59

cases that require more services and have only a limited ability to improve their health
status.

‘The cost containment potential with capitation relates particularly to the opportunity to
manage the individual patient much more closely. Dialysis costs and the costs of a kidney
transplant are relatively fixed, but better and more coordinated care using a case management
approach could improve care, reduce the frequency of hospitalization and access surgery
problems, and consequently reduce costs. More coordinated management would also allow
opportunity to reexamine the frequency of physician visits and the frequency and number of
laboratory studies, both of which help to drive costs in the fee-for-service setting. This
becomes important as the incidence rate for new ESRD patients continues to grow by some
8% annually, while the number of practicing nephrologists is expected to decrease in the near
future.

In summary, a capitated approach to the ESRD program has potential merits in terms of cost
containment and improving adequacy of dialysis and quality of care. The Rand study dealt in
detail with financial issues but not with the details of implementing such a program. The
next step should be the demonstration project under development by HCFA which will give
the opportunity to learn the issues and problems in implementing capitation. A time when
the quality of dialysis treatment in the U.S. is only beginning to improve as a result of
monitoring of facilities and physician and patient education, is not the moment to radically
change reimbursement without further experience with capitation. Nevertheless, I believe
this approach will prove fruitful and will be the next major innovation in funding of the
Medicare ESRD program.

‘Thank you for considering these comments.


125

4,500 units by the end of 1994. Patient hematocrits, the measure
of red blood cell count typically used to monitor the
effectiveness of EPO therapy, have improved only marginal.y in
this sare time frame - certainly in no way proportionate -:o the
increase in dosa (and cost) of EPO.

At a reimbursement rate of $40 per 1,000 units, Medinare

y spends more than $40 per dialysis treatment for EPO. This
is almost one-third of the Pr ‘8 average cost for a dialysis
treatmant, and the amount continues to grow inexorably wi':hout
significant incremental benefit to patients. Anemia cont::ol is
an important clinical dimension in care of the dialysis pitient,
and EPO is a valuable and effective tool in an anemia con:rol
program. But this investment is arguably highly ineffici int,
whether viewad narrowly in terms of maximizing elinical
effect of EPO or, more broadly, in terms of the overall clinical
quality of ESRD patient care.

went

pattern of allocation of limited provider resources.



25

Current information on international prices is hard to find.
Anecdotal reports show that the United States pays less than
Western Europe. A JAMA article published on July 10, 1991 by
Sisk, et al included a table of EPO prices from 18 countries as
of December 1989 which use currency rates from June 1990.

At that time, the United States was listed as paying $41 per
4,000 unit vial. Other countries ranged from a high of $130
in Greece to a low of $36.13 in Finland. According to these
listings, the United States is in the lower third of these
countries.

"
In early 1992, an informal study of dialysis facility nurse
administrators in the United States suggests that EPO prices
has dropped. The list price was $10 per 1,000 units but
many units got "volume" discounts that dropped the price to
$9.25 to $9.50 per 1,000 units or $37 to 38 per 4,000 unit
vial. We have heard rumors that the price has dropped
further since 1992.

Mr. CHRISTENSEN. Is there any evidence to show whether bun-
dling, instead of paying as you go on Epogen, would cost the tax-
payer more money rather than the other alternative method? Is
there any evidence to show that we could do it at a cheaper rate,
providing better health care coverage, providing better treatment of
illnesses?

Dr. Smits. That is a very difficult question. Epogen, as I am sure
you know, is a biologic that is currently—it is not technically pat-
ented but it is currently under exclusive licensing. That exclusivity
will expire next year. I think when you have essentially one very
large buyer and one seller, you have a very odd market. I certainly
think it is appropriate, as other manufacturers come into the busi-
ness, to look into different ways of paying for Epogen.

Mr. CHRISTENSEN. OK, thank you, Doctor.

Chairman THomaS. The gentleman from California will inquire.

Mr. STARK. Just to follow up, we pay about $10 for a thousand
cc’s for EPO now, is that about right?

Dr. Smits. I have all these figures.

Mr. STARK. Somebody behind you is nodding on your staff. And
if they use 4,700 cc’s 3 times a week, it is good money. When we
figure it probably costs 50 cents to manufacture 1,000 cc’s, so that
your idea of some other manufacturers coming in could lower our
costs even more, could they not? It would be a great savings, I
think.

Would you say that much of the inflation in the ESRD Program
has come from items that we don’t cover in the composite rate?

Dr. Smits. Well, as you can see, it is not inflating as fast as the
rest of Medicare. The items that we don’t cover in the composite
rate, the big one is hospitalization, where we do control the rates
paid for the hospitalization. It is hard to talk about this as a pro-
gram suffering bad| from inflation. Whether you could contain the
costs still further if you had a composite rate for everything, in-
cluding hospitalization, is certainly an important question.

Mr. STaRK. We are going to hear testimony from somebody, I
suppose that has an interest in an HMO, that the ESRD Program


158

2. Require all centers to have a trained, registered nurse on duty at all hours. A kidney
doctor should be on call on a twenty-four hour basis.

3, Require all dialysis centers to have a coronary program in effect twenty-four hours per
day. Properly trained personnel should be on duty to handle emergency coronary problems.

4, Require all dialysis centers to provide beds that can be used when a patient is forced to
be removed from the dialysis machine before being fully dialyzed. Once this patient regains
the ability to be placed back on the machine, this patient would be fully dialyzed
before leaving the center. If the patient is too sick to be fully dialyzed, then it would be
the responsibility of the center to have this patient transported to a nearby hospital.

5, Require State Regulatory Services to inspect these centers on a six month schedule.
HCFA should be required to enforce any corrections needed to correct violations. Centers
that continue to violate the regulatory requirements, should be closed.

Congressman Mac Collins has spent a great deal of time meeting with me, because he
understands just how serious this dialysis center problem has become. I urge each Member
to support Congressman Collins and pass dialysis patient protection legislation.

Thank you for your support.


153

believe it would be unwise to delay implementing the relatively simple initiatives described
above unti) a final analysis and evaluation of that demonstration is achieved. Our desire to
construct a perfect system should not prevent the introduction of logical reforms that can
produce benefits immediately. The demonstration which was originally targeted to be
completed by 1998, has already been significantly delayed and will not be completed until
the 21st century.

We also believe it is unwise to rely on gne demonstration project to evaluate the
impact of a capitated payment system on ESRD services. As currently structured, the
demonstration itself fails to capture patients prior to the eighteen month Medicare secondary
payer period and therefore does not allow a plan to manage the patient from the onset of
diagnosis when critical decisions must be made regarding treatment and modality. We also
believe that equally valuable information can be obtained from monitoring the experience of
a number of creative integrated financing and delivery models that are already in place and
successfully providing care to ESRD patients. Foregoing the exploration of innovative and
comprehensive approaches for managing this chronically ill population until after the
demonstration is unwise and unnecessary. Therefore, we encourage the Subcommittee to
apply the experience and lessons we have learned from the private sector to spur further
debate and to help formulate policy changes for the future. In implementing any of these
changes, we recommend that appropriate attention be devoted to educating both the patient
and provider communities about the underlying principles and objectives of a chronic disease
management approach.

Finally, Baxter recognizes that concerns have been expressed by patient and provider
representatives that quality assurance measures must be included in any approach or initiative
that is adopted to protect the interests of this highly vulnerable patient population. We share
these concerns. We believe there is a legitimate role for the government to define baseline
standards applicable to both the public and private sectors, We support HCFA’s efforts and
‘encourage the implementation of mechanisms to provide for careful oversight to measure
performance, We look forward to the opportunity to work with HCFA to help achieve these
goals.


COMMITTEE ON WAYS AND MEANS.
BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois SAM M. GIBBONS, Florida

BILL THOMAS, California CHARLES B. RANGEL, New York
E. CLAY SHAW, JR., Florida FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut, ANDY JACOBS, JR., Indiana

JIM BUNNING, Kentucky HAROLD E. FORD, Tennessee
AMO HOUGHTON, New York ROBERT T. MATSUI, California
WALLY HERGER, California BARBARA B. KENNELLY, Connecticut
JIM MCCRERY, Louisiana WILLIAM J. COYNE, Pennsylvania
MEL HANCOCK, Missouri SANDER M. LEVIN, Michigan
DAVE CAMP, Michigan BENJAMIN L. CARDIN, Maryland
JIM RAMSTAD, Minnesota JIM McDERMOTT, Washington
DICK ZIMMER, New Jersey GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, lowa JOHN LEWIS, Georgia

SAM JOHNSON, Texas L.F. PAYNE, Virginia

JENNIFER DUNN, Washington RICHARD E. NEAL, Massachusetts

MAC COLLINS, Georgia

ROB PORTMAN, Ohio

PHILIP S. ENGLISH, Pennsylvania
JOHN ENSIGN, Nevada

JON CHRISTENSEN, Nebraska

PHILLIP D. MOSELEY, Chief of Staff
JANICE Mavs, Minority Chief Counsel

SUBCOMMITTEE ON HEALTH
BILL THOMAS, California, Chairman

NANCY L. JOHNSON, Connecticut FORTNEY PETE STARK, California
JIM MCCRERY, Louisiana BENJAMIN L. CARDIN, Maryland
JOHN ENSIGN, Nevada JIM McDERMOTT, Washington
JON CHRISTENSEN, Nebraska GERALD D. KLECZKA, Wisconsin
PHILIP M. CRANE, Ilinois JOHN LEWIS, Georgia

AMO HOUGHTON, New York
SAM JOHNSON, Texas

an


119

Certainly, there are managed care programs, HMOs right now,
that just simply are not referring those patients in. It may be a
small number right now, but I think those are patients who are not
on that continuum that you asked about. There are some patients
who, because of their comorbid diseases, just will never be can-
didates.

There are patients who need a trial on dialysis to see how they
are going to do before they are candidates again. The waiting time
is 2 years or longer for kidneys right now. But there are patients
who must be on dialysis for over 1 year in some programs before
they can even be evaluated. It really lengthens their waiting time
to almost 3 years.

Mrs. JOHNSON. As you watch the development of managed care
in the next year or two, I hope you will get back to us on this sub-
ject. I consider managed care an evolving form of delivering medi-
cal services, and in other areas, I have seen enormous change of
focus toward more preventative or permanent solutions, so I am
not surprised that you aren’t seeing it yet in this area, but I would
hope that you would begin to see it. If you stumble across any
other evidence, I would be interested in that, and I am very inter-
ested in your most recent comments.

Thank you.

Dr. Latos. Mr. Chairman, I feel an urgent need to clarify an
issue for this Subcommittee, if 1 may, now or at your convenience,
that has to do with this standard that has been talked about and
this dose of dialysis, this thing called Kt/V. I think it is very impor-
tant that the Subcommittee understand what that represents.

The Kt/V is a mathematical number that is an attempt to define
a dose of dialysis, and there are many factors that contribute to
that dose, none the least of which is the length of time that an in-
dividual stays on dialysis for a given treatment.

And although factors such as the type of dialyzer, the length of
minutes one dialyzes, the adequacy of blood flow, many things are
beyond the control of the provider group, the physician, and the
nurse, that actually are going to encompass a dose of dialysis. If
patients, for whatever reason, choose to come off dialysis sooner or
they have vascular access that does not work properly, then it is
sometimes difficult to actually deliver that dose.

Reflecting a little bit further on the comments about standards,
the practice guideline that has been developed, and I was part of
the committee that actually wrote that practice guideline, is a
guideline, sir. It is not a standard, and it is very important that
we focus on that. The data that we have published that suggests
that 40 percent or somewhere in that range of dialysis patients
may not be getting the proper amount, I suggest will be changing
because the community is now much more aware of the need to
provide good dialysis for a proper length of time. I think the prac-
tices already are changing, and the data that we see this year I
suspect will be much different than it was 1 year ago or 2 years
ago.

Chairman Tuomas. I thank the panel very much. One last ques-
tion.


68

cessful in artificial hearts than we have in artificial kidneys. In
fact, we have those, except the machines are so large they aren’t
very portable.

Are there any opportunities from your folks’ perspective in the
next 5 to 10 years to have breakthroughs, technology or combina-
tion of drugs and technology to get people away from a triweekly
need to tie themselves to a machine? Are we looking at where we
are going to be for perhaps the next decade or so? at is the cut-
ting edge on kidneys?

Dr. Buacc. I think there are several things. New equipment will
make home hemodialysis more practical, which will be very bene-
ficial to some patients. I suppose it is feasible that within the next
5 to 10 years we may have a wearable artificial kidney. It isn’t nec-
essarily a bad thing to dialyze longer or more frequently. There is
a study in Canada going on in which patients are dialyzing them-
selves every night with wonderful results. A very small number of
patients are doing this at home.

Of course, when you get down to it, the real answer is to have
more kidneys donated and do more transplants. We are also wait-
ing for this xenotransplantation—taking kidneys from other spe-
cies, probably pigs, and using these for transplants. It may take 5
or 10 years before this becomes practical. But when it does, the
whole situation changes.

Dr. PowE. Peritoneal dialysis is a form of dialysis that doesn’t re-
quire the patient to go to the facility three times a week. Currently,
only about 17 percent of patients in this country receive peritoneal
dialysis. We don’t understand the reasons for that. Some are medi-
cally unsuitable for peritoneal dialysis, but this is a modality that
should be explored in greater detail.

Chairman THomas. Any other questions? I thank the panel very
much.

The next panel would come forward, Dr. Latos, Mr. Sims, Ms.
Wish, Mr. Bowden, and Dr. Ludin, I believe.

Any written statement you have will be made a part of the
record. We will start with Dr. Latos and move across.

STATEMENT OF DERRICK L. LATOS, M.D., PRESIDENT, RENAL
PHYSICIANS ASSOCIATION

Dr. Latos. Thank you. Good morning, Mr. Chairman and Mem-
bers of the Subcommittee. I am Derrick Latos. I have been a prac-
ticing nephrologist in Wheeling, West Virginia, for 18 years and
currently serve as president of the RPA, Renal Physicians Associa-
tion.

I would like to thank you for the opportunity to testify, and I
welcome the Subcommittee’s interest in reviewing the ESRD Pro-

am. I would like to offer the RPA’s resources in assisting you in

rafting policy designed to improve an already excellent program.

I had prepared something more specific for my oral testimony,
but much of what I had prepared has already been discussed in de-
tail. What I think I would like to do is to highlight some issues and
leave what time is available to address some comments and ques-
tions from the panel.

One interesting feature of the Medicare ESRD Program that is
unique among all other programs for Medicare is that this program


156

In favoring a longer coordination period for individuals with ESRD, DCI
recognizes that too long a coordination period would be counterproductive and work to the
detriment of individuals with ESRD. Faced with the possibility of unduly long periods of
responsibility, many employers or private insurers might be reluctant to become associated with
individuals with ESRD because of the high costs associated with caring for such individuals.
This reluctance might hinder the ability of individuals with ESRD to shift employment or obtain
replacement health coverage. Consequently, DCI feels that a 24 month coordination period
would achieve the desired shift in responsibility without endangering the ability of individuals
with ESRD to obtain employment or health coverage.

Inflation Updates

DCI feels that updating the dialysis composite rate to reflect the impact of
inflation will enable dialysis providers to continue providing the highest quality of care possible
to individuals with ESRD. The composite rate dialysis providers receive for dialysis treatments
is at approximately the same rate as existed when Medicare first established the composite rate
in 1983, Although dialysis providers have suffered inflationary effects since that time, the
dialysis composite rate has remained constant.

Medicare is the primary payer for the vast majority of ESRD patients.
Consequently, the composite rate for dialysis treatments establishes the parameters of providers"
revenues. The failure of Medicare to grant dialysis providers inflation updates has resulted in
a situation where providers’ per treatment revenue has remained constant, yet per treatment costs
have increased consistent with the rate of inflation.

While the composite rate for dialysis has remained insulated from the effects of
inflation, the operational costs of providers have not fared so well. Costs such as salaries,
benefits, dialysis supplies and equipment have increased because of inflation and technological
advances, and providers have been forced to absorb such increases. Aggravating this situation
is the fact that items which Medicare historically reimbursed separately, such as albumin,
‘mannitol and oxygen use, have been bundled into the dialysis composite rate, further increasing
the costs of dialysis providers. It has been estimated that providers’ costs will increase 3.7%
in the next year. However, since providers have not received corresponding increases in
revenues to offset the inflationary effects on their costs, providers must attempt to provide the
same level of care for ESRD patients on reduced margins. In time, this tightening of the gap
between revenues and costs will force many providers to make adjustments in an effort to
maintain their facilities. Such adjustments will likely change the dynamic of access to services
and the nature of the services provided. DCI believes that most dialysis providers already have
cut costs as much as possible and that further cuts in response to inflationary pressures will
compromise the quality of care these providers provide.

Providing annual inflation updates to the dialysis composite rate not only will
allow providers to continue to provide the quality of care ESRD patients require and deserve,
but it will also grant dialysis providers the same consideration Medicare grants to other Medicare
providers. Since the services provided to ESRD patients are equally important as the services
provided to other Medicare beneficiaries, inflation adjustments to the dialysis composite rate
should be equally available to dialysis providers.

DCI would like to thank the Subcommittee of Health for its kind consideration
of the issues we have addressed in this statement and express our willingness to assist the
Subcommittee in increasing the benefits the Medicare ESRD program generates for individuals
with ESRD.


79

STATEMENT OF TERRAN WARREN SIMS, B.S.N., R.N., C.N.N.,
IMMEDIATE PAST PRESIDENT, AMERICAN NEPHROLOGY
NURSES’ ASSOCIATION

Ms. Stms. Good morning, Mr. Chairman and Members of the
Subcommittee. My name is Terran Warren Sims. I am a registered
nurse and I am the immediate past president of the ANNA, Amer-
ican Nephrology Nurses Association. Our association represents
over 0,000 nurses who specialize in the care of patients with

We have provided information on the ESRD Program to legisla-
tors and policymakers since the inception of the program in 1972.
We applaud the Congress for establishing the ESRD Program and
we support its continuation. It has demonstrated an ability to pro-
vide cost-effective care to an increasing number of older, sicker pa-
tients in light of a fixed reimbursement that has decreased in real
dollars over time.

We believe this program is one of the most striking examples of
a publicly funded, privately operated health care program that pro-
vides lifesaving medical care for a highly vulnerable, very sick pop-
ulation. At the same time, we are sensitive to the need to decrease
the Federal deficit and reduce excessive health care spending, and
we respect the mammoth task before the Congress. In keeping with

our charge, ANNA comes before you to address issues in the

‘SRD Program that we ask you to consider.

First, we urge Congress to make the Medicare secondary payer
provision permanent and to extend the provision to 24 months. In
our written testimony, we address some concerns about extending
the provision beyond that time period. Most of the concerns involve
the response of. the employer group health plans and employers
themselves to significant cost shifting from Medicare. We urge you
to take these concerns under advisement as you proceed with any
extension of this provision.

Second, we support that epoetin continue to be reimbursed sepa-
rately from the composite rate paid for dialysis services. We pro-
vide our rationale fully in our written comments, but our major
concern is the incentive to underdose the drug that is inherent in
such a fold in. The association has concerns about the impact such
behavior would have on the health and rehabilitative potential of
the dialysis population and the cost to the Medicare Program of
such a scenario.

With regard to managed care, the association continues to sup-
port a nursing case management model of care delivery to this
chronically ill population. We believe that such a model has the po-
tential to assure the provision of high quality care and to control
ESRD Program expenditures for several reasons, which we elabo-
rate on more fully in our written testimony. We worked closely
with this Subcommittee in the past to legislate an ESRD capitation
study as part of the social health maintenance organization expan-
sion in OBRA 1992.

We urge Congress to continue to support the social HMO project
and the ESRD capitation demonstration so the nursing case man-
agement model can be more fully evaluated and so the appropriate
risk adjusters can be determined for this highly specialized patient
population.


15

‘suppliers in 1991 were $1.3 billion, or 21 percent of total ESRD costs. In addition to
office visits, surgeon fees and other physician-related services, supplies for home
dialysis patients who elect Method II for payment are included in this amount.

As with the rest of the Medicare program, payments for hospital care are
based on the hospital prospective payment system and are predetermined,
depending on the diagnosis and/or procedure associated with the hospital stay. At
44 percent of total ESRD costs, inpatient expenditures totaled almost $2.7 billion in
1991.

Approximately 90 percent of ESRD dialysis beneficiaries use a drug called
erythropoietin (EPO) to combat anemia. Payment for EPO is made on a per unit
basis, set by law at $10 per 1,000 cc’s. The average dose is now just more than
4,700 cc's. In 1994, Medicare expenditures for EPO were $736 million, which
translates into an annual amount of $5,600 per patient (based on average use).

Medicare Secondary Payer (MSP)

Under OBRA 93, Medicare is the secondary payer to specified group heaith
plans for the first 18 months in which a beneficiary is entitled to Medicare on the
basis of ESRD. This provision is scheduled to expire at the end of FY 1998. The
President's budget proposed making it permanent; as you know, this provision was
recently marked-up and reported out by this Committee. This estimated savings from
this proposal are $50 million in FY 1999 and $70 million in FY 2000.

ESRD NETWORKS

HCFA contracts with 18 private ESRD Network Organizations that cover the
US, the District of Columbia, Puerto Rico, the Virgin Islands and the Pacific Trust
Territory, Guam and American Samoa. The Networks are organized groups of
Medicare-approved ESRD providers in a designated area that collectively furnish the
necessary care for ESRD patients in the area. Networks were established to ensure
that Medicare beneficiaries receive high quality ESRD-related care. They monitor the
quality of care provided to Medicare patients by reviewing items and services
furnished in dialysis and transplant facilities. In particular, the Networks are
responsible for:

» encouraging the use of treatment settings that are most compatible with the
successful rehabilitation of the patient;

» encouraging patients, providers of services, and ESRD facilities to participate
in vocational rehabilitation programs:

» developing Network goals for the placement of patients in self-care settings
and undergoing or preparing for transplantation;

> developing criteria and standards related to the quality and appropriateness of
patient care;

> evaluating the procedures used by Network facilities and providers to assess
the appropriateness of patients for the proposed treatment modalities;

» implementing procedures evaluating and resolving patient grievances;

» using standards of care established by the Network to conduct on-site reviews
of facilities and providers as necessary;

» collecting, validating and analyzing data for the preparation of reports on the
ESRD program;


132

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138

Magnitude of the Opportunity

We can delay onset. We can increase the percentage of patients who work.
We can reduce complications and hospitalizations. We can do a lot, not a little,
in all these areas.

The current centralized fee-for-service system has had a 22 year experiment. It
would be difficult to imagine a more disappointing cost and quality
performance. Please give us a chance, buy giving us a customer who can enter
into meaningful and decisive discussions on real-world quality and cost per
performance.

Qur Policy Recommendations
To provoke private sector/managed care leadership in improving the ESRD
program, we recommend:

1, Test Us. Extending the period patients remain on their private sector
insurance from 18 months to 30 months.

2. Free Choice. Allowing Medicare beneficiaries with ESRD to enroll in
HMOs.

3. Fair Choice. Grant ESRD patients the same COBRA continuation of
health care rights as other employees.

T'll elaborate on each of these:

The benefits of managed care flow to the patient in the form of better quality of
life and to the patient's insurer in reduced cost only if that insurer practices
managed care, A problem arises with ESRD managed care in the fact that
three months after diagnosis of ESRD a patient becomes eligible for Medicare.
If an ESRD patient has private insurance, that private insurance remains the
imary payor for 18 months. Because managed care relies on a significant
initial investment of resources in the patient which would be recouped later in
patient care, private insurers have little financial incentive to make that initial
investment in managed care for their ESRD patients when Medicare will take
over after 18 months. This then all but eliminates the financial incentive for
insurers to manage the ESRD patient’s care. To remedy this situation, we
propose extending from 18 months to 30 months the period that private
insurance remains the primary payer.

This is not a unique proposal. Last year, all of the comprehensive health care
reform proposals (except for the Gephardt proposal) would have increased the
period to 24 months in which private insurance would be primary. We believe
that 30 months is more likely to encourage managed care and result in more
significant savings to Medicare. The overall cost to insurers will be: a)
minuscule as it will be taken from one payer (Medicare) and spread across
thousands, and b) not proportional to the increase in months, because costs per
patient will decrease over time. In going to a 30 month period for insurance as
primary payer, it would be important to also write into law that insurance
policy limits could not be reduced for ESRD. Limits are not generally applied
to other chronic diseases, and ESRD should be no exception.


14

healthy and stable condition, and perhaps with the intervention of the nephrologist, avoid or delay
the eventual development of ESRD.

Early nephrology referral is consistent with increased emphasis on preventive care to improve
outcome and to decrease costs. An early provision of nephrology care for the patient with chronic
progressive renal insutficiency would yield great dividends in terms of quality of care, improved
‘outcome, and cost containment.

Scope of Practice

‘The nephrology subspecialty may be defined as a hybrid discipline. Under certain circumstances,
nephrologists function as primary care physicians, while in other circumstances they serve as
uniquely skilled subspecialists, which includes active participation on pediatric or adult critical
care units,

‘There are three categories of patients with renal disease for whom nephrologists serve as primary
care physicians:

© children or adults who have mild or moderate chronic renal failure and are teated in an
ambulatory setting prior to their entry into the ESRD Program; that is, for treatment by dialysis
and/or transplantation. These patients with chronic renal failure may have renal disease trom
immune origin, as in many forms of glomerulonephritis; from infectious disease, as in chronic
pyelonephritis; from heredity disease, most notably polycystic kidney disease; from hypertension
or diabetes; and from other causes. The need for nephrologists' active involvement in patient
are early in the course of renal disease is emphasized by a recent publication dealing with
complications at the time of initiation of dialysis therapy. Those patients seen and followed by
nephrologists early in the course of their renal disease had much better blood pressure control,
were less anemic, and enjoyed better nutritional status than those referred late. All those referred
late were in pulmonary edema, required emergency creation of vascular access, and the need for
and length of hospitalization at the time of initiation of dialysis was two and six times greater,
respectively, than for those referred earlier to nephrologists. This study underscores the critical
need for a greater number of property trained nephrologists to serve as primary care physicians or
to provide care in collaboration with the referring physician to this expanding patient population.

® patients who have kidney or kidney-pancreas transplants are given long-term care by
the nephrologist, particularly the transplant physician. There is very powerful evidence that, when
these palients recaive treatment from transplant physicians instead of non-experts, both patient
and graft survival are positively affected.

© individuals receiving chronic dialysis, either hemodialysis or peritoneal dialysis.

‘The outpatient activities of nephrologists account for well over 90% of the billings of most
nephrologists. However, in tertiary or referral medical centers, ambulatory nephrology practice
may account for a smaller percentage of nephrology billings. Thus, the main portion of the
nephrology practice is providing for the ongoing medical needs of patients with renal disease.

Nephrologists also serve as subspecialty consultants. The principal groups of patients for whom
nephrologists serve as subspecialty consultants include:

‘@ Patients who develop acute renal failure, often due to acute tubular necrosis, in an in-
hospital setting.

© Hospitalized patients who develop electrolyte abnormalities.

© Hospitalized patients who develop hemodynamic imbalances either because of
cariogenic factors, renal factors, or, in certain instances, iatrogenic factors resulting in a tow urine
output and reversible renal failure.

‘© Pregnant women who are at high risk — most notably, those with pregnancies
complicated either by urinary tract infection, hypertension or pre-eclampsia; patients who have
chronic renal failure or who have received transplantation, who become pregnant; and diabetic
Patients, particularly those with Type | diabetes mellitus, who become pregnant.

‘© Patients who develop severe metabolic bone diseases as a complication of their renal
disease or other factors.

© Renal stone disease


32

In Calendar Year 1993, 28 facilities were terminated (1
involuntarily). In 1994, 32 facilities were terminated (5
involuntarily). In 1995, 2 facilities were terminated (none
involuntarily).

In addition I would like to discuss the specific center you have
referred to as an example. There were three complaints made to
the Georgia Office of Licensure and Regulation against Peachtree
Dialysis Center in Atlanta, Georgia in 1993. One complaint was
made by the father of a young woman, who was a dialysis patient
at the facility and had died. Also, in November 1993, two other
patients at this ESRD facility filed complaints against the
facility. One of these complainants made 16 allegations against
the facility.

An on-site investigation was completed on November 30, 1993, by
the Georgia Department of Human Resources, Office of Regulatory
Services. The investigation revealed that one Condition for
Coverage was not met and substantiated some, but not all, of the
allegations. The facility developed acceptable plans of

correction for all of the deficiencies and compliance was
confirmed on a follow-up visit on January 26, 1994. Since the
facility met all of the conditions of coverage and met additional
criteria it was not terminated from the Medicare program.

In addition, the ESRD Network serving the area received a
complaint about the ESRD facility from the father of the patient
who died. The network reviewed the medical record of the patient
in question and referred the case to the Georgia Protussional
Review Organization (PRO), which also conducted a review of the
case. Neither the Network nor the PRO found that care was
inappropriately rendered. They completed their investigation on
June 9, 1994.

A review of this facility’s compliance history reveals that a
January 29, 1992 complaint investigation found that the facility
was not in compliance with the Condition for Coverage relating to
staffing requirements. The facility corrected this problem as
well. Also, the facility was found out of compliance with the
Patient’s Rights Condition for Coverage on the August 1991
survey, but subsequently corrected its deficiency.

In conclusion, Peachtree Dialysis Facility has been found to be
out of compliance with some basic conditions on at least three
occasions since 1991. Patient complaints have been brought
against the facility, and some of the complaints have been
substantiated. However, in each case, the facility developed a
Plan of Correction and corrected its deficiencies. Consequently,
the facility remains Medicare certified.

At this time, there are no outstanding issues between the State
Survey Agency or the ESRD Network and the Peachtree Dialysis
Facility. However, I would be happy to discuss this case further
if there are any additional questions you may have.


103

treatment modalities be available to all patients without regard to Social
Security status.

That the 3 year limit on Medicare eligibility be eliminated for ESRD patients who
are successful transplant recipients.

3. That benefits for anti-rejection drugs be extended to cover the life of the graft

4. That new programs be instituted which would increase the availability of organs
for transplantation by providing financial incentives for cadaveric organ donation
or through removal of financial disincentives for living related donation

Quality of Care

The NKF believes that the data regarding morbidity and mortality among U.S. dialysis
patients are disturbing indicators of a decline in the quality of care in the ESRD Program
Our unadjusted annual mortality rate has risen in the past few years to more than 22%,
considerably worse than in other industrialized nations (e.g., Spain, France, Germany,
Japan). Despite a recent turn for the better, mortality is still higher than in many other
industrialized countries. if we accept hospitalization rates or days per year as apt surrogates
for morbidity, then patients over 75 years old and diabetics (the two fastest growing groups in
the ESRD Program) consume, respectively, 20% and 22% more resources than the average
dialysis patient. The number of Medicare covered hospitalizations increased from 183,500 in
1985 to 283,700 in 1990, an average increase of 9.1% per year. During this period, the total
number of inpatient days increased at an average annual rate of 11.1%. This hospitalization
experience is an indicator of personal suffering. It also constitutes a growing component of
ESRD expenditures,

White there is no single cause for this alarming trend, the experts point to certain
factors that contribute to the problem. Some believe that the way dialysis services are
delivered, and the relationship between payment levels and patterns of care may have
contributed greatly to the dectine in quality, Over the past several years there has been a
movement toward shorter dialysis sessions, in part based on misinterpretation of early
studies. Reduction of hemodialysis treatment time may, however, have had an adverse
effect on morbidity and mortality. In reference to the negative impact of reimbursement
changes on quality, there is wide spread agreement with the opinion that reduced payments
have had a negative effect on outcomes.

As the availabilty of funds became tighter, dialysis units changed staffing patterns. In
the early 1970's, before the Medicare ESRD Program began, most ESRD patients were
dialyzed in hospitals by registered nurses and were cared for by a nephroiogist during each
treatment. There was also intense involvement by experienced renal nutritionists and
nephrology social workers with masters degrees, Since that time, but especially since the
mid-1980's, there has been an evolution toward treatment in outpatient units, non-hospital
based, with less care provided by registered nurses, more involvement by licensed practical
nurses and technicians and less interaction with renal nutritionists and masters-level social
workers. At the same time the government continued to add to the list of services which
dialysis units must provide their patients without making corresponding increases in payment
levels. These developments occurred while demographic changes resulted in an ESRD
population which requires more, rather than less, care.

With these developments in mind, and from the perspective of the ESRD patient, the
NKF makes the following recommendations:

1. That the federal government foster the development and validation of tools to
measure the quality of care provided to ESRD patients, based on structure,
process, and outcome,

2. That the renal community continue to develop specific quality assurance tools
including ones for hemodialysis, peritoneal dialysis and transpiantation and that
total quality management and assurance be instituted for the program

3. That all relevant government agencies work with the renal community to put in


39

eases better, we increase the pool of individuals who then experi-
ence kidney failure.

The population also includes a large portion of minority patients.
Twenty-nine percent of all new patients in 1992 were African
Americans: they have a failure rate four times that of the white
population.

During the IOM study in 1991, we asked Dr. Eggers of the
HCFA to project the ESRD patient population to the year 2000. He
did so and. made three estimates: a slow growth resulted in 210,000
patients, moderate growth reached 240,000 patients, and 270,000
patients was the rapid growth estimate.

It is clear from HCFA data that the actual numbers in the year
2000 will exceed the high, rapid growth estimate made in 1989. My
point is that there is no escape from the epidemiology of this pro-
gram as the fundamental driver of the costs. That ought to be very
clear in everybody’s minds as the Subcommittee searches for cost
reductions. It is that underlying epidemiology that drives costs.

Reimbursement is my second point. This is important because
total program costs are very high and the beneficiaries are few in
number relative to the total Medicare population.

At the level of outpatient dialysis per treatment reimbursement,
the ESRD Program has been a great success. Historically, the rate
was unchanged for 10 years, was reduced in 1983, was modestly re-
duced again in 1986, and has had no adjustment for inflation dur-
ing the entire 20-plus years of this program. Congress added $1 to
the composite rate in 1990.

In our study, the IOM analyzed the real dollar decrease in per
treatment payment from 1974 through 1989. The result of the
analysis was that the 1989 payment rate was approximately 40
cents on the 1974 dollar. A recent update of that analysis showed
that payment today is closer to 30 cents on the 1974 dollar.

Reimbursement and quality are my third point. The IOM found
in its study that reductions in quality, as measured by the out-
comes of hospitalization and mortality, could not be correlated with
reimbursement reductions. Staffing changes could be, but these
changes couldn’t be correlated with outcomes. That is as much a
problem of measurement as it is of the phenomenon which we have
heard from the others.

In perspective, two trends are occurring. Epidemiology continues
to add to the patient population; second, there is a continued reim-
bursement decline on the outpatient treatment side. These two
trends can’t go on forever. Either quality will decline or reimburse-
ment must be increased. Fourth, what is needed is a system of
quality assessment. The community has been concerned with mor-
tality and adequacy. In addition, at a conference in 1993 and a
workshop in 1994, the IOM strongly urged the adoption of func-
tional status, health status, and health-rel lated quality of life meas-
ures of quality.

Mr. RETTIG. There are good instruments to obtain such data.
They can be derived from patients. They ought to be derived from
patients. Only as we get such data, in my judgment, will we really

egin to put in place a system in which the quality implications of
cost reduction are firmly understood.


64

mately pick up the check for people who could have been helped
earlier if some detection and wellness program had been out there
for them.

Mr. RETTIG. The intersection with the low-income population of
this country suggests to me primary care and universal coverage
in that area would cut deeply into manifestation of problems that
need expensive treatment down the line. That is my personal view
and I can’t document it, but I think we have to begin to think along
those lines.

Dr. BLaGG. I am in agreement with Dr. Rettig. I believe that if
we were to give better care before these patients come to dialysis,
we might make marginal savings. The patients might not be as
sick when they start dialysis, might not need as much hospitaliza-
tion at that time. But even if we can slow the onset of dialysis by
diet and the other efforts we make, patients are still going to end
up getting kidney failure. So, you slow the process but the end re-
sult is the same.

Chairman THOMAS. It is always tough wrestling with mere mor-
tals. We are talking about an organ that is kind of like a fuel filter
and eventually it simply fails. It is not like smoking-lung cancer.
You don’t have that kind of a connection.

I agree with you, the value expended certainly would create qual-
ity of life in a number of other areas, but it wouldn’t necessarily
change the fact that at the end they would wind up with kidney
failure.

Dr. Buacc. If we all live to be 150 we will all get kidney failure.

Chairman THomas. Eventually that part is going to wear out.

The gentleman from Texas.

The gentleman from Illinois.

The gentleman from Georgia.

Mr. Co.uins. I am not going to take but just a moment, Mr.
Chairman. My concern is in the area of quality of care. You prob-
ably heard when I was questioning Mrs. Smits about the particular
situation of a center in Georgia. The Rand study was based on
Medicare recipients; did I understand that right?

Dr. Bac. That is correct. They took the financial data on all
Medicare recipients for the year 1990.

Mr. CoLLins. Are all kidney dialysis patients under Medicare?

Dr. BLacc, Dialysis and transplant patients for 1990. They ex-
cluded a very small number of patients for lack of information or
other reasons, but it was something on the order of 190,000 pa-
tients as I recollect it.

Mr. Couuins. But are all patients with this problem under Medi-
care or are they private pay?

Dr. BLaGG. The estimates they made included the private pay
portion, too. They calculated that.

Mr. Coutins. You did include private pay?

Dr. Biacc. Yes.

Mr. CoL.ins. Are there any variances in the private pay versus
Medicare?

Dr. BLaGc. I can’t tell you the extent of this. There would be dif-
ferences, because dialysis facilities may charge private payers more
than they charge Medicare.


152

v. QUALITY AND COST-EFFECTIVENESS IN AN INTEGRATED CARE SYSTEM

We concur with many of the concerns raised by members of the renal community
regarding the potential impact of cost-containment objectives in a managed care setting. On
the other hand, we believe an integrated disease management approach that is properly
supported by an appropriate payment policy can align the quality and cost-containment
concems of all parties involved. Through a capitated payment methodology or other
comparable global system, the clinical team responsible for the care of the ESRD patient will
work to minimize costly complications, prevent unnecessary hospitalizations and ensure the
proper prescription and administration of life-sustaining therapy.

‘An integrated disease management approach that is properly supported by an
appropriate payment policy can be an effective means of controlling costs. The quality
concems of the patient and provider and the cost-containment focus of the payer or employer
can be aligned to produce the optimal clinical result. ESRD services are already subject to a
modified capitated system under the composite rate methodology. This methodology has
been viewed as a relatively effective means of controlling program costs. The monthly
itation for physicians also has proven to be an effective cost-controlling mechanism for
physician outpatient care. Significantly, cost increases in the program are primarily related
lysis, non-capitated services. A global capitated method that encompasses all
services provided to ESRD patients -- from the time of diagnosis throughout the course of
therapy -- will properly align incentives to encourage appropriate utilization from all
providers and will thereby minimize total illness costs, rather than just component costs of
the disease.

VI. | RECOMMENDATIONS

We believe that to properly implement integrated disease management initiatives in
the ESRD program, certain incremental changes should be made in the current program.
First, we recommend that Congress lift the current restrictions or barriers that prevent ESRD
patients from electing to enroll in managed care programs. Under the current system, an
ESRD beneficiary is prohibited from enrolling in a Medicare prepaid health plan, unless that
individual is already a member of such a plan at the time his or her kidneys fail.’ This
restriction deprives ESRD beneficiaries of a meaningful choice of care available to other
Medicare beneficiaries and prevents managed care plans from gaining the valuable experience
necessary to apply disease management concepts to this population. Significantly, managed
care plans have demonstrated that they will make the initial investment of resources in the
patient through optimal disease management if this investment can be realized through greater
cost savings over the long term.

In addition, given the unique nature of the ESRD program and the complex medical,
technological and social demands facing ESRD patients and the providers that care for them,
we recommend that Congress encourage the development of specially qualified ESRD
delivery systems by allowing greater flexibility in the types of integrated delivery models that
are eligible to care for these patients. Under the current regulatory structure, an ESRD
patient must disenroll from the health plan of his or her choice at the end of the Medicare
secondary payer period if that health plan does not have a contract with HCFA. If more
patients are allowed to remain in their networks, we believe managed care plans will be more
inclined to make the initial investment in the prevention, early identification and case
management of this population -- all necessary and critical elements in the successful
treatment of ESRD patients. Greater flexibility will allow patients already enrolled in
managed care networks to maintain existing physician relationships and remain in these
delivery systems throughout the duration of their illness.

Baxter strongly supports the efforts of HCFA in implementing a demonstration project
to assess the impact of a capitated payment system for ESRD patients. We agree with
members of the renal community that the demonstration will provide valuable insights in the
development of broader changes to the current ESRD payment policy. Nevertheless, we


35

Dr. Smits. I am sorry. I don’t remember that specific figure indi-
vidually. I will be glad to give you that for the record. It is probably
one of the highest elements of cost posttransplant.

{The following was subsequently received:]

The Batelle Corporation conducted a study for HCFA on
immunosuppressive protocols for kidney transplantation in 1989.
The results of that study showed that yearly immunosuppressiv
costs, after the initial period following a transplant, were
between $3,200 and $4,000 per patient. Although we have not had
an update to this study, we assume that annual costs are about
$4,500 per patient.

In 1994, Medicare spent $55 million on immunosuppressive therapy.
The Omnibus Reconciliation Acts of 1993 extended the coverage
period for immunosuppressive therapy from 12 months to 18 months.
Although costs will increase significantly for immunosuppressive
therapy but still be less than dialysis. We estimate that we
will spend $80 million for immunosuppressives in 1995.

Secondly, as I mentioned earlier, the use of immunosuppressives
after transplantation is certainly more cost-effective than
dialysis in the long-term treatment of the ESRD patient. In
fact, the May 1992 edition of Seminars in Nephrology, Volume 12,
Number 3 contained an ana./sis entitled "Comparison of Treatment
Costs Between Dialysis and Transplantation." This analysis has
definitely proven the cost effectiveness of immunosuppressive
therapy.

In short, our estimates show that in 1995 Medicare will spend
approximately a total of $42,000 per patient annually on
dialysis, while after transplantation, Medicare will spend $4,500

per patient annually for immunosuppressive therapy. Clearly
immunosuppressive therapy is cost effective in the treatment of

ESRD.

Mr. CRANE. Thank you.

Chairman Tuomas. Obviously, quality of life would be signifi-
cantly improved as well. We have been looking not only at dollars
and cents, but obviously, the ultimate goal is to provide——

Dr. Smits. The fact is that one-half of the people after transplant
leave the program because they are able to go back to work.

Chairman THOMAS. Very good.

Dr. Smits. Let me just mention again that because we have this
demonstration coming, the RAND Corp. has worked out detailed
rates for us for potential HMO payment. I think we should put
those in the record so you can inspect them in detail.

[The following was subsequently received:]


67

you start the demonstration project, say, in 1996, maybe by the end
of 1997 or 1998, you are going to at least know where it is going
and what the problems are.

Chairman THOMAS. I don’t feel a sense of urgency in terms of
need to move, but this seems to be one of those in which it ought
to lend itself more to a managed care structure and it doesn’t in
part because of the financing. ff we could make some adjustments
there, we might, in fact, get better quality for the same dollar.

Dr. Buacc. I think that is correct. The more managed coordina-
tion of care is what will improve this, but capitation is an innova-
tion to most of the ESRD population and their physicians, and we
need time to get used to it.

Dr. Powe. I think we need to learn from this demonstration and
learn to do this right, and I think the demonstration is going to be
very useful in regard to how to construct a fully capitated program
from an organizational perspective across this country. I am con-
cerned it may not work in some areas of this country and things
could be bad.

Chairman THomaSs. Dr. Powe, if you will comment briefly on the

estion of drugs versus mechanical intervention. Has it limited
the ability to move more toward drugs because of the cost? Or, is
it the treatment question? What is the cost effectiveness in terms
of use of drugs versus dialysis?

Are dollars and cents because of the cost of drugs affecting that
at all, or is it that it is very limited range treatment capability?

Dr. Powe. I should make this clear; the drugs that we are refer-
ring to are not used to dialyze the blood so they are not a sub-
stitute for dialysis. These are drugs——

Chairman THoMas, There could be a maintenance aspect to it.

Dr. Powe [continuing]. These are drugs to maintain other condi-
tions which occur in association with kidney disease.

Mr. RETTIG. Mr. Chairman, I have two comments in response to
your question. I am not a big fan of demonstrations. I wrote a
paper that demonstrations are anecdotes for action quite often and
ypur concern for not wishing to wait seems to me quite appropriate.

lowever, it is possible to conceive of the ESRD Program with this
chronic population as a marvelous test bed for doing lots of things
conceptually, doing a probe in the managed care environment here
and doing something else there. That takes a certain amount of or-
ganizational skill and some efforts, but you can theoretically ap-
proach that.

Practically, I yield to others on how feasible it is to use the pro-
gram in this way. I will say, regardless of the financing mecha-
nism, you need a quality assessment, quality assurance system in
place. y was here 2 weeks ago when Dr. Brook testified before this
Subcommittee on quality and said quality can be measured, quality
can be measured.

