Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

UPDATE: MEDICARE 

PAYMENTS FOR END STAGE 

RENAL DISEASE DRUGS 

Daniel R. Levinson 

Inspector General 

March 2014 

OEI-03-12-00550 
EXECUTIVE SUMMARY: UPDATE: MEDICARE PAYMENTS FOR END STAGE 

RENAL DISEASE DRUGS 

OEI-03-12-00550 

WHY WE DID THIS STUDY 

Prior to 2011, Medicare paid dialysis facilities for the treatment of end stage renal disease 

(ESRD) using a combination of a fixed rate (known as the “composite rate”) and separate 

payment amounts based on average sales prices (ASP) for certain drugs. As of January 2011, 

Federal law required the Centers for Medicare & Medicaid Services (CMS) to bundle Medicare 

reimbursement for almost all ESRD treatments—including drugs that were previously billed 

separately—into one payment rate. By implementing the bundled rate, CMS sought to eliminate 

incentives to overuse separately billable drugs and to promote equitable payment and access to 

services in ESRD facilities that treat more costly patients. CMS is required to update this rate 

annually to reflect changes in the price of goods and services used to provide ESRD care. CMS 

used the PPI for Prescription Drugs, a price proxy published by the Bureau of Labor Statistics, to 

update the prescription drugs portion of the base rate for the ESRD payment bundle. However, a 

2010 OIG study questioned the accuracy of this price proxy when used to estimate changes in 

prices for ESRD drugs. 

HOW WE DID THIS STUDY 

We obtained first-quarter 2012 average acquisition costs for the 11 drugs that were separately 

billable prior to the implementation of the ESRD payment bundle by surveying 3 large dialysis 

chains, a random sample of 200 independent (i.e., freestanding) dialysis facilities not affiliated 

with these chains, and 200 hospital-based dialysis facilities. We compared the average 

acquisition costs for each facility type to the amounts paid for these drugs under the base rate for 

the ESRD payment bundle. Using first-quarter 2009 data that we collected for the 2010 OIG 

report, we determined the extent that facility acquisition costs have changed in relation to the 

amounts estimated by the PPI for Prescription Drugs. Finally, to compare the prior and current 

payment methodologies for ESRD drugs, we compared the drugs’ ASP-based payment amounts 

in first-quarter 2012 to the amounts paid under the ESRD base rate. 

WHAT WE FOUND 

In the first quarter of 2012, independent dialysis facilities could purchase ESRD drugs for less 

than the reimbursement amounts provided by the ESRD base rate (9 percent below, in the 

aggregate), but average acquisition costs for hospital-based dialysis facilities exceeded 

reimbursement amounts (5 percent above, in the aggregate). In the past 3 years, dialysis 

facilities’ average acquisition costs for the majority of drugs under review have decreased, but 

average costs for epoetin alfa, a drug that represented more than three-quarters of the drug costs 

in responding facilities, have increased by at least 17 percent. We also found that although 

acquisition costs for most drugs decreased, the PPI for Prescription Drugs estimated a 25-percent 

increase in drug costs—meaning that this proxy was not an accurate predictor of cost changes for 

most drugs under review. Lastly, we found that if the ASP-based reimbursement had remained 

in effect for the first quarter of 2012, payment amounts for the bundle of ESRD drugs would 

have differed by less than a dollar per treatment. 
 

WHAT WE RECOMMEND 

Federal law required CMS to reduce the ESRD payment bundle’s base rate for 2014 to reflect 

changes in utilization and should take into account recent drug sales and pricing data. Our 

findings show that acquisition costs for most of the drugs under review have decreased, but the 

costs for drugs that represented the majority of facilities’ total drug costs have increased. This 

means that any savings resulting from a decrease in utilization may potentially be offset by the 

drugs’ cost increase. In addition, although independent dialysis facilities could acquire the 

majority of ESRD drugs for less than Medicare reimbursement, any reductions to the ESRD base 

rate could potentially harm hospital-based dialysis facilities because these facilities had difficulty 

purchasing ESRD drugs for less than reimbursement, in the aggregate. 

Therefore, we recommend that CMS rebase (i.e., redetermine the basis of) the ESRD base rate to 

reflect current trends in drug acquisition costs, as required by law; distinguish payments in the 

ESRD base rate between independent and hospital-based dialysis facilities; and consider 

updating the ESRD payment bundle using a factor that takes into account drug acquisition costs. 

CMS did not explicitly state whether it concurred with our first recommendation, did not concur 

with our second recommendation, and concurred with our third recommendation. 
TABLE OF CONTENTS 

Objectives ....................................................................................................1 

Background..................................................................................................1 

Methodology................................................................................................8 

Findings......................................................................................................13 

Independent dialysis facilities purchased ESRD drugs for less 

than the drugs’ reimbursement amounts in the ESRD base rate, 

but the acquisition costs for hospital-based facilities exceeded
 

reimbursement amounts, in the aggregate .....................................13 

Although the average facility acquisition costs for the majority 

of drugs under review decreased in the past 3 years, costs for 

ESAs have increased......................................................................16 

The PPI for Prescription Drugs was not an accurate predictor 

of cost changes between 2009 and 2012 for most drugs under 

review .............................................................................................17 

If ASP-based reimbursement had remained in effect for the first 

quarter of 2012, payment amounts for the bundle of ESRD 

drugs would have differed by less than a dollar per treatment ......18 

Conclusion and Recommendations ............................................................20 

Agency Comments and Office of Inspector General Response .....23 

Appendixes ................................................................................................25 

A: Detailed Methodology for Calculating the Individual-Drug 

Payment Portions of the ESRD Base Rate .....................................25 

B: Detailed Methodology for Selecting Dialysis Facilities ..........29 

C: Difference Between Medicare Reimbursement and Costs 

Paid by Large Chain and Smaller Independent Dialysis 

Facilities.........................................................................................31 

D: Agency Comments ...................................................................33 

Acknowledgments......................................................................................36 
 

 

 

OBJECTIVES 

1.	 To compare first-quarter 2012 facility acquisition costs for selected 

end stage renal disease (ESRD) drugs to the amounts that Medicare 

Part B paid for these drugs under the new ESRD bundled base rate. 

2.	 To determine how facility acquisition costs for selected ESRD drugs 

have changed in relation to inflation, from the first quarter of 2009 to 

the first quarter of 2012. 

3.	 To compare the average sales price (ASP)-based reimbursement 

amounts for selected ESRD drugs to the amounts paid under the new 

ESRD bundled base rate. 

BACKGROUND 

Effective January 1, 2011, the Centers for Medicare & Medicaid Services 

(CMS) implemented a statutorily mandated change in the payment method 

for ESRD treatment to a comprehensive system that bundles the payment 

for services and drugs into a single per-treatment rate. To develop the 

base rate for the ESRD payment bundle, CMS used treatment counts from 

2007 claims data and updated these to estimate 2011 average payment per 

treatment data. The payment bundle includes drugs that, prior to 2011, 

were billed separately and paid on the basis of 106 percent of the 

manufacturer-reported ASP. 

The ESRD payment bundle sought to reduce the incentives to overutilize 

profitable ESRD drugs, particularly erythropoietin-stimulating agents 

(ESAs), which had been previously paid under the ASP-based payment 

methodology.1 A December 2012 study by the Government Accountability 

Office (GAO) found that utilization of ESRD drugs in 2011 was about 

23 percent lower, on average, than utilization in 2007, mostly because of a 

large decline in ESA use.2 Because the ESRD base rate was based on 

2007 utilization levels, CMS may have paid more than necessary for 

dialysis care in 2011. GAO concluded that the current payment bundle is 

excessive and that rebasing it could result in more appropriate payments to 

dialysis facilities and substantial savings for Medicare. A May 2013 

Office of Inspector General (OIG) report had similar findings and reported 

1

 75 Fed. Reg. 49030, 49032 (Aug. 12, 2010). 

2

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

Payment Is Too High (GAO-13-190R), December 2012.
 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 1 
 

 

 

 

that Medicare and its beneficiaries could have saved $510 million on 

ESAs if CMS had adjusted payments to reflect utilization in 2011.3 

Treatment of ESRD 

ESRD is a condition in which the kidneys no longer function at the level 

necessary for day-to-day life. The loss of kidney function in ESRD is 

usually irreversible and permanent. Treatment options include kidney 

transplantation and dialysis. One common complication of ESRD is 

anemia, a deficiency in red blood cells. ESAs, such as epoetin alfa (trade 

name Epogen) and darbepoetin alfa (trade name Aranesp) treat anemia by 

increasing the number of red blood cells. 

Most individuals with ESRD are eligible for benefits under Medicare 

Part B. In 2011, approximately 442,000 beneficiaries qualified for ESRD 

treatment under Medicare Part B.4 Beneficiaries typically receive dialysis 

treatments from either independent (i.e., freestanding) or hospital-based 

facilities that are approved to furnish dialysis services directly to ESRD 

patients. Both types of dialysis facilities provide outpatient maintenance 

dialysis (including dialysis performed by an appropriately trained patient 

and caregiver at home). The majority (64 percent) of independent dialysis 

facilities are owned or managed by one of the three large chain 

organizations. Facilities are considered hospital based if they are 

integrated into a hospital’s financial and administrative systems, among 

other criteria.5 As of August 2012, independent dialysis facilities 

accounted for 94 percent of all facilities and hospital-based dialysis 

facilities represented only 6 percent. 

Medicare Payments to Dialysis Facilities Prior to 2011 

Composite Rate. Prior to January 1, 2011, CMS reimbursed dialysis 

facilities on the basis of a prospective payment system (PPS) known as the 

composite rate. Facilities received a fixed composite rate payment for 

each dialysis treatment they provided. The composite rate was composed 

of a labor and nonlabor portion, with an add-on adjustment for the area 

wage index. The rate included most items related to dialysis services, 

such as (1) labor costs; (2) certain laboratory services; and (3) certain 

drugs, such as antihistamines, glucose, and insulin. 

