Page 1 GAO-13-190R Trends in ESRD Drug Utilization

United States Government Accountability Office

Washington, DC 20548

December 7, 2012 

Congressional Committees 

Subject: End-Stage Renal Disease: Reduction in Drug Utilization Suggests Bundled 

Payment Is Too High

Most individuals with end-stage renal disease (ESRD)—a condition of permanent 

kidney failure—are eligible for Medicare regardless of their age.1

 The most common 

treatment for individuals with ESRD is dialysis, which removes excess fluids and 

toxins from the bloodstream. In 2011, Medicare spent about $10.1 billion on dialysis 

care (including beneficiary cost sharing) for about 365,000 beneficiaries.2

The Centers for Medicare & Medicaid Services (CMS), the agency within the 

Department of Health and Human Services (HHS) that administers the Medicare 

program, recently changed the way Medicare pays for dialysis care, as required by 

the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA).3 Prior 

to 2011, Medicare paid dialysis facilities a single rate for providing a dialysis 

treatment and certain related items and services, which is a common form of 

Medicare payment known as bundling. Medicare paid separately for certain other 

dialysis-related items and services that were not covered under the bundled 

payment, such as injectable drugs used to treat complications associated with 

ESRD. Effective January 1, 2011, the bundled payment for dialysis care was 

expanded to include payment for items and services such as injectable ESRD drugs 

and their oral equivalents for which Medicare previously had paid separately.4

 

1Medicare coverage generally begins in the fourth month after patients start dialysis. For individuals 

who have employer group coverage, Medicare is the secondary payer for the first 30 months of 

Medicare entitlement, after which Medicare becomes the primary payer. 42 U.S.C. § 1395y(b)(1)(C). 

Most individuals diagnosed with ESRD are eligible to receive Medicare benefits under Medicare Part 

A, Part B, and Part D. 42 U.S.C. §§ 426-1, 1395w-101(a)(3)(A). Medicare Part A covers inpatient 

hospital, skilled nursing facility, and hospice care, as well as some home health care, and generally 

does not require a monthly premium. Medicare Part B covers outpatient dialysis treatment, injectable 

ESRD drugs, certain oral ESRD drugs, physician services, hospital outpatient services, and certain 

other services, such as physical therapy. Beneficiaries enrolled in Part B are required to pay a 

monthly premium. To receive most Part B-covered services, beneficiaries are required to meet an 

annual deductible and typically pay 20 percent coinsurance. Medicare Part D covers outpatient 

prescription drugs and generally requires payment of a monthly premium, meeting an annual 

deductible, and paying part of the cost associated with each prescription. 

2Medicare expenditure amounts throughout this report include beneficiary cost sharing. 

3Pub. L. No. 110-275, 122 Stat. 2494. 

4See 75 Fed. Reg. 49030, 49197 (Aug. 12, 2010) (to be codified at 42 C.F.R. §§ 413.171 et seq.). 

Effective January 1, 2014, the bundled payment will be expanded again to include payment for 

certain oral, dialysis-related drugs that do not have injectable equivalents. These drugs currently are 

covered under Medicare Part D. 

GAO report on End-Stage Renal Disease: Reduction in Drug Utilization Suggests Bundled Payment Is Too High (GAO-13-190R, 291035) was revised on December 10, 2012, to add the back page containing GAO contact information.
Page 2 GAO-13-190R Trends in ESRD Drug Utilization

Pursuant to MIPPA, CMS based the new bundled payment rate on the utilization of 

dialysis and related items and services, such as ESRD drugs, in 2007.5

 Although 

MIPPA did not explicitly authorize CMS to further recalculate this rate—referred to 

as rebasing the payment rate—to account for changes over time in the utilization of 

dialysis and related items and services, such as ESRD drugs, beginning in 2012 

CMS is required to annually increase the bundled payment amount to account for 

changes in the prices of bundled items and services and for changes in productivity.6

Accordingly, CMS increased the 2011 bundled rate by 2.1 percent for 2012 and will 

increase the rate by 2.3 percent for 2013.7

Implementation of the new bundled payment system was consistent with our 2006 

recommendation that the bundled payment be expanded to include payment for all 

ESRD services to improve efficiency and remove financial incentives to provide 

more injectable drugs than necessary.8 We and others have emphasized that, when 

CMS makes such payment changes, it is important for the bundled payment rate to 

accurately reflect the expected costs of beneficiaries’ care to help ensure that any 

improvements in efficiency are not realized at the expense of beneficiaries’ access 

to and quality of care.9

MIPPA required us to report on, among other things, trends in the utilization of 

ESRD drugs.10 As discussed with the committees of jurisdiction, this report examines 

trends in the utilization of ESRD drugs from 2007 through 2011 and the implications 

of these trends for the accuracy of the bundled payment rate. To determine trends in 