The arguments that I have made this morning are, I believe, the
direction I think the quality system has to evolve regardless of
whether it is financed by capitation or an extension of the current
program.

Chairman THomas. Last, because some people may not fully ap-
preciate the difference between the heart and a kidney, one is a
pump and the other is a filter and we have been much more suc-


104

place the mechanisms needed to implement quality assessment/quality
improvement initiatives for ESRD care.

4. That responsibility for implementation of quality assessment/quality
improvement be delineated at the unit level, for state surveyors, for ESRD.
Networks and at HCFA

5. That HCFA conduct studies of the feasibility of an incentive reimbursement
system for dialysis treatments in which payment is tied to the quality of care
delivered.

6. That the reimbursement methodology of HCFA reflect changes in the
demographics of the ESRD population that have occurred since the composite
rate was instituted.

7. That the methodology for reimbursement be modified to take into account both
case mix and acuity levels at individual facilities,

8 _In order to handle the diverse needs of an older and sicker ESRD population,
reimbursement levels should be sufficient to support adequate staffing levels at
dialysis units, both as to staff/patient ratio as well as with respect to staff
qualifications,

Rehabilitation

Rehabilitation signifies restoration of physical and mental function to the point that a
person can once again engage in family and community activities and enjoy a satisfactory
quality of fife, Rehabilitation of the ESRD patient may include achieving a level of physical
health, strength, and endurance to perform activities of daily living, enjoying hobbies and
recreational activities, re-engaging in family responsibilities and returning to school or the
work force. For those unable to maintain employment or return to work, rehabilitation may
mean redirecting their skills into home or community activities that will enhance their self-
esteem.

To enhance rehabilitation, the NKF proposes:

1. That the reimbursement program include incentives for facilities to offer home
dialysis and evening shifts for the working patient

2. That the reimbursement program provide appropriate numbers of qualified
professional staff who have the expertise to facilitate rehabilitation

3. That patients be offered a choice of renal replacement modalities, including
transplantation.

CONCLUSION

Ready access to dialysis care and renal transplantation has successfully and
effectively prolonged the lives of hundreds of thousands of people. However, the evolution of
the Medicare ESRD Program has raised concerns which were not foreseen at its inception.
Even though the program has many significant accomplishments, we can do a better job in
reducing morbidity and mortality and improving the quality of life of ESRD patients. We
therefore urge the Congress to consider implementing the above recommendations. This will
help assure that the program continues to serve the needs of those Americans who have
End Stage Renal Disease and who will experience kidney failure in the future.

Mr. Chairman, thank you again for the opportunity to appear before the subcommittee.
{will be pleased to answer any questions that the subcommittee Members may have.


130

I will address the following issues in turn:

Magnitude of the Issue

The Basic Prevention Concept
Real-life Examples
Magnitude of the Opportunity
Our Policy Recommendations

Magnitude of the Issue

The Medicare fee-for-service approach for serious chronic diseases is bad health
care. The graph on the next page is a crude indicator of the power of managed
care on the mortality side of the quality question. It is crude because it uses
gross mortality, which does not adjust for differences in age, sex, race, etc. that
may exist between the HMO population and others.

eR

There is a new "Adjusted Mortality" methodology, however, which does adjust
for several of the key patient-specific variables. Most of the government
sponsored networks around the country prefer this measure, as do most
thoughtful clinicians and analysts.

The economic issues are also large. In the advisory announcing this hearing, it
was stated that this year there are approximately 200,000 Medicare beneficiaries
with ESRD and that Medicare is spending $8 billion on this program, or
$38,900 per beneficiary. These figures used by the Committee are considerably
lower than our estimates, perhaps because some expenditures are not included
and/or because we estimate there were only 190,000 dialysis patients in 1994.
We believe the total national average cost of Medicare non-HMO coverage in
1994 was $56,070 per patient. The national cost of non-HMO care for ESRD
patients has been growing at a considerable pace and saw almost a 20%
increase from 1991 when the annual ESRD patient costs were $44,413. To
make even a more significant comparison, the Medicare non-HMO care cost in
California in 1994 was $62,636 versus a Medicare HMO in California where
cost was only $35,000. This information is reflected on the next graph in my
testimony.

Which costs are increasing most rapidly? And independent of which national
average cost per patient is correct, what is the biggest area of cost difference
across different patient populations?

The largest drivers of ESRD cost increases over the last five years (and, if
unchecked, the most likely drivers of increases for the next five years) are
hospital costs and EPO (a drug). Depending upon whose numbers you use,
hospital costs represent 20 to 45% of total costs. No matter whose numbers
you use, dialysis is one of the few chronic disease states where annual hospital
days per patient are increasing. And again, no matter whose numbers you use.
managed care leads to significantly fewer hospital days per patient year as is
shown in the graph on the following page.

With severe chronic disease states you cannot achieve lower hospitalization
rates by "cutting corners" or by withholding care. Any good clinician will tell


45

dollar. (The 1989 adjuster used was the GNP implicit price deflator; the more recent
figures uses the Consumer Price Increase--Urban deflator (CPI-U).)

In 1991, the IOM commitiee recommended no further explicit reimbursement
reductions and also that the payment rate be updated annually, consistent with the rest of
Medicare. Congress did add $1 to the composite rate in 1990.

REIMBURSEMENT AND QUALITY

The OBRA 1987 charge directed the IOM to examine the effects of
reimbursement on quality of care. We did so, using mortality and hospitalization as
‘outcome measures and treatment unit staffing as a measure of input use. The findings
were as follows: (1) the relation of reimbursement reductions to increases in patient
mortality were suggestive but not conclusive; (2) the relation of reimbursement
reductions to hospitalizations were also suggestive but not conclusive; and (3) the
relation of reimbursement reductions to reduced staffing were -- not surprisingly -- clear,
but these effects could not be related clearly to changed patient outcomes.

To be sure, every clinician (physicians, nurses, social workers), administrator,
and patient representative to whom we spoke believed that quality had suffered in
response to reimbursement reductions. The IOM committee saw no reason to doubt
them, But the problem of measuring the relation of aggregate data on reimbursement to
quality of care, especially outcomes, is very difficult and, in my judgment, there is no
inconsistency between what practitioners see and what aggregate data fail to capture.

Regarding patient outcomes of care, mortality is the measure that has preoccupied
the U.S. nephrology community. This concem for mortality is appropriate but it is not
enough. It is noteworthy that the United States Renal Data System has reported
improved survival among all groups of patients and for all modalities of treatment in
recent years, during which there has been no improvement on reimbursement.

In the past five years or $0, the "adequacy" of dialysis has become the primary
clinical measure of quality of care for the dialysis patient population. Adequacy is a
complex clinical measure of the appropriate “dose” of dialysis for a given patient. A
00d deal of progress has been made in recent years with respect both to the
measurement of adequacy and the delivery of adequate dialysis care. Measuring
adequacy is very important, but, in my view, not enough.

Itis worth noting, both with respect to mortality and adequacy, that large
administrative data bases are increasingly. being used to generate data on local treatment
unit performance, then these date are fed back to these units, allowing them to compare
their performance to other units in their region and to all units in the nation. This,
emerging system, or set of systems, of data acquisition, analysis, generation of
information on national and regional performance, and feedback to local treatment units
is very promising.


87

Chairman THOMAS. Thank you very much, Ms. Sims.
Ms. Wish.

STATEMENT OF DIANE WISH, EXECUTIVE DIRECTOR, COMMU-
NITY DIALYSIS CENTER, CLEVELAND, OHIO, ON BEHALF OF
NATIONAL RENAL ADMINISTRATORS ASSOCIATION

Ms. WIsH. Good morning, Mr. Chairman, and Members of the
Health Subcommittee. My name is Diane Wish and I am the execu-
tive director of three freestanding, not-for-profit dialysis facilities in
Cleveland, Ohio. I am appearing on behalf of the NRAA, National
Renal Administrators Association, and am the current president of
that association.

We are delighted to have the opportunity to participate in this
important hearing on the Medicare ESRD Program. Our testimony
will focus on a number of issues. We would like to begin by empha-
sizing that the Medicare ESRD Program has been highly successful
in providing access to life-sustaining quality care to over 90 percent
of individuals with end-stage renal disease in this country.

Thirty years ago, individuals who received a diagnosis of end-
stage renal disease faced near certain death. This program has also
been extremely cost. effective as explained in the latest USRDS
1994 Renal Data Report.

According to this report, while real Medicare payments per year
for ESRD continue to rise in response to a growing ESRD popu-
lation, average payments per patient per year showed little or no
growth in the last 5 years. The real level of reimbursement per di-
alysis treatment, determined through the composite rate schedule,
has been declining for almost two decades. The USRDS also noted
that the trend of little or no growth in real per capita Medicare
payment for all ESRD patients is particularly surprising since
Medicare coverage was expanded in 1989 to include EPO, which
now is used in over 80 percent of patients.

For these reasons, we would strongly urge the Subcommittee to
maintain the ESRD Program as it is currently structured because
it has successfully met the objectives of the program in a cost-
effective manner.

For the very same reasons and for quality assurance purposes,
we also adamantly oppose privatizing the ESRD Program. Such a
move would result in serious access to care problems for ESRD
beneficiaries, significantly reduced patient choice, and would com-
promise the quality assurance programs currently in place. If the
ESRD Program were privatized, the ability to obtain accurate, vali-
dated cost, and quality data would be seriously jeopardized.

HCFA’s continuous quality initiatives, which are just beginning
to make a significant impact, might be lost forever. We strongly
recommend that no further action be taken to privatize the ESRD
Program until the results from the ESRD capitation demonstration
project are evaluated.

ie NRAA can support the concept of managed care for ESRD
patients; however, we would want assurances that patients have
the option to sign up for a managed care plan or remain in the cur-
rent ESRD system, and that there be multiple managed care plan
choices.


8

Chairman Tuomas. I thank you very much.

Any other colleagues can put a written statement in the record.

Dr. Smits, the Deputy Administrator of the Health Care Financ-
ing Administration, your written testimony will be made a part of
the record and you can begin to inform, enlighten, and educate us
in any way you see fit in the time that you have.

STATEMENT OF HELEN L. SMITS, M.D., DEPUTY ADMINIS.
TRATOR, HEALTH CARE FINANCING ADMINISTRATION

Dr. Smits. Thank you, Mr. Chairman. I won’t read my prepared
testimony, but I will go through all of the topics since one of the
aims of the hearing is to review in general the status of the pro-

‘am.
orth is a serious matter and this is serious testimony, but I can’t
resist beginning by saying I am very sorry that Nancy Johnson
isn’t here. I used to run a hospital in her district and I am sure
she will share with me the feeling that this is a very good day for
Connecticut women.

Moving on to ESRD, when I was a resident, an intern starting
in 1967, renal failure was a relatively common cause of death in
hospitals. It was tragic, painful to watch, and I think all of us in
the field greeted with great enthusiasm the passage in 1973 of
Medicare coverage for this illness.

The cost of the ESRD Program is often held up as an example
of how you can’t control costs in government programs, but I think
in fact as you dissect the program, you see that this is in many
ways a very successful program in which per capita costs have
dropped markedly and which we have also offered the treatment to
very large numbers of people, much greater than were originally
predicted.

As you know, all of those who are eligible for Medicare or
spouses or children of those eligible for Medicare become eligible
under the ESRD provisions 3 months after the onset of renal fail-
ure.

The original estimate was that 10,000 beneficiaries would be cov-
ered annually. We are now covering about 200,000 and the num-
bers continue to rise. I will talk a little more as we go along about
why that is happening.

‘reatment for complete kidney failure is dialysis, which can be
mechanical with an extracorporeal machine or can use the body’s
own ability to dialyze through peritoneal dialysis where fluids are
put into the stomach. Mechanical dialysis is done either in centers
or at home. Peritoneal dialysis is always done at home. Facilities
do receive facility rates for patients that they oversee who are ei-
ther receiving mechanical or peritoneal dialysis at home.

Kidney transplantation is also a very satisfactory solution to this
illness and is the cause for a number of beneficiaries leaving the
ESRD status on Medicare, but there aren’t enough kidneys to go
around, and in addition, many of the successful kidney transplants
remain on disability status even following transplantation.

The first chart which you see here shows you why the numbers
have grown so dramatically since the early seventies. At the time
that the program first started—this chart starts in 1978, 5 years
after the program began—what we really expected is that the great


MEDICARE END-STAGE RENAL DISEASE
(KIDNEY FAILURE) PROGRAM

MONDAY, APRIL 3, 1995

HOUSE OF REPRESENTATIVES,
COMMITTEE ON WAYS AND MEANS,
SUBCOMMITTEE ON HEALTH,
Washington, DC.
The Subcommittee met, pursuant to call, at 10 a.m., in room
1100, Longworth Heuse Office Building, Hon. Bill Thomas (Chair-
man of the Subcommittee) presiding.
[The advisory announcing the hearing follows:]

109)


154

STATEMENT OF DIALYSIS CLINIC, INC. TO THE SUBCOMMITTEE
ON HEALTH OF THE HOUSE WAYS AND MEANS COMMITTEE

Dialysis Clinic, Inc. (DC) is a not-for-profit organization based in Nashville,
Tennessee. DCI was established in 1971 in an effort to ensure that medical decisions for
individuals with End-Stage Renal Disease (ESRD) would be made on the basis of patient need
instead of on the basis of investment returns. DCI currently provides dialysis services to more
than 6,000 ESRD patients at over 90 outpatient dialysis units throughout the continental United
States. DCI is active in kidney transplantation and operates three independent organ
procurement agencies. DCI also has affiliations with numerous major universities and teaching
hospitals throughout the United States in an effort to continually improve the care provided to
individuals with ESRD. We applaud the interest of the Subcommittee on Health of the House
Ways and Means Committee for individuals with ESRD and the Medicare ESRD program afd
appreciate the opportunity to submit comments for the Subcommittee’s consideration.

Although the viability of a shift towards managed care for ESRD is currently a
topic receiving great attention, DCI feels that the ESRD program's experience with managed
care is insufficient to make major programmatic changes at this time based upon perceived
benefits of managed care in this area, However, DCI feels that several areas of the Medicare
ESRD program deserve attention and would like to take this opportunity to address several of
these areas. Briefly, these areas are: (i) providing funding for quality of care programs; (ii)
maintaining Epogen® as separately reimbursable; (iii) extending Medicare’s secondary payer
status to 24 months; and (iv) providing inflation updates for dialysis providers;

Fun ality of Care

DCI feels that maintaining and improving the quality of care provided to
individuals with ESRD is of paramount importance. By continuously striving for increased
quality of care, DCI feels that complications associated with ESRD and dialysis can be reduced
while simultaneously making dialysis treatments less burdensome and more effective for
individuals with ESRD. DCI has data that relates the quality of care to the incidence of
hospitalization. This data demonstrates that improving the quality of care in dialysis units
reduces the incidence of hospitalization, thus reducing the cost to the Medicare program.

DCI encourages the development and use of quality assurance programs such as
the ESRD Health Quality Improvement Program and urges Medicare to support this program
and similar programs through funding. DCI feels that outcome focused quality assurance
programs will result in elevating the standard of care provided to individuals with ESRD and
provide a benchmark with which to evaluate the care provided by dialysis providers. The
benefit of such programs will aid not only individuals with ESRD through higher quality care,
but also aid the Medicare ESRD program through cost savings associated with greater
efficiencies.

Epogen® (EPO) Reimbursement

In the course of receiving dialysis treatments, individuals with ESRD often times
require the administration of certain drugs. The cost of some of these drugs are included in the
dialysis composite rate while others are separately reimbursable by Medicare. One such drug
that Medicare currently reimburses separately from the composite rate is EPO. DCI strongly
believes that Medicare should continue to separately reimburse providers for EPO supplied to
individuals with ESRD. While including EPO in the composite rate may save Medicare money
in the short run, the adverse effects which would result from such a shift will far outweigh the
monetary savings realized.


42

In OBRA 87, the Congress asked the IOM to consider the following five issues:

‘The epidemiology of the ESRD patient population
Access to treatment, especially for those not covered by Medicare
The effects of reimbursement on quality

The measurement of quality

Data

DATA

In my remarks today, I will comment only in passing that the data for the ESRD.
program are probably the best there are in the Medicare data system. This is due to the
dedication and competence of several key professionals at the Health Care Financing
Administration (HCFA) and to the work of the United States Renal Data System, now
housed at the University of Michigan and supported by contract by the National Institute
of Diabetes and Digestive and Kidney Diseases (of the National [nstitutes of Health) and
HCFA. There are some opportunities for making more creative use of these data, in my
judgment, about which I will comment below.

EPIDEMIOLOGY

The growth of the ESRD patient population has been the single most important
cost driver. For some time, the patient population has been growing increasingly older.
For example, in 1992, of nearly 56,000 new patients enrolling in the program, 20% were
in the 55-64 years-of-age group, 26% were 65-74 years old, and 18% were over 75.
Nearly two-thirds (64%) of the new patients were over 55 years of age and 44% were
over 65 years old. Moreover, in the 1987-92 period, the average annual growth of new
patients over 65 years was 11.6% and those 75 years and older grew at a rate of 15.7%.

Patients are also presenting in large numbers with primary diagnoses of kidney
failure of diabetes and high blood pressure. In 1992, 36% of all new patients had a
diagnosis of diabetes as the primary cause of kidney failure; and for 29 percent of new
patients, hypertension was identified as the primary cause of kidney failure.

The patient population is also includes a large proportion of minority patients.
For example, 29% of new patients in 1992 were African-American; for whom the rate of
kidney failure is nearly four times that of the white population.

‘The IOM, in conducting its study, asked Dr. Paul Eggers of HCFA to project the
ESRD patient population to the year 2000. Using actual data through 1988, and using
three different assumptions of slow. moderate, and rapid growth, the estimates were
210,000 patients (slow growth), 240,000 (moderate growth), and 275.040 (rapid growth)
by the end of the decade. Total program enrollment in 1992 had already reached
200.000 patients, indicating the difficulty of estimating the growth of the patient
population and that year 2000 actual numbers are likely to exceed the earlier high
estimate.


165

We urge the Congress to consider implementing our recommendations which will help assure that
the ESRD Program continues to serve the needs of those Americans in saving them from
premature deaths and provide them with the opportunity for a second chance to lead productive
and more rewarding lives.

Transplant Recipients International Organization, appreciates the opportunity to provide
comments on the ESRD Program. We have seen first-hand the benefits of this program and
encourage your continued support. We would be happy to speak with the Members of the
Subcommittee for any further clarifications or recommendations,

* Eggers, Paul, “Comparison of Treatment Costs Between Dialysis and Transplantation,” Seminars in Nephrology,

Volume 12, No. 3 (May), 1992: pp 284-289.

*Tousignant, Pierre, e.al., “Transplantation and Home Hemodialysis: Their Cost-Effectiveness,” Journal of
Volume 38, No. 7, pp 589-601.

= UNOS, March 31, 1995

” Eggers, Paul, “Comparison of Treatment Costs Between Dialysis and Transplantation,” Seminars in Nephrology,

Volume 12, No. 3 (May), 1992: pp 284-289.

1e)


73

ESRD has become a disease of racial minorities and the poor in America. While African-
Americans make up only 13 percent of the country’s population, this group accounts for 35
percent of the dialysis population. An additional § percent of the patients are Latino or Native
American. Further, many patients with ESRD are people who are financially disadvantaged even
before they develop ESRD. Twelve percent of the dialysis population under age 65 has no
insurance coverage at the time of ESRD, and 20 percent of the ESRD population depends on
Medicaid for insurance coverage. Several investigators have shown a statistically significant
correlation between renal failure and finances, such that increasing poverty is associated with an
increased prevalence of ESRD. Complicating these trends is the limited access to medical care in
tural areas. Five of the six ESRD Networks that report the greatest incidence of ESRD are
composed of rural states, where geographic access to care may be problematic. These
demographic trends are not simply persisting, but in fact worsening.

‘The ESAD patient population is becoming increasingly older. Before the creation of the Medicare
ESRD program in 1972, candidates for dialysis and transplantation were selected for treatment
based on subjective criteria. Due to limited resources and the financial barriers to dialysis and
transplant care, candidates for ESRD treatment were generally under age 65. This is reflected in
the fact that those over 65 accounted for only 5 percent of total enrollment in the program in 1974.
However, this quickly increased to 11 percent in 1975, climbed to 18 percent in 1978, and by
1988, those over 65 made up 38 percent of the total ESRD population. Thus the incidence of
treating renal failure is much higher among the elderly than the general population, The
proportion of elderly patients among those being treated for ESRD continues to increase, perhaps
in part because medical technology keeps patients alive longer than in the past. it should be
noted that the growth among the very old ESRD population is also striking. Among those 85 and
older, new ESRD patients increased by 18 percent annually between 1978 and 1988.

Elderly ESRD patients are also sicker than their younger counterparts. Diabetes and hypertension
account for an increasing proportion of cases. In 1978, among new elderly ESRD patients with a
specified diagnosis leading to renal failure, 16 percent were diabetic and 38 percent were
hypertensive. By 1988, these proportions had increased to 29 and 42 percent respectively.
Elderly patients generally arrive at permanent kidney failure with more comorbidity than younger
patients, including unstable hemodynamics, vascular disease, and impaired function. in
Particular, elderly diabetics exhibit the comorbidities typical of that disease, including visual
problems, neuropathy, and amputations.

In sum, the ESRD patient population has become increasingly older and sicker, and these trends
are expected to continue throughout the 90's. The needs of these patients therefore are greater
than ever before and provide nephrologists and their staffs with great medical challenges.

ROLE OF THE NEPHROLOGIST

Because of the increased penetration of managed care in the health system, defining the role of
the nephrologist has become increasingly important. Primary care physicians have shown
hesitancy to assume responsibilty for the overall medical management of end-stage renal disease
patients. They have, as a rule, relinquished this responsibilty to the nephrologist who is
specifically trained to address the unique technology related to dialysis and the unique
medications related to renal transplantation.

‘Some managed care providers have tried to reduce the role of the nephrologist in the care of the
end-stage renal disease patient. Most primary care physicians, however, are not trained to treat
the complex mult-system medical problems usually seen in end-stage renal disease patients, are
unfamiliar with the particular medications and technology prescribed for such patients. They
would also prefer that the nephrologist provide general medical care, as the nephrologist is most

likely to see the patient frequently on dialysis or in transplant follow-up, and address the patient's
problems as a part of those interactions.

Furthermore, as a tule, the pre-dialysis patient requires interventions that are unfamiliar to primary
care physicians. The role of the nephrologist for a pre-dialysis patient involves an initial
consultation for diagnostic purposes related to the etiology and natural history of the patient's
renal disease and global recommendations for management. The nephrologist is then re-
consulted as the patient approaches end-stage renal disease so the patient can be “plugged into*
the system for dialysis or renal transplantation. 1 care of the pre-dialysis patient is provided
exclusively by the primary care physician, the nephrologist may not have an opportunity to
evaluate the patient until the patient is near end-stage or, in extremis, thus requiring the urgent
initiation-of renal replacement therapy. When the opportunity to evaluate options for the treatment
of end-stage renal disease is made available earlier, the patient can weigh alternatives while in a


82

= Such an extension could provide a disincentive for employers to hire ESRD.
patients, and ultimately individuals who are predisposed to ESRD, such as
diabetics, hypertensives, and minorities.

® Such an extension could provide an incentive for EGHPs to eliminate coverage
for ESRD in their plans altogether.

TM Such an extension could provide an incentive for insurers to continue to lower
their reimbursement for ESRD.

TM Such an extension could serve to drive the cost of private insurance even higher,
leading individuals to drop their coverage.

The GAO study, Impact of OBRA-90's Dialysis Provisions on Providers and
Beneficiaries, reported in April 1994 that "as employer-sponsored plans react to
increasing costs, they will have greater incentive to search for ways to reduce their
expenditures."

If extensions to the secondary payer provision beyond the 24 month period are
enacted, ANNA suggests that a provision to evaluate the effects of such a change be
crafted into the legislation.

EPOETIN REIMBURSEMENT,

ANNA has issued a position statement supporting that epoetin continue to be
reimbursed separately from the composite rate paid for dialysis treatment for the
following reasons:

1. There is no clinical, economic, or quality of care reason to change the current
method for epoetin reimbursement.

2. The current methodology, paying a fixed rate per specified dose of the drug, is
based on the number of units of epoetin per dose. This is the most rational
method for reimbursement, and the safest for the patient because it permits
physicians toprescribe the medication solely on the basis of the patient's need.

3. There are some concerns that folding epoetin reimbursement into the composite
rate paid for dialysis services could provide a strong incentive to underdose the
drug. The Association has concerns about the impact such behavior would have
on the health and rehabilitative potential of the dialysis population and the costs
to the Medicare ESRD program in such a scenario.

The Office of the Inspector General of the Department of Health and
Human Services issued a report in 1990 saying it found that lower than
predicted average doses of epoetin were being administered, resulting in
“a windfall profit of 44 percent to the facilities,” when epoetin was
reimbursed at a flat rate of $40 per treatment. (OIG Report, 1990, p. 4.)

Further, an Office of Technology Assessment study reported in the
Journal of the American Medical Association in July 1991 concluded that
"paying a fixed rate per treatment...gave dialysis facilities a financial
incentive to use low doses..."

4. There are no data presently available that suggest epoetin is being
overprescribed based on the current reimbursement methodology.


MEDICARE END-STAGE RENAL DISEASE
(KIDNEY FAILURE) PROGRAM

HEARING

BEFORE THE

Subcommittee on Health
OF THE

COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTH CONGRESS
FIRST SESSION

APRIL 3, 1995

Serial 104-40

Printed for the use of the Committee on Ways and Means

ae

U.S. GOVERNMENT PRINTING OFFICE
24-935 CC WASHINGTON : 1996

For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402

ISBN 0-16-052907-7
a



108

For the patient with terminal kidney disease, delay of more than
a few weeks in getting dialysis or a transplant means death. In ad-
dition, we are concerned that oversight for quality will not be a pri-
ority in a managed care environment. Most experts acknowledge
that insufficient oversight of dialysis care in the past has led to
higher mortality rates for dialysis patients in this country com-
pared with Japan and Europe.

Let me point out parenthetically that Dr. Belding Scribbner, who
developed hemodialysis with patients for chronic renal disease,
learned very quickly what quality was back in the early sixties.
Unfortunately in the 10 or 20 years immediately following that,
that knowledge was lost. We could all speculate on why that know.
edge was lost, but today we have the opportunity to regain it.

s you are aware, HCFA, through the ESRD networks and State
facilities, surveys our agencies and with the full cooperation of
members of the renal professional community, is moving more ef-
fectively to reverse this problem. We feel that this interactive ap-
proach to quality supervision should be maintained. More than
simply an entitlement. program, the ESRD Program is a model for
efficient health care delivery and control of medical cost with qual-
ity oversight. Even at the $21,000 a year which the reimbursement
rate covers for the dialysis patients or at $38,000, if you divide the
total costs by dialysis patients, dialysis is cost effective in terms of
a real life saved. We fear that this fact will not be appreciated by
the private insurance industry today as it was by the Federal Gov-
ernment in 1972.

For patients, I appreciate this opportunity to testify and will be
happy to answer questions.

{The prepared statement follows:]


135

Real-Life Examples

First I will provide three non-dialysis anecdotes, since non-dialysis areas at
dramatically more advanced in applying these basic truths of preventative c
and working out the operating bugs.

We at Vivra are also in the diabetic care business. We know that rates of
diabetes re-admission (meaning the same person being re-admitted) are low
higher managed care areas than in low ones. This is because a greater

investment is made on the "soft" side of patient education, care managemer
and early identification of emerging problems, often by purchasing our serv

The next two examples are portrayed in the graph on the next page of my
statement. The graph reinforces the powerful congruence of cost and quali
objectives in “high prevention potential” situations. Private sector AIDS
patients enjoy lower mortality and lower health care costs, primarily due to
lower hospitalizations. Pregnant women avoid the cost, trauma, and long-t
issues associated with premature births, with the obvious societal benefits.

Let’s turn to some equally powerful dialysis examples:

1. Delaying Onset of Dialysis. Earlier specialist intervention could slov
down kidney deterioration for many patients. Even a six month dela
yields immense individual and societal benefits. Payers and provider
experienced with capitation have "early warning systems” based on
pharmaceutical prescriptions and other indicators which allow them t
focus on these patients. They also have management processes whic,
eliminate the specialist’s fear of antagonizing referral sources. This
several hundred million dollar issue in itself.

2. Quality Dialysis Initiation. A well managed pre-dialysis patient has :
simple "access device" placed in their arm though a simple out-patier
procedure. This is done well before they need dialysis so their body
time to accept it. When their kidneys ultimately fail, they simply be
outpatient dialysis.

Poorly managed patients are not similarly prepared. They will appez
the emergency room and require a multi-day inpatient admission to
surgically implant a larger and less clinically desirable access device.

The latter situation costs anywhere from three to six times more. Tt
patient is less likely to continue working. The patient suffered far m
clinical trauma.

The incident of this latter situation varies by a factor of 10 in differe
markets, and in general is already less frequent in high managed car:
areas due to the spillover benefits of managed care affecting general
behavior.


163

Privatization of the ESRD Program is not necessarily the answer to reducing costs. Alternatives
to in-center dialysis; the most cost-effective being home dialysis and transplantation, need to be
fully explored. Given the profit of in-center treatment and the financial incentive for doctors to
recommend in-center hemodialysis however, it may be difficult to alter prevailing medical opinion.

Since its inception in 1972, the ESRD Program as administered by HCFA, has treated all eligible
ESRD candidates without regard to age, sex, race or religion. Prior to 1972, ESRD care was
characterized by inequities, with hospital boards deciding who would, and wouldn't, receive the
life-saving benefits of dialysis. It is all too possible that an analogous situation would exist under
an ESRD system controlled by managed care providers. In short, managed care providers would
be the “gate-keepers,” providing coverage to a limited number of ESRD patients while excluding
older ESRD populations and those with limited financial resources. Faced with rising costs of
treating ESRD patients, managed care providers will have greater incentive to reduce
expenditures, perhaps by limiting ESRD for those populations at greater risk of hospitalization or
those populations unable to afford rising premiums.

Given the steady ESRD patient population growth (9% annually), the aging of the ESRD
population and the level of comprehensive specialized care required, the multi-billion dollar costs
of ESRD are comprehensible, Continued protection from rising inflation, forthcoming analysis of
ESRD capitation studies, and the exploration of alternatives to in-center dialysis, will serve to
slow rising costs and reduce Medicare expenditures,

Py ayer Pi

TRIO supports the current system, with Medicare as secondary payer for 18 months.
Undoubtedly, extending the secondary payer provision from 18 to 30 months would reduce
Medicare costs in the short-term; however, these gains would most likely be offset by the negative
impact on ESRD patient life-style and care.

If coverage were not dropped altogether, some combination of measures would be implemented
to reduce expenditures. In al likelihood, employers would be unwilling to hire ESRD patients or
those predisposed to ESRD, such as diabetics and minorities. Lower reimbursement rates would
be implemented, with some insurers eliminating ESRD coverage outright. And, in some
instances, we fear that an extension could serve to drive private insurance costs even higher,
leaving individuals with no choice but to drop their coverage. In each one of these cases, ESRD
patients would revert back to Medicare with potentially greater health problems, requiring even
greater government expenditures

Government involvement with the ESRD program ensures the extension of benefits to all in need
of care, Extending the primary payer provision makes economic sense, but the decision to reduce
costs should be tempered by the resultant negative effects on patient care. These may include:

© loss of coverage for those who want to work and utilize private insurance;




109

TESTIMONY OF A. PETER LUNDIN, M.D.
AMERICAN ASSOCIATION OF KIDNEY PATIENTS

Mr. Chairman and Members of the Subcommittee on Health, | am pleased to be here today
‘on behaif of the American Association of Kidney Patients (AAKP). My name is Peter Lundin. {am
the immediate past president of AAKP and a practicing nephrologist. Moreover, | have been a
dialysis patient for 25 years and have had a kidney transplant for the past three years.

The membership of AAKP is concemed about the future of the Medicare ESRD Program
and how changes may effect the 200,000 beneficiaries. As a national organization of kidney
patients, itis our hope that Congress will ensure the continuation of the very successful ESRD
Program, which has covered the expenses of dialysis, transplantation, physician services and
immunosuppressive drugs for over 20 years. As you are well aware, dialysis is unique among
high-tech medical therapies. Without dialysis or transplantation death will certainly occur, however
with treatment, patients can expect long term survival allowing them to lead normal healthy lives.

Given the life-sustaining nature of dialysis treatments and transplantation any change in
Medicare payments or policy creates concern among ESRD beneficiaries.

The ESRD program has been and continues to be, a model for future health programs and
medical spending. The government, in its efforts to provide a cost-effective method of treatment,
has developed quality assurance measurements, maintained a national data system and
structured a cost-conscious reimbursement system. Throughout the structuring and continuation
of this program, patients’ interests have always been balanced with costs in such a way that
coverage for these life saving treatments continues to be provided to the growing patient
population.

‘There are several points we wish to make to the Subcommittee today:

4. AAKP hopes that the Medicare ESRD Program will continue in the same capacity as
is currently legislated. We are concerned that any move to have patients leave the
program and enter managed care plans may lead to difficulties in achieving the
current level of care. It is our belief that eliminating or changing the program, before
a complete analysis of how new plans would incorporate dialysis and transplant care,
could be detrimental to the 200,000 patients.

2. We are concerned that quality assurance levels will be lower in a managed care
environment. As you know, the Health Care Finance Administration (HCFA)
currently sets certain quality assurance guidelines that are reviewed in the dialysis,
facilities by the ESRD Networks, thus assuring adequate patient care. As patients,
we would not want to see any changes in the tracking of kidney patients and the
review of quality guidelines.

3. Discrimination is also a worry to patients. If the Medicare beneficiaries are moved to
the private sector, we worry that costs and access could prevent patients fram
securing services.

4. AAKP wishes to bring to your attention the numerous complaints we continue to
receive from kidney patients enrolled in HMO's. Complaints include difficutties in
securing transplant services outside the HMO and the ability to choose dialysis
facilities and physicians. In an effort to cut costs in a managed care environment,
hospital admittance times have been shortened for transplantation. This can lead to
only the healthiest patients receiving transplants because the hospital can guarantee
a short patient stay. Also, in a managed care situation, dialysis patients may no
Jonger be able to travel for business or pleasure because their destination facility
‘most likely would not be covered in their managed care contract. Because of the
‘numerous patient concerns, we ask that you please consider the impact managed
care would have on patients before any type of managed care program is
implemented.

Mr. Chaitman, we appreciate the opportunity to address your distinguished Subcommittee.
| will be happy to respond to any questions or comments any member may have.

Thank you


30

SUBCOMMITTEE ON HEALTH, COMMITTEE ON
WAYS AND MEANS
END-STAGE RENAL DISEASE PROGRAM
MAC COLLINS
APRIL 3, 1995

Mr. Chairman, I appreciate the opportunity to participate in this morning's hearing of the
Subcommittee ‘on Health to discuss issues surrounding the Medicare End-Stage Renal
Disease Program.

Uhave many concerns about this program. Last year I introduced the Elizabeth A. Greeson
Dialysis Coverage Act that provided additional protections for patients who receive
treatment through dialysis clinics that receive funds from the Medicare program. Mrs.
Greeson was an end-stage renal disease patient receiving treatment through a dialysis clinic
in Atlanta. Tragically, Elizabeth Greeson lost her battle with the disease in January of
1993, She was a patient at a clinic that was cited for several health and procedural
violations. Additionally, the Georgia Department of Human Resources recommended to the
Health Care Financing Administration that the facility be terminated from the Medicare
program wihin 90 days. To this date, the facility remains open, operating business as
usual.

As legislators, 1 believe that it is our responsibility to review the standards of these
programs to ensure that we are providing the necessary protections that will prevent needless
losses such as these.

Currently, American taxpayers pay $8 billion per year through Medicare to ensure that care
is provided for some 200,000 end-stage renal disease patients. These funds go to private
dialysis treatment clinics, entrusted with the responsibility of providing good care and
treatment.

My legislation requires that private medical facilities, offering medicare-financed end-stage
renal dialysis kidney treatment, make necessary arrangements to ensure these services are
available on a 24 hour basis.

Currently, federal regulations require renal dialysis centers and facilities have an affiliation
agreement or arrangement in writing for the provision of inpatient care and other hospital
services. My legislation would essentially codify this regulation by requiring renal dialysis
centers, as a condition of receiving Medicare funds for these procedures, either provide
dialysis treatment on a 24 hour, "on-call" basis, or make an arrangement with a local
facility that has the capacity to provide these services during periods when the facility is not
open. Additionally. patients that receive care at the private clinics should be notified of this
arrangement so that they are fully aware that emergency services are available at an
alternate local facility.

The primary purpose of this bill is to stress to privately-owned facilities that their
responsibility includes the well-being of the patient, and not merely monetary profit. These
facilities provide fundamental treatments for patients who cannot live without them.
Consequently, these private fa i¢s should be accountable for treatment when it is needed
for the preservation of life -- 24 hours a day; not merely during business hours,

1 believe it is necessary to codify this condition and clarify in law that private renal dialysis
clinics, receiving tax payer funds, provide for this type of arrangement.

L appreciate the opportunity today to participate and hear testimony about the program: and
its effectiveness; as well an opportunity to pose questions to officials about the legislation
Tam working on again this Congress

For Elizaheth Greeson who battled kidney disease. legislative improvements come too late.
But by legislatively strengthening the program, we will improve how we provide end-stage
renal disease treatment and enable other families to avoid tragic loss due to failures of the
health care system

Thank you Mr. Chairman.

Pepe Ot


89

ain, I would like to thank Chairman Thomas for allowing the

N to express its views on a wide range of issues before the
Subcommittee. The task before you is enormous and the need to
control costs is great. We hope you will remember that the ESRD
Program is a true model of cost-effective care. Please do not hesi-
tate to call on us for information and data concerning renal care
and dialysis facilities as you formulate your recommendations for
fiscal year 1996.

Thank you.

(The prepared statement and attachments follow:]


84

end-stage renal disease, enrolled in an HMO. Following his first acute care
admission as a member, his case manager contacted him and his primary
physician to discuss the treatment plan and orient them to plan providers.
The case manager arranged a transplant workup with one of these
participating providers and initiated discussions with the facility's transplant
coordinator. The case manager reviewed benefits, including donor
coverage, with all parties. Two months after enrollment Mr. S had a new
kidney. The case manager monitored his progress throughout the
hospitalization while arranging home infusion therapy as part of discharge
planning. Follow-up continued after discharge including coordination of
post-transplant medical care and helping Mr. S to obtain anti-rejection
medicine, as well as arranging counseling services to enable him and his
family to deal with the ongoing issues of chronic illness. The case manager
also referred them to a transplant recipient support grou}

We urge Congress to continue to support the Social Health Maintenance Organization
project and the ESRD capitation demonstration so the nursing case management
model can be more fully evaluated and so appropriate risk adjusters can be determined
for this highly specialized patient population.

NEED FOR MORE DONOR ORGANS

According to the United States Renal Data System 1994 Annual Data Report, the
number of cadaver and living related donor transplants have shown very little increase
over the years. However, the kidney transplant waiting list continues to grow so that
the gap between the supply and the need for donor organs is even greater than in
previous years.

At the end of 1993, there were nearly 25,000 patients on the kidney transplant waiting
list; in that same year slightly more than 8,100 cadaver transplants were performed.
One year later the number of patients waiting for a kidney had increased to just under
27,500 patients and the number of cadaveric transplants performed was just over
8,300.

In 1992 the median days waiting time on the list for kidney transplantation was 621
days. This is the most recent data available However, in 1991 the median waiting
time was 518 days. We can assume from this, and from the increased number of
patients waiting, that the current waiting time is even longer than the 1992 figure.

According to one HCFA source, in terms of annualized costs, a dialysis patient
dialyzing for one year has TOTAL costs to Medicare of $44,000. In the year he
receives a transplant, that patient represents annualized TOTAL costs to Medicare of
$88,000. However, in subsequent years as a "functioning graft" patient, TOTAL costs
to Medicare average $7,400. (A certain percentage of the successful kidney transplant
recipients loses Medicare entitlement at the end of three years following
transplantation. Therefore, their costs are shifted from Medicare to other payers,
whereas the alternative dialysis costs would have to be borne by Medicare.)

in a May 1992 article in Seminars in Nephrology, Paul Eggars notes that one of the
basic questions facing any cost comparison of dialysis and transplantation is whether
graft survival rates are sufficiently high so that subsequent dialysis cost savings offset
the initial transplant costs. In a study conducted by Dr. Eggars on Medicare
reimbursement data from 1979, he estimated that the high initial costs of
transplantation were recovered in about 4 years for cadaveric transplants and in about
3 years for living donor transplants. Graft and patient survival estimates at that time


12

STATEMENT OF HELEN L. SMITS, M.D.
HEALTH CARE FINANCING ADMINISTRATION

Mr. Chairman, and members of the subcommittee, | am pleased to be here this
morning to discuss Medicare’s program for people with end stage renal disease
(ESRD). 1'd like to begin with a basic explanation what ESRD is and how it is treated.
Following this, I'll discuss how it became a condition for Medicare eligibility, present a
profile of ESRD beneficiaries and the current program, review new developments in
quality improvement, and address issues relating to ESRD and managed care

ESRD AND ITS TREATMENT

ESRD is a kidney impairment that is irreversible, cannot be controlled by
conservative management alone, and requires dialysis or transplantation to maintain
fife.

Kidneys filter the blood and regulate concentrations of essential fluids and
body minerals, such as magnesium, sodium, and potassium. When kidneys fail to
perform adequately, toxins accumulate in the blood, which results in a complex
condition called uremia, Left untreated, uremia is uniformly fatal. Even with
aggressive use of the therapies currently available, mortality in the ESRD population
is significant. About one-half of persons under age 35 will survive ten years on
dialysis; one-half of those between the ages of 35 and 64 can be expected to survive
for four years; and less than one-half of those over age 65 will survive two years after
dialysis is initiated.

Treatment for poorly functioning kidneys is limited to dialysis or transplantation,
with dialysis being the most frequent. Dialysis is a process of removing dissolved
substances from the patient's body to maintain the chemical balance of the blood
when the kidneys have failed. There are two types of dialysis: hemodialysis, in which
the blood is pumped through a machine that "cleans’ it and then returns it, and
peritoneal dialysis, in which a solution is put into the peritoneal cavity and removed
taking with it the accumulated toxins, Each hemodialysis treatment requires a
minimum of several hours, often three to four times a week. Approximately 82
percent of Medicare ESRD beneficiaries use hemodialysis, which is primarily given in
outpatient facilities. About 18 percent use peritoneal dialysis, which is given in the
home.

Transplants--or grafts--are becoming increasingly common, but are still
relatively rare due to a shortage of available organs. The operation is expensive, and
patients are required to take immunosuppressive drugs for the rest of their lives to
prevent organ rejection. Transplant recipients who are under 65 and are not
otherwise disabled lose Medicare entitlement 36 months after a successful transplant
However, only 50 percent of successful transplant recipients actually leave Medicare
after 36 months; the 50 percent who remain retain entitlement on the basis of age or
disability

PROGRAM HISTORY

Treatment of ESRD requires expensive advanced medical technology. In 1972.
Congress enacted legislation’ that extended Medicare eligibility to ESRD patients
Thus, the ESRD program is the only portion of Medicare in which eligibility is based
on the presence of a medical condition.

In terms of saving lives, the program has been enormously successtul.
Currently over 200,000 Americans are either on dialysis or have a functioning kidney
transplant. Without Medicare-financed coverage, it is unclear how the vast majority of
these people would have been able to afford this life-saving treatment,

"Social Security Amendments of 1972 (P.L. 92-603, section 299(1))


54

take into account the occasional patients for whom costs can be ex-
tremely high.

You also have to take into account the fact that the population
is changing. As you have heard, the number of patients is increas-
ing, increasing faster than was anticipated. Not only that, the pop-
ulation that is increasing is changing and becoming sicker, so you
have more complex patients who, again, are going to cost more
money.

Managed care would have the advantage of providing better co-
ordination of care, but I would emphasize that at a time like this
when we are just beginning to get a handle on quality in the ESRD
Program, it is not the time to go to capitation. We need to do the
demonstration studies that HCFA is proposing and learn from
these, because here we are dealing with a disease in which all the
patients are sick. This is a different situation to the general HMO
situation where you have the whole population to select from, and
a lot of People who are not sick. Here you have a sick population
with a chronic condition that is very expensive to treat, and we
need more experience with capitation before we go to this gen-
erally.

One final comment. Mr. Stark at the beginning of the hearing
made a comment about home dialysis only being useful in excep-
tional circumstances. I disagree with that. We in health are par-
ticularly enthusiastic with the idea that home hemodialysis eventu-
ally may come back into wider use. There is data from the U.S.
Renal Data System which is not yet published, but was mentioned
at a meeting 2 weeks ago. This showed that not only is the quality
of life better with home hemodialysis, but the survival of patients,
when adjusted for all the factors that may affect survival, is signifi-
cantly better than survival for patients who are on in-center
hemodialysis. That is my little plug from Seattle.