Separately Billable Drugs. Certain drugs typically administered by 

physicians or other health care professionals were not included in the 

3

 OIG, Medicare and Beneficiaries Could Save Millions If Dialysis Payments Were 

Adjusted for Anemia Management Drug Utilization (A-01-12-00522), May 2013. 4 The Henry J. Kaiser Family Foundation, Medicare Enrollment: Hospital Insurance 

and/or Supplementary Medical Insurance Enrollees With End-Stage-Renal Disease, as of 

July 2011. Accessed at http://www.statehealthfacts.org on February 21, 2013. 5

 42 CFR § 413.174(c)(4)–(5). 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 2 
 

 

 

 

 

 

 

 

composite rate.6 Medicare paid for these separately billable drugs, 

including epoetin alfa and darbepoetin alfa, at 106 percent of their 

manufacturer-reported ASP when they were furnished in dialysis 

facilities.7, 8 Previous OIG reports have found that many facilities, 

particularly the independent facilities owned or managed by a chain, could 

acquire the majority of the separately billable drugs for less than the 

Medicare payment amounts.9 

Some policymakers raised concerns that the ASP-based reimbursement 

methodology created incentives for dialysis facilities to overutilize 

separately billable drugs.10 When the reimbursement amounts exceeded 

the price that facilities paid to acquire the drugs, which happened with the 

ESA epoetin alfa, facilities could increase their profits by administering 

more of the drug. The Food and Drug Administration (FDA) has issued 

warnings that overuse of ESAs could harm patients because ESAs increase 

the risks of blood clots, strokes, heart attacks, and death.11 In March 2007 

and June 2011, FDA issued “black box” warnings on certain ESA labels, 

advising physicians to monitor red blood cell levels and adjust dosages to 

maintain the lowest levels necessary.12, 13 

6

 Epoetin alfa and darbepoetin alfa were covered as separately billable drugs even if they 

were self-administered by the patient and not by a physician or health care professional. 

CMS, Medicare Benefit Policy Manual, ch. 11, §§ 30.4.2 (rev. 1, Oct. 1, 2003) and 90 

(rev. 8, March 5, 2004). 

7

 CMS, Medicare Claims Processing Manual, ch. 8, § 60.2.2; 42 CFR 

§ 414.904(d)(2)(iii). 

8 With certain exceptions, including specific vaccines; 42 CFR § 414.904(e). 9

 For example, see OIG, End Stage Renal Disease Drugs: Facility Acquisition Costs and 

Future Medicare Payment Concerns (OEI-03-09-00280), September 2010; and OIG, 

Medicare Reimbursement for End Stage Renal Disease Drugs: Third Quarter 2006 

(OEI-03-06-00590), June 2007. 

10 House Committee on Ways and Means, Subcommittee on Health, Stark Announces a 

Hearing on Ensuring Kidney Patients Receive Safe and Appropriate Anemia 

Management Care, June 26, 2007. Accessed at http://www.gpo.gov/fdsys/pkg/CHRG110hhrg49981/html/CHRG-110hhrg49981.htm on June 24, 2013. 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),
 

November 2006.
 11 FDA, Public Health Advisory: erythropoiesis-stimulating agents (ESAs), 

March 9, 2007. Accessed at 

http://www.fda.gov/ForConsumers/ByAudience/ForPatientAdvocates/HIVandAIDSActiv
 

ities/ucm124262.htm on April 5, 2013. FDA, FDA Drug Safety Communication:
 

Modified dosing recommendations to improve the safe use of Erythropoiesis-Stimulating
 

Agents (ESAs) in chronic kidney disease, June 24, 2011. Accessed at 

http://www.fda.gov/drugs/drugsafety/ucm259639.htm on April 5, 2013.
 12 Ibid. 

13 “Black box” warnings (alerts on the labels of prescription drugs to indicate serious or
 

life-threatening risks) were issued for epoetin alfa (Epogen and Procrit) and darbepoetin
 

alfa (Aranesp).
 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 3 
 

 

 

 

 

 

 

 

 

 

Medicare Bundled Payments to Dialysis Facilities 

Effective January 1, 2011, section 1881(b)(14) of the Social Security Act 

(the Act), as added by section 153(b) of the Medicare Improvements for 

Patients and Providers Act of 2008 (MIPPA), P.L. 110-275, required 

payment for all Part B items and services used in the treatment of ESRD, 

including drugs that were separately billable, to be combined into a single 

bundled rate.14 By implementing the bundled rate, CMS sought to 

eliminate incentives to overuse separately billable drugs and to promote 

equitable payment and access to services in ESRD facilities that treat more 

costly patients.15 

The ESRD PPS is being phased in over 4 years; full implementation began 

January 1, 2014. During the transition period, facilities receive a “blend 

of the payment rates” based on (1) payment rates under the new bundle 

system and (2) the previous composite rate and ASP-based payment 

methods. However, facilities were given a one-time opportunity to opt out 

of the phase-in.16, 17 Eighty-seven percent of dialysis facilities opted out of 

the phase-in and accepted full payment under the ESRD PPS starting in 

January 2011.18 

ESRD Payment Bundle. The ESRD PPS payment bundle is composed of 

payments for the various components of dialysis services, such as the 

composite rate, separately billable drugs, and laboratory tests. As 

described in the preamble to the August 2010 final rule that created the 

ESRD payment bundle, CMS calculated the ESRD base rate for 2011 

using 2007 Medicare allowable payment (MAP) amounts 

(i.e., reimbursement) for each component included in the bundle and 

divided the MAP amounts by the number of dialysis treatments per patient 

in 2007.19 CMS updated this amount to reflect estimated 2011 amounts.20 

This resulted in an overall payment amount of $229.63 per treatment in 

2011.21 CMS can further adjust this base rate for individual dialysis 

14 Vaccines are excluded from the bundled rate. 

15 75 Fed. Reg. 49030, 49032 (Aug. 12, 2010). 

16 The Act, § 1881(b)(14)(E)(ii). 

17 Facilities had to notify their respective Medicare contractors of their decision to opt out 

of the phase-in on or before November 1, 2010.
 18 76 Fed. Reg. 18930, 18932 (Apr. 6, 2011).
 19 CMS used 2007 as the basis for the 2011 bundled rate because it had the lowest
 

per-patient utilization when compared to 2008 and 2009. 

20 In accordance with section 1881(b)(14)(A)(ii) of the Act, the estimated 2011 total
 

payments under the ESRD base rate must equal 98 percent of the estimated total amount
 

of payments that would have been made in that year if the payment bundle had not been
 

implemented. As a result, CMS applied a 2-percent budget-neutrality reduction to the 

base rate, as well as a reduction for an outlier adjustment and a standardization
 

adjustment. 

21 75 Fed. Reg. 49030, 49082 (Aug. 12, 2010). 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 4 
 

 

 

 

facilities on the basis of factors such as its patient-level characteristics and 

volume of treatments administered. 

Drugs in the ESRD Payment Bundle That Were Formerly Separately 

Billable. CMS identified and used the 11 highest expenditure separately 

billable ESRD drugs in 2007 as the primary basis for the “separately 

billable drugs” component of the payment bundle.22 CMS selected these 

11 drugs because they accounted for over 99 percent23 (about $2.7 billion) 

of total Part B spending on ESRD drugs in 2007. Payments for epoetin 

alfa accounted for the majority ($1.9 billion) of total Part B spending on 

these 11 ESRD drugs. 

Because CMS used MAP amounts from 2007, it had to project these data 

to estimate the per-treatment reimbursement in 2011 for each of the 

separately billable drugs. To calculate the percentage updates used to 

make these estimates, CMS (1) inflated the second-quarter 2010 

ASP-based payment amounts (the most recently available at the time) by 

3.9 percent (i.e., the inflation rate determined by the Producer Price Index 

(PPI) for Prescription Drugs24) and (2) calculated the percentage difference 

between these inflated ASP amounts and the average 2007 ASP payment 

amounts. See Table 1 and Appendix A for details on how CMS calculated 

the average per-treatment reimbursement amounts for each drug in the 

ESRD base rate. 

22 Although these drugs are now included in the ESRD payment bundle and are no longer 

billed separately when used to treat ESRD, we still refer them as “separately billable” to 

distinguish this group of drugs from other types included in the payment bundle. 

23 75 Fed. Reg. 49030, 49079 (Aug. 12, 2010). 

24 The term “PPI for Prescription Drugs” refers to the Bureau of Labor Statistics’ (BLS) 

PPI for Pharmaceuticals for Human Use (Prescription). This PPI reflects price changes 

associated with the average mix of all prescription drugs in the overall economy. 

According to CMS, reliability and timeliness of data publishing are factors for choosing 

the PPI for Prescription Drugs as the price proxy. CMS also stated that the PPI for 

Prescription Drugs includes an appropriate level of aggregation for use in the Medicare 

market baskets (see footnote 26 for definition of market basket), including former Part D 

drugs covered in the ESRD payment bundle, and reflects competitive pricing in efficient 

markets. 75 Fed. Reg. 49030, 49152 (Aug. 12, 2010). 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 5 
 

 

 

 

 

 

Table 1: Part B Payments for Top 11 Separately Billable Drugs 

Separately Billable Drugs 

(Part B) 

MAP Amounts in 

2007 

Per-Treatment 

Reimbursement 

in 2007 

Percentage 

Update to 

Estimate 2011 

Amounts 

Estimated 

Per-Treatment 

Reimbursement 

in 2011 

Epoetin alfa $1,876,926,573 $51.08 7.0% $54.65 

Paricalcitol $322,849,348 $8.79 -3.2% $8.50 

Darbepoetin alfa $167,935,970 $4.57 -9.0% $4.16 

Iron sucrose $166,219,339 $4.52 2.6% $4.64 

Doxercalciferol $76,901,723 $2.09 16.6% $2.44 

Sodium ferric gluconate $68,086,707 $1.85 -0.2% $1.85 

Alteplase recombinant $26,697,321 $0.73 16.9% $0.85 

Levocarnitine $5,026,446 $0.14 -22.5% $0.11 

Vancomycin $3,583,504 $0.10 -3.1% $0.09 

Calcitriol $3,125,613 $0.09 -26.3% $0.06 

Daptomycin $1,234,405 $0.03 30.1% $0.04

 Total $2,718,586,948* 

Source: 75 Fed. Reg. 49030, 49068, 49080 (Aug. 12, 2010). 