ESRD drug utilization, we analyzed claims for Medicare Part B payments to dialysis 

facilities for those years and 2012. We focused our analysis on three types of 

 

5MIPPA required CMS to calculate the bundled payment rate to reflect the utilization level per patient 

of dialysis and related items and services in 2007, 2008, or 2009, whichever year had the lowest 

utilization per beneficiary. See Pub. L. No. 110-275, § 153(b), 122 Stat. 2553 (relevant provision 

codified at 42 U.S.C. § 1395rr(b)(14)(A)(ii)). CMS determined that utilization per patient was lowest in 

2007. 

6CMS is required to provide for annual increases in the bundled payment on the basis of the changes 

in price relative to the previous year for a market basket of an appropriate mix of dialysis-related 

items and services, with each such increase subject to reductions to account for productivity 

improvements. Reducing the annual increase to account for productivity improvements could cause 

payment rates for a year to be less than such payment rates for the preceding year. Pub. L. No. 110-

275, § 153(b), 122 Stat. 2553 (as amended by Pub. L. No. 111-148, § 3401(h), 124 Stat. 119, 485 

(2010)) (relevant provision codified at 42 U.S.C. § 1395rr(b)(14)(F)(i)). 

7For 2012 payments: See preamble I.B.2.b., 76 Fed. Reg. 70,228, 70,232 (Nov. 10, 2011); for 2013 

payments: see preamble II.C.3.d., 77 Fed. Reg. 67,450, 67,457 (Nov. 9, 2012). 

8See GAO, End-Stage Renal Disease: Bundling Medicare’s Payment for Drugs with Payment for All 

ESRD Services Would Promote Efficiency and Clinical Flexibility, GAO-07-77 (Washington, D.C.: 

Nov. 13, 2006). 

9See, for example, GAO, End-Stage Renal Disease: CMS Should Assess Adequacy of Payment 

When Certain Oral Drugs Are Included and Ensure Availability of Quality Monitoring Data, 

GAO-11-365 (Washington, D.C.: Mar. 23, 2011) and End-Stage Renal Disease: CMS Should Monitor 

Access to and Quality of Dialysis Care Promptly after Implementation of New Bundled Payment 

System, GAO-10-295 (Washington, D.C.: Mar. 31, 2010); and Joseph P. Newhouse, Melinda 

Beeuwkes Buntin, and John D. Chapman, ―Risk Adjustment and Medicare: Taking a Closer Look,‖ 

Health Affairs, vol. 16, no. 5 (1997). 

10Pub. L. No. 110-275, § 153(d), 122 Stat. 2559. MIPPA also required us to report on the payment 

adjustment that Medicare provides to facilities that provide a low volume of dialysis treatments. We 

will provide this information in a future report. 
Page 3 GAO-13-190R Trends in ESRD Drug Utilization

drugs—erythropoiesis stimulating agents (ESA), intravenous (IV) iron, and 

IV vitamin D—that were incorporated into the bundled payment in 2011. ESAs, 

which consist primarily of epoetin alfa (brand name Epogen®), accounted for about 

73 percent (approximately $2.2 billion) of Medicare expenditures on ESRD drugs in 

2010, and the three types of drugs combined accounted for about 96 percent of 

ESRD drug expenditures in that year.11 To measure utilization across multiple drugs 

that may differ in their dosage, we expressed utilization in dollars by multiplying the 

number of units of a drug administered by the price that Medicare paid for these 

drugs in the first quarter of 2011.12 To measure changes in utilization, we calculated 

the percentage difference between utilization in a given quarter and its average level 

in 2007 and presented these results by drug type and for the three types of drugs 

combined. We also determined the extent to which utilization trends were driven by 

changes in the percentage of beneficiaries who received a given drug compared 

with changes in utilization per beneficiary who received it. To estimate how Medicare 

expenditures on dialysis in 2011 would have differed if the bundled rate was rebased 

to reflect the average 2011 drug utilization level, we first multiplied total Medicare 

expenditures for dialysis services in 2011 by the percentage of the bundled rate 

attributable to ESRD drugs.13 We multiplied the resulting amount by the percentage 

change between 2007 and 2011 in the average ESRD drug utilization level. We did 

not evaluate the impact on Medicare expenditures of changes in the utilization of 

bundled items and services other than the types of ESRD drugs in our analysis. We 

also did not address how the expansion of the bundled payment beginning in 2014 

to include certain ESRD drugs that do not have injectable equivalents could affect 