In summary, I think capitation could well prove a fruitful ap-
roach to containing costs in the ESRD Program, but I do not be-
lieve this is the moment to look at it generally. Let’s do a dem-
onstration project first.

Thank you very much.

[The prepared statement follows:]


96

TABLE

8 MONTH INTERIM STANDARD MORTALITY RATIOS FOR
THREE MIDWEST DIALYSIS FACILITIES

I. FOR ALL INSURANCE CATAGORIES

FACILITY: PATIENTS. SMR
rN ” 50
B 188 4
c 0 30
ALL 307 eo

FACILITY PATIENTS: sR
A 5 93
B a 54
c 2» 0.00
ALL 105 AB

I. MEDICARE INSURANCE.

FACILITY PATIENTS. SMR
A 56 BD
B 90 SI
c 36 M6
ALL 182 a2

IV. COMMERCIAL INSURANCE

FACILITY ‘SMR
A a 218
B 7 8
c s 99


75

‘© Evaluation and treatment of edematous states
‘© Complicated hypertension, resistant to standard treatment
© Evaluation of hematuria and proteinuria

In all these instances, nephrologists provide either direct care or consultative care to patients with
significant, and often life-threatening, illnesses. These patients are provided nephrologic care in
various settings, including outpatient offices, acute care medical and surgical hospital beds, and
critical care units.

‘Therefore, a nephrologist is a hybrid physician, who serves as a primary care physician in certain
instances, and as a subspecialist in others. APA believes that nephrolagists should remain the
primary care physicians for ESRD patients who are treated with dialysis or transplantation. Such
an arrangement will provide for optimal patient care, better outcomes and likely less expense.

ERYTHROPOIETIN

RPA does not agree with the concept that reimbursement for Erythropoietin (EPO) should be
‘bundied into the Medicare ESRD composite rate. It is RPA’s belief that there is no clinical or
quality-assurance reason to bundle EPO payments into the composite rate

EPO is a hormone produced by the kidney which is necessary for the body's production of red
blood celts. Patients with kidney failure produce an inadequate level of EPO which results in
anemia. Epolin, a bioengineered form of EPO, is administered to these patients in order to
maintain the proper level of red blood cells. The EPO drug is currently reimbursed by Medicare at
a rate of $10 per 1,000 units. This reimbursement policy is the most rationat method available
and the safest for the patient because it allows the nephrologist to prescribe EPO solely on the
basis of the patient's need.

We believe that a primary motivation behind the proposal to bundle EPO into the composite rate
is financial. Large volume providers of the drug can purchase EPO from the manufacturer at a
discount. if EPO is bundled into the composite rate, large volume providers will be able to
increase their financial return because of their buying power, thereby creating a disparity in
financial returns between large and small distributors.

it is also our understanding that there is an interest in bundling EPO reimbursement into the
‘composite rate in order to provide an economic disincentive against over-prescribing the drug.
‘The perception that EPO is being over-prescribed is based on HCFA data which demonstrates
that EPO dosing has continuously increased per patient while the average hemocrit (a marker of
the degree of anemia) has remained flat. if this is the case, then the question of why patients are
becoming resistant to the effects of EPO should be addressed by quality assessment and quality
improvement methodologies, not economic disincentives.

Similarly, RPA is aware that anecdotal evidence exists regarding overdosing of EPO. However, a
policy decision on bundling EPO into the composite rate should not be based on such assertions,
father, should be made after data has been collected and a scientifically accurate solution
developed. The RPA is currently exploring different statistical models and other data driven
studies regarding bundling and capitation of dialysis services, including EPO dosing, in order for
the renal community and policy makers to come to such a solution. Additionally, the Health
Services Quality Bureau and the renal Networks are planning a study on the quality and cost
‘effectiveness of EPO. Therefore, APA believes that a decision to bundle EPO into the composite
rate would be pre-mature at best until proper data has been collated and analyzed. Once this
has occurred, a scientifically accurate policy decision can be made.

PHYSICIAN OWNERSHIP/SELF-REFERRAL

As the Subcommittee is well aware, the Omnibus Reconciliation Act of 1993 (OBRA 93) contained
language expanding the original self-referral prohibition to certain other designated health
services. Among.these designated health services was the listing “inpatient and outpatient
hospital services". This language would prohibit situations where a nephrologist contracts with a
‘hospital to provide its inpatient or outpatient dialysis services if the nephrologist (or group of
nephrologists) had a financial interest in the dialysis service. This prohibition effectively hampers
the continuum of care that nephrologists provide to their dialysis patients and it may have an
adverse atfect on a patient's access to inpatient dialysis. We ask that you work to fix this problem
to ensure that dialysis care is not impeded.


36

The exact payment rates will be determined based (1) partially on
analyses conducted by Brandeis University of ESRD expenditure
data and (2) through negotiations with potential bidders on the
demonstration. However, it is very likely that there will be two
basic payment rates, one for dialysis patients and one for
patients with a functioning kidney transplant.

In 1991, the yearly cost to Medicare for a dialysis patient was
about $44,000; for a functioning graft patient, was $7,400. A
monthly equivalent of these amounts would be a rough
approximation of what would be paid. In addition, both of these
amounts are likely to be adjusted for patient case-mix, such as
age and the presence of diabetes. Finally, it is expected that a
specjal one-time payment will be needed to pay for the cost of
the transplant.

This question was asked of a different panel and th information
given was incorrect. This is the correct answer:

© When does Amgen’s exclusivity to market erythropoeitin
expire?

A: Amgen’s exclusivity to market EPO is protected by the Orphan
Drug rules under the FDA. The Orphan Drug Act gives Amgen
exclusive rights to market EPO for the treatment of anemia
associated with ESRD for seven years. During this time, the
FDA will not consider applications from other companies for
the same basic product. The FDA granted this protection to
Amgen specifically for this medical condition. This
protection ends on December 31, 1996. Amgen also has Orphan
Product protection for the marketing of EPO for the
treatment of anemia associated with HIV. This was granted
on December 31, 1990 and expires on December 31, 1997.

These protections under the Orphan Drug Act are distinct
from the patent Amgen holds on the organism that produces
EPO, The patent is distinct from FDA approval. It expires
on October 27, 2004.

Chairman THOMas. Very ood. Thank you.

The gentleman from California.

Mr. StTark. Two issues that are just very difficult to deal with.
At one point a year or two ago, I had suggested that we do some-
thing like a congressional commendation, a medal or something
like that for people who would donate organs—wouldn’t cost much
and it would be a symbolic gesture to encourage it. We tended to
run into lots of problems with postage stamps and other things we

ave.

Is there anything that might be considered, or perhaps the Sec-
retary might have a secretarial commendation, on the theory that
sometimes it is just an omission of someone who has died, and peo-
ple are in shock and really need a little encouragement to perhaps
make the donation? That is one thing I would like you to consider.

Second, the question that certainly none of us like to discuss and
ought not to be the subject of legislation, but whether you have
thought about it, there is some indication, and I think Dr. Rettig
is going to testify later, that we are dialyzing folks who, for other
reasons, are so ill that whether or not the dialysis is successful,
they are going to die from something else.


48

A second implication is the need to examine the major clinical contributors to
kidney failure of diabetes and hypertension. As the nation improves its treatment of
these diseases, it may simultaneously be increasing the pool of prospective patients
destined for kidney failure. Consideration should be given to the progress of medical
research, to the implications for behavioral change by individuals, especially related to
diet, and to the probable costs of a health care system that fails to provide adequate
primary care to many low income citizens early in their lives only to reap the costs of
providing very expensive treatment for the failure of a major organ system later in life.

Finally, I should note that the IOM committee in its 1991 report included a
chapter on ethics that was specifically concerned with whether too many patients were
accepted to treatment, The existence of an entitlement has often been interpreted by
clinicians as an obligation to treat kidney failure, regardless of other complicating
medical conditions and the prognosis of patient benefit, The willingness of some
clinicians to accept for treatment, for example, an elderly demented patient, a persistent
vegetative state patient, or a blind diabetic amputee is widely recognized and discussed,
if not well-documented.

The IOM committee recommended that "patients, professionals in adult and
pediatric nephrology, and bicethicists develop guidelines for evaluation of patients for
whom the burdens of renal replacement therapy may substantially outweight the
benefits.” We thus raised, but did not resolve, a very hard question, and encouraged a
discussion that continues to the present.

Although the IOM committee concluded that this issue was not one on which
legislation was appropriate, my personal conclusion today is that the slow pace at which
guidelines development has progressed reflects the great difficulty that physicians and
others have in confronting this issue. I have also concluded that this is not an issue on
which the Congress should continue to remain silent.

‘The 1972 legislation that authorized this entitlement included the following
paragraph:

+ "The Secretary is authorized to limit reimbursement under Medicare for kidney
transplant and dialysis to kidney disease treatment centers which meet such
requirements as he may by regulation prescribe: Provided, That such requirements
must include at least requirements for a minimum utilization rate for covered
procedures and for a medical review board to screen is
for the proposed treatment procedures [emphasis added]."

believe the time has come for the Congress to ask the patient and provider
communities to address the issue of the “appropriateness of patients" for treatment with
respect to developing guidelines for patient acceptance criteria. It need not and should
not consider legislation. It can and should indicate to the public and to all interested
parties the importance that the issue be responsibly addresssed.


117

a little tired of doing the same thing all the time, so it was time
to try another therapy.

Chairman THOMAS. Your decision is kind of like my 4/5 lumbar
area. They are getting better at it and if I can still wait around,
I am going to wait as long as I can.

We are talking about, obviously, quality of life before your trans-
plant and after the transplant is significantly changed. So you
waited, but now you are glad you had the transplant?

Dr. LuNDIN. First of all, Pdon't know that the quality of life
was—in some ways it is different in that you are not restricted to
a machine, but I was able to go to college, medical school, play bas-
ketball, many things on dialysis that I can’t do today, although I
am almost 30 years older. That may be the explanation.

Chairman THomas. When we say that some patients are prob-
ably not good candidates for transplants, is that a timing factor,
that had we had the capability for a transplant and the organ
available at the same time? Or, that at an earlier age, they would
have been candidates?

Setting aside the availability of sufficient organs, is it reasonable
to say that if we had the timing and the ability to increase the po-
tential for transplants, that virtually everyone at one time on a
time progression would be a candidate for transplants?

Dr. LUNDIN. Well, because of the major surgery involved with
transplant compared to dialysis and the immunosuppressive drugs
which have their own level of toxicity, it becomes increasingly risky
for older patients, patients with other medical complications to un-
dergo that and survive.

As I said, it took 6 weeks for my transplant to finally work, and
at the state I was in, I doubt very seriously if the kidney had not
worked that I would have made it back to dialysis. And that 6
weeks was a very debilitating time of course.

Chairman THOMAS. Well, clearly if you have various infections,
because of the immunology, you wouldn’t be able to do it, but I am
just trying to get a feel for the significant increase in transplants,
and then the subsequent reduction in dialysis over the next several
years, but I am getting some resistance.

Dr. LUNDIN. No. The availability of donors is quite clearly a prob-
lem.

Chairman THomaS. That is the key.

Dr. LUNDIN. Yes. If there were more donors, then certainly most
of the younger people today would opt for a transplant.

Dr. Latos. If I might comment, Mr. Chairman, I think Dr.
Lundin’s hesitancy to undergo transplant for many years is no sur-
prise to many of us who have also taken care of people, and the
real risks in the days gone by that immunosuppressive agents and
the programs, we had to counter the rejection episodes, which oc-
curred virtually 100 percent of the time, were not very good, and
patients who got treated for rejection with very high doses of pred-
nisone did not do well.

Even 20- and 25-year-olds did very poorly with repeated episodes
of rejection. It was only with the advent of cyclosporine that the
early severe rejections have been decreased, that many patients are
able to undergo transplant much safer.


53

Chairman THomas [presiding]. Thank you.

STATEMENT OF CHRISTOPHER R. BLAGG, M.D., EXECUTIVE
DIRECTOR, NORTHWEST KIDNEY CENTERS

Dr. BLacc. Thank you. I am Christopher Blagg. I am executive
director of the Northwest Kidney Centers in Seattle, which is a
large community-based, nonprofit corporation, the oldest freestand-
ing dialysis unit in the world. I have been asked to talk about the
capitation study because I was one of the consultants to the study
that was completed by the RAND Corp.

My written testimony contains an outline of the issues, and I
don’t propose to fi through them except to say that I think it was
a successful study. It identified payment methodology based upon
a rate for dialysis, a rate for the patient with a functioning trans-
plant, specific lump sum payments for a kidney transplant, or for
a kidney transplant failure, both of which are expensive events,
and as Dr. Powe mentioned also, risk adjustment for sick patients
who may be outliers, and so forth.

I included some of the cost data from the study in my written
testimony. The problem is how to contain costs for patients with a
disease that requires very expensive treatments and for whom the
costs can vary widely, depending upon patient characteristics, com-
plications, and the treatment the patient receives.

I would reverse the order of the things Dr. Powe has just said
and say the most important thing, I believe, is quality of care. It
is most important if we are going to go to capitation that we ensure
we have good measures of quality of care first.

Several years ago we became concerned because the mortality
rates in U.S. hemodialysis patients were significantly higher than
for patients in Europe, Australia, and other Western countries. It
is only as we have collected more data and started to do some
things looking at quality that this has begun to change.

I Believe that at this point in time we are not going to be able
to get much economy by cutting the costs of dialysis. This is be-
cause as we are trying to provide better dialysis, we are going to
use more expensive dialyzers, and are probably going to increase
the length of time we dialyze patients. Where we can contain costs
is in terms of hospitalization, physician services, access surgery
services, and so forth. Those are the areas where capitation would
give the opportunity to reduce costs. So, if we are going to go to
capitation, first we must ensure we have good quality control; that
any capitation program deals with the problem of selection so we
don’t get selection bias and skimming off of the better patients to
capitation.

econd, we must make sure that whatever the system is, it does
not skew patients’ choices. Patients need to have access to trans-
plantation and to various forms of home dialysis. It is possible to
skew things, depending how you set up the system. I think you
need to find ways of encouraging patients to enroll in managed
care if this is what we are going to do, because right now I believe
it is true to say that Medicare continues to have problems in get-
ting patients generally to enroll in managed care.

I think you also have to take into account geographic variations
in costs in different parts of the country. You certainly must also


142

tion, and in the last year that has been folded into the physician
payment system and will be adjusted. The remaining one is the di-
alysis system. I don’t know, given the number of Gramm-Rudman-
Hollings freezes and other specially legislated freezes and suspen-
sions, what the actual difference would have been between 1983
and 1985 had there been the same sort of mechanism in place, no.

Mr. ENSIGN. If we built in an inflation adjuster, it would seem
to me that advances in technology that would save costs would pre-
clude the government from saving these costs.

Mr. BERGER. Congress has asked the Prospective Payment As-
sessment Commission to look at dialysis facility reimbursement
and to make an annual recommendation and it has done so for 3
years. In doing that, it looks at the actual trend to the best it can
calculate in the inflation, the costs of labor and other goods that
dialysis providers have to buy.

It also looks at provider efficiency gains and at the net effect of
new technology. It comes up with a single composite from those
three factors which is its recommendation in terms of those quan-
titative numbers that are available for an annual change.

I think that is almost precisely comparable to the way in which
the ProPac recommendation for hospital reimbursement is made,
and we would certainly be very happy to see those elements
factored in.

Mr. ENSIGN. So that would be acceptable to you on the inflation
adjuster?

rt. BERGER. Absolutely. Not just a pure blank check for some fi-
nancial indicator; no.

Mr. Ensicn. Thank you, Mr. Chairman.

Chairman THoMaS. The gentleman from Nebraska.

Mr. CHRISTENSEN. Mr. Thiry, in your written testimony you talk
about the extension of COBRA benefits. Did you want to expand
on that or not?

Mr. TuiRY. The reasons for advocating are the same reasons that
we advocate in general putting more of these patients in the pri-
vate sector. In that particular scenario it seems especially unfair
that ESRD patients are not having the same right of choice that
other employees have. But our basic motivation is the same.

Mr. CHRISTENSEN. OK. I tend to agree with most of your testi-
mony and appreciate your time here today. Thank you, Mr. Chair-
man.

Mr. Tuiry. Mr. Chairman, you asked a question earlier about
breakthrough investments which could radically improve the qual-
ity and reduce the cost of dialysis care. 1 believe some of those are
out there.

I just recently received the highest quality investment oppor-
tunity in a wearable kidney, truly the best one I’ve seen. It is not
going to get funded because even if it ends up working, it would
cost several million dollars and a few years of development. Yet no
one is confident under the current reimbursement system that the
government will be able to do an effective, long-term cost analysis
and weigh in the up front investment versus the downstream costs
of managing those patients. I would submit that there is a definite
chilling effect. This particular venture would radically alter the ec-
onomics of my business in a way that will be very bad for my


49

Mrs. JOHNSON {presiding]. Dr. Powe.

STATEMENT OF NEIL R. POWE, M_D., M.P.H., M.B.A., ASSOCIATE
PROFESSOR, JOHNS HOPKINS UNIVERSITY SCHOOL OF
MEDICINE

Dr. Powe. Thank You, Members of the Subcommittee. I am an

associate professor of Medicine at Johns Hopkins University. I am

currently directing an End-Stage Renal Disease Patient Outcomes

Research Team or PORT funded by the U.S. Agency for Health

Care Policy and Research. The work focuses on defining the effec-

tiveness and cost of treatment for individuals with end-stage renal
jisease.

I previously led a national study for HCFA of the effectiveness
of erythropoietin, a relatively new and expensive treatment for ane-
mia of ESRD. This study included an evaluation of the impact of
different payment methods on access, outcomes, and cost.

In my testimony today I will address the issue of how payment
methods to reimburse providers will affect cost, access to care, and
quality of care.

The first issue is cost. The medical care of ESRD patients is ex-
pensive. Persons with ESRD consume 8 to 10 times more medical
resources on an annual basis than the average Medicare bene-
ficiary. Total Medicare expenditures for ESRD are likely to grow
due in large part to the continuing increase in the population of
older adults who are experiencing ESRD. The large costs suggest
that there is an opportunity to develop and implement clinical, or-
ganizational, and payment innovations that will help reduce the
cost of ESRD care.

Both renal physicians and facilities are paid a fixed payment for
treatment for medical services related strictly to dialysis. This par-
tial capitation method of payment has been viewed as an effective
means of controlling program costs. Evidence for this is that ex-
penditures for nondialysis, noncapitated care, have grown at a fast-
er rate than expenditures for dialysis care. The extension of pro-
vider responsibility to manage the total care of the ESRD patient
using capitation methods that encompass all services is therefore
very attractive as a means of continuing cost containment. Capita-
tion has the potential to impose discipline on medical spending
through more predictable outlays. Furthermore, capitation methods
reward efficient providers and have the potential to promote better
coordination of care because a provider is made fully accountable
and encouraged to provide more comprehensive care.

Capitation payments are often constructed with the assumption
that all patients are average. However, patients with ESRD are
heterogenous; heterogenous with regard to other medical conditions
and the resources necessary to provide their care. For example,

ersons with ESRD and diabetes or age greater than 65 years have
igher expenditures than persons without these attributes.
ther conditions such as heart disease, bone disease, and bleed-
ing disorders are frequently present. If Medicare were to pay an
average fee to providers who take care of less severely ill patients,
the program might pay more than necessary. On the other hand,
if a provider were to care for patients who are more severely ill and
consume more necessary medical resources, it might lose money


78

hemodialysis therapy. These guidelines will hopefully serve to improve the survival rates of
Patients on hemodialysis and serve as an example of the renal community's mission to improve
the quality of life of the ESRD patient,

MEDICARE SECONDARY PAYOR PROVISION FOR ESRD

‘The Renal Physicians Association would oppose legisiative initiatives designed to extend the
Medicare Secondary Payor provision for ESRD services beyond twenty-four months. Currently,
Medicare is the secondary payor for ESRD services for eighteen months,

FPA believes that extensions beyond the already envisioned 24 months would have a detrimental
effect on dialysis patients. Such an extension could lead to higher insurance costs to ESRD
patients as insurance companies try to offset the price affects of the extension, Large price
increases could lead to patients dropping their coverage altogether. Some health plans could
drop their ESRD coverage completely. RPA is also concerned that such an extension would
cause health plans to continue to tower the ESRD reimbursement rates. In addition, an extension
beyond twenty-four months could provide employers with a disincentive for hiring ESRD patients
‘or even those predisposed to ESRD, such as individuals with hypertension or diabetes.

, BIOMATERIALS AVAILABILITY

As the Subcommittee may know, there is an impending threat to the availability of the raw
biomaterials used in the manufacture of implantable medical devices, Because of massive class
action suits over bodily injuries alleged to have been incurred from silicone breast implants, the
providers of raw biomaterials to device manufacturers may withdraw entirely trom the medical
market, Possible medical and fegal settlement costs reportedly cost in the billions while revenues
to the suppliers often compare at less than $1 milion,

‘The problem lies with U.S. tort law that allows an individual who has suffered bodily injury from a
product to sue all participants involved in the manufacture of the product. In medicine, this
applies to the suppliers of biomaterials for device manulacture.

Because of this liabilty situation, in 1992 suppliers of raw biomaterials informed medical device
manufacturers that they were withdrawing from the medical device market for all implantable
devices and some temporary devices. They would continue to supply these materials for up to 36
‘months to allow time for the manufacturers to develop alternative sources. The 36 month
deadline ends on December 31, 1995. Disruption of this biomaterial source would prove
Gisastrous for dialysis patients. Because of the suppliers withdrawal, teflon will no longer
available for use in vascular access grafts, Without the use of these gratts, dialysis, quite simply,
becomes almost impossible,

As a result of this situation, Senator Joseph Lieberman introduced the Biomaterials Access
Assurance Act of 1985 which would eliminate raw materials liability when the raw materials
supplied to the medical device manufacturer either meets the specifications as advertised by the
raw materials manufacturers, or meets the specifications established by the medical device
manufacturer, Without this liability relief critical biomaterials, like tefion, will be taken off the
market leading to critical shortages of vascular access grafts as well as other implantable devices,
We strongly urge the Subcommittee to work with Senator Lieberman and other members of
‘Congress to ensure that patients continue to have access to needed medical devices critical to
their care.

CONCLUSION

‘The RPA fully supports Medicare's ESRD program. The program is responsible for the lives of
nearly 260,000 people. Despite the increasing aga and sickness of the ESRD patient, the renal
community has worked hard to make dialysis care both high quality and cost-etlective. As a
result, expenditures for the program have been kept to a minimum. However, RPA is concerned
that further cuts could lead to quality problems. Nephrologists and other providers in the renal
‘community are dedicated to serving the needs of our patients and to continually improving the
Gelivery and outcomes of dialysis care. RPA welcomes the Subcormittee's oversight of the ESAD
program and we offer our fullest assistance in helping members of Congress dratt policy to
improve an already supertative program.


88

Kidney patients themselves have expressed serious concerns with
managed care plans according to an Office of Inspector General’s
report entitled, “Beneficiary Perspectives of Medicare Risk HMOs,”
released in March 1995. Until there is better data on quality of
care in HMOs for ESRD beneficiaries, the NRAA supports the con-
tinuation of Medicare’s rule that prohibits new ESRD patients from
joining an HMO unless they are in HMOs when their kidney fail-
ure begins. Waiting for the findings of HCFA’s ESRD capitation
demonstration would make the most sense.

We strongly recommend that this Subcommittee seriously con-
sider writing into law the same type of inflation adjustment for di-
alysis facilities like that provided to hospitals and other Medicare
providers. This was an JOM recommendation. We must vie for
labor and supplies with those who do receive updates in their pay-
ments.

For this year, we earnestly request the Subcommittee increase
payments to dialysis facilities by 3.7 percent for fiscal year 1996 to
reflect the projected price increases facilities will experience in the
coming year and pay for quality improvements. The NRAA is great-
ly concerned that dialysis facilities will not be able to continue to
provide quality care without an increase in payments.

We support HCFA’s continuous quality improvement initiatives,
including the national anemia study and the core indicator study
which supports a 1.2 Kt/V adequacy standard. Those studies have
provided benchmark data for dialysis facilities to improve their
quality of care.

There is also special concern for low-volume rural facilities and
inner city dialysis facilities that treat a kidney patient population
which requires extra social services.

Our concern is, based on the fact that we have been doing every-
thing we can to be cost effective during the past 20 years, the list
of cost containment possibilities has been exhausted. The new Kt/
V standard will only increase our costs. The only things left to cut
will impact quality. Our membership strongly believes we are very
close to that point.

We also recommend that the ESRD secondary payer provision
should be expanded to 24 or 30 months, as it will save Medicare
money and help fund the 3.7-percent increase. EPO should not be
bundled into the dialysis payment as it will create incentives to
underdose patients which would result in higher, rather than lower
costs to Medicare, as these patients would require more medical
care; in particular, more hospitalizations. The physician self-
referral provisions which apply to physician-owned dialysis facili-
ties, concerning the administration of prescription drugs in their fa-
cilities and contracting with hospitals for inpatient acute care,
should be eliminated as they create unnecessary barriers to needed
medical care.


43

I dwell on these numbers for one simple reason. Whatever the Members of this
Committee think about this part of Medicare, there is no escape from the fact that the
growth of the patient population is the primary factor driving cost increases. I will return
to this later.

ACCESS

‘The kidney failure treatment entitlement is as close as we come in the United
States to universal coverage of any condition. Individuals are eligible for entitlement if
they are currently or fully insured under Social Security, have been diagnosed as having
permanent kidney failure, and have applied for benefits, or are the spouse or dependent
child of such an individuals. Thus, over 90% of the U.S. population are covered by
Medicare for permanent kidney failure.

‘The IOM committee made basically two recommendations regarding access.
First, it recommended that there be universal coverage of all American citizens and
resident aliens. If the nation is prepared to insure more than 90 percent of the population,
the committee r easoned, it ought to complete the task and insure the entire population.

It is safe to say that the Congress greeted this recommendation with studied indifference.

Second, with respect to kidney transplantation, the IOM committee recommended
that coverage for immunosuppressive drugs be made coterminous with the duration of
coverage for the transplant patient. The 1972 legislation had limited coverage for the
procedure to 12 months, which Congress extended to 36 months in 1978. The rationale
for the recommendation about immunosuppressive coverage was that the most cost-
effective treatment and the one with the highest quality of life on average should not be
jeopardized by a failure of Medicare to pay for the necessary drugs. AS a result of the
‘Omnibus Budget Resolution Act of 1993, coverage of immunosuppressive drugs has
been extended from 12 months to 18 months effective January 1 of this year; it will
increase to 24 months in 1996, to 30 months in 1997, and to 36 months on January 1,
1998 and thereafter.

REIMBURSEMENT

Reimbursement for ESRD treatment is important for a simple reason: total
progam costs are very high and the beneficiaries are few in number relative to the total
Medicare population, perhaps one-fourth of one percent.

At the level-of per treatment reimbursement, the ESRD. program has been a great
success, The IOM committee analyzed the real dollar decrease in per treatment payment
from 1974 dollar through 1989. A combination of an unchanged reimbursement rate for
10 years, followed by a downward revision in 1983, a more modest downward revision
in 1986, and NO ADJUSTMENT FOR INFLATION at any time during the program's
history, resulted in a 1989 payment rate that was approximately 40 cents on the 1974
dollar. A recent update through 1994 puts the figure closer to 30 cents on the 1974


133

you that if you do, then that patient will be back in the hospital bed sooner and
sicker. Any good Medicare HMO executive will tell you that most of their
enrollees (and an even higher percentage of their enrollees with chronic
conditions, since the economic benefits of an HMO are more powerful for
them), do not switch plans often, and so they are very sensitive to the multiple
year cost implications of any care approach.

Equally significant are the indirect expenses. Most dialysis patients who were
working stop, because of the trauma and inconvenience associated with the
beginning of dialysis and the ongoing disruption caused by the care pattern and
regular hospitalizations.

‘The Basic Prevention Premise
Our premise not complicated, it is common sense. It is not theoretical, it is

being proven every day in the actual real world of patient care. It will keep
people healthier.

Our premise is that the private sector/managed care system will invest more and
more effectively in prevention than Medicare fee-for-service.

This is true whether you assume most care givers are noble humanitarians or
medical mercenaries, because for a chronic disease state they both want to do
the same thing, namely delay the onset of the disease itself and prevent
complications and extreme deterioration once the disease is in place.

The economic incentives motivate the mercenary. But please understand your
fee-for-service system makes things basically impossible for the humanitarian.
Some of our patients would be better off if you reimbursed for more social
work, dietetic work, homecare, and patient education. As a citizen I do not
advocate your loosening the reimbursement restrictions in any of these areas
because some providers would abuse the situation and work to the maximum
allowed for all eligible patients. But the current system makes it impossible for
the caregivers to make the larger investment for the particular patients who
would benefit.

The soul of managed care lies in discretion around established baseline
standards. Health Care Financing Administration (HCFA) fee-for-service is
genetically wired for rigidity, not discretion.

When there is unified multi-year accountability of the total quality and total cost
of a patient population, medical magic can and does happen. For patients
costing an average of $150,000 to $250,000 each, who have thrice-weekly
contact with their caregiver, the private sector/managed care system will put in
place the unified, long-term accountability with discretion.


113

So I am going to urge you to find another way to get a little more
reimbursement than to keep pushing the private pay, because I
think we are flirting with a disaster that we don’t want.

I am going to urge you to set a minimum standard, because I
think you can. Maybe it is not 1.2, but you can set one that—below
which no one dare go. I think you help the patients a lot by doing
that. And then we can see maybe whether we can provide more—
because my time is expired, but you may want to respond.

Ms. Sims. I wonder if I could address your first comment. We
have, to this point, not supported minimum standards because we
feel like they will be interpreted as minimum standards.

Mr. STaRK. Above which no one would go?

Ms. Sims. Exactly. Exactly. But we have supported the work that
has been done on the core indicator project which has looked at
quality core indicators, in other words, red flag areas that you
would want to look at, the patient’s outcomes, in four areas, and
that is adequacy being one of them and using that number, ane-
mia, hypertension, and albumin or nutrition, and I think another
problem with the standard as proposed currently is that there are
other factors that need to go with it.

That is, looking at nutrition, there are many studies right now
that say it is not an independent factor. Also, I think that we have
already seen lately that the standards continue to be elevated by
the community itself, so to legislate a number would be a problem;
and in fact, again, it would become a minimum, not something that
people would strive for.

So that has been our big concern with standards. I think the
work that has been done on those quality core indicators has taken
a much more appropriate tact so far. It has looked at quality from
the research. It is literature-based indicators and it has also pro-
vided data back in a very quick turnaround to the community that
is, although it is nationally specific and network specific, it al-
lows—the scope of work contract calls for work being done i: those
facilities specifically where their patients are, against those na-
tional core indicators, and then looking at ways under quality im-
provement for those facilities to start to work with the patient spe-
cific data.

Mr. STARK. At some point we ought to be able to set a minimum.
No dialysis could be the standard if you say that is a minimum.
I hear what you are saying, but it would seem to me there ought
to be a floor below which—f'am sorry, Mr. Chairman.

Chairman THOMAS. No. I just share the concern that establishin;
a floor then becomes a ceiling. The core concept is one we should
look at. Does the gentleman from Nebraska wish to inquire?

Mr. CHRISTENSEN. Yes. Thank you, Mr. Chairman.

Ms. Wish, earlier you mentioned a study that you have done on
EPO, and I wondered if any of your studies reflected the financing
arrangement. I am told that in paying providers, a lump sum is
how some providers are being paid, and I wanted to know if, in de-
termining the optimal financial solution to the dialysis centers,
maybe a monthly composite rate has been looked at.

Tam told that by using bundling versus a pay-as-you-go, that we
may be causing higher rates of illness, possibly causing hospitaliza-



Disproportionate reliance on the public sector for E:RD
coverage has relieved private insurers from having to dea:. with
the clinical and cost management of the ESRD patient. As a
result, the development of models for the cost-efficient clinical
management of the ESRD patient, a population at least
theoretically well-suited gor managed care, ie far behind sinilar
development in clinical areas of more immediate concern tu the
private payer community. while Medicare appears ready to
implement an ESRD capitation demonstration project, that «ffort
is limited and will not bear policy fruit for some time; the
natural evolution of the private insurance marketplace would be a
far more dynamic engine for development and testing of
alternative models for management of ESRD care. The isolition of
the ESRD program from the forcea shaping the development of the
larger health care system have deprived dialysis patients and
providers of exposure to the variety of innovative and
potentially valuable models for service delivery, care
management, quality assurance, and risk~sharing
which have been evolving in recent years in the private health
care sector.

Congress should remove restriction on length of time for
Die.

‘This will give ESRD providers a better payer mix, save the
Medicare program a meaningful amount of money each year, iCBO est
$800 million in the budget period) and help integrate ESRI
Clinical management into the mainstream of development of the
emerging and more cost-effective health care system. It could be
accomplished without any harm to beneficiaries, particularly in
conjunction with basic insurance market reforms addressing
portability, pre-existing condition exalusions, etc.

Congress should also actively pursue otner changes, tc
encourage rather than discourage integration of the clinical
management of ESRO patients into the mainstream of the private
health care sector. Broader opportunities for ESRD patierts to
participate in HMO risk contracts would support this goal, as
would demonstration projects for a variety of capitation models
and/or voucher systems.

Finally, while the dialysis composite rate was an early
example of how a prospective payment system could create
incentives for providers to behave more efficiently, and cialysis
providers have been extraordinarily creative in finding
efficiencies to absorb the inflation they have experienced in the
last 12 years, the totality of Medicare payment rules applicable
to dialysis providers today institutionalizes a welter of
perverse incentives which undercut overall cost control efforts
and which discourage optimal deployment of clinical resources.
Reimbursement policy for human recombinant erythropoietin (EPO)
is a case in point.

EPO, an artificial form of a hormone produced by healthy
kidneys and essential to red blood cell production, is
administered with close to 90% of all dialysis treatments, yet it
is reimbursed separately on a dose-related basis. There is,
then, an econonic incentive for providers to use more as cpposed
to less EPO. Consistent with that incentives, HCFA data from
facility billings shows that the average dose of EPO administered
in the last 3-4 years has skyrocketed, from approximately 2,700
units when the present payment system was implemented to about



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155

One of the side effects of ESRD is that the kidneys often times cannot produce
erythropoietin, a glycoprotein necessary for the production of red blood cells. As a result,
individuals with ESRD often contract anemia which leads to other medical complications.
However, the use of EPO, a synthetic version of erythropoietin, allows the body to produce red
blood cells, thus avoiding anemia and the resulting complications. Medicare currently
reimburses EPO on the basis of actual doses administered. At present, this rate is $10 per 1,000
units of EPO. DCI feels that the current reimbursement mechanism ensures that individuals who
require EPO will receive the drug.

To the extent EPO is included in the dialysis composite rate, some providers may
have a disincentive to provide EPO to individuals with ESRD who would benefit from its use.
Since providers will receive the same rate regardless of whether EPO is used, many providers
may elect to not administer EPO and save the cost otherwise associated with procuring the drug.
To the extent the patient contracts anemia which leads to other complications, the cost of such
complications will be borne by another provider (such as a hospital); ultimately Medicare will
incur the cost of such complications.

Asa result, not only will it be more cost effective for Medicare to reimburse EPO
in the first instance, but by removing any element of cost justification on the part of providers,
individuals with ESRD will be guaranteed to receive medically necessary treatments integral to
their care.

Exten:

Under the current Medicare ESRD program, once an individual is diagnosed with
ESRD and becomes Medicare eligible (after a 3 month waiting period), Medicare assumes
secondary payer responsibility for the individual's dialysis expenses for an 18 month
coordination period. During this period, the individual's employer group health plan or other
private insurance assumes the primary responsibility for the individual's dialysis related
expenses. DCI feels that extending the duration of this coordination period from 18 months to
24 months will result not only in a benefit to the Medicare ESRD program, but also a benefit
to individual's with ESRD.

Requiring private insurers to remain primary payer for an additional 6 month
period will result in several distinct benefits. First, the extension of this period will allow
Medicare to save approximately $25,000 per patient. With approximately 60,000 new patients
undergoing dialysis each year, the savings associated with such a change would be substantial
‘These savings can be used to fund programs such as quality assurance programs and inflation
updates for dialysis providers, all of which will benefit the Medicare ESRD program, dialysis
providers and individuals with ESRD.

Secondly, requiring private insurers to remain primary payer for an additional 6
month period will require these insurers to assume a greater responsibility for the care and
treatment of their enrollees with ESRD. Under the current system, the short period of
responsibility (18 months) for enrollees with ESRD provides private insurers little incentive to
maximize efficiencies. This situation occurs because unlike the health care costs of other
enrollees which can be recouped over time, enrollees with ESRD require costly treatments
continually during this period which will not be recouped over time. However, extending this
period will provide insurers with more of an opportunity to increase their efficiency through
beneficial relationships with dialysis providers in an effort to better manage their enrollees with
ESRD.

As a corollary, requiring private insurers to assume an increased responsibility
for the care of their enrollees with ESRD will likely result in the expansion of managed care
relationships between insurers and dialysis providers. ‘The proliferation of individuals with
ESRD who are covered by managed care programs from the current low percentages will
generate greater amounts of data with which to evaluate the feasibility and benefits, if any, of
shifting the Medicare ESRD program from a fee-for-service model to a managed care model.


159

Options for Improving Cost Effectiveness
of Medicare End Stage Renal Disease (ESRD) Program
by Increasing Organ Donation

Submitted to the Hearing Record of the
House Ways and Means Subcommittee on Health of
April 3, 1995

By

Carol Beasley, Managing Director
The Partnership for Organ Donation
Two Oliver Street, Boston, MA 02118

Introduction and Overview

Work done by HCFA confirms that if more end-stage renal disease (ESRD)
patients could receive kidney transplants, rather than relying on
hemodialysis, their quality of life would improve and the Medicare ESRD
program would save money, an estimated $42,000 per patient transplanted.1
Therefore it would be worth investing resources to increase kidney donation.

Work done by The Partnership for Organ Donation in collaboration with
eight organ procurement organizations (OPOs) and hundreds of hospitals in
the United States confirms that only about one third of the medically suitable
potential organ donors actually donate organs.2 By identifying all potential
donors and asking families to donate in a systematic and sensitive manner,
donation could substantially increase. Furthermore, most potential donors
are found in a relatively few large hospitals, which allows interventions to be
focused and efficient. Our work confirms that there is substantial opportunity
to increase donation by focusing on a few hospitals and implementing a
systematic donation process. Some thoughts on how Medicare could facilitate
effective donation practices follow:

To have the desired impact on organ donation, any programs or policies
initiated by Medicare should be guided by the following principles:

* Use performance measures and quality assurance approaches. Organ
donation lends itself well to a quality assurance approach. Large hospitals
could be required to analyze their donor potential and to track donation
outcomes for all suitable cases. This should be done with an established
medical record review methodology. OPOs can be helpful in carrying out
and analyzing medical record review.

As a rule of thumb, any acute care hospital with more than 350 beds
should have a medical record review at least annually; and hospitals with
between 150-350 beds should review their donor potential and
performance at least every two years.

One option is to require a specified performance level - maybe 50%
realization of potential organ donors - and those major institutions that


CONTENTS

Advisory of March 27, 1995, announcing the hearing
WITNESSES

Health Care Financing Administration, Helen L. Smits, M.D., Deputy
Administrator ma

American Association of Kidney Patients, A. Peter Lundin, M.D ..
American Neghrology Nurses’ Association, Terran Warren Sim
Community Dialysis Center, Diane Wis]

Johns Hopkins ‘University School of Medicine, Neil Powe, M.D
National Kidney Foundation, A. Bruce Bowden

National Medical Care, Inc., Edward E. Berger
National Renal Administrators Association, Diane Wish
Northwest Kidney Centers, Christopher R. Blagg, M.D .
RAND Corp., Richard A. Retiig .

Renal Physicians Association, Deri
Vivra, Inc., Kent Thiry

SUBMISSIONS FOR THE RECORD

Amgen, Inc., Thousand Oaks, CA, statement
Baxter Healthcare Corp., statement .....
Dialysis Clinic, Inc., Nashville, TN, statement
Gallion, Donald K., Sr., McDonough, GA, statement
Partnership for Organ Donation, Carol Beasley, statement
Transplant Recipients International Organization, Inc., Lisa R. Kory,
statement ....

ay


149

level to allow optimal development of red blood cells. In other words, no amount of
EPOGEN will cure the anemia of a patient who is allowed to become severely iron-
deficient.

CONCLUSION AND RECOMMENDATIONS

‘The Medicare ESRD program is remarkable in that it keeps 200,000 Americans
alive regardless of their social or economic status. Even successful programs can
usually be improved, but the Congress should beware of “improvements” in the
ESRD program that put patient quality of life at risk. Amgen recommends that the
Congress:

« Resist changes in payment policy to effect short-term savings; any
reduction in payments could result in additional long-term costs.

« Continue to support HCFA’s efforts to monitor the quality of care
provided to ESRD patients.

« Require that patients receive adequate dialysis and that their
hematocrits be appropriately maintained to control anemia, as a
condition of payment for dialysis and EPOGEN.


106

dialysis patients on Medicare at the end of two decades. The result of which as been a
twenty-two year process of refinement of policies, regulations and rates by the Congress, the
Health Care Financing Administration and the providers.

Unlike almost ail government supported health care delivery programs, the ESRD
Program experienced rate reductions for facilities and providers, in fact, the reimbursement
rate for outpatient dialysis in 1974 dollars has declined more than 60%

The introduction of new drug coverage added an unforeseen cost element to the
program. In 1986 the Congress allowed payment for anti-rejection drugs for transplant
Patients for up to one year post-transpiant, The benefit was extended to three years by the
Omnibus Budget Reconciliation Act of 1993. In 1989 recombinant erythropoietin, a synthetic
hormone used in treating anemia, was added as a covered item.

Another unforseen development has been the lack of growth in the number of kidney
donors, thus affecting the number of patients being transplanted. For example, as of March
15, 1995 there were 28,037 patients waiting for kidney transplants, a number that is
expected to increase at an annual rate of 20%. This trend was not anticipated in 1973 or
indeed in 1983. A kidney transplant is the treatment of choice for all suitable ESRO patients
and, when successful, is cost-effective Over a ten year period transplantation offers an 18%
savings from the cost of chronic hemodialysis. Thus, the flat donation rate has had a
negative impact on both the patients and program costs.

The final part of this overview concerns trends in research. When the ESRD
amendment was enacted into law the institute at the National institutes of Health (NIM),
which was responsible for basic and clinical investigation concerning kidney disease, was
spending $18,127,000 for this purpose, of which $4.6 million was supporting a dialysis
research contract program. Ten years later the dialysis contract program received $600,000
in allocated funds out of the $47.4 million appropriated for kidney disease research. By 1992
the support for basic and clinical research in kidney disease had reached $118.4 million with
virtually no dialysis research being supported. While this amounts to a seven-fold increase in
support of kidney research, Medicare expenditures for ESRD patients in the comparable
Period grew fourteen times. Fortunately, that trend has been reversed with respect to
dialysis research and approximately $1.7 million was directed toward dialysis related clinical
research in FY93,

It may be argued that spending for kidney research by NIH is not proportional to the
costs allocated for patient care. Although it is clear that the financing of these two separate
functions (research and patient care) come about in different ways, and are influenced by
varied and dissimilar factors, an effort to maintain research to combat renal disease as a fair
fraction of expenditures for care, might help narrow the tremendous gap between the costs of
patient care and the commitment to find cures.


66

Chairman Tuomas. On the first page of your statement you indi-
cated aoe are waiting for publication of the request for proposal
from HCFA for this demonstration project before you decide wheth-
er or not you are going to respond to try to participate in it. What
are you looking for in the proposal?

Dr. Biacc. T want to see what HCFA is going to require. I don’t
know what they are going to propose. I have to look at a study
from the point of view of a large Gialysis rogram working with a
lot of physicians. We have a large HMO, Group Health in Seattle.
IT have to look at the whole picture before deciding that I want to
recommend to our board of trustees that we take part in this study.
It is very interesting, but I don’t want to do anything that would
jeopardize our program in any way.

Ghairman Tuomas. I understand HCFA is responding to a 1993
requirement for the demonstration project. Are we late in this?
Should we have done this 4 or 5 years ago or is the timing pretty
good because of changes that have been made? How good is this
timing?

Dr. BiaGc. I think the timing has been reasonable. It has taken
HCFA some time to actually put together its request for proposal.
But perhaps time is important so they can do this properly.

Chairman THomas. My problem with demonstration projects is
that once you start them you have to wait until they are concluded,
then you have to examine the evidence and make some timid deci-
sions. I was shocked, yesterday I was turning the channel and
came on CNN in which there was an interesting news piece on pa-
tients suffering from ALS and that apparently there has been a
secondary benefit from perhaps a drug given to hemophiliacs, but
a drug that was not necessarily prescribed directly for ALS and
they had been communicating with each other over the Internet
and had begun some self-experimentation on dosages not run di-
rectly through doctors.