* Individual amounts do not add to total because of rounding. 

Annual Updates to the ESRD Payment Bundle 

Beginning in 2012, CMS was required to update the payment bundle 

annually to reflect the changes over time in the prices of an appropriate 

mix of goods and services used to provide ESRD care.25, 26 CMS uses 

indexes published by BLS to measure the annual rate of price change in 

each category (e.g., wages and salaries, pharmaceuticals, capital-related 

costs).27 For example, CMS used PPI for Prescription Drugs as the price 

proxy for measuring growth in ESRD drugs for the pharmaceutical 

category (i.e., the “separately billable drugs” component). After applying 

the adjustments for 2012, CMS set the base rate for the payment bundle at 

$234.81 per treatment.28 

Rebasing the ESRD Payment Bundle 

MIPPA required GAO to report on, among other things, trends in the 

utilization of ESRD drugs and to submit a report to Congress on the ESRD 

payment bundle no later than March 1, 2013.29 GAO analyzed trends in 

utilization from 2007 through 2011 and the implications of these trends for 

25 The Act, § 1881(b)(14)(F)(i). 76 Fed. Reg. 70228, 70231–70232 (Nov. 10, 2011). 

26 The term “market basket” is used to refer to the mix of goods and services used to 

produce ESRD care. This term is also commonly used to denote the “input price index”
 

(i.e., cost categories, their respective weights, and price proxies combined) derived from
 

that market basket. The term “ESRDB market basket” in the final rule that implements 

the ESRD payment bundle refers to this input price index.
 27 75 Fed. Reg. 49030, 49154–60 (Aug. 12, 2010). 28 76 Fed. Reg. 70228, 70231 (Nov. 10, 2011). 

29 Section 153(d) of MIPPA.
 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 6 
 

 

 

 

 

 

 

 

the ESRD bundled payment rate.30 GAO found that the utilization of 

certain dialysis drugs in 2011 was lower than in 2007 and recommended 

that Congress consider requiring CMS to rebase the ESRD bundled 

payment rate as soon as possible and to rebase it periodically thereafter 

using the most currently available data. 

To reflect the findings in GAO’s report, the American Taxpayer Relief Act 

of 2012 authorized CMS to make reductions to the ESRD bundled 

payment rate on or after January 1, 2014.31 These reductions should 

reflect the estimate of the change in utilization of the ESRD drugs between 

2007 and 2012 and should take into account the most recently available 

ASP data and price changes for ESRD drugs.32 

Previous OIG Work 

A May 2013 OIG report found that Medicare and its beneficiaries could 

have saved $510 million for the ESAs epoetin alfa and darbepoetin alfa 

and $19 million for certain iron supplements if the 2011 ESRD base rate 

had been adjusted to reflect utilization of anemia management drugs 

during 2011.33 We recommended that CMS adjust the base rate to realize 

program savings associated with decreased utilization of ESAs and iron 

supplements. CMS concurred with this recommendation. 

Before the implementation of the ESRD payment bundle, OIG issued 

several reports demonstrating that Medicare payments for certain 

separately billable ESRD drugs were consistently higher than the reported 

facility acquisition costs.34 A September 2010 report found that drug 

acquisition costs in independent dialysis facilities and hospital-based 

30 GAO, End-Stage Renal Disease: Reduction in Drug Utilization Suggests Bundled 

Payment Is Too High (GAO-13-190R), December 2012.
 31 Section 1881(b)(14)(I) of the Act, as added by section 632(a) of the American
 

Taxpayer Relief Act, P.L. 112-240. 

32 Part B claims dated on or after April 1, 2013, incur a 2-percent reduction in payment, 

in accordance with the Budget Control Act of 2011 and the American Taxpayer Relief 

Act of 2012 (see CMS Medicare FFS Provider e-News, Mandatory Payment Reductions
 

in the Medicare Fee-for-Service (FFS) Program – “Sequestration,” March 8, 2013). 

This mandatory payment reduction (also known as sequestration) is applied after the 

beneficiary’s coinsurance has been determined, meaning that the beneficiary’s portion of
 

the cost is not reduced. Under sequestration, the effective payment rate for most Part B 

drugs is 104.3 percent of the volume-weighted ASP.
 33 OIG, Medicare and Beneficiaries Could Save Millions If Dialysis Payments Were 

Adjusted for Anemia Management Drug Utilization (A-01-12-00522), May 2013. 34 For example, see OIG, Medicare Reimbursement for Existing End-Stage Renal Disease 

Drugs (OEI-03-04-00120), May 2004; Medicare Reimbursement for New End Stage 

Renal Disease Drugs (OEI-03-06-00200), March 2006; Medicare Reimbursement for 

End Stage Renal Disease Drugs: Third Quarter 2006 (OEI-03-06-00590), June 2007; 

and End Stage Renal Disease Drugs: Facility Acquisition Costs and Future Medicare 

Payment Concerns (OEI-03-09-00280), September 2010. 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 7 
 

 

 

 

dialysis facilities were, in the aggregate, 10 percent and 7 percent below 

the Medicare payment amounts, respectively. 

In the September 2010 report, we also compared the changes in 

independent dialysis facilities’ acquisition costs for 11 separately billable 

ESRD drugs to changes in the PPI for Prescription Drugs.35 We found that 

from 2003 to 2009, PPI data indicated that prescription drug prices had 

increased, while the majority of acquisition costs for independent facilities 

had decreased. In addition, we found that first-quarter 2009 Medicare 

payments to independent dialysis facilities for epoetin alfa would have 

been $113 million higher if CMS had based reimbursement on changes in 

the PPI for Prescription Drugs instead of the ASP-based system in place at 

that time. We recommended that CMS develop a more accurate method 

for estimating changes in the prices of ESRD drugs included in the ESRD 

bundled rate. CMS did not concur with our recommendation and moved 

forward with using the PPI for Prescription Drugs as a price predictor. 

METHODOLOGY 

Data Collection 

ESRD Drug Acquisition Cost Data for First Quarter 2012. In 

December 2012, we sent online surveys to (1) 3 large chains of 

independent dialysis facilities, (2) a random sample of 200 smaller 

independent dialysis facilities not owned or managed by these chains, and 

(3) all 200 hospital-based dialysis facilities not enrolled in the 340B 

program.36 Several of the responding smaller independent dialysis 

facilities owned multiple dialysis units and provided data for these 

additional facilities. In total, we received responses from the 3 large chain 

companies, 522 smaller independent dialysis facilities, and 

125 hospital-based dialysis facilities. See Appendix B for a description of 

the facilities included in our analysis. 

The online surveys requested first-quarter 2012 acquisition cost 

information for each of the 11 drugs under review. We selected these 

11 drugs because they are included in the separately billable drugs 

component of the ESRD base rate.37 Specifically, we asked each facility to 

35 OIG, End Stage Renal Disease Drugs: Facility Acquisition Costs and Future Medicare 

Payment Concerns (OEI-03-09-00280), September 2010. 36 The 340B program requires drug manufacturers to provide drugs to covered entities at 

or below statutorily defined ceiling prices (42 U.S.C. § 256b). Therefore, we excluded 

all 340B-covered facilities, which accounted for 44 percent of hospital-based dialysis 

facilities in our sample. 

37 The 11 drugs are alteplase recombinant, darbepoetin alfa (Aranesp), calcitriol, 

daptomycin, doxercalciferol, epoetin alfa (Epogen), iron sucrose, levocarnitine, 

paricalcitol, sodium ferric gluconate complex, and vancomycin HCl. 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 8 
 

 

 

 

 

 

 

 

provide the total amount paid, the amount of rebates and discounts 

received, the net amount paid, the number of units purchased, and the 

average acquisition cost for each of the 11 drugs. We defined “average 

acquisition cost” as the total amount paid (net of all rebates and discounts) 

divided by the total number of units purchased during that quarter. 

ESRD Drug Acquisition Cost Data for First Quarter 2009. We accessed 

the dialysis facility acquisition cost data gathered in our September 2010 

report. These data represent the volume-weighted average acquisition cost 

paid in independent and hospital-based dialysis facilities for separately 

billable ESRD drugs in the first quarter of 2009.38 

ESRD Base Rate Amounts for the Drugs That Were Formerly Separately 

Billable. For each of the 11 drugs included in the separately billable drugs 

portion of the ESRD payment bundle, we calculated the per-unit payment 

amount in the 2012 ESRD base rate. We calculated these figures using 

information from the final rules that implemented the 2011 and 2012 

ESRD base rates.39 See Appendix A for a detailed description of our 

methodology to calculate the per-unit reimbursement amount for the drugs 

included in the ESRD base rate. 

Medicare ASP-Based Payment Amounts. We obtained first-quarter 2012 

ASP-based Medicare payment amounts for the 11 drugs from CMS’s Web 

site. These are the reimbursement amounts that CMS paid for Part B 

drugs dispensed in a non-ESRD setting or for drugs provided by an ESRD 

facility that chose to phase in the bundled payment method. 

PPI for Prescription Drugs Data. We obtained from BLS’s Web site the 

index base data from the PPI for Prescription Drugs for the first quarter of 

2009 (the quarter used to collect acquisition cost data in our 

September 2010 report) and the first quarter of 2012. 