 

11There are three types of ESAs—epoetin alfa, darbepoetin alfa (brand name Aranesp®), and 

peginesatide (brand name Omontys®). In 2010, Epogen accounted for 93 percent of Medicare 

expenditures on ESAs, and Aranesp accounted for the remaining 7 percent. Epogen and Aranesp are 

produced by a single manufacturer—Amgen Inc.—and the patents for these drugs are set to expire 

by May 2015 and May 2024, respectively. Omontys was approved in 2012 by FDA to treat anemia for 

dialysis patients with chronic kidney disease. 

12If Medicare’s price—referred to as the Average Sales Price (ASP)—for the first quarter of 2011 was 

unavailable, we used the most recent available ASP in our calculations. CMS has noted that there are 

some situations in which a manufacturer intentionally includes an amount of a drug in addition to the 

amount indicated on the drug label—called drug overfill. This overfill amount is supplied at no extra 

charge to the provider and is intended to compensate for product loss during the proper preparation 

and administration of a drug. CMS indicated that it is inappropriate for providers to bill Medicare for 

overfill amounts and that such billing does not occur routinely. However, to the extent that Medicare 

paid for overfill amounts, we included such amounts when calculating utilization. 

13Dialysis facilities had the option to be excluded from a 4-year phase-in of the new bundled payment 

system, and about 87 percent of facilities elected to do so, thereby receiving all of their payments 

under the new system beginning in 2011. For the remaining 13 percent of facilities, a quarter of their 

payment rate in 2011 was based on the new bundled payment system while the remainder of their 

payment rate was based on the payment system that existed previously. As a result, in our 

calculation of total expenditures for this estimate, we included one quarter of expenditures associated 

with these facilities. The percentage (30.55 percent) of the bundled payment associated with the 

three types of drugs in our analysis is based on the Medicare expenditure amounts per treatment for 

individual items and services in the bundle that CMS presented in its final rule for the new bundled 

payment system. See 75 Fed. Reg. 49,075 (Aug. 12, 2010). 
Page 4 GAO-13-190R Trends in ESRD Drug Utilization

the accuracy of the bundled payment.14 We assessed the reliability of the Medicare 

claims data we analyzed by interviewing CMS officials knowledgeable about these 

data, reviewing relevant documentation, comparing our results to published sources, 

and examining the data for obvious errors. We determined that the data were 

sufficiently reliable for the purposes of our study. To help interpret trends in ESRD 

drug utilization and gain insight into the associated effect on beneficiaries, we 

interviewed ESRD clinical experts from the American Society of Nephrology, Renal 

Physicians Association, and National Kidney Foundation, and reviewed studies on 

recent trends. 

We conducted this performance audit from May 2012 through December 2012 in 

accordance with generally accepted government auditing standards. Those 

standards require that we plan and perform the audit to obtain sufficient, appropriate 

evidence to provide a reasonable basis for our findings and conclusions based on 

our audit objectives. We believe that the evidence obtained provides a reasonable 

basis for our findings and conclusions based on our audit objectives. 

Results in Brief 

Utilization of ESRD drugs in 2011 was about 23 percent lower, on average, than it 

was in 2007, driven largely by a decline in the utilization of ESAs. As a result, 

Medicare may have paid more than necessary for dialysis care in 2011 because the 

bundled payment rate in that year was based on 2007 utilization levels. We 

estimated that Medicare expenditures on dialysis would have been about 

$650 million to $880 million lower in 2011 if the bundled payment rate were rebased 

to reflect the 2011 utilization level of ESRD drugs. Furthermore, this estimate of 

potential savings could be larger in future years if the level of ESRD drug utilization 

at the end of 2011 declines further, as preliminary data suggest. Rebasing the 

bundled payment rate to account for changes in ESRD drug utilization could help 

ensure that Medicare pays appropriately for dialysis services and also yield savings 

to Medicare. However, CMS officials indicated that they did not have immediate 

plans to rebase the rate and that the statute does not provide CMS with explicit 

authority to do so. Therefore, Congress should consider requiring the Secretary of

HHS to rebase the ESRD bundled payment rate as soon as possible and on a 

periodic basis thereafter, using the most current available data. 