One of my worries is, I was listening to the discussion about
demonstration projects and producing information and moving in
an old-fashioned way in a slightly different world, that we may lo:
control if we do not move more rapidly. What I heard several times
was we ought not to go into attempting to finance in different ways
the clear need for a different financing structure until the dem-
onstration project has concluded.

I guess my answer is, why not, if we have some minimum evi-
dence that we can make a shift, we can make that shift and can
then change later. I am not naive in thinking that we can’t just go
in and out of a structure, but it seems to me we are going to have
a clear indication of the direction we need to move and we ought
to begin moving in that direction. Perhaps we should begin moving
and utilize the demonstration project as a finalizer in terms of the
ultimate relationship between the new funding mechanism. Any re-
action?

Dr. BLaGG. The Medicare ESRD Program to this point has prob-
ably been the most cost effective of all Federal programs as shown
by the data that Dr. Smits presented and ratio of the cost of the
end-stage renal disease population to the general Medicare popu-
lation. I am sure there aren’t any other programs that have been
as effectively, so I don’t see the urgency that you do capitation. If


52

ESRD without these attributes. Other comorbid conditions such heart disease, bone disease and
bleeding disorders are frequently present. A system of full capitation for individuals with ESRD
must recognize the differences in disease severity and resource use between patients. If the
Medicare program were to pay an average fee to providers who take care of less severely ill
patients, the program might pay more than necessary. On the other hand, if a provider were
to care for persons with ESRD who are more severely ill and consume more necessary medical
resources, it might lose money and become economically inviable under a system which pays
only an average capitation rate, Thus, it is essential that a program of full managed care and
capitation incorporate risk-adjusted payments for comorbid disease. Risk-adjusted payment rates
account for the fact that not all patients are average.

The last and an equally important issue is quality of care. Payment for capitation must
recognize that while there is a financial incentive to use resources more wisely, there is also the
potential that providers might cut back on necessary and expensive medical care that is beneficial
to the well-being of individuals with ESRD. Most health indicators in the ESRD population are
already below that of the general population. For example, on average, approximately one out
of five ESRD patients dies each year in the United States. There is the risk that if payment
levels to providers are not adequate, providers might reduce care to the point of negatively
impacting patient outcomes. Therefore, it is prudent that a reformed system of fully managed
and capitated care implement more careful oversight. This includes monitoring and enforcement
of quality standards. Much work needs to be done to develop appropriate quality standards such
as clinical practice guidelines for the care of the ESRD patient. Our PORT project will help in
this regard.

In summary, innovative payment approaches should be explored for the care of persons
with ESRD. However, the methods should be carefully selected to control costs, maintain
access to care, allow choice of providers and enhance the quality of care.

Thank you.


101

concerned with quality, access, translation of scientific advancements and outcomes of
patient care, as well as the relationship of these factors to cost.

A landmark in the evolution of the ESRD program was the creation of the United
States Renal Data System (USRDS) in 1986. The USRDS is arguably the finest registry of
its kind in the world and the epidemiologic data which it collects in conjunction with the 18
ESRD Networks provide direction for the kind of quality improvement initiatives which we
advocate.

Epidemiology

There were 11,000 ESRD patients eligible for Medicare at the inception of the
program on July 1, 1973.7 By December 31, 1990, the prevalence of reported ESRD therapy
at that point counted 165,353 patients.” Today there are over 220,000 Americans currently
receiving dialysis treatment. The growth in expenditures under the Medicare ESRD Program
can be largely explained by the remarkable expansion in the number of patients served,
together with changes in the composition of the ESRD population. Three areas should be
highlighted: the shift in age distribution of patients on dialysis or transplantation, alterations
in the profile of patients accepted for ESRD treatment (relating to the underlying cause of
kidney failure) and increases in the prevalence of patients with serious comorbid conditions
This can be attributed to enhanced ability to provide renal replacement therapy for older and
sicker patients.

With respect to the aging of the ESRD population, there were 3,552 Medicare ESRD
patients between 70 and 74 years old on December 31, 1980. A decade later there were
14,093 patients in that age group. The growth in the number of ESRD patients over 75 is
even more striking -- from 2,578 at the end of 1980 to 16,124 on December 31, 1990.
Stated in another way, patients between 70 and 74 comprised 8.5% of the ESRD population
in 1990 as opposed to 6.75% in 1980. Comparable percentages for the over-75 age group
are 9.75% (1990) and 4.9% (1980).*

Per capita Medicare program expenditures for dialysis patients increase with each
adult age category. For instance, for 1990, the following annual costs were reported by
HCFA®

Age Grouy Expenditures Per Dialysis Patient
15-24 $33,220
25-34 $34,495
35-44 $34,795
45-54 $35,960
55-64 $38,256
65-74 $45,405
75+ $47,926

Another major demographic change has been the growth in the number of ESRD
patients with a primary diagnosis of diabetes. On December 31, 1980 there were 4,358
Medicare enrollees in that category, accounting for 8.27% of the ESRD population. This
should be compared with the 40,514 Medicare ESRD patients with diabetic nephropathy at
the end of 1990, constituting 24.5% of the ESRD population, indeed, diabetic kidney disease
has become the leading cause of irreversible kidney failure in the United States. Moreover,
kidney failure is only one consequence of diabetes. Diabetics may become blind and may
suffer from neuropathy and peripheral vascular disease which may lead to loss of limbs. Not
surprisingly, annualized mean expenditures for dialysis patients with a primary diagnosis of

*Richard A. Rettig, Ph.O., Policy Analysis, Policy Formulation and End-Stage
Renal Disease, Rand Corporation: 1980, p. &

“United States Renal Data System (USRDS), 1993 Annual Data Report, Table B.1
“Ibid,

‘Health Care Financing Research Report: End Stage Renal Disease, 1991, p. 60.



26

is probably the most extreme example of immense human and eco-
nomic waste caused by Medicare fee-for-service. I think they are
suggesting that we should put everybody in an HMO.

But if you have looked at the charts in the testimony on HMO
versus non-HMO patients, it occurs to me that they are not really
comparable. My guess would be that there is a difference in the
composite of the HMO patients from others. Can you enlighten me
there as to whether I an——

Dr. Sorts. I have looked at the charts but I haven’t seen the ta-
bles behind them. It doesn’t seem very likely that the smal] num-
ber of patients in HMOs are particularly similar to the average in
Medicare as a whole.

Mr. STARK. Younger?

Dr. Smrrs. Probably younger, yes. Probably healthier, and this is,
I think—some of your questions about prevention are ones we
ought to be asking the HMO industry because this is a setting
where, over time, the care should, in fact, reduce the total rate of
the onset, at least in certain categories.

Mr. STaRK. What kind of penalties—you mentioned this 1.2 on
a Kt/V and I don’t know what that is except I guess you divide V
into Kt, and if you get more than—if you get less than 1.2, we are
not doing it right.

How do you punish or how do you encourage or what do you do
to get these dialysis centers to hit the goal?

Dr. Sits. Well, Kt/V is really a mechanical function, it is a
measure of how effectively the clearance took place. The standard
used to be 1. The profession itself upped that standard very re-
cently to 1.2. When the standard was 1, more than 70 percent of
all patients were meeting it. As soon as the standard became 1.2,
that same measurement showed that only 40 percent of the pa-
tients were meeting it.

I think the challenge here is first to look very carefully at what
that really means. I respect the professional standard. It is a useful
one, but we need to look at what kind of benefits, does this reall;
make a dramatic difference in quality of life or survival, which
would mean we ought to——

Mr. StTarK. Do you think there could be a minimum standard,
that we ought to say, hey, if you don’t hit this standard, you are
out of the game or we don’t pay you?

Dr. Smits. I think there could be a minimum standard. I
wouldn’t want to have it the benchmark standard that everybody
is working toward, but I certainly think there should be a mini-
mum standard.

Mr. STARK. There isn’t one now?

Dr. Smits. No, we don’t have one now, but we are looking very
carefully at focusing the regulations much more on outcomes and
that is one of the areas we——

Mr. Stark. Some kind of interim punishment or penalty or—if
they don’t hit it, I would gather.

The renal administrators and physicians want a repeal on the
ban for referral to hospital facilities, and it is my understandin
that physicians get about $15 a treatment in a dialysis center an
closer to $180 per visit when they visit a patient in the hospital;
is that correct?


22

Chairman THOMAS. Thank you very much, Dr. Smits.

Before I recognize my colleague from Nebraska, since we had
several charts up there and you made some statements, some folks
may want an answer to some of the statements that were made.

For example, in terms of the distribution of the types of patients
on ESRD, you indicated, I believe, that there was some surprise
that the diabetes and hypertension group was larger than antici-
pated. Why?

Dr. Smits. We got better at dialyzing them. Again, you have to
remember, when Fiwas in training, there were a few dialysis slots
available. We tended to give them to the youngest and healthiest.
There actually—we had successful transplantation at about the
same time, so in some cases you were dialyzing only those people
you had hope of taking to transplantation.

Once you began to get broader experience, in the first years of
the program, those people came on, people with end-stage renal
disease and no other medical problems, but we then began to recog-
nize that patients with controlled diabetes, for example, shouldn't
be denied dialysis simply because, in the past, we hadn’t had
enough to go around and we had kept them out.

Young diabetics, especially, have done quite well on dialysis and
to a certain extent with transplant, which is something we didn’t
anticipate. The severe hypertensives often do very well on dialysis,
so frankly, we are much, much better at providing the service than
we were in 1973.

Chairman THOMAS. You indicated on a line chart that initially
the program was about 30 times more expensive. Now it is down
to 10 times. Is that through significant changes in this program,
more high technology being applied to a broader Medicare universe,
or a combination of both?

Dr. Smits. Actually, you see the same thing if you look at per
capita costs and correct it for inflation. Part of it is efficiencies from
doing it on a large scale, better understanding of how to do it well.
The large facilities now have great economies in the purchase of
equipment, building facilities, in the wa’ they purchase and handle
the supplies that go into it, better handling of staff, some shorten-
ing of dialysis time over the ones I knew in the very early seven-
ties. Although it has stayed pretty stable for well over 10 years, a
whole series of factors contribute to simply doing it better because
it is being done on a planned, large scale.

Chairman THomaS. So efficiencies—economy of scale as well?

Dr. Smits. Yes.

Chairman THomas. On the pie chart, which was a 1991 represen-
tation of inpatient versus outpatient, 44 percent inpatient, 33 per-
cent outpatient, with a 21 physician support, 21 percent physician
support piece of pie. Ten or twelve years ago, what would that pie
chart have looked like, inpatient versus outpatient?

Dr. Smits. I am sorry, Mr. Chairman. Ten or twelve years ago
I was running a hospital in Nancy Johnson’s district and I don’t
know. I would be glad to submit it for the record.

Chairman Tuomas. I understand, the huskies had never been
heard of. I was just going to try to get people who might be looking
at that to get a feel for the changes between inpatient versus out-
patient, but if we don’t have it, that is fine.


105

APPENDIX
‘Overview and Background of ESRD Program

On October 30, 1972 President Richard Nixon signed PL 92-603 into law, and with it a
section which provided that every individual who is medically determined to have chronic
renal disease and who requires hemodialysis or renal transplantation for such disease shall
be considered as disabled and, therefore, eligible for Medicare. The dramatically concise
amendment to the inches thick bill finally addressed the "who shall live and who shall die”
argument which had been debated in every possible forum for a decade

Before the enactment of the 1972 amendment and in the absence of any other formal
predictable form of financial assistance, families of patients literally took to the streets selling
raffle tickets, clipping coupons from food packages, and seeking outright donations to support
dialysis treatment for a loved one. They formed voluntary agencies to help collect funds to
buy machines, and to approach the government for assistance, These efforts were reported
in hundreds of stories in the press, radio, and television. The public effort was given national
attention by a troubling "Life" magazine story which focused on a patient selection process
being practiced in Washington State. The article brought the “who shall live and who shall
die" issue into millions of homes throughout the country. The situation elicited varying but
imited responses from the public, professional societies, volunteer agencies, and state and
federal governments.

‘The so-called 1967 "Gottschalk Report," issued by the White House Bureau of the
Budget, which was little noticed at the time, called for a national solution to this perplexing
problem. While it did not receive wide circulation it became the Bible for those who were
convinced that the ultimate solution was a federally supported program for all patients.

The debate, which culminated in final passage of the Medicare ESRD entitlement,
focused on cost, utilization, fairness, the transfer of technology, and the appropriate role of
the federal government in health care, in the end, however, the imperative of the life-saving
procedures and technology dictated the outcome

The action of the Congress and of President Nixon had its roots in a combination of
ethical imperatives, citizen pressures, evolving technology for life-saving procedures, and
pressures for expanded national health coverage.

The second phase in the history of the ESRD Program was the process of
implementation. This phase had its beginning in the House/Senate conference committee
where cost and utilization were the focus of discussion. To arrive at a projected first year
cost and outward estimates the Congress relied upon two sources: transplant and dialysis
professionals and the Health, Education, and Welfare Department (HEW) actuaries. The
physicians gave sincere but optimistic cost reports ($55 million first year) and conservative
estimates of patient populations (level out at below 100,000). The HEW Office of Health
Insurance Studies, operating on estimates from the community and statistical models, gave
the conference committee its best estimates. Their first year projections had the exceedingly
wide range of between $100 million and $500 million. Because of the poor data and the
large number of variables, the estimates were no better than “educated guesses."

The process of developing a program had to be placed on a very fast schedule
because the implementation date by statute was July 1973 (a short eight months). There
was little legisiative language as to intent for implementation except

The Secretary is authorized to limit reimbursement under Medicare for kidney
transplant and dialysis to kidney disease treatment centers which meet such
requirements as he may by regulation prescribe. Provided, That such
requirements must include at least requirements for a minimal utilization rate for
covered procedures and for a medical review board to screen the
appropriateness of patients for the proposed treatment procedures.

The Department of HEW set about the task with very little data about severity, age,
ethnic factors, associated diseases, numbers of patients and total costs For example, no
one suspected that the number of ESRD patients over 65 (which was about 5% of the total
in 1973) would reach 40% of the ESRD population in 1993, or that there would be 160,000


34

In fact, an analysis can be found in the May 1992 publication of

s ology (Volume 12, No. 3). The article is
“Comparison of Treatment Costs Between Dialysis and
Transplantation” by Paul Eggers who works for the Office of
Research and Development at the Health Care Financing
Administration. I would be happy to send a copy of this article
to this Committee. To summarize briefly, the article shows that
the high initial costs of transplantation are recovered in
avoided dialysis costs in about 4.5 years. The net savings per
transplant over a ten-year timeframe was estimated to be about
$41,000. This "payback" period is shorter for living related
donor (LRD) transplants than for cadaver transplants due to the
higher rates of graft survival among LRD transplants. Similarly,
aggregate ten-year savings are greater for LRD transplants than
for cadaver transplants.

The analysis was conducted based on 1989 reimbursement patterns.

At that time EPO was just beginning to be used to treat anemia in
dialysis patients. Since 1989, dialysis patient care has become
more expensive because of EPO (there is very little off-setting
savings). In addition, transplant success rates continue to
improve. Consequently, a recent analysis of pediatric transplant
recipients (not yet published) suggests that the payback period
is now closer to three years and the ten-year cumulative savings
is closer to $100,00 per transplant. Although not yet analyzed
separately, the payback period is likely to be somewhat longer
for adult transplant recipients and the cumulative savings
somewhat less.

Dr. Smits. The limiting factor there to a great extent is the avail-
ability of kidneys. The technology—or success rate in this country
with transplantation is really very good. But kidneys become avail-
able in the situation of tragedy, and we certainly don’t want to be
in the position of encouraging more automobile accidents in order
to have more kidneys.

Chairman Tuomas. I think you would get agreement from the
Subcommittee on that. Is it a problem of matching up as much as
it used to be, or are we able to maintain a functioning kidney now
easier than we used to?

__Dr. Smits, We are much better at the match. We understand the
immunology a great deal better than we did 15, 10, or 5 years ago.

Chairman THOMAS. Do we provide a successful rate roughly in
terms of all transplants?

Dr. Smits. The current success rate?

Chairman Tuomas. Yes, ballpark. Is it 60, 80?

Dr. Smits. It is over 90, isn’t it?

Chairman THomas. Over 90 percent?

Dr. Sirs. I am told 80 percent for cadaver—over 80 percent for
cadaver, over 90 percent for living related donors.

Chairman Tuomas. So it is the condition of the donor as well.

Mr. Crane. Mr. Chairman, would you yield?

Chairman THomas. Certainly.

Mr. CRANE. After a transplant, what is the annual cost, roughly,
of the immunosuppressive drugs?


115

Ms. WISH. The bundling method doesn’t exist right now. But the
cost—the reimbursement rate we get is 80 percent of $10 per thou-
sand units, and the cost that most providers pay is just a very
small fraction below that. One statement that was made in prior
testimony alluded to the fact that the monopoly status that Epogen
has right now on EPO will expire within the next couple years, and
that is not true. It is my understanding that Amgen will remain
the only supplier of EPO for at least another 10 years.

Mr. CHRISTENSEN. Thank you, Mr. Chairman. Man I have one
more question?

Chairman Tuomas, Sure.

Mr. CHRISTENSEN. We are running out of time but it is for Dr.
Latos. Would you explain to me the ESRD networks and who runs
these networks?

Dr. Latos. That is very appropriate. The end-stage renal disease
network organization was actually established in approximately
1978. At that time there were 32 networks, I believe, whose job it
was to provide oversight and feedback to dialysis practitioners, fa-
cilities, as well as nephrologists, nurses, and other staff.

It was funded solely through Medicare and HCFA at that time.
Several years ago, the network system was revamped and now
there are, I think, 17 networks—19 networks, and these are all
funded, by the way, based on a 50-cent-per-treatment basis, so that
the dialysis facilities pay into the funding for the network organiza-
tions. |

The role of the network organizations has actually increased over
the years. It has become very important to the practitioners and
the facilities. Feedback is provided on a regular basis, and it was
already commented that the core indicators project will be a very,
very valuable and powerful tool in changing practice patterns
where they need to be changed.

Mr. CHRISTENSEN. Thank you.

Thank you, Mr. Chairman.

Chairman THomas. As a followup to one of the questions, I be-
lieve, Mrs, Sims, in your testimony you said we possibly could ex-
tend the secondary payer to 24 months but not longer. Ms. Wish,
I believe yours was 24 to 30 months. The gentleman from Califor-
nia indicated that there is a drop-dead point. Is the difference be-
tween 24 and 30 months that factor, or is it that you take it in
stages to see where we go?

is. Sims, what if it was extended to 30 months rather than 24
months?

Ms. Sms. I couldn’t hear the last part of your question.

Chairman THoMaAS. If it was extended to 30 months rather than
24 months. You indicated that you thought 30 months was too far.

Ms. Sis. I didn’t—we basically stuck with the number 24 to this
point We do not support it being extended indefinitely, which as

r. Stark pointed out is not necessarily being suggested right now.
I think we would be negotiable on a fixed time. We are concerned
about employer group health plans and benefits to those patients.

Ms. Wisu. I agree as well. We are concerned, as Mr. Stark men-
tioned, that we don’t know what could happen if the Medicare
ESRD secondary payer provision became indefinite. We feel that a
small incremental increase is the most appropriate way to go,


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58

saving in the Medicare ESRD Program must come from other economies involving
hospitalizations, access surgery, physician services, and other items. Capitation is certainly
worth exploring as a potential means of controlling these costs.

Nevertheless, the Rand study does not go into detail about how the implementation of
capitation for ESRD should be carried out. This is a significant problem because, on the one
hand, dialysis providers and nephrologists in general are not yet experienced with a
capitation approach and, on the other hand, existing health plans have relatively limited
experience with ESRD patients. Thus, it is most important that the next step towards
capitation for ESRD be a demonstration project or projects to gain experience with this for a
very expensive chronic disease with widely varying costs for some patients. Another reason
for such a study is that by the time it is concluded and the results assessed, physicians and
providers will have had much more exposure to managed care generally, and so will be more
open to innovative changes in reimbursement.

Several concerns are important in devising a capitated health care system for the ESRD
program. First, and most important, measures of quality control are essential in any such
scheme in order to avoid risk to patients. In addition, methods must be developed to deal
with several other issues:

- means to prevent selection bias so as to deal with the problem of health plans enrolling
an overlarge proportion of less expensive patients;

- means to address the influence of health plan and provider financial incentives on the
choice of treatment modality. The Rand study shows how payment subsidies can be
created by the choice of time cutoffs. Subsidies could be used as incentives, for
example, to encourage transplantation and possibly home hemodialysis - the treatments
with the best survival and quality of life. In any case, it is important that patients are
educated fully about, and have access to, all modalities of treatment;

= means to encourage beneficiaries 10 choose to enroll in a managed care plan. Slow
enrollment continues to be a nagging problem with Medicare managed care
options generally.

- payments must also take into account geographic variation. For example, hospital days
and hospital costs vary widely by region, by urban or rural location, and are higher in
teaching hospitals and disproportionate share hospitals. Thus, geographic differences in
reimbursement are common now, and can only be adjusted over time;

~ means to deal with health plan risk that might occur as a result of inclusion of an
unexpectedly high proportion of patients with extremely high costs. This problem
could be minimized by adjustment of payments if appropriate, or by use of outlier
payments;

~ means to adjust the capitation rate to match the changing ESRD population. The
number of patients continues to increase, with an ever larger proportion of complex


112

Recently, we observed that despite a standard established 10
years ago for adequate dialysis, 55 percent of a large cohort of
hemodialysis patients received a quantity of dialysis that was asso-
ciated with greatly excessive death risk.

Now, it seems to me that I am not hearing enough urgency from
these witnesses about enforcing some standards that professionals
seem to know exist. I mean, you are nodding, Mr. Bowden. I don’t
know why we can’t beat on these people a little bit. It may require
government regulation, God forbid, but somebody ought to say, this
is a minimum, and anybody who doesn’t do it that well ought to
be kicked out of the program or not paid.

I would just like to urge you all, I know it is going to be tough
on some of the people you work with or for, but it is a standard
we know, or you all know, and I just would hope that we could be—
however this comes out, whether you do it managed care or wheth-
er you do it fee-for-service, that we take the standards and start.
to, if you will pardon me, punish the people who don’t live up to
them. Maybe they are not perfect, but they are good.

The other thing that I am hearing is a 3.7-percent increase. Now,
that is only one-half of the loaf. ProPAC recommended that the
base rate is too high, so you can’t—in a sense, can’t have it both
ways here, that you want a 3.7-percent increase but you don’t want
to raise the base rate. Those things, to me, go together. I guess the
third comment is this issue of extending the time for private pay-
ers.

Nobody is suggesting that we do private payers permanently
until people get to be 65, right? Because you are scared that the
insurance companies will end the benefit, right? OK.

Now, I think you are flirting with disaster here. You want to
keep pushing the private insurers, say let’s go from wherever it is
now, 18 months or 24 months to 30 months, because you get almost
twice as much reimbursement, right? The private guys pay 80 per-
cent more than Medicare. That is the reason they want to extend
the private pay.

Now, I would be for extending it forever except if we required
that every insurance plan in the country have the benefit. You got
me signed up right now. Let’s require every health insurance plan
in the United States to make it a benefit and pay it up through
age 65, at which point Medicare would take over. I will sign onto
that in a New York minute, but then Dr. Lundin is going to worry
that people who even have a hint of kidney problem will never get
hired, that the employers—because it will kick their insurance up.

So somehow we have got to find—it isn’t quite right, and what
I am sensing, not from any one of you in particular, is that the pro-
viders want to keep inching a few more months of private care be-
cause that is a few more months of double rate, and at some point
you are going to break that camel’s back and then the private in-
surers are going to stop carrying it as a benefit. I don’t know where
that is, but I hope we could find a better solution than just extend-
ing private pay until we find out. Because when we find out that
suddenly people are canceling the benefit, we are going to wish we
hadn’t gone that far.


76

‘The principal concems underlying the selt-referra) prohibition language of OBRA 89, inflated
charges and unnecessary utilization of services, do not apply to inpatient dialysis services. Most
inpatient dialysis services are furnished to End Stage Renal Disease (ESRD) patients who are
Medicare beneficiaries and are therefore covered by Medicare through the Prospective Payment
System (PPS). Under this system, the hospital receives a fixed amount ot reimbursement to cover
all services furnished to an inpatient. Thus, opportunities for increased costs to governmental
payors as a result of inpatient dialysis contracts involving nephrologists are virtually non-existent.

Simitarly, over-utiization is not an issue, Again, most patients requiring inpatient dialysis have
ESRD. Dialysis is a treatment that is prescribed for those with irreversible kidney failure who must
receive regular dialysis to live. Dialysis is not an elective procedure for ESRD patients and its
medical necessity cannot be questioned. Once diagnosed, most ESRD patients require dialysis
several times a week, for two to four hours per session, for the remainder of their lives. Dialysis is
always therapeutic and never diagnostic.

In addition, unlike situations where, for example, a referring physician has an ownership interest in
an MRI facility, nephrologists are directly involved in the supervision and care to their patients
receiving inpatient dialysis. Indeed, this provision of dialysis services is simply an extension of
the nephrologist's practice.

Prohibiting large numbers of inpatient dialysis contracts involving nephrologists will have
untoward, adverse patient care consequences: Given the fact that inpatient dialysis contracts are
very common in the industry, the question will become: who will assume the responsibifity of
providing these services? Many hospitals do not provide inpatient dialysis and often lack the
expertise and desire to do so. Non-nephrologist entities could assume a greater responsibility for
Providing this service. However, it is questionable whether these entities could assimilate all, or

nificant part of, the potential new arrangements. More importantly, it is undesirable
from a patient perspective to bifurcate the responsibility of professional inpatient nephrological
care and the technical components of inpatient dialysis, placing the latter in the hands of non-
physician controlled entities.

Finally, it should be recognized that the training and support for the conduct of home dialysis is
often integrated with inpatient services. Therefore, prohibitions on inpatient dialysis contracts are
likely to have a broader negative impact extending to patients’ access to dialysis in the home.

Congress agreed with RPA's views on this issue and drafted legislative language exempting
nephrologists when they refer patients for any dialysis related services. This language was
included in all the major health care reform bills originating in the House, including the Ways and
Means bill, the Gephardt bill, and the Rowland-Bilirakis Bi-partisan bill. APA, as well as many
other medical societies would like to work with Congress in order to clarity and improve the OBRA
99 self-reterral law. We look forward to this effort.

QUALITY ISSUES/NETWORKS

‘The APA and all the members of the Renal Coalition are dedicated to quality delivery of dialysis
care. The ESRD program has one of the finest and most comprehensive quality programs in
medicine. The spearhead of this quality assurance process is the ESRD Networks.

The End-Stage Renal Disease Networks provide a cost effective mechanism to ensure the most
efficient use of Medicare dollars for dialysis treatment and kidney transplantation through
monitoring quality of care indicators and maintaining timely, complete data on the ESRD program.
These functions are administered at the regional level, providing direct and immediate access
from the provider to the Health Care Financing Administration through the ESRD Network,

The 18 Networks are in immediate contact with 2,642 dialysis providers and 241 transplant
centers, serving approximately 245,996 patient: 1994, The ESRD Network budget is funded
through dialysis payments to facilities.

History. For the first few years of the ESRD program, dialysis services were limited and dialysis
programs were run autonomously with no coordination within the national Medicare system. In
1978, The ESRD Network program was designed to provide an oversight system to unite dialysis
Providers with the common goals of providing immediate access to treatment, treating patients
with the quality care through medical standards developed by the scientific community, and

helping the patient maintain a quality lif which enables each individual to tive as a functioning
member of society.


28

Now, we all talk about wellness programs, but when you take a
look at something like dialysis and the cost, it is something like 5
percent of all Medicare costs. I mean, it is just extraordinary. Do
you have anything that you can do in terms of not just the dietary
issue, but other things which can eliminate some of these huge
costs later on?

Maybe you have some charts and maybe you have some ideas on
this thing, but when we are talking about saving money and help-
ing people have a longer life, it doesn’t seem to me there is almost
any area which sponges up funds and real tragedy more than this
one.

Dr. SITs. in, that is a very interesting question. I am not
entirely sure, if you looked at it carefully, that you would save
money. You can prevent renal failure, or at least delay it signifi-
cantly in diabetics, if they are under very tight control. That is ex-
pensive. That means—there have been some recent trials looking
at very frequent doctor or nurse visits, very frequent blood testing,
very tight monitoring to hold blood sugars to something similar to
the blood sugars that the rest of us manage normally.

That costs over years in order to prevent the end-stage renal dis-
ease. It is better. It is better for the patient, but whether it is less
expensive than dialysis I think is an interesting question. Similarly
with hypertension.

Mr. HouGHTON. But have there been any tests on this? There
must have been some examples where people have tried this type
of process to try to find a way of cutting costs.

Dr. Smits. You have to go disease by disease. Some of the recent
work in diabetes certainly suggests it is manageable there. We do
know that if hypertension is detected early and controlled rigor-
ously, it is also manageable there. Again, although I would be glad
to submit comments for the record, I think probably the best people
to discuss this with are the renal physicians who follow me.

{The following was subsequently received:]

To the best of our knowledge, there have been only a few clinical
trials to test mechanisms to slow or retard the progression of
chronic renal disease into end stage renal disease. Nothing has
been shown to work.

The largest study was the Modification of Diet in Renal Disease
(MDRD). It failed to show that progression could be altered by
diet. More recently there was a trial on the control of
diabetes. The basic aim was to prevent blindness in diabetic
patients, but it did give some weak evidence of beneficial renal
effects as well. However, at this time there is no evidence that
renal failure can either be prevented or even slowed. Needless
to say, if no one knows how to prevent ESRD, it is difficult tc
project what types of prevention efforts would be be cost
effective.

Mr. HOUGHTON. Thank you very much.

Chairman THomas. The gentleman from Georgia, Mr. Collins,
who is not a Member of the Subcommittee, but I believe has an in-
terest in this area, might like to inquire.


94

Table A: Beneficiary Perspectives by Medicare Categories of Aged or Disabled/ESRD

Disenrollees Enrotlees
Aged Disabled Aged Disabled)
ESRD ESRD
Medical care received through the HMO 20% ae 2% 1%
‘caused beoeficiany’s bealth to get worse 46.094) (858) 0729 @)
For a scheduled appointment with their
primary HMO doctors, usually waited:
9% 18% SI1% 68%
> bt 4 days (10,248) (1,630) (468,557) (15.749)
w% 18% 26% ne
> S108 days Gay Ga) 237,936) 2.549)
2% 8% Be 21%
> more than 8 days 55) (158) (206,855) (4,771)
For a scheduled appointanent with specialists,
usually waited:
0% 0% 38% 12%
+ 1104 days (5,976) (1,218) (258,235) (3,353)
25% 3% B% 2%
> Sto 8 days G79) 222) (213,086) (2,008)
36% 19% 36% 46%
> more than 8 days 637) 32) (255,888) (13,051)
Primary HMO doctor failed to provide 20% 39% 6 4%
Medicare covered services that were needed. (4,366) _—_—(823) (20,548) (1,285)
Primary HMO doctor failed to refer to 8 21% 50% sm om
specialist when needed. 4,438) ___(4,054) (62,743)__ 2.725)
Sought out-of-plan care while « member of 20% 9% 1% 1%
the HMO. (4.360) o77) (63,392) 2.237)
Primary HMO doctor dida't take their health 38% 8% Ue 20%
complaints seriously 7.892) 7) (406,185) 4.675)
Holding dowa the cost of care wes most
imporant to:
6% 48% 10% 2%
> primary HMO doctor aT) (89) (94,109) (585)
3% 50% ue ue
the HMO 7.042) ___ (1,030) 95,081) _,324)

Source: Office of Inspector

ussued March, 1995.

General's report entitled,
“Beneficiary Perspectives of Medicare Risk HMO's,"



9

majority of patients would be those with glomerulonephritis or
other attacks on the kidney itself, such as massive blood loss where
the patient totally recovers but the kidneys were killed in the proc-
ess.
We did not expect that very many hypertensive or diabetic pa-
tients would come into the program because these patients didn’t
do well on dialysis at the time. As you can see, the greatest rise
has been in the diabetic patient who has many other ailments at
the time they come to dialysis, while the hypertensive patient, after
some early increased glomerulonephritis, has stayed fairly stable.
We have seen some increase in hypertensive patients as well.

Beneficiaries are also older than we had originally anticipated.
We are bringing into dialysis many people who are already Medi-
care qualified because of age.

In terms of cost, there are a number of ways to look at it, but
this chart shows you one of the clearest ways and that is, if you
look at the total cost of the ESRD Program per person compared
to the cost of the rest of Medicare per person, you will see that we
started out with the ESRD patients being about 30 times more ex-
pensive than everyone else in Medicare, and they are now in the
vicinity of 10 times more expensive than everyone else in Medicare.

Also, you can see that the dramatic drop in cost took place at the
beginning of the inclusion of ESRD patients, and up until about the
middle eighties. Now the ESRD Program is inflating roughly as
fast as the rest of Medicare.

The next chart gives you an idea of how the costs for the ESRD
Program break out. Remember, this is two dramatically different
groups of patients: transplant patients and dialysis patients.

Inpatient costs are still about 44 percent of the total cost. That
does include the very high cost of transplantation in the year of the
transplantation; outpatient costs, about 33 percent; and physician
and suppliers costs, about 21 percent. As I am sure you know, the
outpatient facilities are paid on essentially a capitated blended
rate, and doctors are also paid on a capitated blended rate.

The capitated rate for facilities was set in 1983 when other pro-
spective payment was established and hasn’t been changed since
then. Physician payment is now rolled into the general physician
payment and I believe 1995 is the first time there has been an in-
crease. In the future, it will be treated equally with other physician
payments in its category.

ne area that has been of great concern because of its impact on
the total cost to Medicare is the Medicare secondary payer provi-
sion. Under OBRA 1993, anyone who has group health insurance
is expected to treat Medicare as the secondary payer for 18 months.
That provision is to expire. The President has asked you to extend
this provision, and it has been marked up and reported out of this
Committee as an extension.

I am very clear that the quality of the services received by Medi-
care beneficiaries is of great concern to all of you. The method by
which HCFA influences quality in the ESRD is twofold. One is the
regulatory process, the conditions of coverage by which we survey
and inspect facilities; and the other is through the networks, pri-
vate organizations with membership that includes all of the provid-


71

Today, the United States is divided into 18 Network regions. Each Network is administered by @
governing body made up of representatives of the local dialysis providers, A Medical Review
Board, representing the providers, acts as the advisory group on clinical issues. In this way, the
Networks benefit from the expertise and leadership of renal professionals, representing
outstanding health care and academic institutions throughout the country.

Quality Improvement. RPA believes the effective way to impact care is through continuing
examination and evaluation of practice. The Networks impact care by three methods:
encouraging quality improvement for all providers, identifying providers in need of assistance in
maintaining quality standards: and by conducting intensive special studies of practice areas,
using the results to develop practice recommendations.

Continuous Quailty Improvement. The 18 ESRD Networks have been involved since 1991 in
implementing continuous quality improvement (CGI) concepts into the dialysis setting. These
concepts encourage each provider to look at its own program and define areas for improvement,
‘then design action plans to meet these goals. Networks are instrumental in the process by
providing in-service training to dialysis statt members, including physicians, administrators,
nurses, dieticians and social workers, on what CO! is, how it has worked successfully in industry
and in other health care settings. Further, the Networks provide continuing resources and
information for the facilities as they design their own CQ! programs; and, provide comparative
Gata profiles to allow each facility to assess its performance relative to other providers within the
region, siate, and nation, and identify areas for improved service. Rather than only seeking the
outliers, CQ! is employed for all providers regardless of the size of the patient base or quality of
cara being provided.

When problems are detected with a dialysis provider, the Network begins one-to-one evaluation ot
the center and its program to help pinpoint causes. The provider is mandated to davelop its own
plan of action to correct problems. ‘The Networks serve a vital role as a catalyst for improvement
by Identitying the problem and assisting with solutions. The Networks have had a direct impact in
improving these facilities, or in closing them when the providers wera unable or unwilling to
change.

Data Collection. The Network ESRD data base constitutes the most comprehensive disease
specific registry in the world. Networks process and validate al} patient data for the Medicare
ESRD program. Beside Medicare beneficiaries, this data base includes non-Medicare patients,
Medicare secondary and Veterans Affairs patients.

Patient Satisfaction. Patients are the ultimate benefactor of the ESRD Network Program.
Working with dialysis providers to ensure quality care means healthier patients, with fewer
hospitalizations. But the Networks also work directly with patients in many ways, Serving as a
clearinghouse of information, and encouraging patients to interact with the renat community.

Grievance Resolution. Al! Networks maintain a grievance process, enabling the patient to voice
concerns about a dialysis provider directly to an objective third party. Monitoring grievances is

one way the Network can tract faclity performance or be made aware of problems which require
further intervention.

Many grievances result from a miscommunication between a facility and a patient. With the
Networks acting as an objective third party, most grievancas can be resolved quickly,

‘Many complaints are resolved before they end in a formal grievance. Of an estimated 1,200
patient contacts during 1994, only 106 complaints resulted in formal grievances. This mark of
‘Success shows the Networks have developed an experlise in resolving these concems at an early
stage, avoiding major conflicts, and often litigation.

RPA Involvement In quality issues. RPA has been heavily involved in the quality improvement
arena, Recently, RPA published clinical practice guidelines on the adequacy of hemodialysis.
‘The RPA noted that in the 1980's, credible data documented a decrease in survival rates of
Patients undergoing maintenance hemodialysis for treatment of ESRD. This occurred despite
advances in dialysis technology. The trend of unfavorable U.S. dialysis survival, documentation
of extreme variability in the quantity of dialysis prescribed and delivered, and controversy
concerning what constitutes an adequate quantity of dialysis were the stimuli which prompted the
RPA to develop these practice guidelines on the adequacy of hemodialysis. The membership of
the Practice Guidelines Committee was made up of experts from the entire renal community. The
goals of the guidelines were to define parameters of hemodialysis having significant positive and
Negative etfects on patient survival and detining the recommended quantity of hemodialysis
delivered which is required for adequate treatment of ESRD so patients receive the {ull benefit of


MANAGED CARE

The Association worked with this committee to legislate an ESRD capitation study as
part of the Social Health Maintenance Organization (SHMO) expansion in OBRA ‘92.
We also worked with RAND in their short-term evaluation of a capitated payment
methodology for this demonstration.

The SHMO project began in 1985 based on a mandate in the 1984 Deficit Reduction
Act. The design of this project was to consolidate the acute and chronic care delivery
systems and manage care across a full range of services, including acute care,
post-acute care, and expanded community care. Initially developed as an integrated
care system for the aged, OBRA-'90 amended the original authority to include four new
sites and allowed for some important modifications in the demonstration.

One site that was considered was a specialty provider SHMO that would be created to
serve a population suffering from a specific high-risk disease, such as end-stage renal
disease. ANNA was successful in its efforts to have such a site included as an
appropriate one for an ESRD capitation study which would integrate acute and chronic
care management for patients with end-stage renal disease through a nursing case
management model.

In a nursing case management model, the case manager serves as the principal
coordinator of care for the ESRD patient across health care settings, and works with
other health professionals involved in the patient's care. In addition, the case manager
provides direct care within the legal scope of practice for advanced practice nurses.
‘Such a mode! has the potential to assure the provision of high quality care and control
ESRD program expenditures for several reasons. First, advanced practice nurses with
experience in nephrology have the requisite knowledge and skills to monitor and
intervene to prevent occurrence of some of the most common causes of hospitalization
for the ESRD population. Specifically, aggressive, proactive care is likely to prevent
many of the complications associated with vascular access and fluid and electrolyte
imbalances. Additionally, nurses have strong preparation in health promotion and their
focus on the individual within the context of the family enhances their potential to build
‘on the patient's strengths and capabilities and to maximize the family role in care.

The nurse case manager is a health care provider who can serve as a substitute for
physician providers in providing primary care to ESRD patients. In 1990 the National
Kidney and Urologic Disease Advisory Board raised concern about the future supply of
adult nephrologists, suggesting that current medical school and nephrology enrollment
trends portend a future shortage. If this scenario develops, use of advanced practice
nephrology nurses in case management roles will free up nephrologists from providing
care that can be capably provided by these nurses and enable the nephrologist to
focus on care that only they are prepared and qualified to give. Additionally, the case
manager role is a mechanism to address one of the concerns raised by the institute of
Medicine study committee, that of lack of continuity of care among the various
physician providers for individual renal patients (Rettig & Levinsky, 1991). The
emphasis that the case management model places on care coordination and inter-
professional collaboration is one means to address this concern,

Dianne Feeney, RN, MS, assistant vice president for care management of Health
Services for Children with Special Needs, Inc., in Washington, DC, presented a specific
example in a recent issue of the Nursing Spectrum:

"Case managers with organ transplant expertise fill an important niche in
managed care organizations. Mr. S, a 44-year-old recently diagnosed with


STATEMENT OF CHAIRMAN THOMAS
HEARING ON THE MEDICARE END-STAGE RENAL DISEASE
(KIDNEY FAILURE) PROGRAM
APRIL 3, 1995

Welcome to the Health Subcommittee hearing on the Medicare
End-Stage Renal Disease, or ESRD, program.

ESRD is unique within Medicare. It is the only disease which
triggers Medicare coverage at any age.

There is no disputing this program’s dramatic and positive results
on the lives of ESRD patients. Medicare coverage of dialysis and other
treatments has spared hundreds of thousands of Americans from
premature death. We must not lose sight of that profound
accomplishment.

Because the ESRD program is unique within Medicare, I think we
have a tendency to overlook it. But we shouldn’t, because it is a very
significant and important program. In 1995, Medicare is expected to
spend nearly $8 billion, or over 4% of all total spending, on over
200,000 ESRD patients. That’s about $40,000 per beneficiary.

Today’s hearing is intended to meet a couple of objectives.

First, the Subcommittee needs an overview of the program and
how well it is meeting its objectives. What are the treatments for ESRD
patients, and how has treatment changed over time? What are the trends
in terms of costs and numbers of beneficiaries? What is the quality of
care provided to patients? What are the current payment policies for
dialysis and other treatments, and are there alternatives that should be
explored?

Second, this Subcommittee is going to examine opening up the
Medicare program to more coverage choices for the beneficiaries, much
like employers in the private sector have done to enhance competition,
improve quality, and reduce costs. We need to explore how the ESRD
program may or may not fit into such an approach.

I look forward to hearing from our witnesses.


111

talking 5 years before we will be able to do a better job of measur-
ing quality of care in this area?

oe LunpIn. I think we are just about there. I think the end-
stage renal disease networks have a whole plan that the other
members can comment on, as well as the State surveyors. I think
the cooperation between the U.S. Renal Data System, the ESRD
networks, and the State surveyors working cooperatively and hand
in hand is just about at the point that they can start to do some
of this work that needs to be done.

In fact, they began in July, I believe, of this year with their new

Programs.

is. Stms. I wonder if I could respond to that. As a member from
the renal community of the HSQB and the HCFA Core Indicator
Project, I can tell you that I agree with Dr. Lundin that we have
made great progress in the last 1¥2 years. In the contract that was
signed between the HCFA and the networks, the work that is being
done looking at four quality indicators, the first phase of the report
was done in January of this year looking at the four areas that Dr.
Rettig referred to earlier. That report has just been made available
to the community.

There is a 1995 phase of that process which will include those
same indicators looking at another year of data collection, also
looking at expansion of that program in 1995 to include peritoneal
dialysis patient populations, and we will continue to look at other
phases of that program throughout the life of that scope of work
contract with those networks.

So I would agree with the previous panel and with Dr. Lundin’s
comments that we have started to make some real progress in
these areas in a collaborative manner between the community and
the Federal programs.

Mrs. JOHNSON. Thank you.

Mr. BOWDEN. NKF is about 14 months into a project on quality
of dialysis care at this point, and we believe that the time nec-
essary to develop guidelines is being looked at by the actuaries. I
think there is pretty wide agreement in the community at this
point that Kt/V standards such as those discussed earlier by Mr.
Stark are pretty broadly accepted.

At the other extreme, nutrition standards are a long way off, and
there is a tremendous amount of research that needs to be done be-
fore those standards can be put out. I think the answer to your
question is it varies tremendously depending on the area.

Chairman Tuomas, The gentleman from California will inquire.

Mr. Stark. Thank you, Mr. Chairman.

Well, I want to not sound so much like a Johnny-One-Note, but
Ms. Sims, you kind of stayed away from the standards. We had a
Dr. Owen from Brigham and Women’s testify last year that while
the precise factors—I am quoting from his testimony—“are uncer-
tain, a major contributing feature is the widespread use of abbre-
viated dialysis times that do not provide adequate treatment.”