Data Analysis 

Comparing Acquisition Cost to the ESRD Base Rate. We calculated the 

overall volume-weighted average acquisition cost per unit (hereinafter 

referred to as “average acquisition cost”) for each of the 11 drugs by 

(1) totaling the amount paid, net of any discounts and rebates, among all 

38 For our September 2010 report (End Stage Renal Disease Drugs: Facility Acquisition 

Costs and Future Medicare Payment Concerns, OEI-03-09-00280), we collected
 

acquisition cost data for 10 of the 11 drugs included in our current review; we did not 

collect acquisition cost data for daptomycin, but we instead collected cost data for iron
 

dextran. However, daptomycin was included in the ESRD payment bundle and iron
 

dextran was not. 

39 The final rule implementing the 2011 ESRD payment bundle can be found at 75 Fed.
 

Reg. 49030 (Aug. 12, 2010). A subsequent rule, found at 76 Fed. Reg. 70228
 

(Nov. 10, 2011), provides the percentage updates used to calculate the base rate for the 

payment bundle in 2012.
 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 9 
 

 

independent and among all hospital-based dialysis facilities and 

(2) dividing that by the total units purchased.40 In calculating these 

figures, we identified any outliers among the costs reported by facilities 

and removed them from our analysis. We defined an “outlier” as an 

average acquisition cost reported by a facility that was not within 

three standard deviations of the drug’s average cost.41, 42 

For both facility types (i.e., independent and hospital-based), we 

calculated the aggregate difference between the first-quarter 2012 average 

acquisition costs and the total estimated amounts that would have been 

spent for those units in the 2012 ESRD base rate for the 11 drugs. 

To do so, we: 

	 calculated the total net amount paid for the 11 drugs among the 

facilities by summing the data reported by all respondents; 

	 multiplied the total units purchased for each drug, as reported by 

each facility, by its payment portion in the ESRD base rate to 

calculate the total amount that facilities would have paid for all 

these drugs if their acquisition cost equaled the ESRD base rate 

amount; and 

	 calculated the percentage difference between the total amount paid 

for the 11 drugs, as reported by facilities, and the total that would 

have been paid if the acquisition cost had been equal to the ESRD 

base rate amount. 

We calculated the percentage difference between each of the 11 drugs’ 

portion of the 2012 base rate and the first-quarter 2012 average acquisition 

costs reported by independent and hospital-based dialysis facilities. We 

further analyzed the data for independent facilities by calculating the 

aggregate percentage difference between the ESRD base rate amount and 

acquisition costs in (1) three large chains of independent dialysis facilities 

and (2) the independent dialysis facilities not owned or managed by these 

three large companies. 

40 Some facilities provided the per-unit average acquisition costs, but did not provide the 

total amounts paid or total units purchased for all drugs. Because these facilities did not 

provide their totals, we did not include those totals in our calculations of average 

acquisition costs. 

41 Among the independent dialysis facilities not associated with the three large chains, we 

identified and removed an average of 0.8 responses per drug because these responses met 

the outlier criterion. Among hospital-based dialysis facilities, this number was 1.3. We 

removed no more than four outliers for any single drug in either facility type. 

42 There was significant variability in acquisition costs for sodium ferric gluconate at the 

independent facilities not associated with the three large chains; therefore, we did not use 

the same outlier criteria for this drug. Instead, we identified and excluded four responses 

from smaller independent facilities with amounts that were more than 80 percent higher 

or lower than the average acquisition cost for this drug. 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 10 
 

 

Changes in Acquisition Costs. To determine whether actual per-unit drug 

costs had increased, decreased, or remained the same, we compared 

average facility acquisition costs in the first quarter of 2009 (obtained 

from our September 2010 report)43 to those in the first quarter of 2012. 

We determined the percentage change in the average costs for this period 

for each drug. We did not collect cost data for 1 of the 11 drugs 

(daptomycin) as part of our previous report, so this part of our analysis 

included 10 of the drugs covered under the “separately billable drugs” 

component of the ESRD base rate. 

To determine whether the PPI for Prescription Drugs had been an accurate 

predictor of price change for the 10 drugs, we calculated the rate at which 

the PPI had increased between the first quarter of 2009 and the first 

quarter of 2012. To determine whether acquisition costs had changed at 

the same rate as PPI for Prescription Drugs, we multiplied this rate by 

each drug’s first-quarter 2009 average acquisition cost to estimate 

first-quarter 2012 prices. We compared this estimate to the actual average 

acquisition costs of each drug for dialysis facilities in the first quarter of 

2012. 

Comparison of Payment Methodologies. We compared first-quarter 

2012 ASP-based Medicare payment amounts for the 11 ESRD drugs to the 

amounts paid under the ESRD base rate. To compare the two 

methodologies, we first multiplied each drug’s units per treatment 

included in the base rate of the ESRD payment bundle by the first-quarter 

2012 ASP payment amounts. We summed these amounts to estimate the 

total MAP per treatment based on the ASP payment amounts. We 

compared this figure to the actual MAP per treatment in the 2012 ESRD 

base rate. See Appendix A for more detail about determining the units and 

MAP amounts per treatment. 

Limitations 

We did not evaluate the appropriateness of payments for the entire ESRD 

payment bundle and the utilization figures used to calculate the base rate. 

We also did not evaluate the medical necessity of the drugs used to treat 

ESRD or the clinical appropriateness of the drugs’ use in dialysis facilities. 

In addition, we did not account for individual facility adjustments to the 

base rate, such as a low-volume adjustment. Instead, we focused only on 

the unadjusted portion of the ESRD base rate that included drugs that were 

previously billed separately. Data are based on self-reported information 

from dialysis facilities and we did not verify this information. The 

acquisition cost data provided in this report represent purchases for the 

43 OIG, End Stage Renal Disease Drugs: Facility Acquisition Costs and Future 

Medicare Payment Concerns (OEI-03-09-00280), September 2010. 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 11 
 

drugs under review made by the majority of the dialysis facilities during 

the first quarter of 2012. We did not project these figures to facilities not 

included in our sample. 

Standards 

This study was conducted in accordance with the Quality Standards for 

Inspection and Evaluation issued by the Council of the Inspectors General 

on Integrity and Efficiency. 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 12 
 

FINDINGS 

Independent dialysis facilities purchased ESRD drugs 

for less than the drugs’ reimbursement amounts in the 

ESRD base rate, but the acquisition costs for 

hospital-based facilities exceeded reimbursement 

amounts, in the aggregate 

Consistent with the trend described in our prior ESRD drug pricing reports, 

first-quarter 2012 aggregate acquisition costs among responding 

independent dialysis facilities for the 11 ESRD drugs were below the 

reimbursement portion of the ESRD base rate for these drugs. However, the 

first-quarter 2012 aggregate acquisition costs for hospital-based dialysis 

facilities were above the drugs’ reimbursement amounts in the ESRD base 

rate, meaning that these facilities could not purchase the entire bundle of 

drugs for less than they were reimbursed. 

In the aggregate, independent dialysis facilities acquired the 

11 drugs for an average of 9 percent less than the drugs’ 

reimbursement amount in the ESRD base rate 

In the first quarter of 2012, responding independent dialysis facilities paid 

between 5 and 54 percent below the per-unit reimbursement amounts in 

the ESRD base rate for 7 of the 11 drugs, on average. Average acquisition 

costs for the remaining 4 drugs were between 7 and 30 percent above their 

ESRD base rate amounts. One of these four drugs, epoetin alfa, 

represented over three-fourths of total spending ($337 million in the first 

quarter of 2012) in responding independent dialysis facilities for the drugs 

under review. Even with epoetin alfa’s higher cost, aggregate acquisition 

costs for the responding independent facilities averaged 9 percent below 

the amounts represented in the ESRD base rate. This is because many of 

the other drugs’ costs were lower than reimbursement in the aggregate; 

some of these drugs’ costs were substantially lower. See Appendix C for 

the aggregate difference between the reimbursement amounts in the ESRD 

base rate and average acquisition costs paid by large chains and smaller 

independent facilities. See Table 2 for the percentage difference between 

the amounts in the ESRD base rate and the average acquisition costs 

reported by independent dialysis facilities for the first quarter of 2012. 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 13 
 

 

 

 

Table 2: Medicare ESRD Base Rate Payment Amounts and Average 

Acquisition Costs for Responding Independent Dialysis Facilities 

Drug 

Per-Unit 

Amount in the 

ESRD Base 

Rate 

First-Quarter 

2012 Average 

Acquisition 

Cost for 

Independent 

Facilities 

Percentage 

Difference 

Between ESRD 

Base Rate 

Amount and 

Facility Cost 

Daptomycin, 1 mg $0.42 $0.54 30% 

Darbepoetin alfa, 1 mcg $2.79 $3.42 22% 

Alteplase recombinant, 1 mg $36.23 $42.30 17% 

Epoetin alfa, per 1,000 units $9.15 $9.79 7% 

Calcitriol, 0.1 mcg $0.37 $0.35 -5% 

Levocarnitine, 1 g $5.84 $5.20 -11% 

Iron sucrose, 1 mg $0.35 $0.26 -28% 

Vancomycin HCl, 500 mg $3.10 $2.22 -29% 

Doxercalciferol, 1 mcg $2.92 $1.73 -41% 

Sodium ferric gluconate, 12.5 mg $4.43 $2.41 -46% 

Paricalcitol, 1 mcg $3.43 $1.59 -54% 

Source: OIG analysis of first-quarter 2012 average acquisition costs among responding independent dialysis 

facilities, 2013. 

Aggregate spending on the 11 drugs in hospital-based dialysis 

facilities was 5 percent higher, on average, than the drug’s 

reimbursement amount in the ESRD base rate 

In the first quarter of 2012, hospital-based dialysis facilities could not 

purchase ESRD drugs for less than the amount reimbursed under the drug 

component of the ESRD base rate, in the aggregate.44 Aggregate spending 

in responding hospital-based dialysis facilities averaged 5 percent more 

than the payment amount represented in the ESRD base rate. 