Background 

Treatment options for ESRD include kidney transplantation and dialysis.15 Kidney 

transplants on a wide scale are not a practical option, as suitable donated organs 

are scarce. In contrast, dialysis is the treatment used by most beneficiaries with 

ESRD. Hemodialysis, during which a machine pumps blood through an artificial 

 

14We previously recommended that CMS assess the adequacy of the bundled payment when the 

agency expands the payment to incorporate payments for oral ESRD drugs without injectable 

equivalents effective January 1, 2014, and CMS agreed with this recommendation. See GAO-11-365. 

CMS officials stated that they had not determined the methodology they will use to incorporate 

payments for these drugs into the bundled payment. 

15ESRD is the last of five stages of chronic kidney disease. Chronic kidney disease is typically 

observed as a gradual decline in kidney function. 
Page 5 GAO-13-190R Trends in ESRD Drug Utilization

kidney and returns the cleansed blood to the body, is the most common form of 

dialysis. It is generally administered three times a week at facilities that provide 

these services.16

Complications associated with ESRD include anemia and mineral and bone 

disorder. Anemia is a condition in which an insufficient number of red blood cells is 

available to carry oxygen throughout the body. A diagnosis of anemia is determined 

by measuring the hemoglobin level in the blood—expressed in grams per deciliter 

(g/dL) of blood.17 To treat anemia, providers may administer ESAs in conjunction 

with IV iron.18 ESAs typically are administered intravenously but also may be 

administered subcutaneously, that is, through an injection under the skin.19 Prior to 

June 24, 2011, the Food and Drug Administration (FDA) had recommended that 

ESAs be dosed to achieve and maintain hemoglobin levels within a target range of 

10 to 12 g/dL. However, as of June 24, 2011, the FDA no longer recommends a 

target range for hemoglobin when dosing ESAs because clinical evidence indicates 

that hemoglobin targets above 11 are associated with increased risk of outcomes 

such as heart attack and stroke.20 Instead, the FDA now recommends that providers 

use the lowest dose of ESAs sufficient to reduce the need for red blood cell 

transfusions, which can limit beneficiaries’ access to and success of kidney 

transplants and have other adverse effects. Mineral and bone disorder is a 

complication of ESRD that can result in a variety of clinical conditions in dialysis 

patients, including bone fractures and cardiovascular disease. Treatment of mineral 

and bone disorder includes the administration of drugs such as IV vitamin D.21

CMS promotes and monitors the quality of anemia management and other aspects 

of dialysis care through initiatives such as the Quality Incentive Program (QIP). CMS 

implemented the QIP beginning on January 1, 2012, as required by MIPPA.22 In 

2012, Medicare reduced dialysis facilities’ payments by up to 2 percent on the basis 

of the facilities’ performance in 2010. CMS measured facility performance by the 

 

16About 91 percent of dialysis patients in 2010 received hemodialysis in facilities that offer this 

service. Patients also can receive hemodialysis in their home, but only about 1 percent of all dialysis 

patients did so in 2010. Peritoneal dialysis is the other treatment method and generally occurs in the 

home. This type of dialysis utilizes the peritoneal membrane, which surrounds the patient’s abdomen, 

as a natural blood filter. About 7 percent of dialysis patients in 2010 received peritoneal dialysis. 

17Hemoglobin is a protein in red blood cells that carries oxygen. 

18Iron is most commonly administered intravenously, but it also can be given orally. 

19The subcutaneous method requires less epoetin than intravenous administration. See James S. 

Kaufman et al., ―Subcutaneous Compared with Intravenous Epoetin in Patients Receiving 

Hemodialysis,‖ The New England Journal of Medicine, vol. 339, no. 9 (1998). 

20See Marc A. Pfeffer et al., ―A Trial of Darbepoetin Alfa in Type 2 Diabetes and Chronic Kidney 

Disease,‖ The New England Journal of Medicine, vol. 361 no. 21 (2009); Ajay K. Singh et al., 

―Correction of Anemia with Epoetin Alfa in Chronic Kidney Disease,‖ The New England Journal of 

Medicine, vol. 355 no. 20 (2006); and Anatole Besarab et al., ―The Effects of Normal as Compared 

with Low Hematocrit Values in Patients with Cardiac Disease Who Are Receiving Hemodialysis and 

Epoetin,‖ The New England Journal of Medicine, vol. 339 no. 9 (1998). 