The common practice of dialysizing for less than 3 hours in the
United States can result in cost savings of up to 25 percent per
treatment. However, these cost-effective, short treatment times are
associated with a major increase in the relative mortality risk from


81

TESTIMONY OF THE AMERICAN NEPHROLOGY NURSE S’
ASSOCIATION PRESENTED TO THE SUBCOMMITTEE ON HEALTH
HOUSE COMMITTEE ON WAYS AND MEANS
APRIL 3, 1995

The American Nephrology Nurses’ Association (ANNA) is the professional organization
representing registered nurses specializing in the care of patients with end-stage renal
disease. In our 25th year as a professional society, and representing over 10,000
members, ANNA has repeatedly provided information on the ESRD program to
legislators and policy makers since the inception of the program in 1972.

The end stage renal disease program has remained a success over the past 23 years,
in part due to the commitment of the Congress to assure quality care to the
beneficiaries. As this Congress considers both measures that improve health care
delivery to the citizens of this country and methods to reduce overall spending in the
Medicare program, we believe there is much to be learned from the successes and
limitations of the ESRD program. Medicare entitlement has provided access to care for
many patients who were previously denied treatment.

The initial reimbursement rates for outpatient dialysis were set arbitrarily; they were not
based on costs. Established in 1973, they remained unchanged until 1983. They were
lowered in 1983 and again in 1986, and no adjustments for inflation were allowed.

The estimated Medicare per capita payments for end-stage renal disease during 1991
averaged $38,400. When adjusted for inflation, the per capita costs are increasing
minimally, or possibly decreasing. But, in fact, aggregate costs are increasing at over
eight percent per year even with adjustment for inflation. This rise is almost totally
driven by the increase in the number of patients, as the number of treated patients with
kidney failure is increasing at over 9 percent per year.

ANNA is sensitive to the need to decrease the federal deficit and reduce excessive
health care spending and we respect the mammoth charge before this Congress.
However, we urge the Congress to maintain the ESRD program, one of the most
striking examples in this country today of a publicly funded, privately operated health
care program that provides lifesaving medical care for a highly vulnerable, very sick
population.

EXTENDING SECONDARY PAYER PROVISION

Under current law, Medicare is the secondary payer for individuals with end stage renal
disease who have coverage through employer group health plans (EGHPs). Medicare
makes payments secondary to such EGHPs for the first 18 months of entitlement, after
which Medicare becomes the primary payer.

ANNA supports that this provision be made permanent and that consideration be given
to extending the secondary payer provision to 24 months. We have concerns about
extensions beyond that time that we hope the Congress will consider.


107

Chairman THomas. Thank you, Mr. Bowden.
Dr. Lundin, I understand you would be the winner in the show-
and-tell contest. I look forward to your testimony.

STATEMENT OF A. PETER LUNDIN, M.D., IMMEDIATE PAST
PRESIDENT, AMERICAN ASSOCIATION OF KIDNEY PATIENTS,
TAMPA, FLORIDA

Dr. LunpIn. Thank you, Mr. Chairman.

Mr. Chairman and Members of the Subcommittee on Health, my
oral testimony will differ from the written in words, but not in con-
tent. As immediate past president of the AAKP, American Associa-
tion of Kidney Patients, I am gratified to be here today to relate
to you the concerns of kidney patients for the future of Medicare’s
ESRD Program.

For most of us, dialysis has been simply the difference between
life and death. Without dialysis, I would have died in 1966. Only
because my father could afford to pay for dialysis treatments at
over $30,000 per year, I was able to finish college, go to medical
school, practice my profession as a kidney specialist, and be here
today almost 30 years later.

As you are aware, the ESRD Program was enacted in 1972 to
make this uniquely predictable, artificial, and lifesaving therapy
available to the many thousands who could otherwise not afford it.
I urge you to overlook the media-fostered image of the miserably
unhappy dialysis patient as a measure of dialysis. The great major-
ity of us, rather, are content to be alive, and by receiving quality
treatments, have been able to do something we value with the time
we have left. Given the life-sustaining nature of dialysis and trans-
plantation, it is understandable that any changes in accessibility to
the ESRD Program should create concern among its beneficiaries.

There are several points I would like to make to the Subcommit-
tee today. As patients, we are concerned that the transfer of all or
even part of the ESRD Program to the private insurance sector
could again result in limiting access to care for many deserving pa-
tients as was the situation prior to 1972.

In the desire for cost savings, providing dialysis and transplan-
tation services of quality may not always be the primary focus of
managed care organizations. AAKP continues to hear from man-
aged care patients with kidney disease as to inconveniences and re-
strictions of choice and travel. Good business practices do not al-
ways coincide with appropriate medical care.

In the future, is it implausible to think that dialysis for an HMO
patient could only be received at a dialysis center 100 miles away
or a transplant exclusively obtained at one 1,000 miles away where
the patient must pay all travel and living expenses? This scenario
would mean that only the economically fittest patients with renal
disease would survive.

Should we assume that the private insurance sector will willingly
assume a larger proportion of these costs, of the costs for these ex-
pensive treatments, without looking for such limitations to acces-
sibility? Until we know how managed care organizations are going
to deal with these life savings treatments, we urge a more cautious
approach as was outlined by some of the speakers earlier.


92

seman poser powsion an shar Mauresmo ois olowup sus hs GA m Apt 194 ete pact of OBR
Sovs Dayan Provision on Providers and Beueiare sed that Qu svi of paren rules eas aes rr il ater
tov beteitany whether Medicare or he employer pln pass Ist he extension shld po afet mow SRD poten: mast poe
tapers because specie yen povnons suse ESRD patents wih ual cove or beng singled out for ineesed Poke
* Medicare Will Save Money - The Impact of OBRA-90's Dialysis Provisions om Providers and Beneficiaries study also

concluded ta Medicare woukl anual se 567 mallon fom the 18 month ESRD secondary pier provision

The NRAA docs ot belee ewetding ths poven by 6 oF 12 More mone wil have any aprecade aft ov ESRD
boron acest emploent ov health insurance util ave Nedcre millon af dollars

Wie would Rewever oppose an apeaenaed FSRO second paper prowon as we Deve this woul rae ages opment
and healh svwance yrblens for ESRD eves

OPPOSE EPO BEING INCLUDED IN THE COMPOSITE RATE

Ie has been suggested by one ar 89 organizations tm the renal community that the payinent method for EPO be changed to
bundle” the payment for EPO into the composite payment for dialysis. Under this proposal, facilities would be paid an additional amosot
whether or nat EPO as furnished and regardless of the number of units administered

‘The NRAA joins with the Renal Physicians Association and the American Nephrology Nurses’ Association nu
Subcommitice and the Congress 10 reject this approach because of the real potential for abuse, When Medicare initially sei the
reimbursement a a flat rate of $40 per teeatment for most patients, regardless of the amount administered, the Office of Technology
‘Assessment (OTA) and the Office of Inspector Genecal (O1G) ssued reports that found that lower than predicted average doses were being
administered, Largely on the basis of the OIG report. Congress in OBRA 1990 changed the reimbursement methodology to SI! per
thousand units administered. In OBRA 1993. the payment amount was reduced 10 $10 per thousand units

‘There are now additional reasons to reject a Mat rate or bundled payment. OTA in an article published in che Journal of the
American Medical Association, in July 1991, concluded that “paying 2 fixed rate per treatment with the biologic agent gave dialysis
facilities a financial incentive to use low doses .. and fewer than 43 percent of patients who had been treated for 6 months or mare hid
ever attained the target hematoce.” In other words. a bundled payment would create strong financial incentives for some providers to
‘withhold EPO of reduce doses which would result inthe return of anemia and a sharp reduction in the health status and the quality of life
of many dialysis patients

Funher, folding EPO payments into the composite rate would not result in reduced Medicare expenditures for ESRD patients, This
\s because dialysis patients receiving EPO have been found to develop fewer comorbid conditions that require inpatient hospital treatment
A recent study conducted by Jokns Hopkins School of Medicine and HCFA found that patients on EPO are less likely 10 have hear flue,
angina, myocardial infarction, depression. and strokes than patients not receiving the drug. The study also concluded that use of EPO may
bbe associated with fewer overall hospital admissions and fewer days spent in the hospital

Uefinancial incentives to withhold EPO led to increased use of vansfusions, Medicare would incur the additional costs of treating
Dlood-bome infections and patients would rish developmen of antibodies, inereasing their chances that a kidney transplant would be
rejected These additional costs would most likely wipe out any potential savings associated with bundling EPO payments into the
composite ate.

The NRAA would also like to be on eccord ia opposition to lowering reimbursement for EPO. The US, price of EPO is already
the lowest in the world. The lst price according to Amgen is on average 344 percent lower than the European price and 68 percent lower
than the price in Japan

EXEMPT PHYSICIAN OWNED DIALYSIS FACILITIES FROM THE INPATIENT HOSPITAL SERVICE AND OUTPATIENT
PRESCRIPTION DRUG BAN INCLUDED IN THE 1993 SELF-REFERRAL LAW

[As a result of the self-referral ban on “inpatient hospital services” included in OBRA 1993, as of January |, 1995, physician owned
dialysis factities, group practices and solo practitioners can no fonger provide hospitals with the stafT and dialysis machines required 10
dhalyze their inpatients, if they refer their own patents 10 the Rospitals

The NRAA strongly recommends that the Subcommittee explicitly exempt physicians who have ownership or arrangement
agreements with hospitals 10 provide inpatient disivss services from the ban for the following reasons

1e purpose of the exemption is lo assure that hospitals will be able to provide acute dialysis services to theit patients Many
hospitals cannot afford to provide 24 hour a day acute inpatient dialysis services and have therefore contracted with local dialysis facilities
{sole practitioners, group practices and physician owned) to provide the staff and dialysis machines to dialyze patients with renal failure
Such arrangements result in continuity of care and better quality of care because the same staff is providing the patients with dialysis care
in both the inpatient and outpatient seiting, The pavients also benefit areatly by having their treatments performed by highly qualified staff
I these hospitals had no other option bul to ice their own staff, i 18 likely that the staff would not be as qualified This woul! be due
tw the lack of experience and expertise especially when the volume of treatments they petformed was low.

Smaller community hospitals and hospitals in isolated areas rely upon acute care contracts with physician owned dialysis facilities
in the community to meet patient care needs that cannot be met in any other way. Without this proposal some hospitals that cannot afford
to staff an inpatient dialysis unit may have to transfer weit extieally 1 patients with cenal failure to other hospitals. This could negatively
impact and compromise these patiens’ health It might also jeopardize the continuity of physician care, create additional hardships for
the patients and their families and inerease the pativnis' emotional stress

Further, we do aot believe these arrangenients should be included in the self-referral ban because the Wialysis services are actual
an extension of the physician's practice. Also, hospitals already have oversioh esponsibility for utilization and admission reviews 10
fensure that patients are not dialyzed

s surimary, our proposed correction sould (1) avoid ceducing access t0 inpatient dialysis care. (2) help main
patient care and: (3) allow hospitals to enjoy the most costetfective means of providing inpatien dialysis services|

The NRAA would also urge you (0 eliminate the OBRA 1993 ban on outpatient prescriptions drugs being dispensed im physician
owned dialysis facilites. Nephrologist owned dialysis facilities, like all other dialysis Facile, order a number of prescription drugs 10
bbe given 10 patients while on dialysis, These medications are covered under Medicare"s Conditions of Coverage and are reimbursed bs
Medicare Peritoneal dialysis, which 1s performed by a patient outside of the dialysis facsly, 18 also categorized as a prescriian divs
for Medicare reimbursement Prohibiting physician owned facilities from prescribing peritoneal dialysis would mean that patients of hese
[physician ovsned facilities would he precluded from this form af dialysis. We do not believe even the authors of the self referral peosision
mended 10 ban the provision of prescription drugs when delivered within the physician owned dialysis facility. Such ban would
elfectively deny patients of these facilites from receiving proper care and could endanger these patients” lives

continuity of



60

Chairman THomas. I thank the panel very much. The gentle-
woman from Connecticut will inquire.

Mrs. JOHNSON. Dr. Powe, do you agree with Dr. Blagg that if we

0 to capitated rates they need to be adjusted for severity, that
their needs to be more than one rate?

Dr. Powe. I thoroughly support that. I am concerned that, as I
said, Medicare might pay more if a provider were to select rather
healthy ESRD patients and vice versa, that if providers took care
of the very sick, they may not be viable as organizations.

Mrs. JOHNSON. We appreciate the danger of that. In the past
have there been problems with oversight of quality?

Mr. RETTIG. I think what has happened in the past 10 years is
great attention to mortality as an outcome measure; next, a great
attention to adequacy of dialysis, accompanied by hematocrit, blood
pressure, and nutrition.

The argument that emerged from the IOM conference held in
1993 is that there is a marvelous opportunity in this chronic dis-
ease patient population of 200,000, who present three times a
week, to get data on how well the patients are doing. There are in-
struments for doing that. They are called questionnaires and they
are filled out by patients.

Sometimes patients find it easier to respond to a questionnaire
than they do to talk to their physician. I think it is long past the
time when this program should have been collecting data on phys-
ical function, bodily pain, social and role function, general health
perception, and general mental health. A complete quality assur-
ance system, whether capitated or not, needs all those elements—
mortality, adequacy, functional and health status.

Mrs. JOHNSON. I think that is an excellent comment. Has there
been any problem in the past with quality? Because if we are going
to build quality in, and some of you have suggested that one of the
dangers is that we tend to build that in through regulatory systems
that also affect costs and not necessarily in a way that improves
quality. I want to know whether there are any past problems with
quality and that is not to say that the kind of questionnaire that
you recommend would be costly, but wouldn’t be very useful.

I am not sure from Dr. Blagg’s comments that he isn’t envision-
ing a proper controlling form of government oversight of quality.
Have there been problems in the past?

Mr. Retric. I think there have been, but they are documented
extensively on mortality and about the same on hospitalization.
There are very good data systems that have begun to generate data
on adequacy of dialysis. But you don’t have a complete picture. You
have anecdotes. That is part of the problem in responding to the
question.

I am arguing the need for putting a systematic mechanism in
place to acquire such data.

Dr. Buacc. I agree. I am not suggesting that the government
should be applying strict sanctions in this area. Rather, the infor-
mation should be available to both patients and to physicians and
also to the public in general so that by peer pressure we can im-
prove quality. I agree there was a problem. It is now beginning to
get better, and that is why I say now is not the time to change the
reimbursement system.


56

Promote quality of care in terms of appropriate care and outcomes and patient
satisfaction;

Promote equity for patients, including free choice of both treatment modality and health
plan;

Provide equity for health plans by payment methods that take into account differences
in patient resource needs and ability of plans to compete for patients.

Components of a Capitation Plan

1.

Benefits package that includes all part A and part B services. This could also include
additional benefits or reduction in copayments as incentives for enrollment.

Marketing and enrollment that allows any Medicare ESRD beneficiary with part A
and part B entitlement to enroll at any time. Enrollment and disenrollment must be
monitored to detect bias in patient selection.

Delivery systems comprised of health plans contracting with HCFA and with dialysis
providers, hospitals, laboratories and physicians. Contracts between health plans and
providers should be flexible in such matters as risk-sharing and profit-sharing
agreements.

Payment methods based on monthly capitation amounts for patients on dialysis or with
a functioning kidney transplant. Payment must take into account patient characteristics,
including age and a diagnosis of diabetes, as well as extra costs in preparation for a
kidney transplant and following transplant failure.

Quality assurance provisions.
Monitoring and oversight of the quality of health care services and the financial

viability of health plans on behalf of the government in order to protect the interests of
Medicare ESRD beneficiaries.

Payment Methodology Recommendations

Monthly capitation payments for patients on dialysis, risk-adjusted for differences in
costs related to patient characteristics;

Monthly capitation payments for patients with functioning transplants;

A fixed lump sum payment for each kidney transplant and for each transplant failure to
cover the incremental costs of these infrequent and expensive events;

Separate payments for Medicare part A and part B benefits;


18

Thus, the average of the two results in a rate that underpays plans for dialysis
patients and overpays them for transplant patients.

Upcoming demonstration

We are hopeful that an upcoming demonstration will lead relatively quickly to
improvements in the payment methodology. In an effort to further explore issues
related to ESRD and managed care, we commissioned the RAND Corporation to
study concerns relating to the incorporation of ESRD patients in a managed care
program. The study dealt with payment amounts, reinsurance provisions, barriers
and incentives. We have used this information to design a demonstration that will
test a new payment methodology for capitated systems. We expect to solicit
proposals for sites within the next four months and estimate that service delivery
could begin in the second half of 1996.

CONCLUSION

Medicare's ESRD program provides life-saving coverage to many who would
‘otherwise be unable to afford necessary treatment. With more than 90 percent of
persons with ESRD on Medicare, Medicare is by far the largest payer of ESRD-related
services and supplies. We have a strong interest in the quality of care provided to
‘our beneficiaries and close working relationships with our partners in the provider
and advocacy communities. HCFA will continue to seek ways to increase the
efficiency of the program without compromising patient care or access.

J hope this has been informative. | am happy to answer any questions you
might have about the ESRD program.


aT

of cost to quality, we will continue to be subjected to a series of anecdotes that serve the
purposes of the user but do not help policy makers. It is also the case that the USRDS
was barred by the National Institutes of Health in its first five year contract from
considering reimbursement and clinical issues together, even though the data permitted
such examination. It appears that that problem has been remedied in the second five-year
contract. But this Committee should make clear to NIH and to HCFA that the public
interest is not served by the failure to examine cost and clinical data together.

‘The second area in which HCFA and the nephrology community might be asked
by this Committee to be more forthcoming is in the development of a system for the
acquisition of data on the functional status, health status, and health-related quality of life
of the ESRD patients. In a chronic disease patient population, it is entirely reasonable to
ask about patients’ physical functioning and limitations, their social functioning, bodily
pain, general mental health, vitality, and general health perceptions, Well-validated
instruments exist for acquiring such data. Several of these are deliberately short, to case
the costs of data collection and analysis and to facilitate their use in busy clinic settings.

Resistance to the use of functional and health status and quality-of-life measures
stems, in my view, from several sources: (1) these instruments have been developed by
health services researchers and are unfamiliar to many clinicians; (2) the utility of these
instruments has yet to be demonstrated for patient monitoring and patient management;
(3) functional and health status data have yet to be correlated with clinical outcome data;
(4) measuring these factors adds to the cost of treatment; (5) systematically-acquired
patient data may challenge physician authority; and (6) these data may provide the basis
for limiting what HCFA can do with respect to reimbursement reduction (direct or
indirect).

Some of these reasons for resistance have merit, others do not. ff improving the
outcomes of patient care is an objective shared by the Congress, HCFA. the provider
community, the general public, and -- above all -- by patients, this Committee should
encourage greater progress in this area than we have seen to date.

EPIDEMIOLOGY, COST, AND ETHICS

Mr. Chairman, Members of the Committee. Let me return to the epidemiology of
the ESRD program. It should be clear that the growth of the patient population drives
cost growth of the ESRD program. It should also be clear that cost containment has been
extraordinarily successful on a per treatment basis, largely through the absence of
adjustment for inflation, But the two trends of the increasing treatment requirements of
an increasingly older and medically complicated patient population and a relentless
reduction of reimbursement cannot persist indefinitely without either quality suffering or
expenditures increasing. Obviously, it is impossible to calibrate the appropriate
relationship between epidemiology and cost without the systematic acquisition of data
about quality of care. This is one implication of the epidemiology of the ESRD patient
population.


51

TESTIMONY OF NEIL R. POWE,
JOHNS HOPKINS UNIVERSITY

Thank you Mr. Chairman and members of the Committee. My name is Neil R. Powe,
M.D., M.P.H., M.B.A. I am an Associate Professor of Medicine at the Johns Hopkins
University. I am currently directing an End-Stage Renal Disease Patient Outcomes Research
Team (PORT) funded by the U.S. Agency for Health Care Policy and Research. My work
focuses on defining the effectiveness and cost of treatment for individuals with End-stage Renal
Disease who now number over 150,000. I previously led a national study for the Health Care
Financing Administration of the effectiveness of recombinant human erythropoietin therapy, a
relatively new, effective and expensive treatment for anemia of End-Stage Renal Disease. This
study included an evaluation of the impact of different payment methods on access, outcomes
and costs.

In my testimony today, I will address the issue of how payment methods to reimburse
providers who care for individuals with ESRD will affect costs, access to care and quality of
care.

The first issue is cost. The medical care of individuals with ESRD is expensive. Persons
with ESRD consume eight to ten more medical resources on annual basis than the average aged
Medicare beneficiaries. While ESRD beneficiaries account for only 6 tenths of a percent of the
Medicare population they disproportionately account for over 4 percent of Medicare
expenditures. Epidemiologic studies suggest that total Medicare expenditures for ESRD are
likely to grow due in large part to the continuing increase in the population of older adults who
are experiencing ESRD. The large per patient costs and rising total Medicare costs suggest that
their is opportunity to develop and implement clinical, organizational and payment innovations
that will help reduce the cost of ESRD care.

Since 1983 providers of dialysis care, both physicians and facilities, have been paid by
HCFA under the composite rate methodology, which pays a fixed payment per treatment for
medical services related strictly to dialysis. This method of payment has been viewed as an
effective means of controlling program costs. Evidence for this is that expenditures for non-
dialysis, non-capitated care for dialysis patients have grown at a faster rate than expenditures for
dialysis care, These non dialysis, noncapitated services include care for other health conditions
and hospitalizations. The extension of provider responsibility to manage the total care of the
ESRD patient using capitation methods that encompass all services is therefore very attractive
as a means of continuing cost-containment. Capitation has the potential to impose discipline on
federal medical spending for ESRD patients through more predictable outlays. Furthermore,
capitation methods reward efficient providers and have the potential to promote better
coordination of care because a provider is made fully accountable for comprehensive care.

The second issue is access to care. Medicare payment for ESRD care since 1972 has
allowed and maintained access to care for over a half a million individuals. In addition, because
the number of providers of ESRD care has doubled over the past 15 years and now exceeds
2000, most individuals with ESRD have a choice of providers from which to receive care.
Private-sector for-profit and non-profit organizations versus government-run facilities comprise
most of the centers that provide care, Ina move to comprehensive managed care of ESRD, an
organization choosing to participate in care for ESRD persons must be able to provide the full
range of health care services that these persons require. This includes outpatient dialysis care,
outpatient non-dialysis care and inpatient care. In addition, transplantation services which offer
persons with ESRD the possibility of resuming a more normal life must also be available.

Some organizations may not have these capabilities. Thus, in some areas of this country under
a mandatory full capitation program, choice of providers for individuals with ESRD could be
restricted if not enough providers are capable of organizing the complete care of these patients.
Furthermore, a new payment system must permit choice and access to likely cost-effective ESRD
technologies such as peritoneal dialysis, transplantation and medications (such as recombinant
human erythropoietin and cyclosporine) that enhance the quality of life of the ESRD patient.

Capitation payments are often constructed with the assumption that all patients are
average. However, persons with ESRD are heterogenous; heterogenous with regard to other
medical conditions and the resources necessary to provide their care. For example persons with
ESRD and diabetes or over the age of 64 years have higher expenditures than persons with


80

In terms of transplantation, given the significant improvements
in graft and patient survival in recent years, the number of pa-
tients on the waiting list continues to grow, as does the waiting
time for a kidney. The gap between the supply and the need for
donor organs is greater than ever.

ANNA and other members of the transplant community would be
happy to work with the Congress to evaluate legislative measures
that would increase the supply of donor organs in this country. We
also support continued funding for research in this area, including
the use of xenografts.

Finally, ANNA supports the continued partnership between
HCFA and the renal community to evaluate and improve the qual-
ity of care delivered to the ESRD beneficiaries. We appreciate the
Subcommittee’s review of the ESRD Program. We have seen first-
hand the benefits that this program has had on the beneficiaries
and we are grateful for its continuation. We appreciate this oppor-
tunity to share our thoughts and observations and would be happy
to answer questions when appropriate.

Thank you.

[The prepared statement follows:]


146

anemia of renal failure have become unnecessary, and the quality of life of dialysis
patients has improved significantly.

Shortly after EPOGEN was approved for marketing, the Health Care Financing
Administration (HCFA) established a policy to pay for it as an add-on to the
prospective payment rate for dialysis services. (While the product is also covered by
Medicare when administered in physicians’ offices or dispensed for self-
administration to qualified dialysis patients, most EPOGEN is administered to
dialysis patients at the end of the dialysis session by injecting it into the venous
access route).

The rate set in 1989 was a flat $40 per EPOGEN treatment for most patients,
regardless of the amount administered. In setting the rate, HCFA assumed that
average doses would reach 5,000 units per administration, the average for patients
in Amgen’s phase III clinical trial. While it was always understood that the vast
majority of dialysis patients would eventually receive EPOGEN therapy, HCFA
also assumed that, as with most new products, the use would grow gradually.

In retrospect, it is clear that those assumptions (which Amgen shared at the time)
failed adequately to reflect the financial incentives created by the payment
mechanism. By mid-1990, the Office of Technology Assessment (OTA) and the HHS
Office of Inspector General (OIG) had reported to this subcommittee that the doses
were significantly lower than anticipated, to the detriment of patients, The OIG
report concluded that the effect of the flat rate reimbursement system was windfall
profits to dialysis facilities and recommended that Medicare pay for EPOGEN based
on actual doses administered.

Congress in the Omnibus Budget Reconciliation Act (OBRA) of 1990 changed the
reimbursement methodology from the flat rate to $11 per thousand units
administered. In OBRA 1993, the payment amount was reduced to $10 per
thousand units. Doses, which had averaged 2700 units in 1990, are currently
averaging about 4400 units per administration, enabling more patients to achieve
hematocrit levels within the FDA-approved target range of 30-36 percent. Amgen
data suggest that nearly all dialysis patients for whom EPOGEN therapy is
indicated now receive it, but only approximately 65 percent have hematocrits
within target range. This means that doses for some patients are still inadequate
and that closer clinical management of iron stores and other factors should be
encouraged, as discussed below. (Since HCFA’s reimbursement guidelines require
a hematocrit reading below 30 to initiate EPOGEN therapy, it is unlikely that
patients who are not anemic are being treated.)


139

The benefits of managed care for ESRD patients are obvious. However, the
country’s largest insurer -- the Medicare program -- prevents ESRD patients
from enrolling in an HMO after the advent of ESRD. While an ESRD patient
who is already enrolled in a Medicare HMO may remain in it after the onset of
ESRD, Medicare rules actually prevent individuals from choosing HMO care
after the advent of ESRD. This rule no longer makes sense and ESRD patients
should be permitted to enroll in managed care. This policy is especially
perverse as Medicare HMOs grow. Many seniors will not join if they must
change physicians. As HMOs grow, more physicians will become involved.
Once a patient’s physician is affiliated with a plan the patient can directly
benefit from the superior pharmaceutical benefits and co-pay arrangements,
which are economically significant for chronically ill patients.

Finally, as a result of being eligible for Medicare after three months, the
Federal courts have held, despite HCFA’s arguments to the contrary, that
ESRD patients are not eligible for COBRA continuation of their private health
insurance after leaving employment. If an ESRD patient could maintain
COBRA coverage, the private insurance would be the primary payer. Another
reason for permitting this COBRA coverage is that current case law is not clear
with regard to whether dependents of ESRD patients are eligible for COBRA
coverage when the ESRD patient becomes eligible for Medicare. HCFA’s
advocacy on this issue should not go unnoticed.


13

ESRD beneficiaries account for approximately one-half of one percent of the
total Medicare population (183,000 in CY 1991) and four percent of total Medicare
expenditures ($6.1 billior, in CY 1991)

ELIGIBILITY REQUIREMENTS

To quality for Medicare under the renal disease provision, a person must be
diagnosed with ESRD and be either (a) entitled to a monthly Social Security benefit,
(p) fully or currently insured under Social Security, or (c) the spouse or dependent
child of a person who meets at least one of these requirements. There is no
minimum age for eligibility under the renal disease provision. For beneficiaries who
are not otherwise entitled to Medicare, entitlement for the ESRD program ends 36
months after a successful transplant or 12 months following the last dialysis treatment
(unless the beneficiary receives a transplant or begins a new course of dialysis during
these periods)

About 93 percent of all ESRD patients meet requirements for Medicare
entitlement. The remaining seven percent are covered through other sources, such
as Medicaid, the Department of Veterans Affairs or private insurance.

ESRD BENEFICIARY PROFILE

Although the typical ESRD beneficiary is middle-aged, the largest and fastest
growing age group of the ESRD population is persons age 65 and older, and census
projections show that the "graying" of the ESRD population will likely continue into the
foreseeable future. Slightly more men than women are diagnosed with ESRD: In
1991, 54 percent of new ESRD cases were men and 46 percent were women.

The ESRD population displays a great deal of diversity and important age-race-
disease interactions. For example, although most patients are white, black persons
and Native Americans are over-represented in the ESRD population as compared to
the overall US population. Black persons have more than three and a half times the
risk of renal failure than white persons; they are also more likely than white persons
to experience renal failure as a result of hypertension or non-insulin dependent
diabetes. Native Americans, Asian Americans and some Hispanic Americans also
have markedly higher risks of renal failure than white Americans.

The number of beneficiaries with ESRD has grown rapidly since the beginning
of the program. Original estimates were that 10,000 persons would begin treatment
each year out of a potential pool of 20,000. Yet, in 1993, approximately 60,000
persons began treatment, which reflects an increase averaging nearly 10 percent a
year since 1978. From 1978 to 1991, the total number of persons enrolled in the
program grew more than 400 percent, from nearly 45,000 to approximately 183,000
This unanticipated growth has primarily been caused by a change in medical practice
that resulted in extending dialysis to persons whose primary disease is not renal, but
who experience renal failure as a result of other diseases (primarily diabetes and
heart disease). For example, before enactment of the ESRD program, diabetes was a
medical contraindication to dialysis treatment; now, however, diabetes is the most
common co-morbidity within the ESRD population. Other factors that contribute to
the growth in the ESRD population include the general aging of the population,
fonger life expectancy, and improved survival rates among the sick

CHART A shows new ESRD enrollees over time and the cause of their renal
failure. Overall, the three most common causes of ESRD are diabetes, hypertension
and a type of kidney disease called glomerulonephritis.

From 1978 to 1992, the proportion of ESRD beneficiaries with a functioning
transplant doubled from 11 percent to 22 percent. Recent improvements in
technology and immunosuppressive drugs, which are used to prevent organ
rejection, have increased the survival of transplant patients. in general, transplants


141

Chairman THomas. Mrs. Johnson will inquire.

Mrs. JOHNSON. Thank you for your very interesting testimony.
Mr. Thiry, how do you account for the fact that some of the preced-
ing panelists really had no sense that managed care was contribut-
ing to quality or managed care was doing a good job of both quality
and cost reduction in dialysis, and particularly they focused on the
insecurity that managed care would create for dialysis patients. In
other words, all the negative arguments and none of the positive
arguments. Why is the community that is most involved in deliver-
ing this care so unaware of the kinds of advances that you note?

ir. THIRY. Dialysis patients that are in managed care probably
only represent about 3 to 4 percent of the total. If you are running
one center or a few centers, you have an exceptionally small num-
ber of patients. That also means the payers with whom you are
dealing have a very small number of patients and therefore they
robably aren’t doing anything thoughtful with respect to dialysis
ecause they only have four or five of them and after 18 months
they turn them over to the government for the rest of the person’s
care life.

We are active in Florida and southern California, working with
a small number of HMOs who have a sufficient number of dialysis
patients so that it makes sense for them to allocate a lot of man-
agement time. We, all by ourselves, have about 600 managed care
patients. That is probably a multiple of what anyone else other
than national medical care is working with on a day-to-day basis.
Not only do we care for 600 HMO patients, but they are con-
centrated in a couple of geographic areas.

Mrs. JOHNSON. So the news just hasn’t spread yet.

Mr. Tuiry. They literally are not dealing with managed care or
thoughtful managed care. They may be dealing with thoughtless
management care, exactly as they describe.

Mrs. JOHNSON. Your experience is in HMOs, which isn’t an orga-
nization of managed care that maximizes the ability to manage.
Are you aware of more flexible PPOs and organizations like that
that also deliver managed care getting into dialysis?

Mr. TuirRY. We have received our first phone calls from them and
made our first phone calls to them only in the last 6 months, again,
because of the same volume issue. There is tremendous opportunity
to work within the PPO, POS industry.

Mrs. JOHNSON. Could you clarify for me again the volume issue,
why is it other plans don’t have to deal with the volume issue?

Mr. Tuiry. If I have 150,000 enrollees in Cincinnati and x num-
ber of them are dialysis patients and x is a very small number, I
will first deal with AIDS, asthma, allergy, oncology, Alzheimer’s,
and so forth, before I get to dialysis because it is such a small num-
ber of patients and I only have them for a short time.

Mrs. JOHNSON. Thank you.

Chairman THomas. The gentleman from Nevada.

Mr. ENSIGN. Thank you. Dr. Berger, you mentioned an inflation
adjuster. Do you know what we would currently be spending if we
had an inflation adjuster all along in relation to the dollars per
year that we are spending on ESRD today?

Mr. BERGER. There are two components that have not been tradi-
tionally adjusted for inflation. One is the physician monthly capita-


55

STATEMENT OF CHRISTOPHER R. BLAGG, M.
EXECUTIVE DIRECTOR
NORTHWEST KIDNEY CENTERS

Testimony to House Ways and Means Health Subcommittee, Monday, April 3, 1995:

My name is Christopher Blagg, I am a nephrologist from Seattle, and Executive Director of
the Northwest Kidney Centers and Professor of Medicine at the University of Washington.

Northwest Kidney Centers (NKC) is a non-profit, community-based organization that
provides dialysis services throughout Seattle and most of King County, Washington, as well
as serving as the Organ Procurement Agency for Western Washington and the states of
Alaska and Montana, NKC has six dialysis facilities that provide outpatient hemodialysis for
600 patients. A further 124 patients are treated by home hemodialysis, and 93 by CAPD and
other forms of peritoneal dialysis at home, Currently, 59.2% of all NKC patients either
have a functioning kidney transplant or are treated by home hemodialysis or peritoneal
dialysis. NKC serves a medical staff of 37 nephrologists from private practice, the
University of Washington, and Group Health Cooperative, a large HMO.

T have been involved with dialysis for more than 30 years, and with the NKC for 23 years.
During that time I have also been involved in various ways with legislative activities,
consulting with the Health Care Financing Administration (HCFA), with the National
Institute of Diabetes and Digestive and Kidney Diseases (NIDDK), with planning of end-
stage renal disease (ESRD) services at the state level, and with various professional
organizations.

T have had an interest in the concept of capitated reimbursement for ESRD treatment for a
number of years, and served as a member of the advisory committee to the Rand Study
"Designing a Capitation Payment Plan for Medicare End Stage Renal Disease Services". 1
also met with congressional staff in the past to support inclusion of a demonstration project
on capitation for ESRD in HCFA’s Social HMO demonstrations. At this time, I am waiting
for publication of the Request for Proposal from HCFA for this demonstration project. NKC
will then consider whether or not to respond with a proposal to participate in this.

THE RAND CAPITATION STUDY:
This research project, funded by HCFA, evaluated the options for a capitation payment
system for patients with ESRD that would combine payments for hospital and outpatient
services, including physician services. Medicare claims data from 1990 for all part A and
part B services for ESRD patients were analyzed and used to estimate total payments,
including Medicare and copayments and deductibles, Monthly payment amounts were
standardized to national averages. The study used 1990 data from 136,047 patients who used
dialysis services only during the year, 27,740 patients who only had a functioning kidney
transplant, 6,185 patients who received a transplant, and 1,773 patients whose transplant
failed during the year.

Capitation Program Principles:

- Control cost by an appropriate mix of services and their efficient delivery:


ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

SUBCOMMITTEE ON HEALTH

FOR IMMEDIATE RELEASE CONTACT: (202) 225-3943
March 27, 1995 .
No. HL-8
[E MED! T. RENAL
DI IDNEY FAI P RAI

Congressman Bill Thomas (R-CA), Chairman of the Subcommittee on Health of the
Committee on Ways and Means, today annovnced that the subcommittee will hold a hearing
on the Medicare end stage renal (kidney failure) disease program. ‘The hearing will take
place on Monday, April 3, 1995, in the main committee hearing room, 1100 of the
Longworth House Office Building, beginning at 10:00 a.m,

Oral testimony at this hearing will be heard from invited witnesses only. However,
any individual or organization not scheduled for an oral appearance may submit a written
statement for consideration by the Committee and for inclusion in the printed record of the
hearing.

BACKGROUND:

Medicare covers individuals who suffer from end stage renal disease (ESRD) if they
are insured under the Social Security program or are the spouse or dependent of a person
insured under-Social Security.

ESRD is fatal without treatment, which is either transplantation or dialysis, Successful
transplants more than doubled between 1980 and 1992 in the general population due to the
introduction of cyclosporine, an effective immunosuppressive drug. In 1991, there were over
4,600 transplants performed on Medicare ESRD patients. Nonetheless, dialysis remains the
primary treatment due to a shortage of kidneys available for transplantation and medical
factors which make transplantation unsuitable for certain patients.

In 1995, there are approximately 200,000 Medicare beneficiaries with ESRD, up from
97,200 in 1985. Medicare spending for ESRD patients will total $8 billion, or $38,900 per
beneficiary. In 1985, Medicare spent $2.8 billion on ESRD beneficiaries, or $29,000 per
beneficiary.

In announcing the hearing, Chairman Thomas stated: “The Medicare program has
saved thousands of lives for persons suffering from end stage renal disease and will, continue
to do so in the future. I believe the subcommittee has a responsibility to make sure the
Program continues to meet its objectives in a cost-effective manner. I am anxious to hear
from the Administration and the experts about the quality of care provided to patients, and the
applicability of capitation and managed care to this portion of the Medicare program."

FOCUS OF THE HEARING:

The hee-ing will focas on oversight of the Medicare ESRD program, examining trends
in costs, beneficiaries, and the number and organization of providers, as well as changes in
medical practice patterns ard the quality of care provided to beneficiaries, In addition, the
hearing will examine current and alternative payment policies and how the ESRD program
may fit into a broader reform of the Medicare program.



72

typical ESRD patient was $32,000. Estimates of the cost for caring for an ESRD patient today are
more than $50,000. Assuming that health care companies still decide they wouid like to cover
ESRD patients, it is reasonable to conclude that premium increases will have to be spread to
other policy holders. These increases would differ by geographic area, thus penalizing some
policy holders and not others. This would provide employers with a disincentive against hiring
individuals with ESRD because of the extra cost of insuring the ESRD patient and the extra costs
of insuring their remaining employees.

RPA fears that insurance companies competing for dialysis business would attempt to find the
lowest common financial denominator, paying at rates below what Medicare pays today. Cost of
care will become the predominant concern of the insurance company. Unlike the current ESRD
format, where patients have the ability to choose their nephrologist, health plans would instead
contract with nephrologists on a lowest cost-ol-care basis. Thus, many patients would have to
terminate existing physician relationships. Also, because health plans would contract with a
limited number of physicians to provide dialysis, there would be a corresponding decrease in the
‘umber of dialysis facilities available to the patient for his or her dialysis treatments. Easy access
to these facilities is critical to the successful treatment of the ESRD patient, who is offen too sick
to travel great distances. It seems doubtful that large health plans would take this geographic
factor into account when enrolting physicians in their dialysis panels. ESRD patients are
inherently different from other health plan enrollees. Individuals with renal failure are older and
sicker than the general population and without access to dialysis treatment, they simply will die.
Because of the life-threatening nature of their disease, ESRD patients can not be treated in the
same manner as other health plan enrollees who are healthier and not in constant need of a
physician's care.

RPA is also concerned that insurance companies could be tempted to develop treatment
guidelines which would exclude coverage for ESAD patients with unusually complex comorbid
conditions such as cancer or diabetes. This could lead to a situation similar to the period before
the ESRD program began, when patients often were chosen tor dialysis on the basis of their age,
emotional stability, and chances of continued production to society. Before 1972, minorities,
women, and low-income individuals were underrepresented in the dialysis recipient community.

Currently, Medicare is the only program offering comprehensive care for ESRD patients, including,
in addition to, dialysis, nutritional counseling, psychological counseling, assistance in finding
Support groups, and other services. RPA is concerned that health plans, on the other hand, could
place {limits on the amount of dialysis treatments allowed, or place a monetary cap on the cost of
care, similar to the way mental health benefits are treated. Such limits or caps would threaten
medically necessary care for ESRD patients.

Also, under the ESRD program, the ESRD Network Organization and the United States Renal Data
System (USRDS) exist to oversee the quality of care provided to ESRD patients and these groups
work to improve health care outcomes, Under a system fueled mainly by private insurers, it would
be very difficult to continue with such an effective oversight program. As is becoming
increasingly clear, quality assurance systems are critical to the proper delivery of dialysis care.
Insurance companies do not have the capabilities to provide the intensive quality agenda already
being pursued by the ESRD program.

Current managed care practice encourages primary care physicians to “gatekeep" and may even
have financial disincentives not to refer patients to specialists. Direct access to a nephrologist is
essential to ensure quatity care for patients with chronic renal disease, and patients with acute
renal disease.

RPA also believes it is important to view “privatization* in the political sense. The ESRD
population is one of the most vulnerable segments of the country. They are chronically ill, older,
and in many cases, minorities. Very likely, a two-tiered system of care could result, with poorer
patients enrolling in cheaper, and correspondingly lower quality health plans, while wealthy
patients would be abie to access fee-for-service plans. The ESRD program, on the other hand,
has been very successful in keeping patients with ESRD alive, and has kept ESRD expenditures
to a minimum. RPA anticipates that creating a nation-wide voucher system affecting this sick
patient population would undermine the program's success and could have serious health
ramifications in the future.

PATIENT POPULATION
The number of patients in the ESRD program has grown substantially over time, increasing from

approximately 10,000 beneficiaries in 1973 to nearly 250,000 taday. The ESRD population is
diverse in age, sex, race, and has changed over the time span of the program. Increasingly


27

Dr. Smits. I believe so.

Mr. Stark. Which would give some incentive, would it not, or
would it not appear to treat somebody in the hospital setting rather
than the dialysis setting?

Dr. Smrrs. Yes. In fairness, some hospital dialyses are much
more complicated. Some are done when the patient is often sick
with other problems and the rate would also apply to a patient who
is newly in renal failure who is often quite difficult to dialyze at
the beginning.

Mr. TARK. But it would also apply to routine dialysis in the hos-
pital?

Dr. Smits. Yes.

Mr. STARK. Thank you.

Chairman THomaS. Before I ask the gentleman from New York
to inquire, why is there such a significant discrepancy on reim-
bursement between inpatient and outpatient, $15 to $180?

Dr. Smits. The physician on the outpatient side is——

Chairman THomas. If they were driven by money, you wouldn’t
have a more significant inpatient versus outpatient ratio here.

Dr. Smits. You mean that if the doctors were all trying to get the
patients into the hospital in order to get the higher fee?

Chairman THOMAS. Yes.

Dr. Sirs. I think the incentives are much more complicated
than that. They are paid on a flat rate in the facility per month.
They don’t have to see the patient every dialysis. Many of them see
the patients once or twice a month, sometimes in big facilities.

The group as a group will round on every patient every time. It
really varies considerably. I think the settings where the doctor
really does try to overcome Medicare’s pressures not to admit and
pick the patient out of the dialysis facility and put them in the hos-
pital in order to get the extra money is unlikely.

Chairman THomaSs. Thank you.

The gentleman from New York, Mr. Houghton, will inquire.

Mr. HouGHTON. Thank you very much, Mr. Chairman.

Dr. Smits, I have a specific question and then a more general
one. The specific question is, How about the administration’s sup-
port increasing the number of months during which Medicare
would be secondary to ESRD beneficiaries’ employer-based cov-
erage?

What do you feel about that?

Dr. Smits. I think that—

Mr. Houcuton. It would save quite a bit of money.

Dr. Smits. Yes, it certainly would. I think there is some anxiety
that in the absence of comprehensive health reform, you might see
perverse effects, particularly the elimination of dialysis as a benefit
from private plans.

ce HouGuTon. Yes, but is the administration thinking about
this?

Dr. Smits. We have considered it in great depth and the Presi-
dent made the recommendation that he has made and that you
have supported, which is to preserve the current timeframe.

Mr. HOUGHTON. The more general question I guess keys from the
issue that Mr. Stark brought up about prevention, and you have
talked about in some of your comments.


70

renal disease. The nephrology community has had 20 years experi-
ence in dealing with a capitated approach to health care and the
RPA is conducting an extensive analysis of the effects of current
and proposed capitation systems for nephrologic care, including di-
alysis and transplantation. We will be developing additional inno-
vative approaches and look forward to sharing our views with the
Members of this Subcommittee and others.

We feel there are other areas for important potential cost savings
for the ESRD Program and that some of these need to be examined
in much more detail. We have not heard a lot yet, but we need to
identify and enhance the identification of basic mechanisms of dis-
eases that cause kidney failure.

There needs to be improvement in the detection and manage-
ment of renal disease in its early phases, and I would be remiss
if I did not comment on the role of the nephrologist and the other
members of the renal health care team in early intervention and
involvement.