Hospital-based facilities acquired 5 of the 11 drugs at prices averaging 

between 4 and 30 percent higher than the drug’s per-unit amount reflected 

in the ESRD base rate. Two of these drugs, epoetin alfa and darbepoetin 

alfa, accounted for nearly two-thirds of total spending by the 

hospital-based facilities to purchase the drugs under review. 

The average acquisition costs for remaining six drugs were between 7 and 

25 percent below the ESRD base rate amount. See Table 3 for each drug’s 

average acquisition cost in responding hospital-based facilities, as 

compared to the payment amounts in the ESRD base rate. 

44 Although hospital-based facilities could not purchase individual ESRD drugs for less 

than the drug component amount in the ESRD base rate, they may have been able to 

provide ESRD treatment, including drugs, for less than the payment amount for entire 

ESRD base rate. 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 14 
 

 

 

Table 3: Medicare ESRD Base Rate Payment Amounts and Average 

Acquisition Costs for Responding Hospital-Based Dialysis Facilities
 

Drug 

Per-Unit 

Amount in the 

ESRD Base 

Rate 

First-Quarter 

2012 Average 

Acquisition 

Cost for 

Hospital-Based 

Facilities* 

Percentage 

Difference 

Between ESRD 

Base Rate 

Amount and 

Facility Cost 

Daptomycin, 1 mg $0.42 $0.54 30% 

Darbepoetin alfa, 1 mcg $2.79 $3.25 16% 

Epoetin alfa, per 1,000 units $9.15 $10.48 14% 

Iron sucrose, 1 mg $0.35 $0.39 9% 

Levocarnitine, 1 g $5.84 $6.07 4% 

Calcitriol, 0.1 mcg $0.37 $0.34 -7% 

Alteplase recombinant, 1 mg $36.23 $33.57 -7% 

Doxercalciferol, 1 mcg $2.92 $2.51 -14% 

Sodium ferric gluconate, 12.5 mg $4.43 $3.61 -18% 

Vancomycin HCl, 500 mg $3.10 $2.51 -19% 

Paricalcitol, 1 mcg $3.43 $2.58 -25% 

Source: OIG analysis of first-quarter 2012 average acquisition costs among responding hospital-based dialysis 

facilities, 2013. 

* Acquisition cost data apply only to the responding facilities that purchased the drugs under review. 

Dialysis facilities could not purchase epoetin alfa for less than 

the drug’s per-unit ESRD base rate amount, on average 

On average, epoetin alfa was purchased by independent dialysis facilities 

at the rate of $9.79 per 1,000 units and by hospital-based facilities at the 

rate of $10.48 per 1,000 units in the first quarter of 2012. As a result, 

acquisition costs at independent and hospital-based facilities were 7 and 

14 percent above the amount represented in the 2012 ESRD base rate for 

the drug (i.e., $9.15 per 1,000 units), respectively. For the drugs under 

review, epoetin alfa represented more than three-quarters of the costs in 

responding independent facilities and more than a fifth of costs in 

responding hospital-based facilities. We estimate that if Medicare had 

reimbursed on the basis of the per-unit payment amount in the ESRD base 

rate for epoetin alfa only, responding independent facilities would have 

been reimbursed $22 million less than the amount they spent to purchase 

the drug in the first quarter of 2012. 

A few of the facilities expressed concern about price increases for epoetin 

alfa. During the first quarter of 2012, only one of the responding smaller 

independent dialysis facilities and none of the large chains could purchase 

epoetin alfa for less than the amount reflected in the ESRD base rate, on 

average. Less than 10 percent of responding hospital-based facilities that 

purchased the drug could do so for less than the ESRD base rate amount. 

However, spending in hospital-based facilities was concentrated on the 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 15 
 

 

other ESA, darbepoetin alfa. None of these facilities could acquire 

darbepoetin alfa for less than the drug’s per-unit ESRD base rate amount, 

on average. 

Although the average facility acquisition costs for the 

majority of drugs under review decreased in the past 

3 years, costs for ESAs have increased 

Changes in independent dialysis facilities’ acquisition costs between 

first-quarter 2009 and first-quarter 2012 ranged from a decrease of 

52 percent (paricalcitol) to an increase of 35 percent (darbepoetin alfa). 

Similarly, acquisition costs in hospital-based facilities displayed a wide 

range of changes, from a decrease of 37 percent (paricalcitol) to an 

increase of 26 percent (darbepoetin alfa). Although the extent of the 

percentage change varied by drug, the general trend of cost changes was 

similar among the two types of dialysis facilities. Alteplase was the only 

drug for which the acquisition cost increased in independent dialysis 

facilities but decreased in hospital-based facilities during the period under 

review. See Table 4 for the changes in average acquisition costs for the 

drugs under review. 

Table 4: Changes in Average Acquisition Costs for Responding Dialysis Facilities 

Independent Facilities Hospital-Based Facilities 

Drug 

Average 

Acquisition 

Cost in 

First-Quarter 

2009 

Average 

Acquisition 

Cost in 

First-Quarter 

2012 

Percentage 

Difference 

Average 

Acquisition 

Cost in 

First-Quarter 

2009 

Average 

Acquisition 

Cost in 

First-Quarter 

2012 

Percentage 

Difference 

Darbepoetin alfa, 1 mcg $2.54 $3.42 35% $2.59 $3.25 26% 

Alteplase recombinant, 1 mg $33.40 $42.30 27% $34.23 $33.57 -2% 

Epoetin alfa, per 1,000 units $8.37 $9.79 17% $8.82 $10.48 19% 

Calcitriol, 0.1 mcg $0.33 $0.35 6% $0.30 $0.34 14% 

Levocarnitine, 1 g $5.35 $5.20 -3% $6.78 $6.07 -10% 

Iron sucrose, 1 mg $0.31 $0.26 -18% $0.39 $0.39 -1% 

Vancomycin HCl, 500 mg $2.70 $2.22 -18% $2.71 $2.51 -7% 

Doxercalciferol, 1 mcg $2.94 $1.73 -41% $3.39 $2.51 -26% 

Sodium ferric gluconate, 12.5 mg $4.40 $2.41 -45% $4.78 $3.61 -24% 

Paricalcitol, 1 mcg $3.29 $1.59 -52% $4.10 $2.58 -37% 

Source: OIG analysis of first-quarter 2009 and first-quarter 2012 average acquisition costs from responding dialysis facilities, 2013. 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 16 
 

 

 

 

Average acquisition costs at dialysis facilities have decreased 

for the majority of drugs in 3 years 

By the first quarter of 2012, average acquisition costs had decreased for 

6 and 7 of the 10 drugs for which we had collected first-quarter 2009 

acquisition cost data in responding independent and hospital-based 

dialysis facilities, respectively.45 For responding independent dialysis 

facilities, the decrease in average acquisition costs ranged from 3 to 

52 percent; for responding hospital-based facilities, the decrease ranged 

from 1 to 37 percent (see Table 4). 

Average acquisition costs at dialysis facilities have increased 

for the ESAs epoetin alfa and darbepoetin alfa by at least 

17 percent in 3 years 

Between the first quarter of 2009 and the first quarter of 2012, average 

acquisition costs for epoetin alfa increased by 17 percent and 19 percent in 

the responding independent and hospital-based dialysis facilities, 

respectively. As a result, in the first quarter of 2012, independent dialysis 

facilities spent $1.42 more and hospital-based facilities $1.66 more to 

purchase 1,000 units of the drug, on average, than they did in the first 

quarter of 2009 (see Table 4). 

The other ESA included in the bundle, darbepoetin alfa, also experienced 

similar price increases during this time.46 The average acquisition cost for 

darbepoetin alfa increased by 35 percent and 26 percent for responding 

independent and hospital-based dialysis facilities, respectively. In 

referring to the price increase for darbepoetin alfa, one hospital-based 

facility noted that the drug’s acquisition cost had continued to climb since 

the first quarter of 2012 and that it anticipates an additional increase in 

2013. 

The PPI for Prescription Drugs was not an accurate

predictor of cost changes between 2009 and 2012 for 

most drugs under review 

The PPI for Prescription Drugs overestimated first-quarter 2012 

acquisition costs for nearly all of the 10 drugs under review. According to 

the PPI data, prescription drug prices increased by 25 percent between the 

first quarter of 2009 and the first quarter of 2012, even though acquisition 

costs for the majority of the drugs under review decreased. As a result, the 

PPI price estimates were, on average, 54 percent and 37 percent higher 

45 We had not collected first-quarter 2009 acquisition cost data for daptomycin in our
 

previous report. 

46 Epoetin alfa and darbepoetin alfa are produced by the same manufacturer. 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 17 
 

 

 

 

than first-quarter 2012 average acquisition costs in independent and 

hospital-based facilities, respectively. 

The PPI for Prescription Drugs overestimated the average acquisition cost 

for 8 of the 10 drugs in independent dialysis facilities and 9 of the 

10 drugs in hospital-based dialysis facilities. As was the case in our 

previous report, the PPI was not an accurate predictor of cost for epoetin 

alfa. Between the first quarter of 2009 and the first quarter of 2012, 

average acquisition costs for this drug increased by 17 percent in 

independent dialysis facilities and 19 percent in hospital-based facilities, 

whereas the PPI increased by 25 percent. If the PPI for Prescription Drugs 

had been an accurate predictor of changes in acquisition cost, independent 

facilities would have paid $10.43 for 1,000 units of the drug instead of the 

$9.79 actually paid (7-percent difference) and hospital-based facilities 

would have paid $10.99 for 1,000 units instead of the $10.48 actually paid 

(5-percent difference). 