21For this report, vitamin D refers to the active form of this vitamin, which generally is not available 

without a prescription. Vitamin D generally is administered intravenously, although a small number of 

patients—usually those who receive dialysis in their home—are treated with the oral form of the drug. 

The inactive form of vitamin D is available over the counter in the form of a dietary supplement. 

22See Pub. L. No. 110-275, § 153(c), 122 Stat. 2556 (codified at 42 U.S.C. § 1395rr(h)). 
Page 6 GAO-13-190R Trends in ESRD Drug Utilization

percentages of beneficiaries who (1) had a hemoglobin level less than 10 g/dL; 

(2) had a hemoglobin level greater than 12 g/dL; and (3) received adequate 

dialysis.23 For the QIP in 2013, CMS, consistent with the FDA’s June 2011 

recommendation, removed the measure indicating the percentage of beneficiaries 

who had a hemoglobin level less than 10 g/dL, and retained the remaining two 

measures. The Medicare Payment Advisory Commission (MedPAC) has expressed 

concern that, with the removal from the QIP of the measure indicating low 

hemoglobin levels, neither the 2013 QIP nor the new bundled payment system 

would hold dialysis facilities accountable for adverse outcomes, such as blood 

transfusions, associated with low hemoglobin levels.24 CMS also promotes and 

monitors quality in ways other than the QIP. For example, CMS monitors outcomes 

such as the incidence of blood transfusions and stroke under the new bundled 

payment system and monitors and promotes the quality of dialysis care through 

regional private organizations called the ESRD Networks.25

ESRD Drug Utilization Declined Substantially from 2007 through 2011, 

Suggesting Bundled Rate Is Too High 

In the final quarter of 2011, the utilization levels for ESRD drugs overall, and for the 

individual types of drugs in our analysis, were lower than in 2007, although utilization 

trends for individual drug types varied. In the final quarter of 2011, the utilization of 

ESRD drugs overall was about 31 percent below the average for all of 2007 (see 

fig. 1). The utilization trend for ESRD drugs overall is driven by ESA utilization. 

These trends generally were stable from 2007 through the middle of 2009, when 

CMS issued the proposed rule for the design and implementation of the new 

bundled payment system,26 and declined gradually until the third quarter of 2010.27

Following the third quarter of 2010, when CMS issued the final rule for the payment 

system, the decline accelerated sharply and continued after the FDA recommended 

more conservative dosing of ESAs in June 2011.28 Utilization of IV iron in the final 

quarter of 2011 was about 9 percent below its average 2007 level. However, 

utilization increased after CMS issued the final rule, then declined in late 2011 after 

the FDA issued its ESA dosing recommendation. For IV vitamin D, utilization in the 

 

23Lower percentages of both hemoglobin measures indicate better care. CMS defined adequate 

dialysis as having a urea reduction ratio (URR) of 65 percent or greater; a higher percentage for this 

measure indicates better care. 

24MedPAC pointed out that, because blood transfusions are not included in the bundled payment, the 

payment system could create an incentive for some dialysis facilities to treat anemia with blood 

transfusions. MedPAC also stated that it was important to include measures that assess the adverse 

consequences of anemia under-treatment to help ensure that beneficiaries continue to have access 

to care for anemia management that is effective and appropriate. See Glenn M. Hackbarth, Chairman 

of the Medicare Payment Advisory Commission, to Donald M. Berwick, Administrator of CMS, 

Washington, D.C., August 30, 2011. 

25These organizations are responsible for monitoring and promoting the quality of dialysis care in a 

specific geographic area, which generally consists of one or more states.

2674 Fed. Reg. 49,922 (Sept. 29, 2009). 

2775 Fed. Reg. 49,430 (Aug. 12, 2010). 

28See U.S. Food and Drug Administration, ―FDA Drug Safety Communication: Modified dosing 

recommendations to improve the safe use of Erythropoiesis-Stimulating Agents (ESAs) in chronic 

kidney disease,‖ (June 24, 2011), available at http://www.fda.gov/Drugs/DrugSafety/ucm259639.htm

(accessed Apr. 19, 2012). 
Page 7 GAO-13-190R Trends in ESRD Drug Utilization

final quarter of 2011 was about 15 percent below its average 2007 level. As with 

ESAs, utilization of IV vitamin D decreased sharply following the issuance of the final 

rule in late 2010 but then, unlike ESAs, stabilized in 2011. 

