United States General Accounting Office

GAO Report to Congressional Requesters

November 1995 MEDICARE

Enrollment Growth

and Payment Practices

for Kidney Dialysis

Services

GAO/HEHS-96-33

GAO United States

General Accounting Office

Washington, D.C. 20548

Health, Education, and

Human Services Division

B-256781 

November 22, 1995

The Honorable William V. Roth Jr.

Chairman, Committee on Finance

United States Senate

The Honorable Daniel Patrick Moynihan

Ranking Minority Member

Committee on Finance

United States Senate

The Honorable William M. Thomas

Chairman, Subcommittee on Health

Committee on Ways and Means

House of Representatives

The Honorable Fortney H. (Pete) Stark

Ranking Minority Member

Subcommittee on Health

Committee on Ways and Means

House of Representatives

Medicare is the predominant health care payer for people who have end

stage renal disease (ESRD)—permanent and irreversible loss of kidney

function. Since it started, both the number of people covered by ESRD and

the costs to Medicare of the ESRD program itself have risen rapidly. From

1974, the first full year of the program, to 1991, the most recent year for

which the Health Care Financing Administration (HCFA) has published final

enrollment and cost data, the number of persons enrolled in the ESRD

program has increased from about 16,000 to nearly 218,000, while program

costs have grown from about $229 million to more than $6 billion.

Under Medicare, facilities that furnish dialysis treatments for ESRD patients

receive a fixed payment for each dialysis session. This payment, known as

the composite rate, includes reimbursement for certain supplies, drugs,

laboratory tests, and other services that are routinely provided during

dialysis. Other dialysis-related items, such as electrocardiograms and

blood transfusions, are separately billable; that is, a facility or another

provider can receive payment for them in addition to the composite rate.

You asked us to provide an update on ESRD statistics, including

information on ESRD enrollment patterns and the reasons for program

Page 1 GAO/HEHS-96-33 Medicare’s ESRD Program
B-256781 

enrollment and costs increases. You also asked us to determine whether

any services that are currently separately billable should be included in a

future composite rate.

To identify the reasons for the growth in ESRD program enrollment and

costs, we reviewed data from HCFA and others. To determine if any

separately billable services should be considered for inclusion in a future

composite rate, we analyzed HCFA’s database that identifies all medical

services provided to all ESRD patients in 1991, which corresponds to the

latest year for which HCFA has published final ESRD enrollment and cost

data. Appendix I contains a more complete description of our scope and

methodology.

Results in Brief Medicare’s costs for the ESRD program have increased, primarily because

the number of new beneficiaries being enrolled in the program increased

substantially. The annual rate of increase averaged 11.6 percent between

1978 and 1991. In addition to the increase in enrollment, the mortality rate

for new ESRD patients decreased. For example, mortality of beneficiaries

during their first year in the program decreased from 28 percent to

24 percent between 1982 and 1991.

Since the program began in 1973, technological improvements and a

greater availability of dialysis machines have meant that persons who were

not considered good candidates for dialysis in 1973—primarily those 65

years old or older and those whose kidney failure was caused by diabetes

and hypertension—are now routinely placed on dialysis.

Our review of medical services and supplies provided to all Medicare ESRD

patients in 1991 indicates that no separately billable service or supply was

provided frequently enough to make it a good candidate to be considered

part of the standard dialysis treatment and thus included in a future

composite rate.

Background The Medicare program covers dialysis services for patients suffering from

ESRD, the stage of kidney impairment that is considered irreversible and

requires either regular dialysis treatments or a kidney transplant to

maintain life. Kidney dialysis is the process of cleansing excess fluid and

toxins from the blood of patients whose kidneys do not function. Renal

failure can result not only directly from a particular kidney disease, such

as glomerulonephritis, but also indirectly from other diseases, such as

Page 2 GAO/HEHS-96-33 Medicare’s ESRD Program
B-256781 

diabetes and hypertension. Virtually all persons with ESRD are eligible for

the Medicare program and they are eligible for all Medicare covered

services, not just dialysis sessions.1

There are two general modes of dialysis treatment: hemodialysis and

peritoneal dialysis, both of which can be performed at a renal facility or at

home. In hemodialysis, blood is sent from the patient’s body and through a

dialysis machine that filters out body waste before returning the blood to

the patient. In peritoneal dialysis, the blood is filtered within the patient’s

abdominal cavity without leaving the patient’s body. The vast majority of

ESRD patients receive hemodialysis treatments and they receive these

treatments at renal facilities. Generally, an ESRD patient has three dialysis

sessions per week.