The PPI for Prescription Drugs underestimated the average acquisition 

cost for 2 of the 10 drugs in independent dialysis facilities and just 1 of the 

drugs in hospital-based facilities. The PPI underestimated the amounts 

paid by both types of facilities to acquire darbepoetin alfa. Independent 

facilities paid on average $3.42 in the first quarter of 2012 to purchase 

1 mcg of darbepoetin alfa; using the PPI rate, these facilities would have 

paid $3.16. Hospital-based facilities paid on average $3.25 for 1 mcg of 

darbepoetin alfa, which is very close to the PPI-based estimate of $3.23. 

If ASP-based reimbursement had remained in effect 

for the first quarter of 2012, payment amounts for the 

bundle of ESRD drugs would have differed by less 

than a dollar per treatment 

Overall, the ESRD base rate paid $72.23 per treatment in 2012 for 

11 ESRD drugs that, prior to 2011, were separately billable and paid on 

the basis of 106 percent of each drug’s ASP. We estimate that if the units 

per treatment remained consistent since CMS calculated the initial ESRD 

base rate (using 2007 claims data), the ESRD base rate reimbursement 

would have been slightly higher ($0.83 more) than per-treatment payment 

based on first-quarter 2012 ASP amounts for the 11 drugs. This is true 

even after accounting for the standardization, outlier, and budget neutrality 

adjustments to the base rate. See Table 5 for the price differences in 

payment methodologies. 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 18 
 

 

 

 

 

Table 5: Comparison of the Former and Current ESRD Payment 

Methodologies 

Drug 

Units per 

Treatment in the 

ESRD Base 

Rate 

Estimated Cost 

per Treatment 

Based on 

First-Quarter 

2012 ASP 

Payment 

Medicare 

Reimbursement 

per Treatment in 

the 2012 ESRD 

Base Rate 

Daptomycin, 1 mg 0.10 $0.05 $0.04 

Darbepoetin alfa, 1 mcg 1.39 $4.46 $3.88 

Alteplase recombinant, 1 mg 0.02 $0.91 $0.79 

Epoetin alfa, per 1,000 units 5.57 $53.57 $51.00 

Calcitriol, 0.1 mcg 0.16 $0.17 $0.06 

Levocarnitine, 1 g 0.02 $0.16 $0.10 

Vancomycin HCl, 500 mg 0.03 $0.08 $0.09 

Iron sucrose, 1 mg 12.23 $3.93 $4.33 

Doxercalciferol, 1 mcg 0.78 $1.11 $2.28 

Sodium ferric gluconate, 12.5 mg 0.39 $1.85 $1.73 

Paricalcitol, 1 mcg 2.32 $5.11 $7.94 

Total $71.41* $72.23* 

Source: OIG analysis, 75 Fed. Reg. 49030, 49068, 49080 (Aug.12, 2010), and CMS first-quarter 2012 payment 

amounts, 2013. 

* Individual amounts do not add to total because of rounding. 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 19 
 

CONCLUSION AND RECOMMENDATIONS 

On January 1, 2011, Medicare payment for the treatment of ESRD 

changed dramatically to a system that bundles all costs related to ESRD 

care into a single per-treatment payment amount. The ESRD payment 

bundle sought to promote equitable payment and access to services by 

targeting greater payments to ESRD facilities that treat more costly 

patients and to reduce the incentives to overuse separately billable drugs. 

To comply with statutory requirements, CMS developed the ESRD base 

rate of the payment bundle using claims data from 2007. However, drug 

utilization during 2007 did not fully reflect the impact of new safety data, 

changes to Medicare policies and procedures that address overutilization 

of ESAs and quality of care, and incentives provided under the payment 

bundle to furnish services more efficiently. A May 2013 OIG report found 

a decline in use of certain ESRD drugs since 2007, and CMS concurred 

with the report’s recommendation to adjust the ESRD bundled base rate to 

realize program savings associated with decreased utilization. 

Furthermore, Federal law requires CMS to reduce the ESRD payment 

bundle’s base rate for 2014 to reflect changes in the utilization and prices 

of ESRD drugs and to take into account the most recently available data 

on drug sales. Our findings show that dialysis facilities’ acquisition costs 

for the majority of the ESRD drugs have also decreased. However, since 

our last report on ESRD drug pricing, the costs for ESAs (drugs 

representing the majority of total drug costs for facilities) have steadily 

increased. This means that although dialysis facilities are using ESAs to a 

lesser extent, any savings may potentially be offset by the drugs’ cost 

increase. However, without taking both the payment and utilization 

aspects into account, we are unable to estimate the extent to which this 

may be occurring. 

Even with the cost increase for ESAs, independent dialysis facilities could 

still acquire ESRD drugs for less than Medicare reimbursement, in the 

aggregate. However, our findings also indicate that any reductions to the 

ESRD base rate for the bundle may potentially harm hospital-based 

dialysis facilities, as such facilities experienced difficulties purchasing 

drugs for less than reimbursement, in the aggregate, even prior to any 

reduction that may result from the American Taxpayer Relief Act. When 

making adjustments to the ESRD base rate, CMS should carefully 

consider the implications it may have on hospital-based dialysis facilities. 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 20 
 

 

Therefore, we recommend that CMS: 

Rebase the ESRD base rate to reflect current trends in drug 

acquisition costs, as required by law 

The base rate for the ESRD payment bundle should more accurately 

reflect the amounts paid by facilities to purchase drugs used to treat 

ESRD. Overall, there has been a downward trend in the average prices 

that facilities pay to acquire ESRD drugs, with the exception of the ESAs. 

ESAs represent the majority of dialysis facility costs for drugs used in 

treating ESRD. However, the amounts in the bundled base rate do not 

reflect pricing decreases or increases. If the payment amounts do not 

adequately reflect acquisition costs, it may influence facility decisions on 

which drugs to purchase. This gap between acquisition costs and payment 

amounts may potentially cost the program additional dollars or may result 

in certain facilities’ paying more to acquire the drugs than the amount 

provided under the ESRD base rate. 

Beginning in 2014, CMS is required to rebase the ESRD base rate for the 

payment bundle using updated ASP data for the drugs under review. We 

recommend that CMS complete this rebasing and ensure that it takes into 

account the current trends in drug acquisition costs and utilization when 

doing so. 

Distinguish payments in the ESRD base rate between 

independent and hospital-based dialysis facilities 

When CMS rebases the ESRD base rate, it should adjust reimbursement 

for independent dialysis facilities and hospital-based dialysis facilities to 

account for the differences in their acquisition costs. If necessary, CMS 

should seek legislative authorization to do so. In the aggregate, 

independent facilities could purchase the bundle of ESRD drugs for less 

than the ESRD base rate; however, responding hospital-based facilities 

could not. Our prior reports have shown that hospital-based facilities have 

typically paid more than independent facilities to purchase ESRD drugs, 

and this current report shows that this disparity has grown. Although we 

did not take into account additional adjustments that may have boosted 

reimbursement to an individual facility, such as a low-volume adjustment, 

it appears that hospital-based facilities have difficulties purchasing drugs 

at prices that would be financially advantageous, in the aggregate. In fact, 

in some cases, it appears that hospital-based facilities are unable to recoup 

the total amount paid to purchase ESRD drugs. CMS should ensure that 

the ESRD base rate covers the costs paid by hospital-based facilities to 

purchase the drugs used to treat ESRD, and the agency could consider 

using an add-on adjustment for this facility type. 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 21 
 

Consider updating the ESRD payment bundle using a factor 

that takes into account drug acquisition costs 

CMS decided to use the PPI for Prescription Drugs (a measure that reflects 

price changes associated with the average mix of all the prescription drugs 

sold in pharmacies) as the proxy for drug price changes in the ESRD 

payment bundle. Our September 2010 report found that the average 

acquisition cost for the majority of drugs purchased by dialysis facilities 

had decreased, while the PPI substantially increased. We recommended 

that CMS develop a more accurate method for estimating changes in the 

prices of ESRD drugs. CMS stated that it did not concur with the 

recommendation because the downward trajectory of average acquisition 

costs was influenced largely by payment changes and, as a result, was not 

suitable for inferring future price trends. However, we found in our 

current report that the PPI has continually increased at a time when costs 

for most of the drugs purchased by facilities have decreased. We therefore 

continue to believe that CMS should use a more accurate cost predictor 

when updating the ESRD payment bundle. 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 22 
 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

In its comments on our draft report, CMS concurred with one of our three 

recommendations. CMS did not state whether or not it concurred with one 

recommendation and did not concur with another recommendation. 

CMS concurred with our third recommendation, to consider updating the 

ESRD bundled rate using a factor that takes into account drug acquisition 

costs. CMS said it will consider our findings regarding the accuracy of the 

PPI for Prescription Drugs in its continual evaluation of the ESRD market 

basket, particularly when rebasing and revising the market basket index. 

CMS also stated that it will evaluate alternative data sources to determine 

whether it can improve the relevance of the ESRD drug price proxy (while 

maintaining a price proxy that is reliable, timely, and available). 

In commenting on our first recommendation, to rebase the ESRD base rate 

to reflect current trends in drug acquisition costs, as required by law, CMS 

did not state whether it concurred. But CMS did say that our report will 

assist the agency in determining price adjustments to the ESRD payment 

bundle in the future. CMS responded that it has implemented section 

632(a) of the American Taxpayer Relief Act of 2012, which required a 

reduction in the ESRD payment bundle. CMS stated that, as required by 

law, it took into account the most recently available ASP data, as well as 

drug price changes reflected in the ESRD market basket percentage 

increase factor when determining the reduction amount. CMS also noted 

that the statute did not specify to take into account drug acquisition costs. 

However, for the purposes of this report, we interpreted drug acquisition 

costs and drug sales prices to be essentially the same. We ask that in its 

final management decision, CMS more clearly indicate the distinction 

between drug acquisition and sales prices and indicate whether it concurs 

with our recommendation and what steps, if any, it plans to take to 

implement it. 

