CMS Proposes New Prospective Payment System for Renal Dialysis Facilities

September 17, 2009

The Centers for Medicare and Medicaid Services (CMS) this week proposed its new bundled prospective payment system (PPS) for dialysis services provided in End Stage Renal Disease (ESRD) facilities.

Mandated by the Medicare Improvements for Patients and Providers Act of 2008, the new payment system would provide a single bundled payment to dialysis facilities for all goods and services provided during dialysis treatment. In addition to the bundling of charges, the proposed rule includes three quality measures that CMS intends to use for its Quality Incentive Program (QIP).

Currently, Medicare reimburses ESRD facilities pursuant to a composite base rate for dialysis treatment, and provides separate reimbursement for physician services and certain medications, laboratory tests, supplies and blood products. CMS estimates reimbursement for composite rate services represents about 60 percent of the total Medicare payments to ESRD facilities.

The bundled base rate would include all services in the current composite rate, as well as certain items that are currently billed separately. Thus, new items included in the bundle will be separately billable laboratory services, ESAs and their oral forms, and all drugs and biologicals used to treat ESRD and their oral equivalent forms. The proposed rule does not provide for the inclusion of physician services within the base bundled rate.

Under the proposed rule, the new base bundled payment rate is set at $198.64, which is an increase of $64.83 from the current base composite rate of $133.81. CMS calculated the bundled base rate using 2007 claims data for the composite rate and separately billable services, and adjusted to project 2011 prices.

To determine actual reimbursement, the base bundled rate would be adjusted for case mix factors, geographic differences in labor costs, and potential adjustments for low-volume facilities and outlier expensive cases. Patient characteristics include the patient’s age, gender, body size, time on dialysis, and co-morbidities. There would also be a special case mix adjustment for pediatric patients.

CMS proposes phasing in the bundled payment system over a four-year time period commencing on Jan. 1, 2011. However, facilities may make a one-time election to be paid for items and services provided during the transition period based on the payment amount determined under the bundled PPS.

The proposed rule introduces a new QIP for ESRD providers and facilities. Providers and facilities will be required to meet or exceed performance scores within a specific performance period to avoid payment reductions of up to 2 percent. In the proposed rule, CMS has included three specific performance measures and a conceptual model for the development of a complete ESRD QIP for comment. The QIP will apply to renal dialysis services furnished on or after Jan. 1, 2012. The comment period runs until Nov. 16, 2009, at 5 p.m.

We will keep you up-to-date on the rapid developments and shifting landscape in the ESRD program. For additional information, please contact any of the authors.