facilities are now paid their approved reimbursement rate plus
$20 for each training session, an amount most home training facilities find does not cover
the cost of home training. The proposed regulations would maintain the $20 differential,
but since the screen would be reduced substantially, Medicare would pay less per training
session than now. We suggest that HCFA move promptly to address their negligence in
this regard, and obtain accurate cost date for home dialysis training.

We again cannot understand HCFA's lack of accurate cost data concerning peritoneal
dialysis. We urge, particularly in view of the rapid growth of CAPD, which now accounts
for all net growth in home dialysis in this country, and in view of the very rapidly rising
costs for necessary CAPD supplies, that HCFA undertake a prompt determination of costs
of peritoneal dialysis, particularly CAPD, and of pertitoneal dialysis and CAPD training.

We believe it is inappropriate for HCFA to judge CAPD a "preferred treatment for many patients." Preferred to what to home hemodialysis to transplantation? We are also unsure of the cost saving advantages of this form of treatment to Medicare since supplies now cost $12 per exchange, or $17,500 per patient per year, exclusive of training costs, catheter placement costs, costs of treatment of peritonitis, hospitalization costs, tubing change costs, costs of laboratory work, physician costs, etc. There is urgent need for accurate cost data for CAPD, available only to HCFA.