The issues of managed care that sometimes tend to keep the spe-
cialist, including nephrologists, away from the patients until an ad-
vanced stage when clearly dialysis is the only option, needs to be
examined, and we have in fact published some information on this
and would look forward to further testimony.

Finally, the development of more effective strategies in the treat-
ment. of ESRD needs to be examined. There are already studies
doing that, but we think there needs to be more.

Last, I offer a suggestion that programmatic improvements must
also provide stronger rehabilitation initiatives since excellent dialy-
sis care and successful renal transplantation are only the bare es-
sentials for restoration of an individual with ESRD to a healthy
productive life, and that is the kind of life envisioned by Congress
20 years ago when they put this program together.

That concludes my oral comments. I would be happy to answer
questions.

[The prepared statement follows:]


150

dL INTRODUCTION

Baxter Healthcare Corporation appreciates the opportunity to submit written testimony
to the Subcommittee on the Medicare End Stage Renal Disease (ESRD) program in
connection with its hearing on April 3. We applaud the Subcommittee for its efforts in
evaluating this program and examining other alternative payment and administrative
approaches for the management of this chronic condition.

Baxter is a subsidiary of Baxter Intemational, Inc., a publicly traded company
headquartered in Deerfield, Hinois. Through its Renal Division, Baxter manufactures and
distributes a full range of hemodialysis and peritoneal dialysis equipment and supplies to the
renal community. Baxter has pioneered many of the technological breakthroughs in dialysis
that have enabled hundreds of thousands of patients to survive and live quality lives despite
chronic renal failure. Baxter believes it is critical that this vulnerable patient population
continue to receive access to quality care and integrated, comprehensive services. Over the
years, we have had the opportunity to listen to and work closely with all interested members
of the renal community, including physicians, providers, suppliers, payers, professional
associations, and most importantly, patients. It is based on this perspective that we offer
these comments.

We believe strongly that the Medicare ESRD program generally has been successful
in meeting the needs of patients with chronic renal failure. We feel equally strongly,
however, that the program can be significantly improved in terms of quality of care, patient
satisfaction and cost-effectiveness. There is much we have learned since the inception of the
Medicare ESRD benefit twenty three years ago, and the time to apply these lessons, we
believe, is now.

Recently, there has been a great deal of examination and discussion regarding current
and alternative payment policies for the ESRD program, both within and outside of the
context of broader Medicare reform. While many of the proposed Medicare reform
initiatives will require a long-term analysis and evaluation, we believe that several initiatives
can be implemented now that can improve beneficiary options and encourage the renal
community to further adopt and implement certain managed care mechanisms. ‘These
mechanisms, we believe, will promote improved patient quality, provider accountability and
cost-effective care.

Our recommendations do not suggest a total overhaul of the ESRD system, nor do we
endorse a rapid movement of the entire ESRD program to a capitated payment methodology.
Rather, we believe that the endorsement of certain integrated delivery system principles, such
as the concept of "disease management,” coupled with incremental changes in the current
payment and reimbursement system offer the potential for improved quality of care, greater
system efficiency and lower total costs.

I, THE ESRD PROGRAM TODAY

As it is currently structured, the Medicare reimbursement system, through its focus on
the treatment of and payment for acute, isolated services, discourages integrated care for
patients with ESRD. Medicare reimburses facilities for services strictly related to dialysis
based on a prospectively determined composite rate; ancillary supplies and services are


63

At that point, we didn’t know enough about what were the right
measures to judge quality. We now have some handle on this and
things are improving. But I would be very concerned to make a big
change to capitation at this time.

Mr. HOUGHTON. I would respect that. Let me get into another
area with some of the big economic forces involved, because you
have the balancing of care and cost. It is going to be a constant
issue. But our job now is to try to make sure we are doing the right
thing for the next 20 years rather than just sticking with a system
which has been pasted together and is certainly not very efficient
and enormously costly.

What are those things which we can impact here? There is capi-
tation, competition, early detection in terms of wellness programs,
and basic knowledge about families and lifestyles. If there were one
or two big economic thrusts that we could make assuming that the
care was going to be there, what would you focus on? Maybe the
other gentlemen would like to comment also.

Dr. Powe. I think the issue of prevention of this problem is an
area that has been neglected. Although we know that diabetes and
high blood pressure cause kidney failure, we don’t have a clue as
to why some individuals with diabetes or hypertension go on to de-
velop kidney failure. We need to understand that better so that we
can develop interventions that will have an impact on that.

Mr. RETTIG. I demur slightly from that. I don’t think there are
major opportunities for prevention. That issue has been on the
table for 30 years and is dependent on medical science making a
big bite into hypertension and diabetes.

At the present time, the way we are controlling those diseases
we may be increasing the pool of individuals who live with those
problems and who then have extended lives during which their kid-
neys fail. I don’t think there is a big economic bang for the preven-
tion buck to be had until medical research gives us far more knowl-
edge.

Mr. HoucuTon. If we had a system, which we don’t have and
probably will never have, that required everybody to take a medical
examination every year, and we understood not only the obvious
results of that, but also delved in a little bit about eating, lifestyles,
drinking, smoking, and elements of the family background which
might be conducive to certain things, that wouldn’t help? That
wouldn’t help in the prevention?

Mr. RETTIG, If it were massive and controlling.

Mr. Houcuton, But I mean——

Mr. RETTIG. Sure it would help, but at the margins. You are talk-
ing about behaviors that have to have changed 20 years before
somebody manifests kidney failure. What do you do—.

Mr. HouGurton. Or basic family knowledge.

Mr. Rettic [continuing]. When you reason with your youn
daughter about the cost of smoking, if you haven’t been throug!
that, I can tell you I have, about the long-term cost of smoking.
When somebody figures that one out, how to be persuasive, then
come back to diabetes 20 years before the presentation of kidney
failure.

Mr. HoucurTon. It just seems to me that there are an awful lot
of innocent people out there who try to live a decent life and ulti-


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37

We certainly don’t want to be setting standards to say, no, let
Uncle Joe die, but on the other hand, could we educate—is there
something we could do to educate either the patients or those who
would hold the proxy for the patient in cases of extreme illness
where there are other complications that might serve the patients
and their families better?

I don’t know. It is an area which I have always hesitated to
think about legislating, but encourage the people who disseminate
information to allow families to make a better informed choice. I
don’t know whether you have a program like that or whether you
are any more interested in doing it than I would be as a legislator.

Dr. Smits. Let me answer both questions with personal experi-
ence. First, I have been there in the room asking families to donate
organs. That is a very tough job, and any support there is, any
publicity, any general knowledge that the families come to that
meeting with is helpful to us.

We try continuously to remind people about the benefits, and it
is possible that some kind of public acknowledgment, particularly
to the families who agree to cadaver donation, would be very wel-
come. A living related donor is a much more personal decision and
does not usually face the same problems.

In the question of who we dialyze in this country, I have worked
in nursing homes and I have seen patients—I have cared for pa-
tients on dialysis where it made me very uncomfortable that dialy-
sis had been started and that it was being continued. At the same
time, I would not like to see the government try to make that deci-
sion or to hold facilities to some sort of standard.

The private sector has developed essentially advanced directives
for dialysis, a way of looking at that decision. What happens some-
times is you begin dialyzing in the hope that the other elements
of the illness will improve and they don’t, and then it is very hard
to stop. There is an advanced directive that helps the doctor and
the families go through what is, by rights, their joint collective de-
cision, and once that had been developed, we did distribute it to all
dialysis facilities in the country and encouraged them to use it.

We would certainly be very pleased to work in any other collabo-
tative way with providers if we can help with this but, again, there
are times when families absolutely want dialysis, no matter what
you and I believe about the quality of life.

Chairman THomas. I think if we will work toward simplification,
computerization, and continued collection of data for outcomes, that
we can begin to develop some profile analysis in which we can ei-
ther encourage or discourage based upon very solid evidence which
allows us to lead people to the proper decision with some data that
might be helpful, even in a difficult family time.

Dr. Smits. When you raise the question in most settings of
shouldn’t we stop for this patient, what you have is a whole Jot of
people who say, Oh, no, no, we can’t, there is absolutely no way to;
we have started, we must keep on. And I think simply distributing
the advanced directive and helping people think through the proc-
ess will at least send some message that it isn’t necessarily terrible
to stop if it is appropriate for that patient’s circumstances.


161

* Provide a standard grant of $5,000-$10,000 with a set of guidelines about
how the funds are to be used, rather than asking each hospital to design a
program individually.

The other area in which to consider financial incentives is living kidney
donation. Living kidney donation has a number of advantages over
cadaveric donation, including more control over the scheduling of surgery,
and close tissue matching when blood relatives donate. A preliminary pilot
study? suggests that there is wide variation in practice around living
donation. Many believe that lack of financial coverage for family members’
time away from work operates as a powerful disincentive to donate. HCFA
might consider a pilot program to identify more accurately the current
financial disincentives in the system, and test the impact of providing some
financial support to living donors.

The Partnership for Organ Donation has extensive experience in working
with hospitals to improve organ donation. We-would welcome the
opportunity to provide input to the design of any program intended to
increase the effectiveness of our organ donation system in the United States.

Ref ces:

1 Eggers, Paul, "Comparison of Treatment Costs Between Dialysis and Transplantation,”
Seminars in Nephrology, 12:3, May 1992, pp 284-289

2 Gortmaker, et al, "Organ Donor Potential and Performance: The Size and Nature of the
Organ Donor Shortfall.” Unpublished draft

3 Helander et al, "Standards of Practice Needed to Ensure Effective Donation Process,”
Abstract presented February 1994, Society of Critical Care Medicine

4 This finding comes from a study funded by the Division of Organ Transplantation. Results
have not yet been published, but preliminary data are available on request to The Partnership
for Organ Donation

5 Altshuler and Evanisko, "Financial Incentives for Organ Donation: The Perspectives of
Health Care Professionals," Letter published in JAMA, April 15, 1992

6 “The American Public's Attitudes Toward Organ Donation and Transplantation," conducted
for The Partnership for Organ Donation, Boston, MA, February, 1993.

7 Survey on living kidney donation conducted at the American Society of Nephrology meeting,
October 1994 by The Partnership for Organ Donation


57

~ Use of multiple linear regression models to risk-adjust for additive payment
adjustments. While they explain only about 3% of total variation in average monthly
payments, there are a few extremely expensive dialysis patients. Separate sets of risk
adjustments for part A and part B payments are recommended to take into account age,
sex, diabetes as cause of ESRD, and previous graft failure. An important adjustment
for part A payments is a one-time payment for patients in their first month of treatment
if Medicare is already primary payor. Other risk factors also should be evaluated.

- A fixed loss outlier payment policy as one means to mitigate health plan risk from
unusually expensive patients. Outlier payments would be paid for cases with medical
expenses during the calendar year exceeding the capitation payment plus $50,000;

- Care must be taken to avoid incentives for health plans which would discourage the use
of transplantation or home dialysis as options;

- There are clear rural and urban differences to be taken into account.

AVERAGE 1990 MONTHLY STANDARDIZED PAYMENTS

Part A Pant B ‘Total Annual
Dialysis $1,334 $2,049 $ 3,393 $40,716
Transplanted $ 47 436 908 10,896
One-Time Payment
For Transplant $33,971 $3,948 $37,919
One-Time Payment $8,958 $3,167 $12,125

Table 1 illustrates some of the data from the Rand study. It is important to note that these
estimates are based on 5 year old data from 1990. Any demonstration will require careful
updating of the financial estimates used to set reimbursement rates.

COMMENTS

Patients with ESRD are expensive to treat, and the 1995 estimate of $8 billion for Medicare
is only part of the cost. The total cost of ESRD treatment to Medicare and other sources in
1995 will be some $11.2 billion, based on a methodology used to estimate cost in the United
States Renal Data System 1994 Annual Data Report. The problem is how to contain costs
for patients with a disease requiring very expensive treatments and for whom costs can vary
widely, depending on patient characteristics, complications, and the treatment, while at the
same time maintaining or improving the quality of care.

Quality of care is particularly important, as some years ago it became clear that dialysis
patients in this country had a significantly higher average mortality risk than patients in other
western countries. At that time, U.S. patients were receiving some 20% less dialysis than
those elsewhere, To improve the adequacy of dialysis requires use of either larger more
expensive dialyzers or of a longer dialysis time which is also more expensive. Thus, it
seems unlikely the cost of dialysis treatment itself can be reduced much, if at all. Any costs


23

Dr. Smits, I think, yes, you will definitely see a ratio change with
the outpatient becoming smaller and the inpatient larger, but we
would be very glad to submit that for the record.

[The following was subsequently received:]

The distribution of Medicare payments from the past twenty years
is shpwn below:

1974 1984 1991
Reimbursements
in Millions $264 $2,341 $6,070
Percent Distribution:
Total 100% 100% 100%
Inpatient 38.0 43.3 44.2
Outpatient 51.4 38.6 33.1
Physician/Supplier 10.5 17.7 21.4
Other 0.2 0.5 1.3

The shift in payments has occurred for a number of reasons.
The major shift is due to the fixed payment rates for
dialysis, which accounts for almost all of the outpatient
category. The second factor has been the gradual shift of
the patient population off of dialysis and on to a
functioning kidney graft status.

in 1978, 11 percent of the ESRD population had a functioning
kidney transplant. By 1991 this had increased to 22
percent. This shift of patients not only decreases the
share of ESRD Medicare program going to dialysis, it also
helps to restrain the overall increase in ESRD per capita

costs.

Chairman THOMAS. I just wanted to try to indicate that I believe
that was the case, and therefore, that portion of the expense has
grown significantly, That was my guess, but if we don’t have it,
that is OK. I was just trying to bring some context to the charts
that you had presented.

Thank you very much.

The gentleman from Nebraska.

Mr. CHRISTENSEN. Thank you, Mr. Chairman. Ms. Smits, what
percentage of ESRD beneficiaries are already eligible for Medicare
because they are disabled or aged?

Dr. Smits. Over one-half are already aged and the other one-half
become eligible through the process of ESRD. I would estimate that
the number who qualify for disability first and then for ESRD is
quite small.

Mr. CHRISTENSEN. Would it be possible to get an accurate num-
ber on that?

Dr. Smits. Oh, yes.

(The following was subsequently received:]


148

treating blood-borne infections, and patients would risk development of antibodies,
increasing the chances that a kidney transplant would be rejected. These
additional costs would likely wipe out any anticipated sayings associated with
changing the payment rate/method for EPOGEN.

Any careful observer of the ESRD program would note a growing concern about the
quality of care delivered to ESRD patients, particularly those dependent on
dialysis. The ESRD mortality rate in the United States is reported to be the
highest in the industrialized world. The National Institutes of Health, the Institute
of Medicine and the National Kidney Foundation have all expressed concern and
made recommendations regarding the adequacy of dialysis and the morbidity and
mortality of dialysis patients.

Last year, HCFA launched a Core Indicators Project to measure how key clinical
parameters are being managed. HCFA is also developing quality screens for care of
dialysis patients. The first of these to be implemented deals with management of
the anemia of chronic renal failure, These efforts should be encouraged, although it
may never be possible to assure high quality using only the power of the payor to
survey and certify providers.

‘There is a strong correlation between Medicare reimbursement policy and the
quality of delivered care to ESRD beneficiaries. To focus on cost minimization
without a corresponding investment in quality assurance would result in short-term
savings at the cost of long-term costs and absolute reductions in the quality of life of
a particularly vulnerable group of beneficiaries.

Since such extraordinary efforts are being taken to extend the length of the lives of
ESRD patients, it would be unfortunate indeed if the quality of those lives was
allowed to deteriorate through neglect or inadvertence. Amgen has supported,
financially and through participation of its staff, the development by the Rand
Corporation of a Kidney Disease Quality of Life Instrument which could assist
xesearchers in measuring the impact of various therapies. In addition, the company
has sponsored a Life Options Program, which identified barriers faced by dialysis
patients attempting to achieve more normal lifestyles, including returning to work.
‘The program is now seeking ways to surmount those barriers.

The Ranking Minority Member of the subcommittee, Mr. Stark, has introduced a
bill (H.R. 1067) to require renal dialysis facilities to meet certain standards relating
to the adequacy of dialysis as a condition of payment. This is a step in the right
direction. It also would be appropriate to monitor more closely how anemia is
managed in dialysis patients. In addition to appropriate use of EPOGEN, such
monitoring should require that patient iron stores are maintained at a sufficient


90

STATEMENT OF DIANE WISH, EXECUTIVE DIRECTOR
COMMUNITY DIALYSIS CENTER

Good morning Me. Chaitman and Members of the Health Subcommitiee. My name is Diane Wish, and ! am the Executive Director
‘of Community Dialysis Center, which operates three free-standing not-for-profit dialysis facilives m Cleveland. Ohio Lant currestly the
President of the National Renal Administrators. Assox RAA),

‘The NRAA is voluntary organization representing professional managers of dialysis facilities and centers throughout the United
States. We represent freestanding and hospital-based facilities, which are for-profit and non-profit providers Jocated 1m urban and rural
areas. Our members manage approximately two-thirds of the dialysis units in this eauntry which provide dialysis services t0 a maerity
of Medicare End-Stage Renal Disease pattents The association was founded to provide information and education to our members. and
to work with the Congress, the Administration, and olher oversight organizations on the Medicare ESRD program Our organization is
dedicated to providing quality of care in the most cost effective manner.

We ate delighted to have the opportunity to participate in this important hearing on the Medicare ESRD program Our testimons
“will focus on: (1) the reasons to maintain the current ESRD program, (2) our concerns with managed care, (3) the need establish an
‘annual inflation update factor, (4) our vecommendation for 83.7% update for Fiscal year 1996 t0 pay for quality improvements, (5) suppor
for 3 24 10 30 month ESRD secondary payer provision. (6) opposition 10 EPO being folded into the composite rate paid to dialysis facies
and. (7) recommendations for modifying the physician self referral bans as they apply s0 physician owned dialysis faciliues

MEDICARE ESRD PROGRAM #6 clicceeenes sun coer reeeretie

‘The Medicare ESRD program has been highly successful in providing acess 10 fie eusaning quality care to over 90 percent of
‘ndividuais wth endstage rent disease in this coun. Thirty years ago individuals who received a diagnosis of ESRD faced near-certain
‘eath. Dialysis and kidney transplantation were just then emerging as experimental procedures and were available in only a handful of
‘medical centers More importantly, these weatments were Beyond the financial reach of most Americans. The Medicare ESRD program
{niroduced hope where there was none, saving several hundred thousand Americans from premature death by making life-saving treatments
financially posible Infect, the Insitute of Medicine, i ts landmack stady entitled, Kidney Failure and Medicare Progeam, concluded
that lt has been remarkably successful in fuliing ws intended objecives

This program has aso been extremely cos effective as explained inthe latest United States Renal Data System (USROS), 1996
Annwal Data Report. According to this tepon, "White real Meticae payments per year for ESRD cominve to rise in response to a
‘owing ESRD population, average payments per patient per year show Wile or no growth in the Tas five years. The real level of
reimbursement per dialvsis teatment, determined through the compasite rate schedule, has been declining for almost two decades.” The
USRDS also noted tha, "Ths wend of litle or no growth in “real” per capita Medicare payment forall ESRD patents is particully
surprising since Medicare coverage sas recently expanded to inchude EPO (9/89), which now 1s used in over RO percent of center
hemodialysis patients."

‘The teportfurter notes that, “With ajustment for the overall change in consumer prices, per capita Medicare expenditures for
ESRD increased 1.3 percent per year from 1990-199) and by an annual average of 03 percent fom 1987-1991. When adjusting for
redial cae inflation, real Medicare ESRD expenditure pet patient per yeat actually declined by 3.2 percent fom 1990-1991 and 29
pereent per year fom 1987-91. Altemavely, the change in real per capita Medicare expenditures for non-ESRD beneficiaries adjusted
for overall inftaion, increased an average of 35 percen per year between 1987 and 199)

“These facts have led Stuart Altman, chuirman of ProPAC fo conclude that without the ESRD program Medicare would nave paid
far more for ESRD patients than & curently does

or these eeasons we would sttongly urge the Subcommuree to maintain the ESRD program as its eumrently structured because
it has succesfully met the objectives ofthe program and in 2 most cost effective manner

OPPOSE PRIVATIZING THE ESRD PROGRAM

For the very same reasons and for quality assurance purposes we also adamantly oppose privatizing the ESRD program We do
‘not believe that sufficient numbers of insurers could be induced into accepting Medicare vouchers for ESRD beneficiaries. Given the costly
ature of their care, amounting to over $38,000 per year, we find wt extremely hard 10 believe that Medicare would risk adjust the vouchers
high enough to atract significant nombers of insurers to accept these Medicare beneficiaries in their plans. We knaw ESRD benefictaries
aleeady experience difficulty in purchasing Medigap policies because of pre-existing condition clauses and prohibitively high premwums
ddue 10 their disease.

Privatizing the program could also result in eliminating the beneficiary safeguards built into the Medicare ESRD program. For
‘example, patients currently have the choice of modalities and the location of where they dialyze Privatizing the program would result in
an uncegulated environment in which access 10 cate and patient choice could be negatively impacted. Some physicians could be
isenfranchised in the process, Also, there could be a significant negative outcome for academic/hospital-based programs

We strongly recommend that no further action be taken to privatize the ESRD program until the results from the ESRD

2 demonstration project can be evaluated.
ithe ESRD program were privatized the ability to obtain accurate, validated cost and quality data would be seriously
Jeopardized, HCFA’s continuous quality initiatives, which are just beginning to make a significant impact, might be lost forever.

CONCERNS ABOUT MANAGED CARE

‘The NRAA can support the concept of managed care for ESRD patients. However, we would want assurances: (1) that patients
have the option to sign up for & managed care plan or remain in the current ESRD system, (2) that there be multiple managed care plan
choices, (3) that access to nephrologist care before kidney failure be assured, and (4) that good consumer protections. including appropriate
claims processing and appeal rights be requited

‘Kidney patients themselves have expressed serious concerns with managed care plans, according toan Office of Inspector General's
Report entitled, Beneficiary Perspectives of Medicare Risk HMOs, released in March 1995 (See Table A which is a summary of
ESRDIDisabled Beneficiary Perspective by enrollee and dhsenrollee.) For example. the study found that disearolled ESRD beneficianies
were 4) times mote likely than ESRD enrollees 10 say that medical care rezeived through an HMO caused their health to worsen, The
ESRD disenroltees were the most likely to report that their primary HMO doctors restricted access to needed Medicare covered Services,
{id nor cefer them to specialists when necessary, and did not take thew health complaints seriously They were also the most likely to
seek out-of-plan care while still enrolled ia the HMO and (0 believe chat holding down the cost of care was more important to primary
HMO doctors and the HMOs than providing the best medical care

NRAA members have also found that thei patients are concemed about HMOs. ESRD patients have expressed concerns about
having to change physicians, dialyze ata facility that is inconvenient and woud requite Jong travel times, or be unable to change dialysis
facilities and physicians +f not satisfied with the quali of care in the HMO.

NRAA member dats, contained m Tables B through E, demonstrate that quality of care ip HMOs is no beter and by some measure
worse. Our data, from 3 dialysis facilities with a total of 412 patients located in the Midwest, indicates that gross mortality rates are bener
for regular ESRD Medicare beneficiaries than those enrolled in Medicare Risk HMOs and standard mortality rates (re. adjusted for age,
8, fave and diagnosis) are about the same for both. Comparing hospitalizations and days in the hospital 3 dialysis facies with 104?
patients im Ohio. Youna thar the HMO patients had no fewer hospitalizations nor days in the hospital for 4994, than the regulat ESRD



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85

showed one-year graft survival rates of 51 percent for cadaver grafts and 75 percent for
living donor grafts. This reflects the state of the art in the late 1970s.

Transplant graft survival rates have improved markedly since the estimates used in
studies before the advent of cyclosporine as an immunosuppressive agent. In the 1994

United Network for Organ Sharing (UNOS) Center Specific Report, one-year kidney
graft survival for a cohort of patients from 10/1/87 to 12/31/91 was 81.6 percent.
One-year patient survival rates for the same cohort was 93.8 percent. Given these
increases in graft survival, it can be assumed that the initial costs of transplantation are
recovered in less than 4 years for cadaveric graft recipients today.

On the basis of this information, ANNA believes that it is in the patients’ and the payers’
best interest to promote transplantation as a cost effective modality of care for
end-stage renal disease. The missing element, however, is an adequate supply of
donor organs for the nearly 30,000 patients waiting,

ANNA and other members of the transplant community would be happy to work with the
Congress to evaluate legislative measures that would increase the supply of donor
organs in this country. We also support continued funding for research in this area,
including the use of xenografts. Transplantation not only improves the quality of life of
the recipient, but it is also the most cost effective modality of care for this patient
population.

QUALITY OF CARE ISSUES

The ANNA applauds Mr. Stark's efforts to promote quality assessment and continuous
quality improvement within dialysis facilities and to ensure the adoption, endorsement,
and application of industry-wide standards for the benefit of the patients who are the
beneficiaries of the ESRD program. We feel that mandating such standards in statute
js inappropriate, however, for a number of reasons.

There are eighteen ESRD Network Organizations throughout the country that are
currently under contract to HCFA to perform oversight activities to assure the
appropriateness of services and protection for ESRD program beneficiaries.

HCFA, with input from ANNA and other members of the renal community, has reshaped
the Network program's approach to quality assurance and improvement in order to
respond to the need to improve the care to Medicare ESRD patients. This new
approach has been named the ESRD Health Care Quality Improvement Program
(HCQIP),

The Networks began implementing the HCQIP in July 1994 with the ESRD Core
Indicators Project as one of its major projects. ANNA was part of a workgroup from the
renal community that was established to provide guidance to HCFA in the development
of the ESRD Core Indicators Project

The purpose of the Project is to: assist ESRD care givers in assessing and improving
the care provided to ESRD patients; to describe the prevalence of important clinical
characteristics of adult, in-center hemodialysis patients; to identify opportunities to
improve care for these patients; and to establish a consistent clinical database for
these patients.

The quality or "core" indicators that were selected to describe several conditions of
care for adult, in-center hemodialysis patients in the 1994 phase of the project were:
adequacy of dialysis, anemia, blood pressure control, and nutritional status.


62

cost variance, it seems to me, is this 1 to 15 days in the hospital
to fix something or because somebody gets much sicker than just
the routine dialysis.

Dr. Bias. A significant part of that relates to blood access sur-
gery. That accounts for one-quarter of all hospitalizations.

Mr. STARK. Shouldn’t we do these test programs first before we
jump into that? I don’t know that all HMOs are qualified to jump
into this—a very small number of our population have it and I am
inclined to agree. We pretty much have a capitated rate for dialy-
sis.

The question is how do we take care of these peripheral things
and I think all three of you—I wish I could talk more with you
about the programs, but it does seem to me that we are not talking
about dialysis, but other treatments that people receiving dialysis
get.

Dr. Buacc, I agree. I feel strongly. Do the demonstrations, and
see whether capitation works, see what the problems with it are
before making any radical changes in the reimbursement system.

Mr. Stark. Thank you.

Chairman THoMaSs. The gentleman from Nebraska.

The gentleman from New York.

Mr. HouGHrTon. I would like to ask a couple of questions. Maybe,
Dr. Blagg, you could sort of break this down a bit—you are for
capitation, yet you are not for it on a short-term base. That always
can be so, that there have been innumerable tests on this and I
don’t know why we can’t move forward on it with full confidence.

Dr. BLacc. I am concerned that at this point we are only learn-
ing the ways to really manage quality control in this program, and
that to disturb the whole system by going to full-scale capitation
now would cause more problems than it would solve.

I would like to see us really in control of quality first and seeing
that we have a capitation system that will do the things I men-
tioned like ensuring that patients have appropriate access to dif-
ferent treatments, ensuring that patients have access to choose
capitation in a way that prevents, if you will, skewing of the pa-
tient population, and so forth.

The RAND study gave good information on the financial implica-
tions of capitation as of 1990. What it did not do was spell out in
detail how to do the mechanics of the process.

Mr. HoucuTon. I understand that, but I want to push you a lit-
tle bit on this because you will have one study, develop studies.
You will have something you feel is reasonably satisfactory. You
will have a policy and move into it and then something else will
come along. It is inevitable. It is not an end result. It is a process
of constantly understanding what the quality is. Why isn’t the
quality sufficient now?

Dr. Buacc. I think there are a number of reasons why there are
problems with quality, but it is a lot better than it was 5 years ago.
At that time, American nephrology in general was concerned about
shortening the time that patients were on dialysis, and Americans
don’t like to sit around longer in the dialysis unit than they need
to. This helped in terms of costs. It helped to cut the costs so there
were more profits, more margin if you are a nonprofit organization.


86

The most striking opportunity for improving care to in-center hemodialysis patients
concerns the adequacy of dialysis. In the last quarter of 1993 only 43 percent of such
patients received dialysis which resulted in a urea reduction ratio (URR) of greater than
0.65, the threshold for adequate dialysis recommended by the Renal Physicians
Association and a NIH Consensus Development Conference Panel.

Previous studies by the United States Renal Data System have estimated that in 1986
and 1990 the percentage of patients with a prescribed KW/V of 1.2 (equivalent to a URR
of 0.65) was 20 percent and 30 percent, respectively. The 43 percent finding in 1993
suggests that progress is already occurring.

Publication of an educational brochure for patients concerning the adequacy of dialysis
is currently under development by HCFA, with the assistance of ANNA and with
publication scheduled for this spring. Other activities planned include the distribution
of the 1994 Core Indicators Project Report to all dialysis facilities. The Networks will
also develop intervention activities to assist dialysis care givers to understand the data
report and how to use the information to identify opportunities for improving patient
care. The next Core indicators data collection effort will begin early this summer,
looking at adult peritoneal dialysis patients

In addition to participating in the HCQIP, ANNA has worked in the recent past with
HCFA to revise the Chronic Disease Medical Evidence Report to enable HCFA to
evaluate the appropriateness of ESRD therapy. We have worked with them on their
revision of both the facility survey process and tool and we are actively working with the
staff at this time in their review and revision of the conditions of participation

While there is still much progress to be made, ANNA believes that the combined efforts
of the renal community and the HCFA have led to improvements in the quality of care
delivered to ESRD patients such that H.R. 1067 is not necessary at this time.

The American Nephrology Nurses’ Association appreciates the committee's review of
the Medicare End Stage Renal Disease program. We have seen firsthand the benefits
this program has had on the beneficiaries and we are grateful for its continuation. We

appreciate this opportunity to share our thoughts and observations with the committee

and will be happy to meet with staff to discuss them further.


121

of great and legitimate concern over the rising cost of health care.
Because dialysis uniquely lacks some form of automatic adjustment
for inflation and because we have seen over the last decade a series
of budgetary reviews, all done in the context of efforts to control
Medicare spending, reduce Medicare spending, reduce overall gov-
ernment spending under Gramm-Rudman-Hollings, we are paid
just about the same amount of money today as we were in 1983
when the composite rate was first put into place.

Most authorities who have studied the subject believe that Fed-
eral reimbursement policy has been an important factor in limiting
or reducing the quality of care available to ESRD patients and that
all reasonable sources for efficiency gains have already been fully
exploited by providers.

We think it is terribly important, therefore, that Congress turn
its attention to this problem, and we urge on the Subcommittee the
view that an automatic annual adjustment inflation for dialysis
services comparable to that which is already in place for virtually
every other class of Medicare provider be instituted.

At the same time, we believe that the Medicare Program has
both the right and the obligation to demand that dialysis facilities
develop and implement effective outcome-focused quality assurance
programs to monitor the quality of care along the critical dimen-
sions that dialysis patients need to live and to prosper. The model
for such programs has been fully developed in the literature on
continuous quality improvement and is described in detail in the
Institute of Medicine’s 1990 study, Medicare: A Strategy for Qual-
ity Assurance.

I would like to suggest that the special restrictions in the length
of the Medicare ESRD secondary payer period, and other existing
rules insulating the private sector from involvement with ESRD,
should be removed. These rules have been critical in insulating us
from the creative adaptations which dominate the private health
care sector and keep us segregated from improvements in the na-
ture of medical case management and cost-efficient delivery of care.

Finally, we believe that the conflicting incentives that are cre-
ated by the diversity of Medicare reimbursement methodologies
which apply to dialysis facilities should be rationalized.

Without going into detail, the most obvious case in point is the
conflict in incentives created by the difference between the dialysis
composite rate, which is for some package of services comprehen-
sive and prospective, and the erythropoietin payment methodology,
which is dose related, retrospective, if you will.

There are many other examples in addition to EPO which might.
be given, but we believe that the combination of these two in the
facility creates conflicting incentives which detract from the effi-
cient overall utilization of scarce health care resources for ESRD
patients, and we think that that is an issue that should be ad-
dressed.

Thank you very much.

{The prepared statement follows:]


128

very thoughtful job of this nor did we in working with them 3 years
ago. The world is very different today.

The final chart is just to get to the concerns in this area where
as HMOs grew over the last 5 or 6 years in every other chronic dis-
ease state except dialysis, there were huge concerns about how
pregnant women, particularly high-risk pregnant women, would be
taken care of. The data couldn’t be more clear that in a managed
care plan, after managed care plan you have a lower rate of pre-
mature births and this includes the Medicaid population.

In the area of AIDS, again, you had huge and very legitimate
concerns about how managed care would take care of these very ex-
pensive, often employed, high-dollar patients. If you go to southern
California where there are more of these patients employed than
anywhere else, you will see that many of the AIDS advocates point
to the best care systems being those that are managed by managed
care.

Managed care is no panacea. There will be mistakes; there will
be abuses. But with the right volume of patients, there is a level
of up front investment and a level of vigorous monitoring of quality
that simply doesn’t exist in a fragmented fee-for-service system.

Thank you.

(The prepared statement and attachments follow:]


31

Mr. CoLLins. But my question is about reports by the Georgia
Department of Human Resources who conduct investigations and
certifications of dialysis facilities. Once those reports are made, and
if the recommendation is made to HCFA for termination of such fa-
cility as far as delivery of service, what is the normal procedure
after such a determination is made and recommendation is made
by HCFA?

Dr. Smits. We then Proceed to—if we agree that the conditions
in the facilities jeopardize the life and health of patients, we can
and do terminate.

Mr. CoLLins. Well, I want to refer to this particular center,
which seems to be twice in 1 year that the Department of Human
Resources actually recommended termination, but, however, this
facility is still in operation. Is that kind of normal procedure or

's——

Dr. Smits. How many times—first of all, I can’t comment on that
facility——

Mr. CoLLins. I am using that facility as an example. Would that
be normal procedure, if you had two such recommendations in 1
year, they could still continue to provide the service?

Dr. Smits. I don’t think that is particularly common. We have
terminated a number of facilities. How many times we have re-
ceived recommendations and not acted on them, I don’t know.

Is the facility in a remote area?

Mr. CoLuins. No. Atlanta.

Dr. Sits. So it is not a question of access.

Mr. CoLLins. No. Do you have a record of termination? How
many facilities—do you have off the top of your head how many fa-
cilities may have been terminated in, say, a 12-month period using
calendar year 1993?

Dr. Smits. They gave it to me in my book and I am afraid I can’t
remember it. Can I submit it for the record?

Mr. CoLLins. I would love to see those numbers.

(The following was subsequently received:]


160

fall below the benchmark, should be required to develop donation
protocols as a high priority.

* Focus on modifiable elements in the organ donation process that have
been shown to correlate with higher rates of donation,> specifically:

- Protocols to ensure early identification and referral of all potential
organ donors to organ procurement organizations (currently about
a third of eligible families are not asked ~- despite required request
policies). - ;

- Requiring OPO procurement coordinator participation in family
request, along with trained hospital staff ;

- Clear explanation of brain death to families, and raising donation
only after the family has been informed of death (decoupling).

* Strategically target those hospitals most likely to care for potential donors
typically large hospitals (greater than 150 beds) that are trauma centers and
are affiliated with medical schools.4

Perspectives on Using Economic Incentives to Encourage Organ Donation:

The Partnership urges caution in applying direct financial incentives. So far,
the reaction of the public and health professionals> to financial incentives for
organ donation has been at best lukewarm. It is essential to preserve public
trust in the donation and transplantation system, and financial incentives
have the potential to erode this.

Financial incentives at the hospital level could exacerbate public fears that
potential organ donors receive less attentive medical care, or that a black
market in organs could be operating in the U.S. Members of ethnic minority
groups are especially likely to harbor these concerns, potentially depressing
even further the low rate of organ donation among ethnic minorities.6

yr Structuril onoi t for De io1

While caution is called for, there may be a strategy for targeting financial
support to remove institutional disincentives for organ donation, particularly
in those large hospitals with significant donor potential that are not
transplant centers. Large hospitals, especially public hospitals caring for
significant numbers of indigent or underinsured patients, seldom have the
resources to devote to improving organ donation practices. The public would
benefit from supporting the adoption of good organ donation practices in
these hospitals.

Grants could be offered to support the creation of in-house teams to diagnose
donation performance and institute effective donation protocols. Continuing
funding could be contingent on documenting significant gains in donation
effectiveness. Because donor potential is concentrated, grants could be
targeted to the largest 500-600 hospitals in the United States, enabling access to
70 percent or more of all the potential donor cases in the country.

To facilitate the administration of these grants, the following provisions

could be made:

* Focus initially on hospitals with 350 beds or more. If limiting the program
further is a consideration, support could be restricted to those hospitals
that are not also solid organ transplant centers, since transplant centers
presumably have some inherent incentive to improve organ donation
performance.

* Create a very simple application process by requiring minimum criteria to
be met, for example: documented medical record review showing a
minimum of 10 potential organ donor cases in the prior year.


STATEMENT OF CONGRESSMAN PETE STARK
WAYS AND MEANS SUBCOMMITTEE ON HEALTH
APRIL 3, 1995

OVERSIGHT OF THE END-STAGE RENAL DISEASE PROGRAM
Mr. Chairman:

Congratulations for holding this hearing. 1 wish we had made the time to do this in the
last Congress.

‘The ESRD program has been a success and literally a life-saver, but it is fraying around the
edges:

--some providers are gaming the payment system, charging extra for
questionable tests and services;

~-hospitalization rates are much higher than they should be;

~we are spending more and more on drugs with less and less to
show for it;

~-some centers provide poor quality and are almost death traps for
their patients; and

--we talk about assuring quality in the program, but after more than
twenty years, can’t seem to agree on a specific standard for dialysis.

I think a comprehensive approach to the treatment of this terrible disease could easily
improve quality of care and save money. Reforming the payment system--perhaps
through a capitation system--could make dialysis centers zealous to ensure that
hospitalization is not necessary, and that where appropriate, patients receive transplants
or are treated at home.

But while reform holds great promise, we must be very, very careful. This is a very
vulnerable population, and underservice can quickly lead to death. In March, the HHS
Inspector General issued a report that 66% of ESRD and disabled persons in HMOs wanted
to leave their HMOs but felt they couldn't. They are twice as likely as senior HMO
enrollees to say that HMOs have hurt their health. To date, capitated plans have not
managed ESRD patients well.

HCFA is about to begin a demonstration project to test whether some form of
capitation might work-and what quality measures we need to ensure we don’t kill
patients.

We shouldn't cut corners in reforming this program--we should wait to see what the
demonstration shows us.

In the interim, I’ve introduced two bills that I'd like today’s witnesses to comment on:

One would set up a demonstration to see if we can save money and help patients
by delaying the on-set of total kidney failure and thus postpone the day that dialysis
is needed.

The second says we shouldn’t pay dialysis centers if they don’t achieve a certain
specific, measurable level of cleaning the blood of most of their patients--as
expressed in the formula Kt/V equal to or greater than 1.2. _ If witnesses don’t
support the standard set in this bill, what standard would they propose--and how
can they support moving to a managed care system if they can’t accept a
measurable, specific life-saving standard?


143

shareholders, but it is a development I would welcome. That won’t
happen with the way the system works today.

Chairman THOMAS. I would expand the question and ask, if you
have a wearable kidney and you have those kinds of expenses up
front under a managed care structure or you have a transplant
where you wouldn’t continue—say, the success rate is very high
and we have sufficient organs—why would any managed care oper-
ation on a capitated basis make the investment in fixing that prob-
lem given the high mobility that people have today in terms of
their chances of moving on, having been fixed by you at great ex-
pense to provide a very handsome profit margin on a capitated

asis to some other plan? Where is the incentive for you to make
that decision?

Mr. Tur. I would submit that if and when there are a lot of
dialysis patients in the private sector, even an unethical company
would be absolutely unable to underperform their competitors in
terms of doing early transplants. Every thoughtful clinician knows
that doing early transplants is a key to effective care in this area.
Just as there are emerging key indicators in asthma allergy, and
AIDS, and so forth, in dialysis you would be slitting your own neck
as a proprietor of your own business to cut corners in that area.

Chairman THoMAS. In the long run?

Mr. Tuiry. Correct.

Chairman THOMAS. You are in it for the long run.

Mr. Tumry. I am sure there are companies that are not, but the
short run is getting shorter as employers are getting much more
rigorous every month in the data they are demanding from provid-
ers.

Chairman Tuomas. Dr. Berger, that is why in your testimony
you say that you would remove any month’s Beriod. We discussed
with the earlier panel going from 18 to 24 or to 30. If I recall, your
testimony indicated that you would leave it open ended.

Mr. BERGER. Leaving it open ended is where the logic of the
analysis takes it. Mr. Chairman, we are knowledgable and sympa-
thetic to some of the concerns that were voiced earlier, and we
would be very pleased to have the Subcommittee look at those con-
cerns to see whether there are some reasonably simple ways of al-
leviating them. But the logic of the problem, of the isolation of this
program from the developing mainstream of the American health
care system, is as Kent has said, to see to it that the private sector
bears its fair share of the burden.

This is not a matter of trying to dump responsibility that is
rightfully the public sector’s on to the private sector, but rather to
bring the distribution more into line with what is in fact conven-
tionally found elsewhere in the health care system.

Chairman THomMas. Perhaps the solution lies not narrowly within
the public months relationship, but in the larger area of reforming
health insurance which is offered and denied?

Mr. BERGER. Certainly, the package of what we are always told
are almost universally agreed upon health insurance reforms hav-
ing to do with portability and preexisting conditions would go a
long way to alleviating the concerns expressed earlier.

Chairman Tuomas. One of the concerns I have in dealing with
payment structures is that oftentimes you find to a certain extent


11

covered under a fee-for-service methodology; outpatient physician services are subject to a
separate monthly cap; and inpatient care is reimbursed under the applicable DRG
classification. An inevitable yet unintended consequence of this fragmented approach is that
providers are encouraged to manage only that portion of the patient’s care for which they are
responsible. Decisions may be made without collaborating with other health care providers
and without fully taking into account their impact on the entire disease process. Due to this
lack of integration and multidisciplinary management, which are becoming commonplace in
the private sector, continuity of care for ESRD across care settings has not occurred.
Patients themselves have not received the benefits of an integrated, coordinated care system.

Jil. THE IMPORTANCE OF INTEGRATED CARE

Through Baxter's involvement in the development and distribution of products to treat
other chronic, high cost disease states (including cancer and hemophilia), we have seen the
successful application of “disease management" principles and integrated delivery system
models in other contexts. We believe that these principles and models represent equally
viable approaches for addressing the special needs of the ESRD population. Under some
chronic disease management models, for example, providers are given the flexibility and are
charged with the accountability of managing the patient’s disease from the onset of diagnosis,
when well-informed decisions can be made regarding modality of treatment and site of care.
‘These models encourage prevention and treatment that will provide maximum effectiveness
and efficiency at the time of onset of illness. As with other chronic illnesses, and as other
hearing witnesses have confirmed, intensive disease management of ESRD at an early stage
is critical. Unlike a traditional acute managed care model where the focus is typically on
avoiding overutilization, an integrated disease management model strives to ensure that
Patients are not underserved. Under this model, patients receive comprehensive care that
helps minimize many of the more costly complications arising from a lack of intervention
and provider coordination.

We believe that any initiative that is developed for the ESRD population must include
some form of case management that focuses on coordination of care and encourages
collaboration among all providers of the health care team. In working with providers and
patients to create optimal home care therapy solutions for ESRD patients, we have seen first-
hand the challenges of creating and managing a comprehensive care plan encompassing the
clinical, psychosocial and economic needs of these individuals. We applaud the American
Nephrology Nurses Association endorsement of a comprehensive nurse case management
approach to the ESRD population and we encourage the further development and refinement
of these types of initiatives. This endorsement is consistent with the position of the Renal
Physicians Association. In any chronic disease management approach, we support the role of
the nephrologist as the primary care physician who is responsible for the overall management
of the ESRD patient's care.

IV. INTEGRATED CARE AND PATIENT INVOLVEMENT

We believe that moving in the direction of a chronic disease management model for
ESRD also will give patients the opportunity to actively participate in their care and make
meaningful, well-educated choices regarding their treatment. In our experience, the more
active the patient is in his or her therapy, the more likely the patient is to adhere to the
treatment plan. This has a positive impact on patient outcome. A chronic disease
management program promotes active patient involvement through aggressive case
management, which includes patient/family education, regular follow-ups and supportive
services. These activities help decrease the incidence of complications and, for a significant
number of patients, minimize the utilization of expensive services in costly acute or subacute
care settings.