Figure 1: Utilization of ESRD Drugs per Beneficiary per Quarter through 2011, Relative to Average Level 

in 2007 

Notes: Utilization was expressed in dollars by multiplying the number of units per beneficiary of a drug administered in a given 

quarter by Medicare’s Average Sales Price (ASP) for this drug in the first quarter of 2011. 

ESA = erythropoietin stimulating agents; IV = intravenous. 

a

Includes utilization of ESAs, IV iron, and IV vitamin D. 

The reductions in the utilization of ESAs, IV iron, and IV vitamin D from the third 

quarter of 2010 through the end of 2011 were driven primarily by lower utilization per 

beneficiary who received a given type of drug rather than a change in the share of 

ESRD beneficiaries who received it. Specifically, ESA utilization per beneficiary 

among those who received this type of drug declined by about 30 percent from the 

third quarter of 2010 through the end of 2011, but the share of beneficiaries on 

dialysis receiving ESAs fell just 5 percentage points, from 95 to 90 percent.29 The 

utilization per beneficiary receiving IV iron declined by 16 percent while the share of 

ESRD beneficiaries receiving this type of drug increased from 70 to 75 percent. In 

addition, among those receiving IV vitamin D, utilization declined by about 

14 percent, and the share of ESRD beneficiaries receiving this type of drug fell 

from about 74 to 70 percent. 

 

29A small increase in the share of ESAs that were administered subcutaneously may have contributed 

somewhat to the decline in ESA utilization, as this mode of administration requires lower doses. 

According to the Dialysis Outcomes Practice Patterns Study (DOPPS), the percentage of dialysis 

patients nationally who received ESAs subcutaneously increased from about 1 percent in August 

2010 to about 3 percent in December 2011. See DOPPS Practice Monitor, (October 2012), available 

at http://www.dopps.org, (accessed Nov. 8, 2012).
Page 8 GAO-13-190R Trends in ESRD Drug Utilization

While we did not determine the specific causes of recent changes in ESRD drug 

utilization, the reductions in ESA and IV vitamin D utilization following the third 

quarter of 2010 are consistent with the financial incentive for facilities to provide 

dialysis care more efficiently under the new payment system effective January 1, 

2011. The concurrent increase in IV iron utilization in late 2010 and early 2011 also 

may have been consistent with this financial incentive by allowing facilities to reduce 

provision of ESAs, because administering IV iron to dialysis patients can reduce the 

dose of ESAs required to achieve acceptable hemoglobin levels.30 Therefore, 

facilities may have been able to treat beneficiaries’ anemia at a lower cost because 

IV iron is less expensive than ESAs. The upward trend in IV iron utilization shifted to 

a decline following the second quarter of 2011. The ESRD clinicians we interviewed 

stated that this decline may have been related to two factors. They suggested that, 

because dialysis patients were given more IV iron in late 2010 and early 2011, these 

patients may have required less of the drug in the latter part of the year. In addition, 

some clinicians suggested that, because both ESAs and iron can be used to raise 

hemoglobin levels, the FDA’s removal in June 2011 of the minimum target for 

hemoglobin levels could have reduced utilization of both drugs. CMS’s removal of 

the minimum hemoglobin target from the QIP in 2013, which will link payments to 

dialysis organizations in that year to their performance in 2011, may have reinforced 

this trend.31 Analysis by the United States Renal Data System (USRDS) showed a 

decline in average hemoglobin levels between September 2010 and September 

2011, and CMS showed a reduction in median hemoglobin levels during that 

period.32

Our review of the limited information available and interviews with ESRD clinicians 

indicated that the effect on beneficiaries of recent changes in ESRD drug utilization 

is unclear. USRDS and CMS data showed an increase from 2010 to 2011 in the rate 

of blood transfusions.33 However, CMS data also indicate that the incidence of stroke 

and heart failure, which have been linked to the use of ESAs, continued to improve 

during this time period. The ESRD clinicians we interviewed stated that the limited 

clinical evidence available was insufficient to determine the impact on beneficiaries 

of recent changes in ESRD drug utilization. 

 

30See Avani D. Joshi, et al, Utilization Patterns of IV Iron and Erythropoiesis Stimulating Agents in 

Anemic Chronic Kidney Disease Patients: A Multihospital Study, Anemia, vol. 2012 (2012) and Daniel 

W. Coyne et al., ―Ferric Gluconate Is Highly Efficacious in Anemic Hemodialysis Patients with High 

Serum Ferritin and Low Transferrin Saturation: Results of the Dialysis Patients’ Response to IV Iron 

with Elevated Ferritin (DRIVE) Study,‖ Journal of the American Society of Nephrology, vol. 18 (2007). 