Presently, independent renal facilities receive an average of $126 per

dialysis session, while hospital-based facilities receive an average of $130.

These rates are actually lower than those paid in 1973. HCFA’s database

included information on 16,159,051 outpatient dialysis treatments in 1991.

Substantial Increases

in ESRD Program

Enrollment and Costs

Although eligibility criteria for the ESRD program have not substantially

changed or relaxed since the program’s inception, the number of patients

either on dialysis or with a kidney transplant increased from about 16,000

in 1974 to nearly 218,000 by 1991. Driven by increased enrollment, total

expenditures for ESRD patients also increased significantly—from

$229 million in 1974 to more than $6 billion by 1991.2

The growth in enrollment and expenditures in the 8-year period from 1984

through 1991 (the most recent year for which HCFA has published final

enrollment and cost data) is shown in table 1. Enrollment figures

represent all patients who were on the ESRD rolls at some time during the

year. The total enrollment column includes all ESRD patients and the

program costs column shows Medicare’s costs for all services provided to

ESRD patients during the year. The last 2 columns show enrollment and

expenditures for dialysis patients.

1

A person must be (1) entitled to a monthly insurance benefit under Title II of the Social Security Act

(or an annuity under the Railroad Retirement Act), (2) fully or currently insured under Social Security,

or (3) the spouse or dependent child of a person who meets at least one of the first two requirements.

2

Of the $6 billion, $2.68 billion was for inpatient hospital services, $2.10 billion was for outpatient

services, $1.30 billion was for physician and supplier services, and $76 million was for other

expenditures including those for skilled nursing facility and home health services.

Page 3 GAO/HEHS-96-33 Medicare’s ESRD Program
B-256781 

Table 1: Medicare’s ESRD Enrollment

and Expenditures (1984-91) Dollars in billions

Total enrollment (at

any time during the

year)

ESRD

program

costs

Dialysis

patients

Costs of

dialysis

patients

1984 113,542 $2.381 93,695 $1.988

1985 125,378 2.680 101,951 2.205

1986 136,957 3.109 109,060 2.514

1987 148,771 3.442 116,858 2.797

1988 165,894 3.851 130,888 3.200

1989 181,189 4.528 143,478 3.803

1990 198,273 5.261 156,898 4.424

1991 217,771 6.070 172,426 5.186

Source: Department of Health and Human Services, Health Care Financing Administration,

Bureau of Data Management and Strategy, Office of Research and Demonstrations, Health Care

Financing Research Report—End Stage Renal Disease, 1990, HCFA Pub. No. 03228, p. 56; 1991,

HCFA Pub. No. 03338, p. 58; 1992, HCFA Pub. No. 03359, p. 60. (Baltimore: 1992, 1993, 1994).

HCFA data show that the number of ESRD dialysis patients (both Medicare

and other) at the end of the calendar year has increased from 78,483 on

December 31, 1984, to 186,822 on December 31, 1994. Patient growth was

about 9 percent per year during this period.

Improvements in Dialysis

Procedures Lead to More

Enrollment by Elderly and

Diabetic and Hypertensive

Patients

The major reason for the growth in ESRD enrollment has been the increase

in the number of people 65 years old and older and people who are on

dialysis and whose primary diagnosis is diabetes or hypertension.

Physicians’ clinical judgment of who is an appropriate candidate for

dialysis has changed over time. According to the Prospective Payment

Assessment Commission (ProPAC),3

 few elderly patients were treated for

chronic kidney disease before 1973 due to the experimental nature of the

treatment at that time and because advanced age was a contraindication to

dialysis treatment.

The enrollment pattern has changed—and enrollment has

increased—because modern dialysis techniques have become viable

options for treatment of kidney failure in the elderly. Since 1973, when the

program began, improvements in medical technology—such as

erythropoietin for treating anemia in dialysis patients and the introduction

of faster, more efficient dialysis machines—have made successful

3

End-Stage Renal Disease Payment Policy, ProPAC, Congressional Report C-92-04 (Washington, D.C.:

1992), p. 53.

Page 4 GAO/HEHS-96-33 Medicare’s ESRD Program
B-256781 

treatment available to a greater number of people suffering from kidney

failure.

In addition, as shown in figure 1, a continuous increase in the number of

dialysis providers and stations (machines) has made dialysis available to

more patients. In 1976, for example, there were 840 independent and

hospital-based providers of outpatient dialysis services with 7,093 stations.

By 1985, the number had increased to 1,463 providers with 17,845 stations;

by 1994, it had grown to 2,640 providers with 37,771 stations.