157

STATEMENT OF DONALD K. GALLION, SR.
SUBMITTED TO THE SUBCOMMITTEE ON HEALTH
OF THE COMMITTEE ON WAYS AND MEANS
HEARING ON MEDICARE END-STAGE
RENAL DISEASE PROGRAM
APRIL 3, 1995

My daughter, Elizabeth A. Greeson, was a healthy, insured working mother of one son
However, near the end of her second pregnancy, Elizabeth began to experience
complications, including taking on excess fluid. Her son, Matthew was bom by "C" Section
on July 15, 1988. Elizabeth remained in intensive care for many weeks, full of fluid. The
doctor in charge at that time, treated Elizabeth with pills, in an attempt to dry up the fluid.
This medication did not work and in the end, the fluid build-up damaged her heart. To
make things worse, Elizabeth was later diagnosed with LUPUS

Afier Elizabeth's employer-provided insurance paid out thousands of dollars under the
COBRA Act, Elizabeth was placed on Medicare because of her end-stage renal disease-
related disability.

Elizabeth was required to travel approximately thirty miles round trip to Auanta, Georgia,
every Monday, Wednesday and Friday to receive dialysis treatment. She was informed by
her doctor that she would have to continue traveling to the Peachirce Dialysis Center in
order to continue to be provided care by her physician, Dr. Donna Craig. I did not know
until after Elizabeth's death that Dr. Donna Craig owned 20% of Peachtree Dialysis Center.
Also, this dialysis center was controlled by one man in Florida who owned centers within
the states of Florida, Georgia and California.

After Elizabeth's death, 1 requested that the Inspector General of Atlanta, Georgia,
investigate the Peachtree Dialysis Center. This request was made after I had been informed
by the center's staff that Elizabeth was not being properly dialyzed. Congressman Mac
Collins (GA-3) and I did not know until June 1994 that an unannounced inspection was
conducted by Georgia Regulatory Services, during November 1993. During this inspection,
the Peachtree Dialysis Center was cited for sixteen violations, Furthermore, I later learned
that during 1991, 1992 and 1993, this center was cited by Georgia Regulatory Services
while HCFA took no action and apparently ignored these violations.

My CONCERN is the lack of regulatory oversight of these dialysis centers; and the failure
to protect the patients.

My MOTIVATION is the death of my daughter, Elizabeth A. Greeson, who was a patient
of the Peachtree Dialysis Center,

After her death, I looked very closely into that center and discovered that it had been in
repeated violation of regulatory standards, while NO action was taken by HCFA or Georgia
Regulatory Services.

As was the case for Elizabeth, most dialysis center patients have expended their private
insurance and are receiving government coverage through the End-Stage Renal Disease
program. These centers make an enormous amount of money from this federal government
program. If the regulatory agencies in charge fail to protect the American people, who are
paying for these programs? Who will protect them? WHO IS ENSURING THAT THE
REGULATORS DO THEIR JOB?

Why has it been so difficult for me to get information? I can only assume there may be
something to hide.

How can we correct this situation, before other unsuspecting dialysis patients are subjected
to this substandard life-threatening mistreatment?

In my daughter's name, I want to improve the regulation of these centers. 1am asking that
the following changes be made to make these centers operate safely and professionally.

1. Require ail dialysis centers under Medicare, to provide services on a 24 hour basis;
seven days per week; and 365 days per year.


46

QUALITY ASSESSMENT

‘The 1991 JOM report had a rather general, conceptual chapter on the
‘measurement of quality, appropriate for the time but limited in many ways. As a follow
up, the [OM held a conference in September 1993 on "Measuring, Managing, and
Improving Quality in the End-Stage Renal Disease Treatment Setting.” The proceedings
of that meeting were later published in the August 1994 issue of the
Kidney Diseases. A copy of that proceedings issue has been made available to the staff.

The conference concurred in the importance attached to mortality and adequacy
of dialysis as measures of quality, but also «lent strong encouragement to going beyond
these measures to include measures of functional outcomes, health status, and health-
related quality of life. The organizing committee believed that systematic measurement
of how well patients were doing, not just the measurement of laboratory and clinical
values, was very important in a chronic disease patient population.

In a December 1994, the IOM held a related workshop to answer the question of
‘how to measure functional outcome, health status, and health-related quality of life. Four
well-validated measurement instruments were examined: the Duke Health Profile, the
Dartmouth COOP charts, the Medical Outcome Study 36-Item Short Form, and the
RAND Kidney Disease Quality of Life instrument. The results of that workshop are
being prepared for publication.

Dr. Robert Brook testified before this Subcommittee several weeks ago, saying
that measurement of quality was possible. Indeed it is and it is certainly possible in the
data-rich ESRD program. But neither the Health Care Financing Administration nor the
nephrology community have been very quick to exercise leadership regarding the
measurement of quality. There are two areas in particular that the Committee might
consider asking for more vigorous action.

The first of these is in relating cost data to outcomes of treatment at the facility
level. Although there has been a marked improvement in attitude,orientation, and
competence of personnel in the Health Standards and Quality Bureau in recent years
regarding the assessment of quality in the ESRD program, there appears to me to be little
or no discernible interest in the Bureau of Policy Development (which is responsible for
reimbursement) in relating cost data to information about quality, The IOM committee,
in 1991, recommended that this issue be taken up and systematically addressed. It is long
past the time that a good faith start on this matter be undertaken.

To do-so requires that HCFA tink several existing data.bases that have yet been
linked. It is currently possible with existing data bases to identify high reimbursement
and low reimbursement treatment units (both ends of the spectrum) and to examine high
and low mortality rates (both ends of another continuum) and to initiate the systematic
examination of the relation between resource inputs and outcomes of care. This
endeavor should be done. This Committee should provide clear guidance to HCFA and
the nephrology community on this point. Absent the systematic analysis of the relation


6

Mr. Stark. Thank you, Mr. Chairman.

I want to congratulate you for holding this hearing. The ESRD
Program has been a success and literally saved, I suppose, millions
of lives, but the program is fraying around the edges. I think that
a comprehensive approach to the treatment of this disease could
easily improve the quality of care and save money. We ought to re-
form the payment system, perhaps through a capitation method,
and that ought to make the dialysis centers a little more anxious
to ensure that hospitalization isn’t necessary, and that where ap-
propriate, we should see that patients receive transplants or are
treated at home, with a caveat that treatment at home, I think,
ought to be done in only the most extreme conditions.

While reform holds great promise, I think we have to be very
careful. This is a vulnerable population, literally and figuratively,
and underservice can quickly lead to death.

In March the Health and Human Services Inspector General is-
sued a report that two-thirds of the ESRD and disabled persons in
HMOs wanted to leave the HMO—but they felt they couldn’t. They
really felt trapped in them. They are twice as likely as senior en-
rollees in HMOs to say that the HMOs have hurt their health.
They are twice as likely to complain, but those are the figures we
are getting.

To date, capitated plans have not managed the ESRD patients
well. HCFA, the Health Care Financing Administration, is about to
begin a demonstration project to test whether some form of capita-
tion might work, and more importantly, what quality measures we
need to ensure we don’t kill the patients. We can’t cut corners in
reforming this program, and I think we should wait to see what the
demonstration shows us.

I have introduced two bills and I would like to ask the witnesses
today to comment on them. One sets up a demonstration to see if
we can save money and help patients by delaying the onset of kid-
ney failure, and, at least in layman’s terms, generally the onset of
kidney failure is discovered early, and I think dietary changes can
prevent a lot of failure if people will follow their instructions. I
don’t know whether a demonstration would show that we could en-
courage that, but I think it is worth a look.

Second, the second bill says we should not pay dialysis centers
if they don’t achieve a specific measurable level of cleaning the
blood for most of their patients. I think that is—it is a measurable
standard. It is an empirical standard, and if witnesses don’t sup-
port the standards set in the bill I have introduced, what standards
should we use?

I mean, it seems to me we can’t move to a managed care system
if we can’t have a specific standard by which we manage the treat-
ments that we are purchasing with Federal dollars. I hope that we
can hear from the witnesses today about those issues, and I com-
mend you for having the hearings.

Thank you very much.

[The prepared statement follows:]


40

Fifth, let me end by saying the 1972 legislation called for a medi-
cal review board to screen “the appropriateness of patients for the
proposed treatment procedures.” The meaning of that term has not

een defined. The IOM report had a chapter on ethics that specifi-
cally asked whether too many patients were accepted for treat-
ment.

The existence of an entitlement has often been interpreted by cli-
nicians as an obligation to treat, regardless of other complicatin
medical conditions and the prognosis for patient benefits. The will-
ingness of some clinicians to accept for treatment, for example, el-
derly demented patients, a persistent vegetative state patient, or a
blind diabetic amputee is widely recognized and discussed, if not
well documented.

The Subcommittee recommended that guidelines for patient ac-
ceptance be developed involving patients and professionals. Thus,
we raised an issue, but did not resolve it. My personal conclusion
today is the slow pace of guidelines development reflects the great
difficulty physicians and others have in dealing with this issue. Al-
though we concluded that this issue was not one on which legisla-
tion was appropriate, I conclude it is not an issue on which the
Congress should continue to remain silent.

The time has come for Congress to ask the patient and provider
communities to address the issue of appropriateness of patients for
treatment with respect to developing guidelines for patient accept-
ance criteria. Congress need not and should not consider legisla-
tion. It can and should clearly indicate to the public and all inter-
ested parties the importance it attaches to discussing and address-
ing this hard issue.

Thank you.

[The prepared statement and attachment follow:]


120

Mrs. JOHNSON. Could I just clarify? Are you saying to us, Dr.
Latos, that the frideline is working well and that precise stand-
ards could actually not work in the patient’s interest?

Dr. LaTos, Yes to both those. There are many studies that have
been published over the last couple of years that talk about the
number of Kt/V, and the RDA guideline was designed to define not
the absolute minimum but sort of a range that would assure a good
outcome. We are not able to equate that number, which is still an
evolving number, to a standard.

If we were to set a Kt/V, for example, of 1.2, there well could be
some practitioners that would decrease the amount of dialysis to
achieve only 1.2. Mr. Stark asked whether or not we want to de-
velop a floor below which no one should fall, and we are supportive
of trying to do that. I am not sure the science allows us to define
that number at the present time. It is certainly in the range of 1.2
or thereabouts.

Chairman THomas. Dialysis is a medical procedure. It is not
changing oil.

Dr. Latos. That is correct. There is no magic dose of penicillin
that treats pneumococcal pneumonia either.

Chairman Tuomas. All right. I thank the panel very much.

We would call our last panel, Mr. Berger and Mr. Thiry, is it, I
believe?

Mr. Tuiry. Yes.

Chairman THOMAS. Thank you.

As I have indicated to the other panels, your written testimony
will be made a part of the record and you can, for your 5 minutes,
inform us any way you see fit. Doctor Berger.

STATEMENT OF EDWARD E. BERGER, PH.D., VICE PRESIDENT,
GOVERNMENT RELATIONS, NATIONAL MEDICAL CARE, INC.,
WALTHAM, MASSACHUSETTS

Mr. Bercer. Thank you, Mr. Chairman, Members of the Sub-
committee. I appreciate the opportunity to come here and speak to
you today on behalf of National Medical Care.

The positive achievements of the ESRD Program have been well
documented in prior testimony today. The Federal guarantee of
coverage to those with ESRD has certainly fostered the rapid devel-
opment of a dialysis and transplantation service system more than
adequate to meet the needs of all Americans with ESRD.

With respect to dialysis service, it has done so with a record of
cost controt unequaled in the recent history of the U.S. health care
system.

Over the years, however, and this is the focus of my testimony,
the program’s guarantee of coverage has evolved into a set of poli-
cies which segregate ESRD providers and patients from the main-
stream of developments in the private health care sector and which
artificially insulate private insurers from responsibility for ESRD.

The resulting disproportionate reliance on the public sector for
funding and for management has, over the long term, had a variety
of deleterious effects on the ESRD Program, and we have some pro-
posals as to how those might be addressed going forward.

Most immediately, dialysis providers and patients have been ren-
dered excessively vulnerable to public budgetary concerns in a time


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are desirable because beneficiaries have a better quality of life and because
associated expenditures for health maintenance are much lower than those for
dialysis. Unfortunately, kidneys available for transplant are in short supply. In 1993,
more than 23,000 persons were on the transplant waiting list; of this number, fewer
than half (10,000) received kidney transplants.

Due to additional health complications in the aged, elderly patients tend not to
be good candidates for transplantation. As a result, transplants are generally
performed in the younger population. In 1987, 45 percent of the ESRD population
under age 35 had a functioning graft, compared to 25 percent of those aged 35 to
64, and only two percent of persons over age 65.

EXPENDITURES AND PAYMENT METHODS

{n 1991, total expenditures in the ESRD program were just over $6 billion. This
total includes all Medicare payments for inpatient hospital care, outpatient services
(mostly dialysis), physician services, skilled nursing care, and home health care.
Program outlays have been increasing annually at an average of more than 14
percent. This is primarily attributable to increases in the ESRD population.

Although ESRD is expensive to treat, HCFA has successfully contained per
capita costs. In the mid-1970s, the average cost per ESRD beneficiary was 30 times
as much as the average for all Medicare beneficiaries; by 1991, the difference in
average per capita costs had shrunk to nine times (CHART B).? Thus, while inflation
has greatly increased the costs of the Medicare program generally, the combination
of increased transplantation and cost controls on both dialysis and physician care
have tempered per capita increases.

Chart C shows the breakdown of ESRD expenditures by category. Several
payment methods are used in the ESRD program. Renal facilities are paid a
prospective composite rate for outpatient and home dialysis treatments. The average
payment per treatment is $126 for independent facilities and $130 for hospital-based
facilities. Renal facilities that meet certain regulatory exception criteria (e.g., atypical
patient population, isolated essential facility) can receive a higher composite rate.
Because these treatments are covered under Part B of Medicare, Medicare pays 80
percent of the composite rate and the beneficiary pays the remaining 20 percent,
either out-of-pocket or through a supplemental insurance policy.

Except for two statutory changes that resulted in a net decrease of $1 per
treatment, payment rates have remained constant since August 1983. The number of
independent renal facilities, however, has continued to increase to meet patient
demands: from 1983 to 1994, the number of these facilities has nearly tripled (from
627 to 1,795). Moreover, independent facilities, which account for 71 percent of all
renal facilities, continue to have positive margins, on average, on their Medicare
business.

Patients who dialyze at home are able to select from two payment methods
Method |, in which supplies are obtained from a provider, and the provider bills
Medicare as if the dialysis were received in a facility; or Method 1, in which the
beneficiary purchases the supplies directly from a supplier and is reimbursed the
provider rate from HCFA. In 1991, approximately 25,000 beneficiaries dialyzed at
home; about 16,000 selected Method | and 9,000 chose Method Il. Expenditures for
outpatient services, which are primarily dialysis related, totaled more than $2 billion
and accounted for 33 percent of the total ESRD program costs in 1991.

As a result of a regulation in 1994, physicians providing dialysis-related
services are now paid under Medicare's physician fee schedule. The capitate
monthly payment is now approximately $190. Total expenditures for physicians and

“in 1974, the average annual per capita expenditures for a Medicare beneficiary and an ESRD.
beneficiary were $530 and $16,200, respectively; by 1991, they were $3,250 and $32,700.


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‘comments in response to 2 published reqoest for comments by the Commitee, max include oa his statement or echmlsson a Ust of ll
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‘A supplemental sbeet must accompany each statement leting the name, full adéroes,« alephone aumber whore the witness
cre duigusee rere way bo acbt tn soa ene erry can tn onan ef
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Note: All Committee advisories and news releases are now available over the Internet at
GOPHER.HOUSE.GOV, under "HOUSE COMMITTEE INFORMATION’.


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110

Chairman Tuomas, Thank you, Dr. Lundin.

The gentlewoman from Connecticut will inquire.

Mrs. JOHNSON. I thank the panel for your very good comments.
Dr. Latos, many would argue that kidney transplantation is the
best treatment for many ESRD patients. How do nephrologists
interact with other physicians in determining which patients are
the best candidates for transplants, and do you have any informa-
tion about how this interaction changes in a managed care setting
or doesn’t change in a managed care setting?

Dr. Latos. The relationship between nephrologists and trans-
plant physicians or transplant surgeons is a very close one, as you
would imagine. The recommendations generally, and I think these
have already been testified to, are that people really need to be ap-
prised of their relative risks of transplantation.

There are actually only a few categories of people who should
never be transplanted: People with active malignancies, certain in-
fections that are ongoing, and virtually all other groups have rel-
ative risks, either mild risk or severe risk. And while some practi-
tioners, I believe, tend to dissuade some patients away from trans-
plant, the more appropriate, and I think increasing opinion among
nephrologists is that people need to have access to transplant sur-
geons fairly early in the course of their time on dialysis, even prior
to transplantation.

My own experience with managed care has been somewhat bi-
ased | because we have had some difficulty in getting some managed
care programs to have patients referred for transplant consider-
ation until they are already on dialysis.

We have had a very active program in preemptive transplan-
tation and I have personally been involved in the care of about 20
people over the last few years that have been able to receive suc-
cessful transplantation and have never required dialysis.

So the relationships between nephrologists and those other phy-
sicians in the managed care programs need to be examined more
clearly, and certainly the role of the transplant surgeon early on
needs to be defined.

Mrs. JOHNSON. In your experience, are there any managed care
plans that are showing an interest in preemptive transplantation?

Dr. Latos. I am sorry, I didn’t hear the last part.

Mrs. JOHNSON. Are there any managed care plans that are show-
ing an interest in preemptive transplantation?*—

‘br. LaTos. Not specifically. I don’t know that any are totally ex-
cluding them by policy. This is not a common practice in the coun-
try, although it is regional. Again, it depends on how early the pa-
tient gets to the renal care team. If the patient shows up on our
door already having advanced uremic symptoms, that is not the
time to consider transplantation. Those of us who see patients
early in the course of their disease when symptoms are minimal
can often get them referred to transplant months and months be-
fore they actually become ill enough to require dialysis.

Mrs. JOHNSON. A general question to the panel. This panel, as
well as the preceding panel, has talked about the need to improve
quality measurement tools. Over what period of time do you think
this is possible? I mean, are we talking 6 months, 1 year? Are we


69

provides comprehensive care, which includes specialized dietician
and social work services for both patients and their families.

One of the concerns that the Renal Physicians Association has as
well as others is that in privatizing the Medicare system, we are
very concerned that various health plans may consider some of
these services as extras and not really germane to the specific med-
ical therapy. There is considerable data already in existence in the
published iterature that shows the valuable input of appropriate
and timely nutritional intervention.

In response to some of Dr. Rettig’s comments, we would agree
that the quality assurance programs in the Medicare ESRD Pro-
gram are very unique, and it is our feeling that they have not been
and probably cannot be replicated by private industry.

A big concern that we have heard discussed many times today
is how do we save money yet assure the quality of care that we are
trying to deliver today. It is clearly realized that much of the
growth in ESRD expenditure is due simply to the increase in the
number of people receiving this lifesaving therapy, which is both
dialysis and transplantation, but at the same time it is incumbent
upon the provider community, as well as Congress, to maximize ef-
ficiencies while continuing to improve the quality of the program.

We have heard ample testimony this morning attesting to the
very high cost of hospitalization for this generally sick, older, and
complex population of individuals. There is no question that many
hospitalizations for dialysis and transplant patients may be pre-
ventable, and many cannot. One of the major reasons for hos-
pitalization has to do with vascular access complications.

People undergoing chronic dialysis need to have a way of cir-
culating their blood into the artificial kidney. I would point out for
the record that several months ago the Renal Physicians Associa-
tion met with staff from HCFA and presented data that suggested
that considerable savings could be realized if the use of a therapy
to dissolve clots in some of these vascular grafts, if that were made
available and then reimbursed as an outpatient service, then many
hospitalizations could be shortened and sometimes prevented.

‘e don’t have data to show what has happened yet, but we cer-
tainly appreciate the position HCFA took that changed the reim-
bursement. policy. We think that will clearly improve the outcomes
for patients in the sense of decreasing their hospital time. We also
believe that there will be data to show that costs have been sub-
stantially decreased with that.

Another critical issue, we believe, is that there must be strength-
ened efforts to educate renal physicians and other providers re-
garding issues that assure the delivery of cost-effective dialysis and
transplant care. The use of Practice guidelines such as those re-
cently developed by the Renal Physicians Association, which deals
with the adequacy of hemodialysis, will in fact have a measurable
beneficial effect on patient outcomes.

Other guidelines already in development will help to assist prac-
titioners in selecting patients for renal replacement therapy which
is very much needed, as well as in the appropriate use of expen-
sive, but necessary technological advancements.

We are aware of the growing interest in utilizing managed care
programs for Medicare beneficiaries, including those with end-stage


24

In the four year period 1990 through 1993, there were 206,000
Persons who experienced renal failure and entered Medicare’s ESRD
Program. The distribution of these patients by initial
entitlement status is shown below:

- Old Age: 38.1%
- Disability: 20.2 8
- Renal Only: 41.7 8

Mr. CHRISTENSEN. The second question I have is: Would a more
preventive approach to care in the Medicare Fee-for-Service Pro-
gram help reduce the numbers of people who develop ESRD, more
of a preventative approach to this problem?

Dr. Smits. That is a very interesting medical question. My sense
is that the prevention ought to be as early as possible and that
with respect both to diabetes and hypertension, the period of really
effective prevention may have been before they aged into Medicare.
These are long-term chronic effects on the kidneys. So, again, I
would have to bow to the very sophisticated renal physicians who
are following me.

But, yes, everyone believes you could have less ESRD with better
prevention, but whether you could do it starting at 65 is an inter-
esting question.

Mr. CHRISTENSEN. I have an additional question. I was talking
with a constituent this week in Omaha about the drug EPO,
Epogen. Are you familiar with whether HCFA bundles the pay-
ments to local providers on this drug?

Dr. Smits. Yes. We don’t bundle. We pay—we make a payment.
for the drug, yes.

Mr. CHRISTENSEN. In the past, I am told that out of nearly two-
thirds of all developed countries in the world, we reimburse at a
significantly lower rate for Epogen than most of all western devel-
oped countries; is that correct?

Dr. Smits. I don’t know the international comparisons. We are
buying it in very large—in much larger volumes than anyone else,
so the ordinary pressures of the market would suggest we probably
ought to be paying less for it, but, I again, would be glad to get
you the international figures for the record.

(The following was subsequently received:]


147

COST AND QUALITY OF MEDICARE ESRD PROGRAM

The subcommittee has indicated its intention to examine trends in Medicare
spending on the ESRD program. Amgen’s first observation on this subject will no
doubt be echoed by a number of witnesses at the hearing: It is clear that on a per
beneficiary basis, the rate of growth in spending for this program over the past 10
years has been relatively moderate. Indeed, the aggregate increase in program
expenditures per ESRD beneficiary since 1985 (34%), is dramatically lower than
the increase over the same period in the average Medicare benefit payments per
enrollee (108%). (Source: 1994 Green Book )

Amgen has contributed to the effort to restrain the rates of increase in Medicare
spending. Influenced by extensive discussions with HCFA officials, Amgen set the
price for EPOGEN in 1989 at $10 per thousand units, well below the average
European price ($15) set by its licensee. The U.S. list price has never been
increased in the intervening years, and it remains on average 34.4 percent lower
than the European price and 68 percent lower than the price in Japan. Adjusting
for inflation, Amgen’s list price for EPOGEN has declined by 21.4 percent since
1989.

The introduction of EPOGEN and -- more recently -- the progress achieved in
bringing hematocrit levels into target range also contribute indirectly to cost control
in the ESRD program. Dialysis patients receiving EPOGEN have been found to
develop fewer comorbid conditions that require inpatient hospital treatment. Since
inpatient costs account for almost half of all Medicare payments for dialysis
patients, adequately managing anemia could result in reductions in outlays. A
recent study conducted by the Johns Hopkins School of Medicine and HCFA found
that patients on EPOGEN are less likely to have heart failure, angina, myocardial
infarction, depression and strokes than patients not receiving the drug. The study
also concluded that use of EPOGEN may be associated with fewer overall hospital
admissions and fewer days spent in the hospital. (Powe et al., JASN, 1994: 4:1455-
1465).

The current reimbursement rate for EPOGEN provides some incentive to providers
to increase doses if the patient's hematocrit is not within the target range. (As
discussed in more detail below, it is important that iron stores be monitored
carefully to insure that the lowest effective dose is used.) Some have suggested that
the Medicare payment rate should be reduced or folded into a composite or
capitation rate for dialysis. These suggestions should be rejected. If the incentives
to properly dose were reduced, removed, or reversed, hospitalization costs could rise
and--at the extreme--transfusions could return as the treatment of choice for
anemia due to renal failure. This, of course, would lead to additional costs for


10

ers in a given region that collect and analyze data and are very ac-
tive in the benchmarking process.

The conditions of coverage that we now use are like many of our
conditions, rather old and very process oriented. We are in the first
stages of moving them toward more outcome-oriented conditions.

I am also pleased to say that we are looking at a process by
which we would inform patients about the quality of care. We
would encourage patients to learn about the quality of their own
dialysis to track their own rate of adequacy of dialysis. We believe
this is a situation where the individual consumer can have a great
deal of effect on quality.

Through the networks and working jointly with providers, we are
also in a benchmarking quality improvement mode looking at four
key factors which include: the adequacy of dialysis; the level of
hematocrit because anemia is a consistent problem for these pa-
tients; adequacy of control of blood pressure; and the adequacy of
nutrition as measured by a fairly simple blood test of protein in the
blood.

That process is a collaborative one, and is intended to improve
continually over time. As you probably know, the new definition of
adequate dialysis was quite recently set by the profession at Kt/V
of 1.2. Only about 40 percent of the patients were receiving that
level at a point in time when the new rate hadn’t been set. We do
expect to see those numbers increasing over time.

1 know that one of the primary goals of this hearing is to talk
about whether ESRD patients should be more generously included
in managed care. At present, you can be in managed care with
ESRD only by acquiring the disease while you are already in a
managed care plan.

The problem that we face—could I have the last chart again? The
problem that we face in changing that law is severalfold. First of
all, we need to have a reasonable rate to pay managed care. As you
can see, since we are paying facilities and doctors on capitation, the
part of the expenditures that are most amenable to control would
be hospitalizations.

Right now we have a single rate for ESRD patients in managed
care which mixes the costs of the posttransplant patient with the
costs of the dialysis patient. Since posttransplantation is less ex-
pensive, that means the rate underpays for dialysis at least on av-
erage, overpays posttransplantation and leaves the facility—the
HMO itself at something of a risk in terms of underpayment for
the expensive short period in time during the transplantation.

We would like to have a better payment rate that distinguishes
among those three groups of patients and doesn’t put the HMO in
the position of having to overcontrol costs in the area of dialysis for
those patients who appropriately remain on dialysis for a long pe-
riod.

We have had the RAND Corp. devise a payment method for us.
We are in the process of soliciting sites for a managed care dem-
onstration, and we estimate that service delivery will begin in
about 1 year.


145

Statement of Amgen Inc. to House Ways and Means Subcommittee on
Health on Medicare End-Stage Renal Disease Program

Amgen Inc. is pleased to submit this statement for consideration by the
subcommittee and inclusion in the record of the April 3, 1995 hearing on the
Medicare end-stage renal disease (ESRD) program. As the manufacturer of
EPOGEN® (Epoietin alfa), an important part of the treatment of many dialysis
patients, Amgen closely follows trends in the cost and quality of the ESRD program.
‘The company’s observations are informed by its experience during almost a decade
of participation in efforts to improve the clinical status and quality of life of
Americans who depend on kidney dialysis to survive. Amgen strongly believes that
focusing on quality of outcomes in dialysis patients and aligning incentives and
payments around these outcomes is the best way to control costs and benefit
patients.

BACKGROUND

Amgen, headquartered in Thousand Oaks, California, is the largest independent
biotechnology company in the world. Since its founding in 1980, the company has
spent $1.2 billion dollars on research and development, with emphasis on finding
new treatments for diseases for which current therapeutic interventions are
inadequate. Last year, the company was awarded the National Medal of
‘Technology, an award established by Congress in 1981 to recognize technological
achievement. Amgen is the only biotechnology company ever to receive this tribute.

In 1989, the Food and Drug Administration approved for marketing Amgen’s first
product, EPOGEN. First cloned and developed by Amgen scientists, EPOGEN is a
biopharmaceutical product with the same amino acid sequence as natural
erythropoietin, which is produced by healthy kidneys and acts to stimulate the
maturation of red blood cells.

Kidney failure almost always results in anemia because the kidneys no longer
produce adequate amounts of erythropoietin. Before the availability of EPOGEN,
most dialysis patients were severely anemic, reflected in low hematocrit readings.
Hematocrit is the ratio of red blood cells to total blood volume; low hematocrit
readings are associated with increased morbidity and poor quality of life. Indeed,
prior to 1989 many dialysis patients were dependent on blood transfusions to
survive. Since the introduction of EPOGEN, blood transfusions to combat the


29

Mr. CoL.ins. Thank you, Mr. Chairman, yes, and I do appreciate
your allowing me to participate in this hearing this morning. I
wanted to respond to a constituent who had a daughter who was
being treated by a center in Georgia and she died in January 1993,
and I would like to submit for the record, Mr. Chairman, a state-
ment by me and also a statement from that particular person.

(The prepared statement follows. The letter from the constituent.
was not available at the time of printing.]


98

Chairman THOMAS. Thank you very much, Ms. Wish.
Mr. Bowden.

STATEMENT OF A. BRUCE BOWDEN, CHAIRMAN, NATIONAL
KIDNEY FOUNDATION

Mr. BowDEN. Thank you, Mr. Chairman, Members of the Sub-
committee. I am chairman of the NKF, National Kidney Founda-
tion, which at age 45, is the oldest and largest of the nonprofit or-
ganizations in the United States, representing the interests not
only of kidney patients, but of the professional care team that
takes care of them.

We appreciate the opportunity to be here this morning to talk
about what we view as a tremendously successful 22-year-old pro-
gram. A number of the benefits of the program have been talked
about this morning. One of the most dramatic that hasn’t been
mentioned is the fact that when this program came in, it ended the
existence of committees in hospitals which had to make, on a daily
basis, decisions of who would live on dialysis and who would not.

During the life of the ESRD Program, a lot of changes have
taken place. The ability to care for a broader range of patients,
much more difficult cases, has caused the population to be older,
to be sicker, to be poorer, and to be more heavily made up of mi-
norities.

We have submitted written recommendations and I believe they
generally fall into four categories. The first one that has been dis-
cussed earlier this morning is quality. There is a clear need for
quality standards. The most recent USRDS data on mortality, on
the high rate of complications and hospitalization, point clearly to
the need for quality tools. We believe that government and the
renal community should work together on the development of qual-
ity tools, not only to measure quality, but also to assure it, that
these tools should deal not just with dosage, with Kt/V, but with
nutrition, with staffing patterns, and with quality of life issues.

Second, access has been discussed, an equally important area.
We believe access means something a little broader than what has
been discussed. We believe access means informed access by all pa-
tients to all modalities of treatment to include transplantation,
home hemodialysis, and peritoneal dialysis. It is not just an issue
of geographic access.

bviously, there are problems with organ donation. Some of
those have been discussed. There is a problem with the organ sup-
ply. We would again remind the Congress that there is the oppor-
tunity to allow a pilot program on the use of financial incentives
for cadaveric organ donation, and to allow for the removal of finan-
cial disincentives for living related donation. We also believe that
Congress has an opportunity not only to allow transplants but to
keep healthy transplants by extending Medicare coverage for
immunosuppressant drugs for the life of the graft.

The third area that we believe is important is the area of preven-
tion or delay in the progression of kidney disease. Obviously, diabe-
tes and high blood pressure—hypertension—are tremendous causes
of end-stage renal disease. We commend Mr. Stark on H.R. 1068
which suggests a demonstration project on the benefits of attempt-
ing to delay the onset of ESRD. The NKF is working in a similar


144

choices dictated by the payment method, especially in skilled nurs-
ing facilities—home health care areas that are growing rapidly,
they are the last fee-for-service bastion. I am concerned that if we
begin to make changes in structures, we do not create any oppor-
tunity for choices based upon a payment schedule rather than the
efficacy of the choice toward the patients.

Any additional questions? I thank the panel very much for your
participation and the Subcommittee hearing is adjourned.

{Whereupon, at 1:10 p.m., the hearing was adjourned.]

(Submissions for the record follow:]


91

patients,

{In light of the 16°s study and our own data and experiences, 10 protect ESRD beneficiaries, the NRAA would urge the
Subcommitter and Congress to spend more time studying the issue of ESRD beneficiaries and managed care There is a reat need to
proceed with caution before creating incentives for these beneficiaries to join Medicare Risk HMOs, Until there is beter data on quality
of care in HMOs for ESRD beneficiaries, the NRA supports the continuation of Medicare's rule that prohibits new ESRD patients trom
joining an HMO uniess they are ia-an HMO shen their kidney failure begins. Waiting for the findiags of HCFA's ESRD capitanan
demonstration would make the most sense

NEED TO INCLUDE A DIALYSIS INFLATION UPDATE IN THE LAW

Medicare's payment structure for dialysis facies is unigue in the Medicare system. Dialysis facilities are paid a prospective
payment to cover the cost of providing all dialysis related services, including the cost of a dietitian and sacial worker This prospective
payment system has been called the first DRG. However, unlike hospital DRG payments, which are annually updated. there ‘sno statutory
Automatic inflation update co this payment, as there for are hospitals, hospices, aursing facilities and other providers. Instead. payment 10
alysis facilines can only be inereased by the Congress or the Administration

‘Without an inflation adjusiment written into the statute, we know only 100 well thatthe Congress. in these tight budgetary times,
will find «vey difficult to increase payments to dialysis facilities, even when they are meritorious

Because other Medicare providers have inflation adjustments included in their payment formulas, Congress can reduce the update
factor, saving Medicare money, and stil grant some inflation increase to these providers.

‘We cannot understand why the composite rate payment does not include a medical inflavion adjustment when dialysis failiies
rust vie with hospitals and physicians, who do receive annual updates, forthe same poo! of labor and must pay similar mounts for
medical supplies, health insurance and other overhead costs.

‘The Institute of Medicine (TOM), in is two year study of the ESRD program, also concluded that Medicare should provide annual
updates for dialysis facilities. Concemed about quality of care, the 1OM stated that annual updates were necessary in order to ensure that
patients received all of the care they required,

We strongly recommend that this Subcommintee seriously consider writing ito the law the same type of annual inflation adjustment
Formula for dialysis facilities like that provided co hospitals, hospices and other Medicare providers. Then cach year the Congress can
determine an appropriate update factor as it does for all other Medicare providers.

RECOMMEND A 3.7%

Ye UPDATE IN DIALYSIS FACILITY PAYMENTS FOR FY 1996

We strongly request the Subcommittee inerease payments to hospital-based and freestanding dialysis fac
fiscal year 1996, to reflect the projected price increases facilities wil
improvements.
~ ProPAC’s Analysis of Increased Costs - ProPAC in its 1993 Report to Congress recommended a 2.5% increase in payments 10
hospital-based and free-standing dialysis facilities for FY 1994. We never received this update. In ProPAC’s 1995 Report to Congress,
the Commission's analysis indicated thatthe prices of inputs used ina diatysistrearment will rise by about 3.7% between fiscal vars 1995
and 1996. At a minimum, dialysis facilities should be given an increase 10 reflec real cost increases. Instead, ProPAC decided 10
recommend no increase because they believe that free-standing faciliies are sill reimbursed more by Medicare than their costs, However,
if ProPAC had not applied, what we believe was an erroneous 12 percent audit adjustment in calculating the costs of providing dialysis
services fot FY 1995-1996, they would have concluded thar payments were less than 1 percent above costs for freestanding dialysis
[cilties, Based on our own membership data we actually believe that at least a 10 percent update is appropriate for FY 1996. The NRA
‘would be happy to share with the Subcommittee the data we provided ProPAC this year, which includes a detailed analysis of the wre costs
‘of providing dialysis services in free-standing dialysis facilities
licare Payments Have Been Essentially Frozen ~ The prospective payment system established for dialysis facilities in 1983
‘was reduced $2.a payment in [986 and only increased by $) 2 treatment in 1990 for FY 1991. In other words, dialysis faites did not
receive any inflation updates, like other Medicare providers, throughout the 1980s and instead had their payments frozen for most of the
decade, Following the doliar increase in 1991. payments have been frozen, No other Medicare provider has had to five without inflation
Lpdates for this long. With about 90% of revenues coming ftom Medicare, dialysis facilites have very linle ability to cost shit, and
therefore must depend upon adequate Medicare reimbursement.

Costs Continue to Rise - ProPAC projects a 3.7% increase in costs for dialysis facilities between 1995 and 1996 The costs of
‘complying with CLIA, OSHA, and other regulations on water quality and dialyzer reuse, increased labor costs and other overhead costs
are making i very difficult for too many dialysis facilities to provide al ofthe care older and sicker patients now require Staff to pauent
fatios cannot be further lowered nor can the ratio of registered nurses to non-registered nurse staff be reduced. ProPAC’s analysis
confirmed our findings and discovered that staffing ratios and mix have remained flat for the past three years.

‘Cost of New Quality Standard - Further. the National Institutes of Health (NIH), and the Renal Physicians Association have
recommended an increase from 1010 1.2 adequacy of dialysis care standard, known as KUV. ts our understanding that this new quality
standard will be included in HCFA's proposed changes to the ESRD Conditions of Coverage rules. AS an association we strongly support
this new standard and believe that dialysis facilities have been moving to meet it since November of 1993. In order to comply with this,
new standard, many dialysis facilities will have to incur additional costs for labor to daly ze patients longer and or purchase neve equipment
ProPAC has concurred in our assessment and stated in its 1995 Report to Congress that, the Commission believes that payments mat
recognize the additional costs of meeting the new adequacy standards

Quality May Be Compromised - The NRAA is greatly concemed that dialysis facilites will not be able to continue to provide
<uality care without an increase in payments, We suppor HCFA Continuous Quality Improvement (CO) initiates. icing the
[National Anemia stn - ~equacy standard. These studies have provided
benchmark data for dialysis facilities to improve their quality of care. There 1s also special concer far fow volume rural facies and inner
city dialysis facilities thar teat a kidney patient population which requires extra social services

‘Out concer 1s based om the fact that we have done everything we can to be cost effective during the past twenty years. The li
cof cost containment possibilities has been exhausted The new KUV standard will only increase our costs There comes a point when the
‘only thing tef to cut may’ impact quality. Our membership strongly believes that we are very close to that point

jes by 3:
experience in the coming year and pay for qu:

y

EXTEND THE ESRD MEDICARE SECONDARY PAYER PROVISION

We urge the Subcommittee to permanently extend the ESRD Secondary Payer provision fFom 18 months to 24 or 30 months
beginning January 1, 1996. Curcently, unless the Congress approves President Clinton’s FY 1996 budget proposal to permanently extend
the (# month ESRD MSP provision it will sunset io 1998 and then revers back to a 12 month secondary payer requirement, Extending
0 24 oF 30 months saves $839 million over S years, according to a CBO estimate obtained in 1993 with a 1994 effective date
Patients Are Not Negatively Impacted - A Decernber 1992 GAO study entitled, Medicare Millions in End-Stage Renal Disease
Expenditures Shifted to Employer Health Plans, concluded that very few dialysis patients were neyatively impacted by the [8 moath



1

Our position at this time is that rapid movement into managed
care before the demonstration is completed or at least before early
data are available from the demonstration would be unwise.

Thank you very much. That concludes the formal part of my tes-
timony. I would be glad to answer questions.

[The prepared statement and attachments follow:]


Kaiser Patients Had No Fewer Hospitalizations
nor Days in Hospital for 1994

KAISER
0 NON KAISER

ADMITS

INPATIENT,
pet patient DAYS
per patient at risk

Differences are not significant

fant

No actuarial difference in hospitalizations
nor days in hospital for 1994

HOSPITAL DAYS i 9982 | na
woge some) | 6
wea | oe 0 ve



102

diabetes are higher than for any other group ($49,040 versus an average of $41,315).

Finally, we should not overlook the ethnic distribution of the Medicare ESRD
population, While African Americans make up 12% of the population of the United States,
they accounted for 28% of the Medicare ESRD population on December 31, 1980 and 30%
of beneficiaries as of December 31, 1990. There were 15,044 African Americans on dialysis
or with a kidney transplant on the former date, compared to 49,827 at the latter date.®

Many African Americans have limited or inconsistent access to health care throughout their
life time and many with end stage renal disease have numerous unmet health care needs
with which ESRD providers must grapple.

RECOMMENDATIONS FOR STATUTORY AND ADMINISTRATIVE IMPROVEMENTS IN
THE ESRD PROGRAM

‘The NKF believes that the recommendations set forth below are essential for the
continued success and improvement of the ESRD Program. This unique federally supported
health care experiment is twenty-two years old and is in need of advancements in the areas
of quality improvement and assurance, access, prevention, rehabilitation, reimbursement and
scientific research. The substance of these proposals was drawn from the Institute of
Medicine study, Kidney Failure and the Federal Government, the findings of the Prospective
Payment Assessment Commission, the National Kidney and Urologic Diseases Advisory
Board's 1990 long range pian Window on the 21st Century, the National Institutes of Health
(NIH) 1993 Consensus Conference "Morbidity and Mortality of Dialysis" and a special study
group of the National Kidney Foundation, "Controversies in the Quality of Dialysis Care,
previously mentioned. In total, they reflect the Foundation’s concern for the ESRD patient
and its basic philosophy of "moving from treatment to cure.” Some of the recommendations
can be implemented by administrative actions and others will require legislative remedy by
the Congress.

Prevention

Recent research findings indicate that it may be possible to prevent or delay the
progression of kidney failure. On the other hand, health insurers in general, and Medicare in
particular, have not promoted preventive health care until recently. The NKF has established
an Early Intervention and Prevention Task Force which is developing strategies for
implementation among patients who are at high risk for ESRD. We also congratulate Mr.
Stark for the interest in new approaches to preventive care which are evidenced in H.R.

1068.

Access to ESRD Therapies

The panel for the IOM study estimated that 93% of the U.S. ESRD population is
covered by Medicare for renal replacement therapy. The remaining 7% include those
receiving benefits from the Veterans Administration, the Indian Health Service and special
State Kidney Programs. Furthermore, the United States has the highest referral rate for
ESRD therapy of any industrialized nation. These data would suggest that access to ESRD
treatment is not a problem. Such a conclusion, however, may be an oversimplification.
Recent studies indicate that there is variability in referral by region of the country and by age.
Patients in rural areas often have to travel hundreds of miles for dialysis (three times a week)
if they cannot be treated at home.

Access to modality options may also be impaired. In particular access to
transplantation is limited because the supply of organs has not kept pace with the growth in
the number of patients on the transplant waiting list. Moreover Medicare policies may
discourage patients from opting for transplantation. Finally, there has been a marked decline
in the percentage of patients on home hemodialysis and the proportion of patients receiving
Peritoneal dialysis does not approach that in many other countries

To improve access the Foundation proposes

That information and education programs about choices among various

USRDS, supra, note 3.


118

There is another point that I think needs to be used for word of
caution here is that the experience is not uniform, but it is very
clear that some managed care programs are hesitant to have pa-
tients undergo transplantation. The policies are not written in
many situations. There are intrinsic policy issues that have to do
with referrals. Patients get transplanted in one program and then
in the midst of a rejection episode are told that they now must
transfer their care to another managed care program because the
employer has changed.

That doesn’t happen—that doesn’t have to take place too many
times within a dialysis center and patients are going to say, wait
a minute, I don’t think I want to do that. It is a real problem. I
am not sure how widespread it is but it is a factor that needs to
be looked at as well.

Chairman THoMa~S. We are dealing with a whole set of psycho-
logical concerns as well as physiological, and if you add any trauma
to that, it makes it very difficult. Is that what you are saying?

Dr. Latos. Absolutely. The stress, as Peter mentioned, of going
through a rejection or a nonfunctioning transplant is substantial.
People who are on dialysis know what they have. Good, bad, or in-
different, they know. They have done it for months, they have done
it for years, and for many individuals, especially if they have un-
dertaken some type of physical rehabilitation program along with
it, can do pretty well and many can do what they need to do with
their lives. And that risk of transplant is uncertain enough that
they may not be willing to take it.

Dr. LUNDIN. Mr. Chairman, if 1 might, the reason I stayed on di-
alysis for so many years is because it is a very predictable therapy.
If you have good access, it works. It is a matter of sticking to one
successful treatment after another.

I might point out again to Dr. Scribbner, who is Dr. Blagg’s men-
tor, that the very first patient with chronic liver failure put on
hemodialysis lived for 11 years, even though those first number of
years they didn’t know how long to dialyze the patient and what
to do in terms of other medical therapy, and one of the original pa-
tients is still alive today, exclusively on hemodialysis over 34 years
ater.