Finally, CMS did not concur with our second recommendation, to 

distinguish payments in the ESRD base rate between independent and 

hospital-based dialysis facilities. CMS stated that section 

1881(b)(14)(A)(i) of the Act required the implementation of a 

single-payment system for providers of dialysis services. CMS also noted 

that the ESRD payment bundle includes several payment adjusters, as well 

as an outlier policy to cover more expensive dialysis treatments and 

facility-level adjustments to enhance payments for smaller facilities. CMS 

stated that it has the statutory authority to review the appropriateness of all 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 23 
 

of the payment adjusters as a whole, no later than January 2016. CMS 

said it will then consider appropriate modifications to the payment system 

to improve the accuracy of Medicare's payment for renal dialysis services, 

including drugs and biologicals. Although the additional payment 

adjusters currently included in the ESRD payment bundle may increase 

reimbursement enough to cover the costs of acquiring ESRD drugs at 

hospital-based facilities, we believe that distinguishing payment between 

the different facility types would help to ensure that hospital-based 

facilities are paid appropriately at this time. 

We did not make any changes to the report based on CMS’s comments. 

The full text of CMS’s comments is provided in Appendix D. 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 24 
 

 

 

 

 

 

APPENDIX A 

Detailed Methodology for Calculating the Individual-Drug 

Payment Portions of the ESRD Base Rate 

In calculating the individual-drug payment portions of the ESRD base 

rate, we followed CMS’s methodology for developing the ESRD base rate 

in 2011, the first year the rate was implemented. CMS developed the 

2011 base rate using 2007 Medicare allowable payment amounts for each 

service included in the ESRD payment bundle, as well as the number of 

2007 dialysis treatments. To calculate the unadjusted per-treatment base 

rate, CMS divided the sum of the Medicare allowable payments for each 

service by the number of dialysis treatments. 

Eleven separately billable ESRD drugs accounted for 99.8 percent of total 

Part B spending on separately billable ESRD drugs in 2007. CMS 

selected these 11 drugs as the basis for the pharmaceutical category 

(i.e., the “separately billable drugs” component) of the ESRD payment 

bundle. Using data provided in 75 Fed. Reg. 49030, 49068 

(Aug. 12, 2010), the rule that implements the ESRD payment bundle, we 

calculated the average unadjusted Medicare allowable payment amount 

per treatment for each of the 11 drugs. See Table A-1 for this information. 

Table A-1: Medicare Allowable Payments per Treatment in 2007 

Part B Drug 

Total 2007 

Medicare 

Allowable 

Payments 

Total Dialysis 

Treatments in 

2007 

Average 

Medicare 

Allowable 

Payment per 

Treatment 

Epoetin alfa $1,876,926,573 36,747,662 $51.08 

Paricalcitol $322,849,348 36,747,662 $8.79 

Darbepoetin alfa $167,935,970 36,747,662 $4.57 

Iron sucrose $166,219,339 36,747,662 $4.52 

Doxercalciferol $76,901,723 36,747,662 $2.09 

Sodium ferric gluconate $68,086,707 36,747,662 $1.85 

Alteplase recombinant $26,697,321 36,747,662 $0.73 

Levocarnitine $5,026,446 36,747,662 $0.14 

Vancomycin HCl $3,583,504 36,747,662 $0.10 

Calcitriol $3,125,613 36,747,662 $0.09 

Daptomycin $1,234,405 36,747,662 $0.03 

Source: OIG analysis, 75 Fed. Reg. 49030, 49068 (Aug. 12, 2010). 

To arrive at the base rate, CMS then adjusted the 2007 Medicare allowable 

payment amounts for each service included in the ESRD payment bundle 

to reflect estimated prices in 2011. These adjustments were based on the 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 25 
 

 

 

 

 

latest available ASP data, which represented the second quarter of 2010. 

CMS updated these prices using the PPI for Prescription Drugs. 

Section 1881(b)(14)(A)(ii) of the Act also required the ESRD payment 

bundle to be 98 percent budget neutral in 2011. This means that the 

estimated total payments for 2011 under the ESRD payment bundle must 

equal 98 percent of the estimated total payments for dialysis services that 

would have been made if the bundled rate had not been implemented. 

CMS applied the following adjustments to the base rate to comply with 

this requirement: 

	 94.07-percent adjustment to ensure that the total projected ESRD 

payments were equal to estimated total payments for dialysis 

services that would have been made if the bundled payment system 

had not been implemented, 

	 99-percent adjustment to ensure that the outlier policy was budget 

neutral, and 

	 98-percent adjustment to account for the budget neutrality 

requirement. 

We then calculated the Medicare allowable payment per treatment for 

each of the 11 drugs included in the base rate by applying these 

adjustments (see Table A-2). 

Table A-2: Medicare Allowable Payments per Treatment in the 2011 Base Rate 

Adjustments Applied to the Medicare Allowable Payment 

Part B Drug 

Average 

Medicare 

Allowable 

Payment per 

Treatment in 

2007 

Multiplied 

by: 

Adjustment 

to Reflect 

Estimated 

2011 Prices

 Multiplied by: 

Standardization 

Adjustment 

Multiplied 

by: Outlier 

Adjustment 

Multiplied 

by: Budget 

Neutrality 

Adjustment 

Equals: 

Reimbursement 

Per Treatment 

in 2011 Base 

Rate 

Epoetin alfa $51.08 1.07 0.9407 0.99 0.98 $49.88 

Paricalcitol $8.79 0.97 0.9407 0.99 0.98 $7.76 

Darbepoetin alfa $4.57 0.91 0.9407 0.99 0.98 $3.80 

Iron sucrose $4.52 1.03 0.9407 0.99 0.98 $4.24 

Doxercalciferol $2.09 1.17 0.9407 0.99 0.98 $2.23 

Sodium ferric 

gluconate $1.85 1.00 0.9407 0.99 0.98 $1.69 

Alteplase 

recombinant $0.73 1.17 0.9407 0.99 0.98 $0.78 

Levocarnitine $0.14 0.78 0.9407 0.99 0.98 $0.10 

Vancomycin HCl $0.10 0.97 0.9407 0.99 0.98 $0.09 

Calcitriol $0.09 0.74 0.9407 0.99 0.98 $0.06 

Daptomycin $0.03 1.30 0.9407 0.99 0.98 $0.04 

Source: OIG analysis, 75 Fed. Reg. 49030, 49080–2 (Aug. 12, 2010). 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 26 
 

 

 

 

 

Dialysis facilities report the appropriate Healthcare Common Procedure 

Coding System (HCPCS) code on their Medicare claims and bill the units 

of service in multiples of the units shown in the HCPCS narrative 

description. This is also the unit that Medicare used as the basis for 

payment for separately billable drugs prior to the ESRD payment bundle.47 

To calculate the amount reflected in the ESRD base rate, we divided the 

2007 average Medicare allowable payment per treatment by the average 

2007 payment for a single HCPCS unit (i.e., billing unit) to determine the 

number of billing units reflected in the base rate (see Table A-3). 

Table A-3: Billing Units Reflected in the ESRD Base Rate for Each Drug 

Part B Drug HCPCS 

Code Billing Unit 

Average 

Medicare 

Allowable 

Payment 

per 

Treatment 

in 2007 

Divided by: 

Average 

2007 

Payment 

Amount for 

a Billing 

Unit 

Equals: 

Number of 

Billing 

Units in the 

ESRD Base 

Rate 

Epoetin alfa J0886 1,000 units $51.08 $9.17 5.57 

Paricalcitol J2501 1 mcg $8.79 $3.79 2.32 

Darbepoetin alfa J0882 1 mcg $4.57 $3.29 1.39 

Iron sucrose J1756 1 mg $4.52 $0.37 12.23 

Doxercalciferol J1270 1 mcg $2.09 $2.68 0.78 

Sodium ferric gluconate J2916 12.5 mg $1.85 $4.76 0.39 

Alteplase recombinant J2997 1 mg $0.73 $33.21 0.02 

Levocarnitine J1955 1 g $0.14 $8.07 0.02 

Vancomycin HCl J3370 500 mg $0.10 $3.43 0.03 

Calcitriol J0636 0.1 mcg $0.09 $0.54 0.16 

Daptomycin J0878 1 mg $0.03 $0.34 0.10 

Source: OIG analysis, 75 Fed. Reg. 49030, 49080–2 (Aug. 12, 2010), CMS ASP Drug Pricing Files (2007). 

We then updated the 2011 per-treatment reimbursement amounts to reflect 

the amounts in the 2012 ESRD base rate. To calculate the reimbursement 

per treatment in the 2012 ESRD base rate, we multiplied the 2011 

per-treatment amounts by 2.1 percent to adjust for the market basket 

increases and then by 0.1520 percent for the wage-index budget neutrality 

adjustment. We then divided the 2012 reimbursement per treatment by the 

billing units in the ESRD base rate to calculate reimbursement per billing 

unit in 2012. See Table A-4 for the per-treatment reimbursement 

amounts. 