Page 5 GAO/HEHS-96-33 Medicare’s ESRD Program
B-256781 

Figure 1: Growth in the Number of Dialysis Providers and Stations (1976-94)

2,800

Providers Stations

2,600

2,400

2,200

2,000

1,800

1,600

1,400

1,200

600

200

0

1976 1985

Independent and Hospital-Based Providers

Dialysis Stations

1994

400

39,200

36,400

33,600

30,800

28,000

25,200

22,400

19,600

16,800

14,000

11,200

8,400

5,600

2,800

0

800

1,000

Source: U.S. Department of Health and Human Services, Health Care Financing Administration,

Bureau of Data Management and Strategy, National Listing of Medicare Providers Furnishing

Kidney Dialysis and Transplant Services, January 1995, HCFA Pub. No. 03367 (Baltimore: 1995),

p. 5.

HCFA’s data indicate that the percentage of ESRD patients 65 years old and

older is rapidly increasing. In 1972, persons 65 years old and older

accounted for 5 percent of the ESRD patient population; by 1982, they

Page 6 GAO/HEHS-96-33 Medicare’s ESRD Program
B-256781 

represented 23.9 percent; and by 1991, 33.6 percent. The elderly also

represent an increasing percentage of newly enrolled patients, accounting

for nearly 45 percent of new ESRD patients in 1991 (see table 2).

Table 2: New ESRD Patients and

Percentage 65 Years Old or Older

(1984-91) 

New patients

New patients

65 years old or

older

Percentage

of new

patients 65

years old

or older

1984 26,668 9,244 34.7

1985 29,718 10,796 36.3

1986 32,061 12,135 37.8

1987 35,081 13,785 39.3

1988 38,151 15,207 39.9

1989 42,885 18,036 42.1

1990 46,658 20,306 43.5

1991 50,831 22,809 44.9

Source: Department of Health and Human Services, Health Care Financing Administration,

Bureau of Data Management and Strategy, Office of Research and Demonstrations, Health Care

Financing Research Report—End Stage Renal Disease, 1990, HCFA Pub. No. 03228; 1991,

HCFA Pub. No. 03338; 1992, HCFA Pub. No. 03359 (Baltimore: 1992, 1993, 1994), p. 5.

The percentage of ESRD patients with a primary diagnosis of diabetes or

hypertension has also increased. In 1986, these patients accounted for

29.4 percent and 25.1 percent, respectively, of new ESRD patients. By 1991,

these percentages had increased to 35.9 percent and 28.8 percent (see

table 3).

Page 7 GAO/HEHS-96-33 Medicare’s ESRD Program
B-256781 

Table 3: New ESRD Program Enrollees by Age and Primary Diagnosis (1986-91) 

1986 1987 1988 1989 1990 1991

Percent

change

(1990-91)

Age

Under 15 years old 420 430 403 405 461 454 –1.5

15-24 years old 1,188 1,247 1,268 1,315 1,271 1,242 –2.3

25-34 years old 2,992 2,852 3,087 3,413 3,438 3,485 1.4

35-44 years old 3,659 3,989 4,340 4,704 5,133 5,501 7.2

45-54 years old 4,450 4,893 5,390 5,904 6,230 6,753 8.4

55-64 years old 7,217 7,885 8,456 9,108 9,819 10,587 7.8

65-74 years old 7,937 8,972 9,669 11,302 12,682 14,097 11.2

75 years old or older 4,198 4,813 5,538 6,734 7,624 8,712 14.3

Total 32,061 35,081 38,151 42,885 46,658 50,831 8.9

Primary diagnosis

Diabetes 9,434 10,488 11,717 14,214 15,939 18,249 14.5

Glomerulonephritis 4,717 4,958 5,228 5,643 5,779 5,810 0.5

Hypertension 8,049 9,221 10,325 12,161 13,278 14,633 10.2

Polycystic kidney disease 1,225 1,248 1,250 1,275 1,402 1,474 5.1

Interstitial nephritis 1,355 1,240 1,233 1,378 1,371 1,497 9.2

Obstructive nephropathy 846 839 872 954 916 985 7.5

Other 1,879 2,016 2,182 2,596 2,788 3,456 24.0

Unknown 2,349 2,804 2,657 2,443 2,408 2,693 11.8

Missing 2,207 2,267 2,687 2,221 2,777 2,034 –26.8

Source: Department of Health and Human Services, Health Care Financing Administration,

Bureau of Data Management and Strategy, Office of Research and Demonstrations, Health Care

Financing Research Report—End Stage Renal Disease, 1992, HCFA Pub. No. 03359 (Baltimore:

1994), p. 5.