Chairman THOMAS. What about mobility in terms of the ability
to travel in dialysis, especially with managed care and restrictions
with——

Dr. LUNDIN. Yes. That is going to be a problem. Today, there are
many dialysis centers around the country and around the world
that, if you plan early enough, you have the opportunity to go. I
have spent 6 months in Germany on a sabbatical. I have spent a
month in Taiwan getting dialysis and traveled extensively around
the world as a dialysis patient.

Ms. Sims. I wondered if I could just go back to the transplant
issue. I thought Mrs. Johnson asked a good question earlier. I am
a transplant clinician at the University of Virginia and I will tell
you that we have seen patients who we would like to evaluate in
our program who cannot be referred in for after 1 year of dialysis,
although we would like to preemptively transplant them in our pro-
gram and that is something we have done very well.


65

Mr. Couns, That is—what about in the area of service? Quality
of service; would you say there is a difference in private pay versus
Medicare in quality of service?

Dr. Buacc. I don’t think so because the same facility may be bill-
ing primarily private payers for some patients and billing Medicare
for other patients. I don’t think there is any difference there.

Mr. RETTIG. If I could interject, 92 or 93 percent of the American
public are covered for kidney failure under Medicare under the So-
cial Security statute. The remaining less than 10 percent are those
with no work history. They are not fully or currently insured under
Social Security.

Private pay, in effect the Medicare secondary payer is a_cost-
shifting mechanism. One rationale is to take the cost of the ESRD
Program off the Federal budget and put it on private pay in the
expectation that the private payment rate is higher. But it is the
same set of facilities doing it and it is a time-limited thing on pri-
vate pay. One comes back to the issues of measuring quality in pre-
cisely the same way that one began.

Mr. CoLuins. Ninety-two percent you say are under Medicare.
That is an interesting——

Mr. RETTIG. Fully or currently insured.

Mr. CoLtins. That is an interesting shift from private insurance
to government so-called insurance.

Mr. Retric. The ESRD entitlement is the nearest thing we have
to universal health insurance in this country—fully or currently in-
sured under Social Security, diagnosis of chronic renal failure, and
you apply for benefits.

Dr. Biacc. In 1973 when the legislation was passed, many pa-
tients either didn’t have insurance or their insurance didn’t cover
renal disease, and Americans were dying from a disease that was
potentially treatable. That is why Congress, in its wisdom, decided
to fund this program not realizing what a Pandora’s box they were
opening.

Mr. Coutins., Yes, it did open quite a Pandora’s box, because if
you take that $40,000 annual figure that is per patient under Med-
icare and you extend that by an average annual earnings of around
$50,000, at 3 percent you are talking about 5.2 million working
people earning $50,000 a year to cover the cost of those 200,000.
An interesting figure.

Thank you, Mr. Chairman.

Chairman THomas. Thank you. I have questions that have been
presented in other testimony. Dr. Blagg, you indicated that you
thought there should be more hemodialysis at home. Has there
been a change in technique, equipment, or knowledge that would
lead you to believe that?

Dr. BLAGG. There is a potential for new equipment that I think
will become available for testing within the next couple of years.
This will enable patients to do hemodialysis at home without an as-
sistant. We continue to do a lot of home hemodialysis in Seattle be-
cause we actually use our surplus funds to pay for assistance for
patients to do hemodialysis at home. We think this is the best
treatment. I think that 5 years from now we will see a significant
increase in the use of home hemodialysis with new technology.


1

STATEMENT OF DERRICK L. LATOS, M.D.
PRESIDENT
RENAL PHYSICIANS ASSOCIATION

April 3, 1995
INTRODUCTION

Good moming, Mr. Chairman, members of the Subcommittee. My name is Derrick L. Latos, MD. |
am a practicing nephrologist from Wheeling West Virginia and { am the President of the Renal
Physicians Association (RPA). RPA is a professional organization of nephrologists whose goals
are: to insure the optimal care under the highest standards of medical practice of patients with
renal disease and related disorders; to act as a national representative for physicians engaged in
the study.and management of patients with renal disease and related disorders; and to serve as a
major resource for the development of the national heatth policy conceming renal disease. The
RPA would like to thank the Ways and Means Subcommittee on Health for this opportunity to
provide written and oral testimony. PA's written statement will focus on many of the issues that
are currently affecting the renal community, especially in light of the increasing expenditures and
numbers of patients in the ESRD program. We are very aware ot the critical budget constraints
that our country as a whois is facing. We also recognize Congress’ function in examining the
federal role in caring for ESRO patients as well as Congress’ desire to promote competition
among medical providers in order to cut costs and improve delivery of medical care. Because of
this concem, we welcome this chance to provide the Subcommittee with our views on all facets of
the ESRD program.

OVERVIEW

In 1991, more than 220,000 people were treated for end stage renal disease (ESRD), the vast
‘majority under the Medicare program. Between 1984 and 1991, the number of ESRD patients
doubled-to one patient per 1,387 U.S. residents~and the number of ESRD patients is expected to
double again in the next seven years, according to an estimate from the United States Renal Data
‘System (USRDS). The incidence of ESRD continues to rise at a rate of over 8% each year. The
number of new program enrollees exceeds the number of deaths by an increasing amount: from
+10,000 in 1982 to + 17,000 in 1991. The prevalence of ESRD in elderly individuais has
increased at a greater rate than in the population as a whole: Currently, more than 30% of all
dialysis patients are over the age of 65. Minorities are four times as likely as non-minorities to
develop chronic renal failure, and, on average, they are younger at the onset of disease than are
non-minorities.

In 1991, the total direct cost of ESRD was $8.6 billion. Of this amount, the federal government
paid $6.15 billion, or 72%. Medicare payments for ESRD are growing approximately 5% annually
in constant dollars, with virtually all of the increase attributed to the increased patient population.
Reimbursement rates paid to providers per dialysis treatment have actually declined when
adjusted for inflation. The RPA believes that the greatest potential for reducing the high costs of
chronic renal disease will be found by identifying basic mechanisms responsible for the disease
and devising better, and more cost-effective strategies for treatment.

PRIVATIZATION OF THE ESRD PROGRAM

itis PA's understanding that several Members of Congress, health policy analysts, economists,
and even some members of the renal community, believe that the ESRD program should be
“privatized". By privatization, we understand this to mean that the federal government coutd be
charged with providing vouchers for patients with ESRD who would then be able to choose a
health plan to take care of their renal-related needs. Under this scenario, the continued existence
of the ESRD program would be in doubt.

Presently, the RPA has not take a position on this issue. However, we would like to point out
‘some of the inherent difficulties this approach would face.

Although some managed care companies have staled that they would be interested in covering
the health needs of the ESRD patient, we believe that at closer inspection, many insurance
‘companies are likely to balk af the very high prices of covering the ESRD population. As a 1991
Institute of Medicine Report noted, according to 1987 data, the average annual expenditure for a


16

> providing data on the ESRD population to the US Renal Data System for
analysis by Department of Health and Human Services; and

> identifying facilities that do not meet Network goals, assisting those facilities in
developing corrective plans, and reporting to the Secretary those who are not
providing appropriate medical care.
HCFA and the Networks have worked well together in a public-private
partnership and we fee! that the Networks are fulfiling their statutory mission.

QUALITY IN THE ESRD PROGRAM

Survey and certification of facilities

A facility becomes "certified" (and therefore eligible for payment) in the ESRD
program through an initial survey to determine if the facility meets health and safety
standards, Periodic follow-up surveys are conducted to monitor compliance with
regulations. lf a complaint about poor health and safety practices is received about
an ESRD facility, a focused complaint survey is conducted. The surveys are
conducted by State health departments, under contract to HCFA.

Conditions for Coverage

Providers and facilities must meet the requirements for institutional dialysis
services and supplies established by the Secretary of Health and Human Services in
order to be covered by Medicare. These participation requirements are called
"Conditions for Coverage." The current regulations are primarily process-oriented and
do not adequately support the outcome-oriented approaches to quality management
that HCFA is initiating. Last year, HCFA determined that a thorough revision of these
conditions was necessary.

In March 1994, we met with representatives from the ESRD industry to begin
discussing these changes, We envision that the new standards will reflect current
standards of practice and support a comprehensive outcomes-oriented approach to
quality management. It will emphasize the total patient experience and actual
organizational performance. Specifically, the proposed revised regulations will
include standards for evaluating the adequacy of dialysis. Last November, a first
draft of the proposed revised regulations was informally distributed to industry
representatives for comment; we hope to have the Notice of Proposed Rulemaking
published for public comment by the end of the year.

ESRD Health Care Quality Improvement Program (HCQIP)

HCFA is focusing on outcomes-oriented research to respond to the need to
improve the care of Medicare ESRD patients. This approach has been named the
ESRD Health Care Quality Improvement Program (HCQIP). HCQIP is based on the
principle that HCFA can help improve the quality and cost-effectiveness of care by
helping the facility bring typical care in line with best practices. The project's goal is
to improve care provided to ESRD patients by establishing benchmarks for care and
documenting improvements.

As part of the program, we have identified tour core indicators for dialysis care
that will be tracked over time. The indicators chosen for the project were adequacy
of dialysis, anemia, blood pressure control, and nutritional status. The adequacy of
dialysis measures are based on the Renal Physicians Association's guidelines and on
the findings of an NIH consensus conference. The first measurements of these
indicators was completed in October 1994 and focused on outpatient hemodialysis
care Measurements will be repeated in 1995 and 1996 and expanded to include
peritoneal dialysis.


164

© the possibility of reductions in Epogen dosing as insurers reduce reimbursement levels; and

«premature death for those patients who loose or can’t afford coverage.

Organ Donation

Organ transplantation is in part a victim of its own success. With improvements in technology
more and more patients become candidates for life-saving kidneys, livers, hearts, lungs and other
vital organs. Tragically however, 8 people die each day while on the waiting list. Simply put, a
rising demand in transplants and a flat supply of adequate donors means a severe shortage in
organs for transplantation.

There are nearly 40,000 people waiting for an organ transplant, with greater than 28,000 awaiting
a healthy kidney. In addition, there are 500 children waiting to benefit from transplantation. Half
of these children will die, and every thirty minutes another child will be added to the pediatric
waiting list", The need for increased organ donation can not be stressed enough!

Transplantation as a ffective Alternative

‘Numerous studies have been conducted that compare the long-term costs of dialysis and
transplantation. In many cases, when looked at over a period of between 7 to 10 years,
transplantation has been the least costly option for treating ESRD patients

With the advent of cyclosporine, and other immunosuppressive drugs, the survival rates of kidney
recipients have shown a marked improvement. According to data provided by the United
Network for Organ Sharing (UNOS), in 1993, the first-year survival rates for living donor
recipients was 93.8%.

Paul Eggers, in the aforeto mentioned study, concluded his findings with the following comments,

‘The results of this study confirm the widely held belief that kidney transplantation is, over time, a less
costly alternative to maintenance dialysis. The high initial cost of transplantation is recovered in about
4.5 years (3 years for a living-related donor) with a net discounted savings of about $42,000 over a 10
year time frame. To the extent that transplantation may result in superior patient survival rates and a
higher quality of life, the results would more forcefully favor transplantation as the preferred renal
replacement therapy, Combined with the better quality of life assumed to result from transplantation, it
appears that transplantation is the preferred alternative for ESRD patients both from a medical as well
a an economic perspective (288)"

TRIO is not encouraging a doing away of the ESRD program, and we concede that older
individuals currently on dialysis are not necessarily adequate candidates for transplantation. With
proper incentive however, kidney transplantation for a significant number of dialysis patients is
realistic and would reap benefits that exceed current ESRD costs.


99

direction. It has had a task force now for almost 3 years on inves-
tigating early intervention and prevention. Really, this is a tremen-
dously important area.

The final area that is covered by our recommendations is the
area of rehabilitation. We think, as I said earlier, that informed pa-
tient choice among all modalities of treatment is tremendously im-
portant, which form of treatment best suits their style of life and
can support their quality of life. We believe that there should be
incentives for units, to emphasize home hemodialysis, which is
probably the most effective treatment technique that has yet been
shown, also to create night shifts at hemodialysis centers to accom-
modate working patients.

We also believe that there should be guidelines on staffing pat-
terns, recognizing that these have to be flexible depending on pa-
tient makeup, but these staffing guidelines should talk about all
the disciplines, nutrition, social work, nurses and technicians, as
well as physicians, and should deal not only with the numbers of
staff, but also with their qualifications.

In summary, we think this has been a tremendously successful
program, but certainly one which, hopefully if some of these modi-

fications would be considered, could be made even more successful.

Thank you.

[The prepared statement follows:]


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50

and become economically inviable under a system which pays only
an average capitation rate. Thus, it is essential that a program of
full managed care and capitation incorporate risk-adjusted pay-
ments for comorbid disease. Risk-adjusted payment rates account
for the fact that all patients are not average.

The second issue is access to care. Medicare payment for ESRD
since 1972 has allowed and maintained access to care for over a
half a million individuals. Because the number of providers of
ESRD care now exceeds 2,000, most individuals have a choice of
providers from which to receive care.

In a move to comprehensive managed care of ESRD, an organiza-
tion choosing to participate must be able to provide the full range
of services that these patients require; outpatient dialysis care, out-

atient nondialysis care, inpatient care, and transplantation serv-
ices which offer persons with ESRD the possibility of resuming a
near normal life. Some organizations may not have these capabili-
ties. Thus, in some areas of the country under a mandatory full
capitation program, choice of providers could be restricted. Further-
More, a new payment system must permit choice and access to
likely cost-effective ESRD technologies such as peritoneal dialysis,
transplantation, and medications.

My last issue and equally important issue is quality of care. Pay-
ment for capitation must recognize that while there is a financial
incentive to use resources more wisely, there is also the potential
that providers might cut back on necessary and expensive medical
care that is beneficial to patient well-being. Therefore, it is prudent
that a reformed system of fully managed and capitation care imple-
ment more careful oversight. This includes monitoring and enforce-
ment of quality standards.

Unfortunately, much work needs to be done to develop appro-
priate quality standards such as clinical practice guidelines for the
care of the ESRD patient. Our patient outcomes research project
will help in this regard.

Thank you.

[The prepared statement follows:]


Gross Mortality for:

95

TABLE B

ALL INSURANCE ]

FaCiLary TorAt EXPIRED Gross
PATIENTS ranets— | Monautry
PERCENTAGE |
ri an a 9.05%
B 4 7 6.93%
Cc 106 A 9.40%
mm » 15%
MEDICARE
——
FACILITY TOTAL EXPIRED GROSS:
PATIENTS pavients | MORTALITY
PERCENTAGE
A 106 | 10 8.62%
8 rn ‘ 800%
Cc m 3 4.05%
ae Hs 7 73%

TOTAL EXPIRE!

FACILITY Gross
PATIENTS: PATIENTS MORTALITY
PERCENTAGE
aA a 8 10.13%
37 0 0.00%
18 4
ALL. 16 n
_ ‘COMMERCIAL
FACILITY TOTAL EXPIRED GROSS
PATIENTS PATIENTS MORTALITY

833%

14.29%



33

Mr. CoLLLINS. Any restrictions in the Medicare rules or regula-
tions pertaining to profit centers by physicians who may be treat-
ing a patient and have profits or investment within a center?

Dr. Sirs. The recent self-referral law, which would apply to
some aspects of renal disease, and those regulations are not yet
written, but in the past, no, there was no prohibition on a physi-
cian referring for dialysis to a center in which he or she also had
a financial interest.

Mr. CoLLins. But you are in the process, if I understood right,
of new regulations being written to address that situation?

Dr. Smits. Yes.

Mr. Couns. OK, good.

The particular area where we have some legislation that we are
introducing pertains to emergency care, such as weekend care for
dialysis where a center would be required to have an affiliate
agreement with a hospital or someone else to take care of a patient
and to notify the patient that such agreement is in place.

Do you have any comment on such as that so that we can assure,
even in a place like the city of Atlanta, that a patient who depends
on a dialysis center would be covered on a weekend?

Dr. Smits. I would certainly expect that the physician who is
being paid a capitation rate for that patient should always either
be available or have an arrangement, have a call arrangement,
that it isn’t just having a hospital available. It is having someone
available who has access to your personal records and knows you.
T have not heard of that Previously as a problem. That is certainly
something we will be glad to look at.

Mr. CoLLins. Could I request that you have a member of your
staff contact my office where we can further discuss this particular
case and this particular center and try to come to some kind of res-
olution on it?

Dr. Sits. Yes, sir.

Mr. CoLuins. See if there have been any updates or changes
made that will help the people in this area?

Dr. Smits. Yes, we would be very happy to.

Mr. Couns. Thank you.

Thank you, Mr. Chairman.

Chairman THomas. You mentioned earlier the method of pay-
ment between dialysis, transplant, postoperative, and followup may
cause some problems for HMOs. You mentioned that we should ex-
amine the way we pay, but we really, I don’t think, discussed in
any meaningful way, the relative costs, for example, of a successful
kidney transplant. We hope all the transplants will be successful.

I have a friend who died of kidney failure who had several kid-
ney transplants. They were all temporarily successful, none of
them permanently successful, so I am acquainted with the prob-
lems when the transplants are not successful.

I am interested in the cost of the transplant, postoperative costs,
how long that might be, the long-term costs of maintaining some-
one who has had a successful kidney transplant versus a path of
dialysis and continued dialysis for that same period.

Dr. Smits. Successful transplantation is much more cost effec-

tive.
{The following was subsequently received:]


187

Surgeon Selection Surgical and surgically related costs are 5 to 20% of
patient costs. They are important to patient care because they are
important to the patient retaining good "access" between the dialysis
machine and the blood system. Surgical quality differs dramatically by
surgeon. Low quality surgeons are high cost surgeons because their
patient's accesses perform less well during dialysis and fail more quickly,
requiring additional procedures.

The private sector and managed care give nephrologists the data required
to compare surgeons, and the surgeons get an unambiguous message as to
the consequences of low quality.

Patient Education and Proactive Support. This can have an immense

impact, as has been dramatically demonstrated with pregnant women in
some Medicaid programs. Some patient populations require far more
education and support than others. These are often the same populations
who end up with the most complications and the highest annual expenses.

The private sector will negotiate customized rates for these patients,
supporting the larger investment requirement up front in exchange for the
tigorously monitored downstream returns. Again, this is not theoretical -
- we already see.capitated Ob/Gyn rates for Medicaid patients that are a
multiple of those for commercial patients. The provider demands the
higher rates because.there will be more work. The for-profit payer
agrees to the higher rates because it knows the downstream savings will
exceed the up-front investment. The patient and society benefit.

The list of examples could go on and on. What I would like to highlight is the:

Alignment of economic and clinical incentives (including multiple-year
agreements)

Common sense

Magnitude of the quality and cost improvements -- they are dramatic, not
incremental

Fact that a bureaucracy which is well-intentioned but structurally
incapable of the requisite creativity, nimbleness and discretion will fail to
achieve these improvements. They inevitably fall back on compliance to
either administrative procedures which do not powerfully correlate with
quality outcomes, or they boldly venture out with actual clinical
parameters which are so crude that thoughtful providers are appalled.
Finally, the bureaucracy never does what it takes to provoke exciting
improvements, namely take patients away from bad physicians by
providing referring physicians with compelling data or by eliminating
them from a provider panel.


17

A second part of the HCQIP concentrates on improving the management of
anemia for in-center hemodialysis patients by educating facilities about clinical data
analysis and by providing information on trends of national, regional and facility-
specific hematocrit levels and EPO usage.

We are very excited about our HCQIP and believe it has the potential to
continue to improve the care provided to ESRD beneficiaries. As in other parts of the
Medicare program, the HCQIP is a cooperative effort between renal providers and
HCFA. We appreciate the support that the renal community has provided in this
effort and look forward to their continued active participation.

ESRD AND MANAGED CARE

Attention has focused lately on the potential for managed care to provide
savings in the Medicare program. However, as we look to expand managed care
options for Medicare beneficiaries, we are clearly faced with challenges in figuring out
how to care effectively for Medicare beneficiaries in systems that were originally
designed to care for relatively healthy people.

In the current Medicare program, beneficiaries who already have ESRD may
not enroll in Medicare managed care plans. This legislative exclusion resulted from
apprehension about the ability of managed care plans to effectively treat ESRD
patients and from concerns about financing and liability. However, Medicare
beneficiaries who are already enrolled in managed care plans may not be
involuntarily removed from the plan if they develop ESRD. As a result, approximately
6,300 ESRD beneficiaries are currently enrolled in managed care plans.

Quality

Generally, managed care plans that have ESRD beneficiaries have found it
easier to contract out for dialysis and other services rather than incorporate these
services into their existing health systems. Consequently, the managed care industry
has only limited experience in caring for this special population. Moreover, although
managed care programs and their participating facilities must meet quality
certification requirements that are similar to those in the fee-for-service market, the
unique needs of ESAD beneficiaries raise concerns about access issues in a
restricted provider network.

in March 1995 the Inspector General of the Department of Health and Human
Services found that beneficiaries with disabilities or ESRD who disenrolled from
managed care reported more access problems in several crucial areas of their care
than did aged beneficiaries who disenrolled. This group also was the most likely to
believe that cost-containment was more important to the providers than providing the
best medical care possible and most likely to seek out-of-plan care while still enrolled
in the HMO. In addition, and perhaps more telling, 66 percent of beneficiaries who
are disabled or have ESRD and are enrolled in managed care report wanting to leave
their HMOs. We find these concerns distressing and plan further examination of the
situation.

Payment

We also need to address the adequacy of our payments to managed care
plans. In health care discussions, there is a tendency to equate high cost with
uninsurability. However, while dialysis costs are high, they are actually fairly
Predictable, The real issue here is the calculation of an actuarily fair ~ayment rate

The adjusted average per capita cost (AAPCC), which is used to determine the
payment amount to managed care plans that contract with Medicare, does not
currently account for the difference in expenses associated with the different
treatment options. Maintenance costs for dialysis patients are about $44,000 per
year, compared to $7,400 per year for beneficiaries with a functioning transplant.


61

Mr. RETTIG. Let me extend that if I may. There are very good
data systems. They can generate data on a facility-specific basis on
some outcomes and then those data can be compared to regional
and national data. They can be fed back to the facility and poten-
tially they can be made available to patients. I think they should
be made available to the patients, and that would be much more
powerful than any system of sanctions.

Dr. Powe. I agree that there have possibly been isolated prob-
lems with quality in different areas of the country. I think on a
broad scale, the care of ESRD patients is excellent. I think that we
need to understand more how to measure quality of care. It can be
measured in a variety of ways and we need to get better at doin,
that, and then setting some standards by which we all can worl
to achieve.

Mrs. JOHNSON. Thank you.

Chairman THomas. The gentleman from California.

Mr. StaRK. I am sure that Mr. Collins is going to be recognized
again, and he has a case of quality that doesn’t seem to have much
to do with medical training to me. It is just providing the service
and it could be in fashion to Members. I will let him go on about
it.

Dr. Blagg, in the very round figures when you talk about
capitating ESRD dialysis, for most people it is three times a week,
$47. The dialysis itself is about $20,000 give or take $1,000, re-
gardless of who the patient is, isn’t that——

Dr. Brace. I agree.

Mr. STARK. Capitating that we are not going to change a thing.
It is the other stuff, and here is where the cheese binds, that many
of these people on whom we are spending $20,000 a year for dialy-
sis which may vary in its quality, for hospital—we are spending an
equal amount for hospital admissions 15 days a year hither and
yon because they get an infection from a poorly run facility, be-
cause they are not checked at the facility to see whether or not
they need a better dietary control, so that the cost that we are try-
ing to control isn’t the dialysis center as much as problems that
might have been prevented if the dialysis center was more holistic
in its approach to caring for people. Am I on the right track?

Dr. BLAGG. I agree, except it involves the physician as well as
the dialysis center.

Mr. Stark. Dialysis, we are not going to save money one way or
the other. We could go about that by having tougher standards,
really enforcing inspection and getting rid of the bad operators——

Dr. BLacc. I am not sure that would make that much difference
to costs. In my testimony, I said that as far as dialysis is con-
cerned, it would be a mistake to try to cut costs there.

Mr. Stark. I am not saying cut the cost. I am saying we are
doing about everything we can do there——

Dr. BLAGG. Things are changing, going the right way there. What
may be the way we can save money is by better coordination of pa-
tient care and making patients have fewer hospitalizations per-

aps, by ——

Mr. STARK. You can’t make them do that, but there might be
some incentives, it seems to me, to get extra fees for peripheral
services—that is an accusation, so I font know that. But the big


184

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114

tion in the long term. I just wanted to hear your comments on that
and if any of your studies have reflected that.

Ms. WISH en EPO was first reimbursed, it was set up as a
flat fee, that all providers got the same amount of money regard-
less of the dosage. Medicare felt that was one way to control the
cost of EPO. HCFA’s studies have shown that patients were signifi-
cantly underdosed and we believe there was a profit motivation
there. There was a very good opportunity to make money on the
flat fee reimbursement at the time.

I believe that some of those studies were skewed a little bit
based on the fact that it was a new drug and Prgviders and practi-
tioners had very little experience with it, and there were a lot of
serious reservations about starting the drug at high levels.

So there were a lot of facilities that legitimately gave the pa-
tients low doses initially until they could get a handfe on what kind
of symptoms the patients had, whether they had seizures, whether
they had massive problems with hypertension, and so forth.

When the drug was first available at the $40 per dose level, a
lot of facilities did start off with lower doses and then increased the
dosage as they became more comfortable with the drug and found
out more about the side effects or lack thereof of the side effects.
At the same time that the dosages were starting to increase, Medi-
care changed the payment to $10 per 1,000 units administered.

From the time the payment mechanism was changed, EPO dos-
ages increased significantly because, at that point, people could ap-
propriately prescribe the amount of drug that the patient needed
to get them up to the appropriate hematocrit level.

0 a couple things happened at the same time. The payment
methodology changed about the same time that providers felt more
comfortable with giving the drug and found out about what kind
of side effects the patients did or did not have.

I think right now, the average hematocrit has increased. It isn’t
quite at the national level to the targeted range between 30 and
36 where we would like it, but it is going in the right direction. I
think that if the payment methodology was changed back to a flat
sum by bundling it into the dialysis payment, there would be a real
danger that patients would be underdosed, especially coupled with
the fact that we haven't had basically an increase in our dialysis
treatment rate in about 20 years. Because Medicare’s dialysis pay-
ments just keep going down in real dollars, facilities have got to
cut somewhere and they have got to find some way, and I think
that bundling EPO payments into the dailysis payment would pro-
vide people a very easy target to try to underdose EPO. Bundling
EPO paynients into the dialysis payment would not be good for pa-

ents.

Mr. CHRISTENSEN. Do you have any kind of estimate on how
much of the total cost is being reimbursed to the manufacturers in
this area.

Ms. WIsH. How much is being reimbursed to manufacturers?

Mr. CHRISTENSEN. Of the total cost on EPO, how much is actu-
ally going back, is being reimbursed. Is there any specific figure,
do you know? I mean, I think it is very important that we keep in
mind the total cost of the drug, and I am wondering if the actual
total cost is being reimbursed.


116

which is why we feel that anywhere between 24 and 30 months
would be OK. Anything beyond that, we are just too concerned
about the ramifications.

Ms. Sims. I would also like to go back and comment on some-
thing Mr. Stark said, I didn’t get a chance, and although Ms. Wish
could probably more helpfully address this, I am aware of private
payers who have negotiated Medicare rates so that it is not our un-
derstanding at this point that if you have patients with extended
private pay, that the facility is getting any more money because
they are private pay. We have heard of specific examples where the
private insurer has negotiated a same rate.

Ms. Wisu. I agree that that is true, that the private payers are
getting much more sophisticated. In the past they really didn’t

now. They probably had a very small percentage of their patients
that were on dialysis and the bills just went through, and they
really were not aware of what they were paying.

The managed care providers, in particular, are getting much
more sophisticated about this and some of them are either nego-
tiating Medicare rates or below Medicare rates. This is very scary
to us because it is very difficult right now, dealing with a low Medi-
care reimbursement rate, and with the great move toward man-
aged care, we are really concerned that we will be in a situation
where we would be forced to take dialysis payment rates that are
even significantly lower than the Medicare rates.

Chairman THOMAS. Which puts more weight on our rate setting
because we clearly have a direct impact on the private sector.

Dr. Lundin, do you mind if I ask you some personal questions?

Dr. LUNDIN. Not at all.

Chairman THOMAS. You indicated that you began dialysis in the
midsixties.

Dr. Lunpw. That is correct.

Chairman THOMAS. My understanding is that you had a kidney
transplant?

Dr. LuNDIN. No. I began on hemodialysis. I spent 2542 years on
hemodialysis.

Chairman THomas. So you have not had a kidney —

Dr. Lunnin. I had a iadney transplant 3 years ago.

Chairman THOMAS. Three years ago, and obviously, it was suc-
cessful?

Dr. LUNDIN. Yes.

Chairman THomas. Are you on dialysis now?

Dr. LUNDIN. No. The kidney is working, after 6 weeks of not
working, so——

Chairman THomaSs. What led to the decision and the timing?

Dr. LUNDIN [continuing]. You might ask the question why I
didn’t have a transplant before.

Chairman Tuomas. That was what I was asking.

Dr. LUNDIN. My experience in seeing friends who went off to get
a transplant with the promise that if it didn’t work, they would be
back on dialysis, most of them never made it back on dialysis when
it didn’t work. So there was—for many years, transplant was sort
of a Russian roulette in effect. With the advent of cyclosporine, it
has improved substantially. After 25% years of dialysis, one gets


4

Chairman THOMAS. The Subcommittee will come to order.

Welcome to the Health Subcommittee hearing on the Medicare
ESRD, End-Stage Renal Disease, Program. ESRD is unique within
Medicare. It is the only disease which triggers Medicare coverage
at any age. There is no disputing this program’s dramatic and posi-
tive results in the lives of ESRD patients.

Medicare coverage of dialysis and other treatments has spared
hundreds of thousands of Americans from premature death. We
must not lose sight of that profound accomplishment.

Because the ESRD Program is unique within Medicare, I think
we have a tendency to overlook it, but we shouldn’t because it is
a very significant and important program. In 1995 Medicare is ex-
pected to spend nearly $8 billion, or over 4 percent of all total
spending on over 200,000 ESRD patients. That is about $40,000
per beneficiary.

Today’s hearing is intended to meet several objectives. First, the
Subcommittee needs an overview of the program and how well it
is meeting its objectives. What are the treatments for ESRD pa-
tients and how has treatment changed over time, if in fact it has?
What are the trends in terms of costs and numbers of beneficiaries?
What is the quality of care provided to patients? What are the cur-
rent payment policies for dialysis and other treatments, and are
there alternatives that should be explored?

Second, this Subcommittee is going to examine opening up the
Medicare Program to more coverage choices for the beneficiaries,
much like employers in the private sector have done to enhance
competition, improve quality, and reduce costs. We need to explore
how the ESRD Program may or may not fit into such an approach.

I look forward to hearing from our witnesses, but prior to that,
I would recognize my colleague from California, Mr. Stark.

{The prepared statement follows:]


93

RECOMMENDATIONS

CONCLUSION
We strongly recommend that the Medicare ESRD program be maintained in is current form for now Wy would urge
‘that you not consider restructuring this program by either privatizing it or mandating managed care ior the FSRD

population until validated information is available from the ESRD capitation demonstration project
‘We eamesily recommend that you establish in law an annual inflation update factor as exists for all wher Medicare
providers

For fiscal year 1996, we urge @ 3.7% inflation update. based on ProPAC'S ans
1996 and which is now needed to pay for a higher standard of dialysis care
The ESRD Secondary Payer prosision should be expanded to 24 or 30 months as it will save Medicats
negatively impact ESRD patients, and help fund the 3.7% increase

EPO should not be bundled into the dialysis payment as i will create incentives to under dose patients which sl) result
in higher rather than lower costs to Medicare as these patients could require more medical care and in partiulir more
hospitalizations.

‘We suppor the continuation of the prohibition on new ESRD enrollees in Medicare Risk HMOs unless thes i sleady
enrolled when their kidneys fa

‘The physician self referal ban on physician owned dialysis facilities from administering. prescriptions Ws: their
facilities and the prohibition on contracting with hospitals for inpatient acute care should be eliminated, thes create
unnecessary barriers to needed medical care

sis of projected increased vost for 1995.

‘Again, I would like to thank Chairman Thomas for allowing the NRAA to express is views on a wide range of ESKID is-1s hetore

the subcommittee, The task before you ts enormous and the aced 19 control costs is great We hope that you will remember this "=< 1 SRD
program isa true model of cost effective care. Please do not hesitate to call on us for information and data concerning renal cate ilssis
facilities as you formulate your recommendations. for fiscal year 1996.



38

Chairman THomas. Now I think it is appropriate to turn it over
to the gentlewoman from Connecticut whose women yesterday were
not very gentle but very, very good.

Mrs. JOHNSON. Top notch. Just to welcome you, Dr. Smits, and
say that I regret that I wasn’t able to hear all your testimony, but
I do appreciate the good work you have done for us in Connecticut,
and I particularly appreciate your opening your testimony by rec-
ognizing the accomplishments of our women’s basketball team in
their come-from-behind victory. It is really important for women’s
success to be recognized, and particularly when they demonstrate
the discipline, courage, and concentration that coming from behind
takes. Nice to have you.

(Discussion off the record.]

Chairman THOMAS. The next panel is Dr. Rettig, Dr. Powe, and
Dr. Blagg, please. Thank you, doctors.

Any written testimony that you have will be made a part of the
record and you can inform us, educate in any way you see fit, in
the 5 minutes you have. We will start with Dr. Rettig and then
move across the panel.

STATEMENT OF RICHARD A. RETTIG, PH.D., SENIOR SOCIAL
SCIENTIST, RAND CORP.

Mr. Retric. Thank you, Mr. Chairman. My name is Richard
Rettig. I am a senior social scientist at the RAND Corp. where I
have been since February of this year. Previously, 1 worked there
from 1975 to 1981. I was not part of the ZAND group that did the
recent capitation study. From 1987 until early this year, I was at
IOM, the Institute of Medicine of the National Academy of
Sciences. In that capacity, I was study director for the study of the
institute called forth in OBRA, the Omnibus Budget Reconciliation
Act of 1987.

My remarks today do not necessarily represent the views of ei-
ther the Institute of Medicine or the RAND Corp.

I have submitted a longer statement for the record, as well as a
number of background materials, and two papers that deal with
the legislative history of this program and how it came to pass in
1972, which may interest the Members.

OBRA 1987 asked the IOM to study the program. I served as di-
rector of that study. My remarks pertain mainly to that 1991 re-
port, a copy of which you have, including a summary which is
available for all Members, and to an initiative that the IOM took
in 1993 and 1994 as a followup.

I should echo the comments of several Members that the pro-
gram has been very successful in saving lives that would have
ended abruptly or prematurely. It has also been successful in hold-
ing down the per treatment cost of dialysis. The aggregate cost is
high because treatment is expensive and the patients are growing
rapidly in number.

I have five points to make today, Mr. Chairman, and Members.
First is epidemiology. You saw Dr. ‘Smits’s charts. The program has
been growing very rapidly in the elderly patient population. Those
65 to 74 and 75 years of age and above constitute 44 percent of all
new enrollees in 1992. Diabetes and hypertension provide a major
source of new patients, and it may be that as we treat these dis-


162

TESTIMONY OF LISA R. KORY, BSN, RN, CPTC
TRANSPLANT RECIPIENTS INTERNATIONAL ORGANIZATION, INC.

Transplant Recipients International Organization, Inc. (TRIO) welcomes the opportunity to
comment on the Medicare End Stage Renal Disease Program.

TRIO is a member supported organization with 3,000 Members world-wide (32 national and 2
international Chapters). TRIO was founded in 1983 to support patients waiting for organ
transplants, individuals who have been transplanted, their family members, and the families of
organ donors. Our mission is to provide accurate and timely information on all aspects of the
transplant process, including:

‘© to be there on a one-to-one basis for these individuals throughout the time of hospitalization
before and after transplant;

© to provide a community of interested individuals who understand what the candidates and
recipients and their family members, and donor family members have gone through;

© to serve as a national voice on transplant issues; and
* to increase donor awareness.

Who better to comment on the ESRD Program than those who have experienced renal failure, life
while on dialysis and the life-saving benefits of kidney transplantation.

The following comments outline TRIO’s position regarding the privatization of the ESRD
Program, proposed increases in the primary payer status, the need for increased organ donation
and the life-enhancing benefits of organ transplantation

rival the ESRD Program

TRIO understands the importance of deficit reduction and fiscal responsibility but primarily, we
are concerned for the welfare of ESRD patients. Despite recent testimony regarding the cost-
effectiveness of managed care, it is unclear whether or not the ESRD Program could be replicated
by managed care facilities and still provide quality care with unlimited access and without regard
to economic status or race.

While dialysis is a costly therapy, itis important to point out that dialysis costs have remained
stable over time. In his 1992 study, “Comparison of Treatment Costs Between Dialysis and
Transplantation,” Paul Eggars, of HCFA, indicates that payment per dialysis in 1989 was around
$125, representing a 61% reduction in inflation adjusted dollars from the payment level in 1974
($138)'. In their study “Cost-effective care and endstage renal diseases: A billion dollar
question,” Roberts et.al, discovered that home dialysis, as an alternative to in-center dialysis
treatment, produced a savings of $7,000 to $8,000 per life-year"


129

Testimony of
Kent Thiry
President and CEO, VIVRA

before the
House Ways and Means Committee
Subcommittee on Health

Hearing on
Medicare End Stage Renal Disease Program

April 3, 1995

T would like to start my testimony today by thanking Chairman Bill Thomas for
inviting me to testify on managed care for Medicare patients with End Stage
Renal Disease (ESRD). I am Kent Thiry, President and CEO of Vivra, a New
York Stock exchange listed company, headquartered in Burlingame, California.
We operate over 150 kidney dialysis centers in 24 states, including California,
Texas, Pennsylvania, Georgia, Louisiana, Virginia, Florida, Michigan and
Illinois through a subsidiary company, Community Dialysis Centers. Vivra
provides dialysis care to over 9,000 patients (one out of 20 in the country),
making us the second largest provider of dialysis care in the country.

Summary

For patients with chronic disease states, the Medicare fee-for-service system is
a clinical and economic tragedy. The system provides huge incentives for
providing too many services at too late a point in patient care while
simultaneously putting immense structural obstacles in front of anyone who
would like to invest in preventative care.

The ESRD program in Medicare is no exception. In fact, it is probably the
most extreme example of the immense human and economic waste caused by
Medicare fee-for-service because it is likely no other patient population has as
much of its reimbursement coming from Medicare fee-for-service.

Tam here today to make one simple plea -- put more of these patients into the
private sector so that:

1. More of them will enjoy the dramatically improved quality of care they
would receive in a managed care setting.

2. The government will save $1 - 2 billion over 5 years

3. The country’s overall health care costs will be lower within 3-4 years.

4. The government will be spared another blow to its operating credibility
with the public, because otherwise it will be embarrassed by study after

study showing the patients it "manages" die faster, are less likely to be
employed, and cost more.


100

TESTIMONY OF A. BRUCE BOWDEN, ESQ.
NATIONAL KIDNEY FOUNDATION

Mr. Chairman, Members of the subcommittee, | am A. Bruce Bowden, a practicing
attorney from Pittsburgh, Pennsylvania and current Chairman of the National Kidney Foundation
(NKF). The NKF is the oldest and largest voluntary health organization representing the
concerns of kidney patients and the health care professionals who serve their needs. The
Foundation is pleased to have the opportunity to appear before the Committee this morning to
discuss the Medicare End Stage Renal Disease (ESRD) Program.

We welcome Congressional oversight on the status of this program. However, we would
like to emphasize that the Foundation in its own right has played the role of watch dog
continuously since the program's inception in 1973. Our efforts have been focused most
recently around a project which we call "Controversies in the Quality of Dialysis Care." That
initiative underscored the concern that some aspects of the ESRD program, including its
payment system, can be improved. We would like to state at the outset, however, that we do
not claim to be experts in reimbursement methodology or on managed care. We would suggest
specifically with regard to the role managed care could play in the delivery of ESRD services,
that the issue needs careful study and perhaps it would be prudent for the Congress to.
commission the Institute of Medicine (iOM) or other group to evaluate the implications of such
an alternative payment system for this unique patient population.

As patient advocates we would like to make several observations that deserve particular
attention as the Committee continues its oversight. We do so in the interest of improving access
to and quality of care for Americans who have End Stage Renal Disease.

(1) The Medicare ESRD entitlement has been an overwhelmingly successful program,
making life sustaining renal replacement therapy available to hundreds of thousands of people,
irrespective of their economic status, their age, gender, race, religion or country of origin

(2) At the same time we must take into account the changing nature of the patient
population being served, which reflects an aging America, improved success in treating ESRD
patients with serious comorbidities and an increasing incidence and prevatence of kidney failure
among minority groups, which far exceeds their representation in the overall population

(3) In order to make sure that the program continues to meet its objectives in a cost-
effective manner, Congress, the Health Care Financing Administration (HCFA) and the renal
community must address the following issues providing adequate reimbursement for dialysis
treatment; establishing a quality assessment methodology and quality assurance system that
serves patient and clinical goals; authorizing sensible policies to support transplantation, the
most cost-effective ESRD treatment modality; and helping patients, their families, clinicians, and
the public come to grips with appropriate criteria for providing long term chronic care to patients
of advanced age with multiple comorbid conditions.

HISTORY OF THE ESRD PROGRAM’

| want to provide the subcommittee with a brief analysis of the history and results of the
Medicare End Stage Renal Disease Program and its relationship and importance to the current
discussions about health care and Medicare reform. The program is truly impressive: as
Chairman Thomas stated in announcing this hearing, it has saved thousands of lives since it
was founded twenty-two years ago. Moreover, it has accomplished this remarkable success
while its per-patient costs remained under tight control. Those facts are a source of great pride
for the program and provide valuable lessons that may have future usefulness

The experience with the ESRD Program, however, also teaches that any health delivery
system must be more than simply a payment mechanism, We've learned that when the federal
government is virtually the only payer for a medical service, cost control can become a dominant
consideration in delivering the service, Cost control in isolation can lead to many problems, For
instance, it could be argued that reduced dialysis reimbursement may have contributed to the
high dialysis mortality rate in the United States, which is the highest of any industrialized nation

We have learned that quality assurance measures and systems must be included in
any payment program from its inception. Any truly successful health care system must be

‘See Appendix.


41

TESTIMONY OF RICHARD A. RETTIG, PH.D.
RAND CORPORATION

Mr. Chairman, Members of the Committee. My name is Richard Rettig. 1am a
Senior Social Scientist at the RAND Corporation, where I have been since mid-February
of this year; I previously worked at RAND from 1975-81. From 1987 until early this
year I was a Senior Staff Officer at the Institute of Medicine of the National Academy of
Sciences. In both organizations I have done work related to the Medicare End-Stage
Renal Disease program. Most recently, at the Institute of Medicine, I was the responsible
staff officer for a major study, a conference, and a workshop related to the ESRD
program

Iam pleased to testify today before this committee, which has been involved in
all legislative aspects of this program.

Some time ago, I wrote a legislative history of how Section 299] (the kidney
disease entitlement amendment to the Social Security Amendments of 1972) was
adopted. That amendment authorized treatment for permanent kidney failure, by both
dialysis and kidney transplantation, as a near-universal entitlement covering an estimated
92-93 percent of the United States population. More recently, I wrote a related paper,
with the help of the Congressional staff who were involved in the 1972 legistation. Both
papers have been supplied to the committee staff and Members may find them useful
analyses of the political background to this program.

I should say at the outset that the Medicare ESRD program has been very
successful, especially for those individuals for whom it was originally intended.
‘Thousands and thousands of individuals whose lives would otherwise have ended
prematurely and abruptly due to kidney failure have had those lives extended and have
pursued productive activities of benefit to themselves, their families, and the society.
‘The program has also been very successful in holding down the per treatment costs of
dialysis. However, the aggregate cost of the program, estimated to be $8 billion in this
year, is a function of the patient population, which continues to grow, and the per patient
per year treatment cost. which is very high

The Omnibus Budget Reconciliation Act of 1987 called for an Institute of
Medicine (OM) study of certain aspects of the ESRD program, That study, conducted
by an expert committee for which I served as study director, was published in 1991 by
the National Academy Press as Kidney Failure and the Federal Government. A single
copy of that very thick report has been provided to the Committee. In addition, twenty-
five copies of the report summary have also been provided, as have multiple copies of a
1991 paper in the New icine by Dr. Norman G. Levinsky, the
10M committee chairman, and myself, that also summarizes the study.

My remarks today pertain mainly to the 1991 JOM report and to a follow-up
initiative that the Institute took in 1993 and 1994. In addition, I will share with you some
of my personal views about the program for your consideration. 1 should emphasize that
my remarks do not necessarily represent the views of either the Institute of Medicine or
the RAND Corporation.