Event – US dialysis Medicare cut could be counterproductive

Analysis

The suggestion in July by the US Centers for Medicare and Medicaid Services (CMS) that it would cut reimbursement for dialysis treatments by nearly 10% was greeted with howls of dismay from providers (Proposed cuts in Medicare dialysis payments could hobble industry, July 3, 2013). With the final decision due on November 1, it seems likely that the CMS will be persuaded to reduce the clawback – but it is not clear by how much.

Analysts have speculated that if the cut is even close to the 10% mark it will force larger providers such as Fresenius, Baxter and DaVita to shutter some of their loss-making clinics – and could force independent providers out of business entirely, with dire consequences for kidney disease patients in rural areas. The reduction in the payment could end up working against the CMS’s responsibility for ensuring access to treatment.

Bundle

The bundled payment covers the drugs, devices, staffing and other costs incurred by each bout of treatment for patients with end-stage renal disease, one of the few conditions for which Medicare funds may be spent on non-seniors. The July proposals would see the bundle, currently $240.36, cut by more than $23 from the start of 2014. However, factoring in the inflationary increase that would otherwise have been expected, the cut is closer to $29, or 12%, analysts at Bernstein say.

The CMS estimates the current profit margin of large dialysis groups such as Fresenius at 4.7% when treating Medicare patients, with independent facilities making 1.3%. Bernstein’s Lisa Bedell Clive says that this translates to an average of between $7 and $10 profit per treatment in 2013.

Ms Bedell Clive says that the best case would involve the CMS taking account of this estimate and preserving a very small margin by making a cut of $7. The worst case scenario, she says, would be a cut of around $17. This is using the same methodology as the CMS initially used to come up with its $29 cut, but has corrected some of the initial assumptions such as the decline in drug use.

A midpoint of around $12 per treatment – or, stripping out inflation, $10 – seems the likeliest scenario.

In any case, independent dialysis providers would be in danger, particularly those with a high proportion of patients treated under Medicare and Medicaid, which may not have sufficient private patients to cross-subsidise the reimbursement shortfall. This could leave huge tracts of the Midwest without dialysis facilities, condemning those who live there to long hours of travel if they wish to attend their appointments.

Less competition, though, ought to improve the negotiating power of Fresenius, Baxter and other larger groups with private customers. Those clinics that manage to remain open may find their business largely unchanged.

The segment will go through further ructions in future, such as the advent of biosimilar epoetins, which could prompt further reductions in the CMS payments. For now, though, the CMS will have to weigh the pressing need to save taxpayer dollars against its mandate to guarantee end-stage renal disease patients access to life-saving therapy.

To contact the writer of this story email Elizabeth Cairns in London at elizabethc@epvantage.com or follow @LizEPVantage on Twitter

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