stay alive, and few institutions provided this treatment. In passing the Social Security Amendments of 1972, Public Law 92-603, Congress extended the Medicare program to pay for the cost of ESRD treatment for almost all individuals suffering from ESRD. This basic legislation was modified in 1978 to encourage the use of lower cost treatment modalities, and prospective reimbursment for ESRD treatment was authorized. HCFA issued a proposed rule in September 1980 that would have established a single prospective reimbursement rate for renal dialysis services provided in hospitals and free-standing facilities. Before this proposed rule could be implemented, Congress again amended this section of the Social Security Act. This 1981 amendment called for the creation of prospective reimbursement formulas that would take into account both ESRD services furnished in a hospital-based facility and services furnished in other renal dialysis facilities, or "based on such other method or combination of methods which differentiate between hospital-based facilities and other renal dialysis facilities." The proposed rule would establish two prospective reimbursement rates for dialysis services based on the facility where the services are furnished. Services furnished in an independent facility would be reimbursed on a prospective basis at $128, and servives furnished in a hospital-based facility would be reimbursed on a prospective basis at $132. These rates are purported to be based on the combined median rate for the delivery of dialysis services in both hospital-based and independent facilities, and the slightly higher rate to the hospital is intended to reflect the higher costs of delivering these services in hospitals. The proposed rule would also eliminate the fee-for-service methodology of payment of physician fees for furnishing dialysis services. Physicians would receive the same monthly capitation payment for both home and in-facility dialysis, based upon a weighted formula that accounts for the proportion of patients currently dialyzing at home. Under the proposed rule, the average monthly capitation payment for physicians' services would be $184.08. This figure would not be automatically updated by the carrier's prevailing charge data. However, HCFA will retain the right to review physician reimbursement and change the reimbursement rate accordingly. COMMENTS The American Medical Association is very concerned that the proposed regulation could have the unanticipated effect of restricting access to care for the very individuals for whom the ESRD program was designed. By basing the reimbursement amount for ESRD services at the median costs for all facilities, it is readily apparent that a significant number of independent facilities and hospital-based facilities survival, even with the minor adjustment for hospital-based facilities. This result was clearly shown in an analysis done for the Senate Finance Committee (CP 97–12) on the net effect of the proposed rates on the sample facilities surveyed by HCFA for the creation of the rates. According to this analysis, 50 hospital-based facilities would suffer losses while only 14 would experience a profit; and 9 independent facilities would experience losses whole 29 would experience a profit. Our concern that this proposed rule would cause ESRD facilities to shut their doors is real. While the proposal does include incentives through higher reimbursement for home dialysis, these incentives will most likely prove to be inadequate to maintain facilities where the patients are either unable or unwilling to dialysis at home. The situation is further complicated by the fact that final regualtions, if issued, would be effective on the date of their publication. This lack of any transition period would force many facilities that already operate on a "reasonable cost" basis to face immediate economic crisis. We also recognize that the proposed rule does provide for additional reimbursement to facilities that receive an "exception request." It is reasonable to anticipate that a significant number of ESRD facilities will apply for exceptions. Under the existing reimbursement structure, approximately 300 of the 975 ESRD facilities in existence in 1979 did request authorization for a payment rate above the national payment limit. Even with reimbursement set at a significantly higher rate under the existing structure in comparison to the proposed rule, 278 exception requests were approved in full or in part in 1979. The proposed rule would only exacerbate a situation where almost one third of the existing ESRD facilities find the current $138 national payment limit inadequate. The concerns that we have expressed are buttressed by recent testimony by the National Association of Patients on Hemodialysis and Transplantation, Inc. given before the Senate Finance Committee on March 15, 1982. That Association stated that: "The current proposal has created a great deal of anxiety in the patient community. As an Association, we are deeply concerned that the result of these proposals will be to decrease the quality of care currently available to patients and to cause the re-establishment of selection criteria for the treatment of kidney failure, resulting in constriction of service to those who require it. In more simple terms, this implies the real possibility that persons whose lives could be saved willl not be treated and will therefore die. We view such a possibility with the greatest alarm and see it as contrary to P.L. 92-603, which guaranteed reimbursement for dialysis and transplant therapy for all those eligible through the Social Security Act. * We ask this Committee and this Administration one question: What will happen to the patients now being treated in the facilities which currently have costs higher than the reimbursement they will receive if these new rates are enacted? According to HCFA's own analysis, 'these rates would result in reimbursing 46 percent of all