CMS Issues Long Awaited Bundling Rule for Renal Dialysis Providers

Posted on July 27, 2010 by Amber Walsh

Yesterday, CMS issued a release regarding the much anticipated final rule laying out the new bundled prospective payment system (PPS) for renal dialysis facilities.  The rule itself was published on July 23, 2010.  Under the new  PPS, CMS will make a single bundled payment to the dialysis facility for each dialysis treatment that will cover all renal dialysis services and home dialysis commencing on January 1, 2011.  It replaces the current system which pays facilities a composite rate for a defined set of items and services, while paying separately for drugs, laboratory tests, or other services that are not included in the composite rate.   At the same time, CMS issued a proposed rule that would create a new Quality Incentive Program (QIP) for dialysis services that will link a facility’s payment to how well it meets the QIP performance standards, which will be discussed in a separate blog post.  
 
Currently and through the remainder of this year, Medicare makes a composite rate payment to ESRD facilities for furnishing outpatient maintenance dialysis in the facility or in the beneficiary’s home.  The composite rate payment covers dialysis treatment costs and certain routinely furnished ESRD-related drugs, laboratory tests, and supplies.  The Medicare Improvements for Patients and Providers Act of 2008 (MIPPA)   required  CMS to develop a new, fully bundled prospective payment system for renal dialysis services to replace the existing composite rate payment methodology.

According to the CMS issuance, CMS received nearly 1500 public comments in response to the ESRD PPS proposed rule that appeared in the September 29, 2009 Federal Register.  Among the major concerns raised by the comments were the proposals surrounding payment for home dialysis training; inclusion of additional payment adjustments for patient characteristics in the payment methodology; and inclusion of former Part D prescription drugs related to ESRD treatment in the payment bundle.   In the final rule CMS: 
 
 1) Creates a home or self-care dialysis training payment adjustment specifically directed to patients trained by facilities certified to provide home dialysis training. 


 2)  Finalizes payment adjustments for dialysis treatments furnished to adults for patient age, body surface area, and body mass index, onset of dialysis, and certain co-morbidities, but does not finalize adjustments for the patient’s sex or the patient’s race or ethnicity. 


 3)   Finalizes a payment adjustment for dialysis treatments furnished to pediatric patients, based on patient age and dialysis modality, but not co-morbidities.  


 4)   Finalizes a definition for renal dialysis services that includes ESRD-related oral-only drugs, but postpones payment for such drugs under the ESRD PPS until Jan. 1, 2014.

We have discussed in prior posts that the new bundling reimbursement is likely to impact dialysis providers differently. Small dialysis organizations (SDOs) and large dialysis organizations (LDOs) will likely be impacted differently due to LDO purchasing and contracting power and, in some cases, vertical integration. Additionally, dialysis providers may be differentially impacted based on the dialysis modalities on which they focus (e.g. home or in-clinic peritoneal dialysis (PD) versus in-clinic hemodialysis and variations of these types) and/or based on geographic factors.

 

The new bundled payment system will be phased in over a four-year period beginning on January 1, 2011.  However, providers may choose to be paid entirely under the new payment system beginning on January 1, 2011.   Dialysis providers of all size, modality focus and patient population will now be assessing more fully the potential impact on their businesses and strategies for keeping costs low and quality high.

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Key Issues re Investment in the Dialysis Industry

Posted on May 18, 2010 by Amber Walsh

On Wednesday, March 12th, McGuireWoods hosted our 8th Annual Business & Legal Issues in Dialysis & Nephrology Symposium. Leaders from various perspectives in the industry provided presentations and lead discussions on a wide array of topics, including the effects of the Patient Protection and Affordable Care Act (the PPACA, commonly referred to as the Health Care Reform Law), key compliance issues and investment scenarios.

Various themes emerged from the day, including the following:

 

1)      Many people continue to view investment in the dialysis industry as a viable option.   Even with the uncertainties of the bundling system and the impact of healthcare reform generally, many believe there are still great opportunities for investment in dialysis programs and nephrology/dialysis-related vendors. 

 

2)      Not surprisingly, the impending conversion to bundled reimbursement by Medicare for dialysis providers is a focal point for providers.   The response from small dialysis organizations (SDOs), large dialysis organizations (LDOs) and others is varied, but most look forward to the results of a General Accounting Office (GAO) study on the impact of the inclusion of oral drugs in the dialysis bundle, which was mandated by the PPACA.  The deadline for delivery of the GAO report is a year from passage (i.e., March 23, 2011). Most dialysis companies are encouraged by the mandate for investigation and are hopeful that it will help illustrate whether or not those drugs are being adequately priced and if there are any quality of care concerns. For more detail regarding the bundled payment structure and its potential impact on different dialysis providers, see our prior post entitled twww.thehealthcareinvestor.com/2010/03/articles/healthcare-services-investing/dialysis-industry-prepares-for-new-payment-methodology-how-might-bundling-effect-providers-differently/

 

3)      Nephrology physician practices face a variety of challenges these days, including both from a patient care and daily practice administrative perspective as well as from the perspective of their roles in the delivery of dialysis care as Medical Directors and/or joint venture partners. We discussed opportunities for facing those challenges through practice merger or other consolidation into larger organizations such as a hospital system or Physician Practice Management (PPM) or Management Services Organization (MSO).

 

4)      The industry is closely examining the potential for increased liability of dialysis companies under various state and federal laws aimed at curbing fraud and abuse, including The Fraud Enforcement and Recovery Act (FERA) which was signed into law by President Obama in April of 2009. FERA implemented significant changes tothe federal False Claims Act, including the expansion of prohibited conduct under the False Claims Act to include not justthe improper filing to collect monies, but also the known retention of overpayments by hospitals or other health careproviders. The 2009 amendments also make clear that false claims submission to a state Medicaid program, although not directly submitted to the federal government, does constitute a violation of the False Claims Act. We discussed the impact of these changes and other compliance concerns for the dialysis industry.