31CMS issued the proposed rule for the 2013 QIP in July 2011 and issued the final rule in November 

2011. See 76 Fed. Reg. 40,498 (July 8, 2011) (proposed rule); 76 Fed. Reg. 70,228 (Nov. 10, 2011) 

(final rule). 

32See CMS, ESRD Prospective Payment System (ESRD PPS) Overview of 2011 Claims-Based 

Monitoring, available at http://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/ESRDpayment/Spotlight.html (accessed Nov. 4, 2012); and U.S. Renal Data System, 

USRDS 2012 Annual Data Report: Atlas of Chronic Kidney Disease and End-Stage Renal Disease in 

the United States (Bethesda, Md.: National Institutes of Health, National Institute of Diabetes and 

Digestive and Kidney Diseases, 2012). 

33See CMS, ESRD Prospective Payment System, and USRDS, USRDS 2012 Annual Data Report. 
Page 9 GAO-13-190R Trends in ESRD Drug Utilization

The lower utilization of ESRD drugs overall in 2011 relative to the average 2007 

level suggests that the bundled payment rate is too high and that Medicare is paying 

more than necessary for dialysis care. Our results indicate that ESRD drug utilization 

in 2011 was, on average, about 23 percent below the average 2007 level, and we 

estimated that Medicare payments for dialysis services would have been about 

$650 million lower in 2011 if the bundled payment amount reflected average ESRD 

drug utilization in that year.34 This amount likely is a conservative estimate of the 

extent to which the current bundled payment is too high. Because ESRD drug 

utilization declined throughout 2011, by the fourth quarter utilization was 31 percent 

below the average 2007 level. If utilization for the entire year had been at the level of 

the fourth quarter, we estimated that annual Medicare payments for dialysis care in 

2011 would have been about $880 million lower. Moreover, preliminary data indicate 

that ESRD drug utilization continued to fall in the first half of 2012, so estimates of 

potential savings could be larger in future years.35 However, CMS officials indicated 

that they did not have plans to rebase the bundled payment rate and that the statute 

does not provide CMS with explicit authority to do so. 

Conclusions 

The new bundled payment system has the potential to improve the efficiency of 

dialysis care delivery, and realizing these efficiencies without compromising 

beneficiaries’ access to and quality of care requires that the bundled payment rate 

accurately reflect the expected costs of providing dialysis. Our findings suggest that 

the current bundled payment rate is excessive given recent changes in ESRD drug 

utilization. Rebasing the bundled payment rate to account for the reductions in 

ESRD drug utilization could result in more appropriate payments to dialysis facilities 

and yield substantial savings for Medicare, but CMS officials indicated that they did 

not have immediate plans to do so. The potential effect on beneficiaries of such a 

payment change and the uncertainty surrounding the impact on them of recent 

changes in ESRD drug utilization underscore the importance of CMS’s ongoing 

monitoring activities. 

Matter for Congressional Consideration 

Congress should consider requiring the Secretary of HHS to rebase the ESRD 

bundled payment rate as soon as possible and on a periodic basis thereafter, using 

the most current available data. 

 

34This difference is entirely attributable to changes in the amount of drugs provided and not affected 

by price changes; however, CMS accounted for price increases when it determined the 2011 bundled 

rate. Of the estimated $650 million in potential savings in 2011, beneficiary cost sharing accounted for 

approximately $130 million (about $360 per beneficiary on dialysis in 2011). 

35We calculated utilization for the first half of 2012 as we did for previous years. These preliminary 

results were based on Medicare claims that had been processed as of June 2012. Because some 

claims for ESRD drugs administered in the first half of 2012 had not yet been processed as of June 

2012, we adjusted ESRD drug utilization during this period upward on the basis of the share of claims 

data that had been processed by June in previous years. 
Page 10 GAO-13-190R Trends in ESRD Drug Utilization

Agency and Industry Comments and Our Evaluation 

In commenting on our draft report, HHS agreed with us that the ESRD bundled 

payment rate should reflect accurate data on the utilization of ESRD services, and 

it noted that Congress had not given it explicit authority to rebase the ESRD 

payment rate. CMS told us it has no immediate plans to rebase the bundled rate 

and did not mention any plans to seek authority to do so. Consequently, we have 

replaced our recommendation that CMS rebase the bundled payment rate and 

seek authority from Congress, if necessary, with a matter for Congressional 

consideration. We are now asking that Congress consider requiring HHS to rebase 

the ESRD payment rate, using the most current available data, as soon as possible 

and periodically thereafter. 