hospital-based facilities and 28 percent of all independent facilities at a rate per treatment below their current costs for in-facility dialysis.' By establishing the authority for prospective reimbursement in 1978, Congress was looking for mechanisms to reduce the increase in the costs of the ESRD program. However, Congress did not anticipate that prospective reimbursement could be imposed over the extensive ESRD program with one single all-inclusive action. Indeed, the Senate Finance Committee anticipated testing and a gradual phasing-in of these incentives. In first providing for prospectively set rates for ESRD services, the Senate Finance Committee stated that "although the bill authorizes the use of various types of incentives for more efficient delivery of services, it is recognized that some testing and phasing-in of these incentives may be necessary" (Senate Finance Committee Report on H.R. 8423, No. 95-714). The AMA believes that implementation of the proposed rule on a nationwide scale would place some ESRD patients in jeopardy for their lives, and this risk is unacceptable. The American Medical Association also believes that the proposed rule should be withdrawn because of problems inherent with the methodology for establishing reimbursement rates. We must first question the propriety of the essentially single reimbursement rate, since a dual rate was called for in the 1981 amendment to the Social Security Act. The Senate Finance Committee staff report states that "the proposal to base a dual rate on the median costs of all facilities and then adjusting that median to some extent for hospital-based facilities does not address the concerns of the committee." The arbitrary nature of the reimbursement level is also emphasized by the fact that the median of ESRD facility costs is used in setting the prospective rate, with 46 percent of hospital-based facilities and 28 percent of independent facilities actually being reimbursed below their current costs. CONCLUSION The proposed regulation creates the significant potential that some ESRD patients will not have access to needed facilities, and the proposed methodology and calculations in setting the prospective rates is inappropriate and arbitrary. The very fact that the proposal would result in half of the dialysis facilities being reimbursed at a level below their actual costs indicates that the proposed level of reimbursement is inequitable. The American Medical Association strongly believes that any new reimbursement scheme should be tested and evaluated on a limited basis prior to nationwide implementaton. Through actual experience it would be possible to identify problems and prevent those same problems from developing on a broader scale. In light of our comments, the AMA urges the Committee to work for the withdrawal of the proposed rule. We believe that appropriate representatives from both the public and private sector should meet to discuss and develop equitable methodologies for prospective reimbursement of dialysis services that would first be tried on a limited scale to ascertain their viability. THE UNIVERSITY OF ARIZONA HEALTH SCIENCES CENTER, DEPARTMENT of Internal MEDICINE, SECTION OF RENAL DISEASE, Tucson, Ariz., April 26, 1982. JOHN J. SALMON, Chief Counsel, Committee on Ways and Means, Subcommittee on Oversight, Longworth House Office Building, Washington, D.C. DEAR MR. SALMON. The first comprehensive national data concerning the ESRD Program became available just a few days ago, and reveals surprising trends in the ESRD Program that impact significantly on several aspects of the sweeping changes in the Program proposed in the NPR published Feb. 12, 1982. This data, submitted on HCFA form 2744 by each ESRD facility has, for the past 2 years, been summarized by each of the 32 ESRD Networks, and forwarded to the HCFA. One of the Networks recently collated and computer analyzed the data from all 32 Networks through Dec. 31, 1981. The latest data includes an analysis of 59078 patients. This data is the most complete, the most recent, and by far the most interesting we have ever had concerning this one billion dollar plus program. Apparently the HCFA has not yet analyzed this data, or they would have known that much of what the new proposed regulations intend to encourage, has, in fact, already occurred-not by regulation, but by recognition by the members of the dialysis community of significant technologic advances and application of these advances to ESRD care. The proposed regulations make repeated reference to inadequate or incomplete data; use small, sometimes hasty and obviously biased audits to draw important conclusions; and recommend substantial changes in a model program that has successfully met a rapidly increasing need, and done so at a modest increase of only 20 percent in cost per service rendered in 8 years, at the same time the medical portion of the CLI has increased 96 percent. The new data reveals that from Jan. 1, 1980 through June 30, 1980, 5066 new patients entered the ESRD Program. During the same time period, 2032 patients completed a course of self dialysis, training for home hemodialysis, home peritoneal dialysis, or continuous ambulatory peritoneal dialysis (CAPD). Thus, the proportion of patients completing home training to those entering dialysis for the first time was 40 percent! During the period from July 1, 1980 through Dec. 31, 1980, 2416 patients completed home training and 4802 entered dialysis for the first time-a proportion of 50 percent! During the period Jan. 1, 1981 through June 30, 1981, 5479 patients entered dialysis, and 2688 or 49 percent completed home training. Finally, during the most recent 6 month period, July 1, 1981 through Dec. 31, 1981, 5288 patients began dialysis and 2591, or 49 percent, completed home training. Since this very current data reveals that the more than 1000 facilities that provide ESRD care are already training approximately half of new program entrants for