 

5)      Accountable care organizations (ACOs) are a hot topic for many healthcare sectors, including dialysis providers. ACOs have been officially endorsed in the PPACA, Section 3302. Under the ACO provisions, groups of providers that work together to manage and coordinate care for Medicare beneficiaries can qualify to receive additional Medicare payments if they achieve specified cost savings and meet a range of criteria, including standards established by CMS relating to quality, reporting, and governing structure. In essence, if they are able to improve outcomes and lower costs then those ACOs can potentially share in the savings. The PPACA provides that the ACO program is to be established no later than January 1, 2012.   It leaves much discretion to the Secretary of the Department of Health and Human Services (DHHS) to determine the policies and procedures that will apply to ACOs. 

 

6)      Various existing and new laws effect day-to-day clinical care and administration in dialysis facilities such as the revised Conditions for Participation in the Medicare/Medicaid programs. Changes to the National Fire Protection Association's Life Safety Code (commonly called the Life Safety Code) applicable to dialysis providers and other recent changes in the Conditions for Participation must be understood and properly implemented by dialysis providers. In their article entitled Applying the Life Safety Code: Are you Ready?, Bob Bednar and Ron Reynolds discuss the Life Safety Code changes implemented in 2010 in detail.

 

7)      Compliance plans, which were previously highly recommended for the dialysis industry and nephrology providers, are now mandated by the PPACA for certain providers who participate in Medicare/Medicaid.  While details of the compliance plan requirements for skilled nursing facilities (SNFs) are set out in detail in the PPACA, the Secretary of DHHS was given the authority to designate the types of providers that will be required to have compliance programs in place and the details of such programs. State Medicaid programs also must require participating providers to have programs in place that meet the federal guidelines to be issued. DHHS has indicated that details of those programs will likely be issued on an industry-by-industry basis, and we generally expect the components of the programs to be similar to the key components of the DHHS Office of Inspector General model compliance plan first published for healthcare providers in 1997 and since updated. 

 

8)      Investment opportunities in businesses ancillary to the dialysis industry, including nephrology-specific electronic health records (EHR) systems and vascular access programs remain attractive options for some investors. Vascular access centers provide a particularly critical service to patients suffering from end-stage renal disease (ESRD), who require, prior to beginning dialysis, the surgical creation of a site in which the patient’s vascular system can be accessed during dialysis. The various methodologies for creating the access site are reimbursed by Medicare and other payors.  There are a number of regulatory issues governing the investment and referral relationships that need to be examined prior to creating vascular access company.

 

All of these topics will be addressed in further detail in future posts. For additional details on any of these issues in the interim, please contact the authors.

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Dialysis Industry Prepares for New Payment Methodology: How Might Bundling Effect Providers Differently?

Posted on March 7, 2010 by Amber Walsh

 

The U.S. dialysis industry includes more than 4,000 outpatient dialysis facilities (in addition to a large number of home dialysis programs) that service more than 350,000 patients suffering from end stage renal disease (ESRD). The industry self-classifies dialysis companies as either large dialysis organizations (LDOs) or small dialysis organizations (SDOs). The LDOs are few in number and include DaVita and Fresenius Medical Care, both publicly traded companies, as well as DSI Renal and Renal Advantage, both of which are backed by private equity funding.  In mid-2008, Congress passed the first major Medicare payment overhaul for dialysis providers in 25 years. Two years later, in anticipation of the January 1, 2011 implementation date, LDOs and SDOs alike are taking a close look at the potential impact on their businesses.   

As part of a more comprehensive ESRD program reform bill, the payment formula for dialysis treatments was reconfigured into a bundled payment for all dialysis services (including pharmaceuticals such as the common anemia management erythropoietin-based drugs). Pricing for those services will be influenced by a market update mechanism starting in 2012. Providers can elect to fully participate in the bundles approach in 2011 or may instead elect to have the approach phased in over four years beginning in 2011. Physicians will also get a 2% increase in the Medicare payment if they submit prescriptions electronically. Those who don’t use the so-called e-prescriptions by 2011 would have their fees cut by 1% the following year, rising to 2% in 2014. 

It is likely that the new bundling system will impact SDOs and LDOs differentially for a variety of reasons. For instance, LDOs enjoy impressive purchasing and contracting power and other economies. Further, some LDOs are vertically integrated such that their key equipment and fungible products suppliers are affiliates, which can result in a significant cost savings to the LDO.  

On the other hand, some industry analysts believe the impact of bundling will be felt differently by providers not necessarily along SDO versus LDO lines but rather based on other factors, such as a provider’s historical drug dosage orders or based on geographic factors. For example, Shari Levanthal of the American Society of Nephrology published an interesting article last year describing the findings of Columbia University/Harlem Hospital researchers who believe that dialysis providers in the east and southeast are particularly likely to feel an adverse financial impact due to historical variances in Medicare reimbursement.

In any event, the January 1st implementation date for the new methodology is quickly approaching and dialysis providers of all size, modality focus and patient population would be wise to assess now the potential impact on their businesses and strategies for keeping costs low and quality high. 

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Amber McGraw Walsh

Amber McGraw Walsh Amber Walsh focuses on healthcare transactional work and regulatory matters. Her experience includes representation of various types of healthcare providersMore...

Kristian A. Werling

photo of Kristian A. Werling Kristian Werling concentrates in healthcare transactional work and regulatory matters for all participants in the healthcare and life science industry.More...

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