We invited three organizations to provide oral comments on our draft report: the 

Kidney Care Council (KCC), which represents dialysis facility companies; the 

National Renal Administrators Association (NRAA), which represents independent 

dialysis facilities; and the Renal Physicians Association (RPA), which represents 

nephrologists who treat ESRD patients. Representatives from these organizations 

expressed their appreciation for the opportunity to review the draft, and 

representatives from the RPA noted that the report presented interesting data, 

some of which had not been previously available. 

KCC stressed the importance of FDA actions to changes in the utilization of ESRD 

drugs. We recognize the impact of FDA decisions on drug utilization and noted in 

the draft report the importance of FDA’s 2011 recommendation for more 

conservative dosing of ESAs, which was followed by a decline in ESA utilization. 

KCC and NRAA also noted that rebasing the ESRD payment rate should take 

account of more than the utilization of injectable drugs. We do not disagree with 

this point, but did not address other factors that might be considered in rebasing 

because our mandate from Congress was to examine injectable drugs. We would 

expect CMS to consider utilization and other factors in rebasing. 

RPA noted that evidence regarding the appropriate level of ESA utilization is still in 

flux and expressed unease that, if CMS did not rebase frequently, an ESRD 

payment rate might be retained when it was no longer appropriate. We agree that 

more frequent rebasing may be appropriate when key components of the bundle 

are in flux. Requiring CMS to rebase periodically means that it can rebase as often 

as the data and clinical evidence suggest is necessary. 

KCC and NRAA said the Average Sales Price (ASP) does not accurately 

reflect drug prices, and KCC said that Epogen prices have risen by as much as 

15 percent since the beginning of 2012. According to KCC, the price increase is 

due to a reduction in manufacturers’ rebates, which will not be incorporated into the 

ASP until late 2013. Our report does not directly address drug prices; however, 

CMS has the explicit authority to update the bundled payment rate to account for 

changes in drug prices by updating the prices in its market basket of ESRD drugs 

and services. 
Page 11 GAO-13-190R Trends in ESRD Drug Utilization

KCC said the bundled rate had already been reduced 2 percent in anticipation of 

lower ESRD drug utilization. MIPPA reduced ESRD payments to 98 percent of 

what they would have been without the additional bundling that MIPPA requires. 

However, the law did not provide and we are not aware of such a justification for 

the 2 percent reduction. 

Both KCC and NRAA pointed to apparent differences between our analysis and 

those of CMS and MedPAC. We do not believe that the MedPAC and CMS 

analyses are comparable with our analysis. MedPAC, which in March 2012 

recommended a 1 percent update in the payment rate, used CMS claims data 

through 2010 and therefore did not incorporate evidence of the continuing decline 

in utilization shown in 2011 claims. CMS, in updating the ESRD market basket by 

2.3 percent for 2013, took account of price changes but not changes in the mix of 

drugs. CMS has explicit authority to adjust the bundled payment rate for price 

increases but does not have specific authority to adjust for utilization changes. 

– – – – –

We are sending copies of this report to the Secretary of Health and Human Services. 

The report will also be available at no charge on our website at http://www.gao.gov. 

If you or your staff have any questions about this report, please contact me at 

(202) 512-7114 or cosgrovej@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page of this 

report. Individuals making key contributions to this report include Phyllis Thorburn, 

Assistant Director; Todd D. Anderson; Alison Binkowski; William Black; George 

Bogart; Elizabeth T. Morrison; and Brian O’Donnell.

James Cosgrove 

Director, Health Care 

Enclosures – 2 
Enclosure I 

Page 12 GAO-13-190R Trends in ESRD Drug Utilization

List of Committees 

The Honorable Max Baucus 

Chairman 

The Honorable Orrin G. Hatch 

Ranking Member 

Committee on Finance 

United States Senate 

The Honorable Fred Upton 

Chairman 

The Honorable Henry A. Waxman 

Ranking Member 

Committee on Energy and Commerce 

House of Representatives 

The Honorable Dave Camp 

Chairman 

The Honorable Sander Levin 

Ranking Member 

Committee on Ways and Means 

House of Representatives 
Enclosure II 

Page 13 GAO-13-190R Trends in ESRD Drug Utilization

Comments from the Department of Health and Human Services 
Enclosure II 

Page 14 GAO-13-190R Trends in ESRD Drug Utilization

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