home dialysis, the very premise on which the new proposed regulations is based-that is, achieving economy of operation by encouraging home dialysis, and permitting continued operation of center dialysis (which the regulations indicate would operate at a slight loss) by encouraging home dialysis-is patently fallacious. The economies expected have already been utilized by facilities to continue to operate successfully in the inflationary economy of the past several years without a significant increase in per procedure reimbursement. Implementation of the proposed regulations, in view of the changes that have not been previously recognized but have already occurred, could be absolutely catastrophic to the present, highly successful, ESRD care system. It would be unconscionable to proceed to implement regulations based on inaccurate and outmoded assumptions now that these striking changes in care patterns are known. It is imperative that no new regulations be confirmed until a complete reexamination can be conducted, and meaningful exchange of thinking is achieved between appropriate personnel in the HCFA and knowledgeable members of all elements of the dialysis and transplant communities. Sincerely, DAVID A. OGDEN, M.D., Chief, Renal Section and Professor of Medicine. ASSOCIATION of American MEDICAL COLLEGES, Hon. ANDREW JACOBS, Jr., DEAR MR. JACOBS: The Association of American Medical colleges is submitting for inclusion in the April 22nd hearing record its comments on the Administration's proposed regulations governing reimbursement under the Medicare End-Stage Renal Dialysis Program. As the organization representing the teaching hospitals of the United States, the AAMC is concerned about the impact of the proposed regulations on teaching hospitals that provide hospital-based outpatient dialysis. However, it is not merely the negative financial impact of the rates established by these regulations to which exception is taken. The discrepancy between the ostensi ble purpose of the regulations and their proposed implementation and the manner in which the rates have been formulated are also matters of concern. As will be further discussed, the deficiency in the regulations stems both from the methodology and the data base used to establish the proposed rate setting structure. Furthermore, the lack of definitional clarity in the exception process indicates the lack of commitment to use it as a mechanism for adjusting rates. Prior to expanding on the above points, the motivation for the publication of these regulations should be analyzed. Cost containment and reduction in federal programs is obviously a high priority of this Administration. In furtherance of this goal, the ESRD Program became a subject of scrutiny. The publication issued by the Department of Health and Human Services (DHHS) in the Federal Register of February 13, 1982 proposing the regulations, acknowledged that the ESRD Program has generally been successful in its mission to protect renal disease patients from the catastrophic costs of needed care. The proposed rule then goes on to state: "The major problem is the high and steadily rising cost of the program and the burden it can place on the Medicare trust funds unless steps are taken to make it more cost-effective." Review of the history of this program, however, demonstrates that this is simply not the case of a "cost-ineffective" federal program. When the program began operation in 1974, there were 11,000 patients receiving dialysis services under Medicare at a cost of $229 million. a yearly cost of $20,800 per patient. In 1981 there were 68,200 patients receiving dialysis under the program at a cost to Medicare of approximately $1.5 billion . . . a yearly cost of $22,000 per patient. In this seven year span, the number of patients enrolled increased by six fold. However, the cost per patient increased only 5.8 percent. Thus, it has been patient demand, not "cost-ineffectiveness" that has resulted in the increase in Medicare funds required for this program. However, having identified the escalating program costs as being a function of cost-ineffectiveness, the proposed regulations will not have the effect of promoting greater use of home dialysis and thus lowering these costs. While home dialysis is a less expensive mode of treatment and its increased use has been advocated by the Congress, it is undeniably true that there is a subset of patient who because of medical, psychological or logistical reasons are unsuited for home dialysis. In recognition of this, HCFA's goal of increasing home dialysis is to have 30-40 percent of dialysis treatments being done in patients' homes within five to seven years. Currently, 23.5 percent of all hospital-based ESRD patients dialyze at home while only 10.5 percent of independent-based ESRD patients dialyze at home. Yet, the effect of these regulations, as will be more fully set forth below, will be to cause hospital-based facilities to greatly reduce or to consider seriously the future existence of their dialysis programs. If this occurs, that sector of the provider community which is currently responsible for achieving two-thirds of HCFA's goal of 30-40 percent home dialysis within the next five to seven years, would be greatly reduced and the source of the impetus for home dialysis constricted. THE RATE STRUCTURE ESTABLISHED BY THESE REGULATIONS IS DEFICIENT WITH REGARD TO THE DATA AND METHODOLOGY USED TO ESTABLISH THE RATE STRUCTURE Under the proposed regulations, Medicare would reimburse hospitals for outpatient dialysis at $132 per treatment and independent facilities at $128 per treatment. An analysis of how these rates were determined reveals the problem with accepting their validity. When an agency sets out to establish a new rate structure and methodology to justify these rates, the burden should be on the agency to demonstrate that the methodology and resulting rates are soundly based on established factual data. One fundamental difficulty