Mortality Rates for ESRD

Patients Have Decreased

In addition to increased enrollment of the elderly, a second, less

significant factor contributing to increased enrollment in the ESRD program

is the decrease in aggregate mortality rates. The percentage of patients

alive at 1 and 2 years after ESRD onset increased slightly between 1982 and

1991. Mortality rates for both transplant and dialysis patients have

improved, with the rate for transplants decreasing the most.

As shown in figure 2, in 1982, roughly 72 percent of new dialysis patients

were alive after 1 year of dialysis. By 1991, that number had increased to

more than 76 percent. Although not shown in this figure, the 2-year

Page 8 GAO/HEHS-96-33 Medicare’s ESRD Program
B-256781 

survival rate had increased from 55 percent in 1982 to about 60 percent by

1990. The 1-year survival rate for transplant patients increased from

roughly 85 percent to almost 92 percent, while the 2-year rate increased

from nearly 80 percent to nearly 87 percent.4

Figure 2: Adjusted 1-Year Patient

Survival, by Treatment Modality and

Year of Incidence (1982-91)

Percent

60

65

70

75

80

85

90

95

100

1982 1983 1984 1985 1986 1987 1988 1989 1990 1991

All ESRD

Dialysis

Cadaveric Transplant

Source: The National Institutes of Health, National Institute of Diabetes and Digestive and Kidney

Diseases, U.S. Renal Data Systems, USRDS 1994 Annual Data Report (Bethesda, Maryland:

1994). (1991 data are preliminary.)

Survival rates also differ sharply by diagnosis (see fig. 3). Dialysis patients

with a primary diagnosis of glomerulonephritis (a form of kidney disease)

have the highest survival rate, while diabetic patients have the lowest.

However, diabetic patients have had the most dramatic and consistent

increase in survival rates—from 62.7 percent in 1982 to 73 percent in 1991.

4

The aggregate pattern plays out quite differently for different age groups. For patients 20 through 44

years old, 77.4 percent were alive after 1 year in 1982 and by 1991 this percentage had increased to

88.5 percent. For those 65 through 74 years old, the rate increased from 70 percent to 71 percent and

for those over 74 years old, it increased from 58 to 61.4 percent.

Page 9 GAO/HEHS-96-33 Medicare’s ESRD Program
B-256781 

Figure 3: Adjusted 1-Year Dialysis

Patient Survival, by Diagnosis and

Year of Incidence (1982-91)

Percent

60

65

70

75

80

85

90

95

100

1982 1983 1984 1985 1986 1987 1988 1989 1990 1991

Diabetes

Hypertension

Glomerulonephritis

Other Cause

Source: The National Institutes of Health, National Institute of Diabetes and Digestive and Kidney

Diseases, U.S. Renal Data Systems, USRDS 1994 Annual Data Report (Bethesda, Maryland:

1994). (1991 data are preliminary.)

No Separately Billable

Services Are Good

Candidates for

Inclusion in HCFA’s

Composite Payment

Rate

HCFA has always used a prospective type of payment method for dialysis.

When the ESRD program began, supplies, drugs, laboratory tests, and other

services that were frequently or routinely provided to dialysis patients

were included as part of the payment rate for dialysis.

Currently, the composite rate includes payment for a variety of laboratory

tests that are covered at specified frequencies. For instance, for patients

receiving hemodialysis in a facility, all blood clotting tests furnished

during a dialysis session are included, as are one prothrombin time test

per week and one total protein test per month.5

 If a patient requires a test

included under the composite rate more frequently than stated in HCFA’s

5

Reimbursement for certain separately billable laboratory tests is also restricted to specific

frequencies. For example, for hemodialysis patients, reimbursement is authorized for one platelet test

per month, one aluminum test every 3 months, one chest X ray every 6 months, and one bone survey

per year. If a test is needed more often, it is reimbursed as long as medical necessity is established.

Page 10 GAO/HEHS-96-33 Medicare’s ESRD Program
B-256781 

guidelines, Medicare will pay separately for it as long as it is medically

necessary.

HCFA identifies separately billable medical services provided to ESRD

patients by physicians and a variety of suppliers, including laboratories,

durable medical equipment companies, ambulance companies, and others.

In 1991, HCFA paid these providers $1.3 billion for over 49 million services

and supplies covering approximately 9,300 different procedures or

services. Our analysis of these procedures and services found that no

dialysis-related service or supply was provided frequently enough to make

it a good candidate for inclusion in the composite rate for renal facilities.6

To determine if a service might be a candidate for inclusion in the

composite rate, we compared the number of services provided in each

category to the number of dialysis months in 1991.7

 The resulting ratio

indicates how often a service or supply was provided, on average, per

patient month. A 13-to-1 ratio, for example, would mean that, on average,

the service was provided once for each dialysis session and that—based

on its frequency—it may be a candidate for inclusion in the composite

rate. A lower ratio indicates that the service was provided less frequently

and is, therefore, less likely to be part of the typical bundle of dialysis

services. A ratio of 1-to-1 would indicate that the service was provided an

average of once a month or every 13 dialysis sessions.