47 CMS, 2007 ASP Drug Pricing Files. Accessed at 

http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Part-BDrugs/McrPartBDrugAvgSalesPrice/01b_2007aspfiles.html on June 20, 2013. 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 27 
 

 

 

 

Table A-4: Reimbursement per Billing Unit in the 2012 Base Rate 

Adjustments Applied 2011 

Base Rate for 2012 

Part B Drug 

Reimbursement 

Per Treatment 

in 2011 Base 

Rate 

Multiplied 

by: Market 

Basket 

Adjustment 

Multiplied by: 

Wage-Index 

Budget 

Neutrality 

Adjustment 

Equals: 

Reimbursement 

Per Treatment 

in 2012 Base 

Rate 

Divided by: 

Number of 

Billing 

Units in the 

Base Rate 

Equals: 

Reimbursement 

per Billing Unit 

in 2012* 

Epoetin alfa $49.88 1.021 1.001520 $51.00 5.57 $9.15 

Paricalcitol $7.76 1.021 1.001520 $7.94 2.32 $3.43 

Darbepoetin alfa $3.80 1.021 1.001520 $3.88 1.39 $2.79 

Iron sucrose $4.24 1.021 1.001520 $4.33 12.23 $0.35 

Doxercalciferol $2.23 1.021 1.001520 $2.28 0.78 $2.92 

Sodium ferric 

gluconate $1.69 1.021 1.001520 $1.73 0.39 $4.43 

Alteplase recombinant $0.78 1.021 1.001520 $0.79 0.02 $36.23 

Levocarnitine $0.10 1.021 1.001520 $0.10 0.02 $5.84 

Vancomycin HCl $0.09 1.021 1.001520 $0.09 0.03 $3.10 

Calcitriol $0.06 1.021 1.001520 $0.06 0.16 $0.37 

Daptomycin $0.04 1.021 1.001520 $0.04 0.10 $0.42 

Source: OIG analysis, 75 Fed. Reg. 49030, 49080–82 (Aug. 12, 2010), 76 Fed. Reg. 70228, 70231 (Nov. 10, 2011), and CMS ASP Drug Pricing
 

Files (2007). 

*Amounts may not equal exact reimbursement because of rounding. 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 28 
 

 

 

 

APPENDIX B 

Detailed Methodology for Selecting Dialysis Facilities 

Large Chains of Independent Dialysis Facilities. We classified three 

chains of independent dialysis facilities (Davita, Fresenius, and Dialysis 

Clinic Inc.) as large chains. As of August 2012, these 3 companies owned 

3,349 (64 percent) of the 5,219 independent dialysis facilities listed in 

CMS’s Certification and Survey Provider Enhanced Reports database. We 

contacted representatives from these three companies and sent them the 

online survey on acquisition costs. All three companies responded to our 

request in January 2013. 

Smaller Independent Dialysis Facilities. To ensure that smaller 

independent facilities were represented, we sent surveys to a random 

sample of 200 of the 1,870 remaining independent dialysis facilities not 

owned or managed by one of the 3 large chains. Of these, 177 replied 

(89 percent); however, we excluded 50 facilities because they had been 

subsequently acquired by one of the 3 large chains and their acquisition 

costs were thus included as part of the larger companies’ responses. We 

excluded an additional two facilities because they indicated on the survey 

that they qualified for 340B pricing.48 Therefore, we received complete 

data from 125 smaller independent dialysis facilities. Several of the 

responding facilities owned multiple dialysis units and provided cost 

information for 397 additional facilities (for a total of 522 respondents not 

affiliated with the 3 large independent dialysis companies). 

Hospital-Based Dialysis Facilities. As of August 2012, there were 

356 hospital-based dialysis facilities. We identified and excluded 

156 hospitals that qualified for 340B pricing.49 In December 2012, we 

sent online surveys requesting acquisition cost data to the remaining 

200 hospital-based dialysis facilities. These were the same requests for 

first-quarter 2012 data that we sent to the independent dialysis facilities. 

48 We excluded these facilities because the 340B program requires drug manufacturers to 

provide drugs to 340B-covered entities at or below statutorily defined ceiling prices. 

42 U.S.C. § 256b. 

49 To identify 340B-covered facilities, we downloaded the covered entities file from the 

Health Resources and Services Administration’s Web site on November 14, 2012, and 

identified those covered during the first quarter of 2012 (i.e., the quarter for which we 

requested cost data). 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 29 
 

 

We received responses from 177 hospital-based dialysis facilities 

(89 percent), but could not use data provided by 53 of these facilities.50 Of 

the remaining 124 respondents, 1 hospital provided data on an additional 

hospital, resulting in valid data representing 125 hospital-based dialysis 

facilities. 

50 We excluded these 53 facilities for the following reasons: 9 reported that they had 

either discontinued outpatient dialysis services or provided primarily inpatient dialysis; 

9 had been acquired by 1 of the large chains; 33 responded that they qualified for 340B 

pricing; and 2 received Department of Veterans Affairs pricing, which is heavily 

discounted compared to prices in the marketplace. 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 30 
 

 

APPENDIX C 

Difference Between Medicare Reimbursement and Costs Paid 

by Large Chain and Smaller Independent Dialysis Facilities 

In the aggregate, first-quarter 2012 acquisition costs among the three large 

chains averaged 8 percent below the drugs’ respective reimbursement 

amounts in the ESRD base rate. In the first quarter of 2012, these chains 

purchased 7 of the 11 drugs under review for less than the drugs’ 

respective reimbursement amounts in the ESRD base rate. Average 

acquisition costs ranged between 4 and 54 percent less than the amount in 

the ESRD base rate. Costs for the remaining 4 of the 11 drugs exceeded 

reimbursement by 7 to 30 percent. 

Among responding independent dialysis facilities that were not owned or 

managed by these three large chains, acquisition costs averaged 11 percent 

below the drugs’ respective reimbursement amounts in the ESRD base 

rate, in the aggregate. In the first quarter of 2012, these facilities 

purchased the same seven drugs for less than the ESRD base rate 

reimbursement amounts; the facilities’ average acquisition costs ranged 

from 8 and 49 percent below the ESRD base rate for these seven drugs. 

Costs for the remaining 4 of the 11 drugs exceeded reimbursement by 9 to 

32 percent. See Table C-1 for the differences in average acquisition costs 

for the two types of independent dialysis facilities. 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 31 
 

 

 

 

 

Table C-1: ESRD Base Rate Payment Amounts and Average Acquisition 

Costs for Large Chains and Smaller Independent Dialysis Facilities 

Drug 

Per-Unit 

Amount in the 

ESRD Base 

Rate 

First-Quarter 

2012 Average 

Acquisition 

Costs for Large 

Chains 

First-Quarter 2012 

Average 

Acquisition Costs 

for Smaller 

Independent 

Facilities* 

Alteplase recombinant, 1 mg $36.23 $41.89 $44.51 

Calcitriol, 0.1 mcg $0.37 $0.35 $0.32 

Daptomycin, 1 mg $0.42 $0.54 $0.55 

Darbepoetin alfa, 1 mcg $2.79 $3.46 $3.33 

Doxercalciferol, 1 mcg $2.92 $1.73 $1.78 

Epoetin alfa, per 1,000 units $9.15 $9.78 $9.96 

Iron sucrose, 1 mg $0.35 $0.26 $0.25 

Levocarnitine, 1 g $5.84 $5.15 $5.39 

Paricalcitol, 1 mcg $3.43 $1.56 $2.03 

Sodium ferric gluconate, 12.5 mg $4.43 $2.54 $2.26 

Vancomycin HCl, 500 mg $3.10 $2.18 $2.54 

Source: OIG analysis of first-quarter 2012 average acquisition costs among responding independent dialysis 

facilities, 2013. 

* Acquisition cost data apply only to the responding facilities that purchased the drugs under review. 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 32 
APPENDIX D 

Agency Comments 

/~'~ \4­ DEPARTMENT OF HEALTii & HUMAN SERVICES Centers for Medicare & Medicaid Services

Administrator 

Washington. DC 20201 

DATE: JAN - 8 2014 

TO: 	 Daniel R. Levinson 


Inspect01: General 


FROM: 	 Mar'tlyn Taxrl3.!mer 


Administrator 


SUBJECT: 	 Office oflnspester General Draft Report: "Update: Medicare Payments for End 

Stage Renal Disease Drugs," (OEI-03-12-00550) 

The Centers for Medicare & Medicaid Services (CMS) appreciates the opportunity to review and 

comment on the above subject report. The objectives of this review were to: I) compare firstquarter-2012 facility acquisition costs for selected End Stage Renal Disease (ESRD) drugs to the 

amounts that Medicare Part B paid for these drugs under the new ESRD bundled rate; 2) 

determine how facility acquisition costs for selected ESRD drugs have changed in relation to 

inflation, from the first quarter of2009 to the first quarter of2012 and; 3) compare the average 

sale price (ASP) based reimbursement amounts for selected ESRD drugs to the amounts paid 

under the new ESRD bundled rate. 

Our response to each recommendation follows. 

Recommendation: 

Rebase the ESRD base rate to reflect current trends in drug acquisition costs, as required by law. 

Response: 

The CMS implemented section 632(a) ofthe American Taxpayer Relief Act of2012 (ATRA), 

which requires the Secretary to reduce the single payment amount for renal dialysis services to 

reflect the Secretary's estimate of the change in the utilization of ESRD-related drugs and 

biologicals (other than oral-only ESRD-related drugs) between 2007 and 2012. As the law 

requires, CMS took into account the most recently available data on ASP and changes in prices 

for drugs and biologicals reflected in the ESRD market basket percentage increase factor in 

determining the reduction amount. The statute did not specify to take into account drug 

acquisition costs. 

The final regulation was issued on November 22,2013 (See 78 FR 72156) and included a 

reduction amount which will be phased in over three to four years by offsetting the reduction 

against the market basket minus productivity adjustment and other payment impacts to create an 

overall zero percent impact for all ESRD facilities from the previous year's payments for calendar 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 33 
 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 34 
 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 35 
 

 

 

ACKNOWLEDGMENTS 

This report was prepared under the direction of Robert A. Vito, Regional 

Inspector General for Evaluation and Inspections in the Philadelphia 

regional office. 

Stephanie Yeager served as the team leader for this study, and 

Stefanie Vance served as the lead analyst. Central office staff who 

provided support include Clarence Arnold, Meghan Kearns, and Christine 

Moritz. 

Update: Medicare Payments for ESRD Drugs (OEI-03-12-00550) 36 
Office of Inspector General

http://oig.hhs.gov 

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amended, is to protect the integrity of the Department of Health and Human Services 

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