with the new rates is that such data was not generated by HCFA. The data used by HCFA in establishing the rates were up to five years old. The regulations proposed rates for fiscal year 1983; however, these rates were based on cost data for the period 1977 to 1979. While HCFA states that an adjustment factor of 5 percent for hospital-based services has been used to allow for this time lag or for problems with the data, this figure was arbitrarily chosen; it had no rationale behind its use. No provision in establishing the rules was made for the effect of inflation. In addition to the problems with the age of the data, there is also a problem with respect to the unit of analysis (dialysis treatment) . its characteristics and the resources necessary to produce it. HCFA's statement on page 6561 of the Federal Register publication is instructive in this regard: "However, it is important to recognize that while dialysis treatments are generally comparable from patient to patient and setting to setting, we do not have a uniformly accepted definitive model for a dialysis session. There are no uniform standards for the numbers and qualifications of personnel, or for staff to patient ratios, and the dialysis service seems to vary in intensity of care depending on the patient's health status." In determining the costs incurred by dialysis facilities, HCFA surveyed 70 of the 537 hospital-based facilities and 40 of the 288 independent facilities. When the DHHS Inspector General reviewed the survey and audit procedure employed by HCFA, he found it to be considerably lacking. He found that the audits were insufficient and result in overstating costs with regard to independents. His conclusion concerning the manner in which the audits were done provides sufficient concern to question the results. Richard Kusserow, the Inspector General, testified before the House Subcommittee on Intergovernmental Relations and Human Resources of the Committee on Government Operations on February 23, 1982. He addressed the issue of the data collection and certain of his comments are instructive. He noted that the HCFA review of the facilities was a survey type of review rather than a field audit. He went on to say that there had been indecision in formulating a plan to scientifically sample facilities to be audited, and he would like to have seen more comprehensive audits performed. He said he believed that fuller scope audits would have provided more assurance that the data collected would provide a more reasonable basis for starting the setting of these incentive rates. Dr. James Donovan, the Associate Administrator for Management and Services for HCFA was a speaker at a dinner meeting on the ESRD Program sponsored by the National Health Policy Forum of the George Washington University on March 25, 1982. He candidly admitted that the data base used for the setting of the new rates "left a lot to be desired." This situation of an inadequate system of cost data retrieval has been exacerbated by the fact that none of the facilities was afforded the opportunity to appeal costs excluded during the survey process. Compounding the deficiencies of an outdated and inadequate collection of cost data was the ultimate methodology used by HCFA to establish the rates. At the outset, it should be noted that Congress in the Omnibus Budget Reconciliation Act of 1981 directed the DHHS to establish ESRD reimbursement rates to provide incentives for efficient and economic delivery of renal dialysis services. Congress further directed the Department to set a dual composite rate for hospital and independent facilities so that the dual rate would reflect the relative costs of providing such services. HCFA recognized the mandate from Congress to differentiate between hospitalbased and independent facilities. While the published rates are different for the two types of facilities, the reality is that a single methodology of ascertaining costs was used with a "K" factor applied to differentiate between the entities. Again, the testimony of the DHHS Inspector General corroborates this point. Mr. Kusserow stated that he did not believe HCFA's rate proposal met the statutory requirement of a dual composite rate. Rather, it was a single rate for independent facilities with a factor built in for hospitals. This criticism was contained in Mr. Kusserow's November 12, 1981 Nonconcurrence Memo regarding HCFA's rate proposal. Dr. Carolyne Davis, HCFA Administrator, also testified before the House Subcommittee on Intergovernmental Relations and Human Resources of the Committee on Government Operations on February 24, 1982. In the course of her testimony, she acknowledged that in calculating the treatment costs, HCFA combined independent facility cost data with hospital cost data. This comingling of cost data is contrary to the congressional directive to establish a dual rate structure. An example of the application of this comingling demonstrates the inadequacy of its use. Hospital-based facilities incurred labor costs of $61.17 per treatment, while the independent facilities' labor costs per treatment were found to be $40.79. The higher hospital costs reflect the more intensive labor requirements of dialyzing a sicker population of patients. HCFA incorporated both these figures in generating a labor cost for all facilities. This was in disregard of the need to differentiate be tween the two typs of facilities and resulted in a rate structure detrimental to the hospital-based facilities. This result was candidly recognized at the Februry 23 hearing by Mr. Larry Simmons, the Acting Associate Director of the Office of the DHHS Inspector General when he stated his view that the proposed rates would on one hand unfairly penalize the hospitals without giving sufficient recognition to the costs that HCFA collected in their audits of the sample of hospitals. At the same time he indicated it would result in undue enrichment to some of the other freestanding facilities. |