We found that the most frequently occurring service relating directly to

dialysis treatment was a hepatitis test and that it was provided roughly

once every 2 dialysis months or every 25 dialysis treatments. The second

most frequently provided service (a test to measure blood iron levels) was

provided once every 2.7 dialysis months or every 34 dialysis sessions.

In our opinion, the relatively low frequency with which separately billable

ESRD services occurred in 1991 does not make them good candidates for

inclusion in the composite rate.

Agency Comments The Department of Health and Human Services (HHS) agrees that the

increasing number of beneficiaries has been the main reason that

6

We excluded any service or supply not having a direct relationship to dialysis. For example, we

eliminated items such as the physician’s monthly capitation payment (which is a fixed monthly fee

paid to a physician for continuing medical management of an ESRD patient) and ambulance

transportation.

7

Dialysis months are the number of dialysis sessions in a year—16,159,051 in 1991—divided by 13,

which is the average number of dialysis sessions a patient receives in a month.

Page 11 GAO/HEHS-96-33 Medicare’s ESRD Program
B-256781 

Medicare ESRD expenditures continue to grow. HHS also points out that

with the aging of the American population, the number of beneficiaries on

dialysis is likely to continue to increase.

HHS said that it understands our conclusion that under our methodology

we did not identify any good candidates for inclusion in the composite

rate. HHS added that other methodologies exist that might identify

candidates for inclusion. HHS gave as an example the reviewing of data to

determine whether the overall ESRD patient population receives a

particular item or service regardless of how frequently individual patients

receive it. We agree that this is a plausible methodology and that others

probably exist.

HHS also made several technical comments, which we considered in

finalizing this report.

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

Services and other congressional committees. Copies also will be made

available to others upon request. If your or your staff have any questions

about this report, please call me at (202) 512-7119 or Tom Dowdal at

(202) 512-6588. Other contributors to this report include Jack Brennan,

Dick Neuman, Anita Roth, and Vanessa Taylor.

Sarah F. Jaggar

Director, Health Financing

 and Public Health Issues

Page 12 GAO/HEHS-96-33 Medicare’s ESRD Program
Page 13 GAO/HEHS-96-33 Medicare’s ESRD Program
Appendix I 

Objectives, Scope, and Methodology

Our objectives were to determine (1) why costs and enrollment in

Medicare’s ESRD program are increasing and (2) which, if any, medical

services and supplies that are presently separately billable under

Medicare’s ESRD program should be considered potential candidates for

inclusion in a future composite rate.

To determine why ESRD enrollment and costs have increased, we reviewed

relevant research reports about ESRD enrollment, including the Institute of

Medicine’s 1991 report Kidney Failure and the Federal Government,

ProPAC’s 1992 report End-Stage Renal Disease Payment Policy, the 1994

Annual Data Report—United States Renal Data System, HCFA’s Health Care

Financing Research Reports—End Stage Renal Disease, and HCFA’s

Medicare End Stage Renal Disease Population 1982-1987.

To determine if any separately billable services are good candidates to be

included in the composite rate, we analyzed the 1991 physician/supplier

ESRD database from HCFA to determine the type and volume of medical

services and supplies provided to ESRD patients. This database shows, by

procedure code, all services and supplies for ESRD patients paid by

Medicare in 1991, the year corresponding to the latest year for which HCFA

has published final ESRD enrollment and cost data. From this database, we

developed a frequency distribution of each individual service and supply.

Using the frequency distribution and the HCFA Common Procedure Coding

System, we determined the frequency of services and supplies that are

related to dialysis treatments.

We also interviewed officials from HCFA, ProPAC, the Institute of Medicine,

and the RAND Corporation who are familiar with the ESRD program.

Page 14 GAO/HEHS-96-33 Medicare’s ESRD Program
Appendix II 

Comments From the Department of Health

and Human Services

Page 15 GAO/HEHS-96-33 Medicare’s ESRD Program
Appendix II 

Comments From the Department of Health

and Human Services

Page 16 GAO/HEHS-96-33 Medicare’s ESRD Program
Appendix II 

Comments From the Department of Health

and Human Services

(106416) Page 17 GAO/HEHS-96-33 Medicare’s ESRD Program
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