Effect of Medicare Dialysis Payment Reform on Use of Erythropoiesis Stimulating Agents

Despite widespread concern that fee-for-service (FFS) payments may motivate providers to maximize the volume and intensity of services while providing little financial incentive to provide effective care, FFS remains the dominant mode of paying providers in the United States (MedPAC 2011). The Centers for Medicare and Medicaid Services and others have therefore experimented with alternative payment models to FFS, including bundling and pay for performance (P4P). Under bundling, one provider or a group of providers are paid a single consolidated reimbursement for an episode of care instead of disaggregated payment for each test, procedure, or visit (Iglehart 2011; Mechanic 2011; Winkelmayor and Chertow 2011). P4P schemes tie payments to a provider's ability to meet specific clinical performance targets. The Medicare program's payment policy for dialysis care provides a unique opportunity to examine the effects of transitioning from a limited bundle with FFS payments for ancillary tests and drugs to an expanded bundled payment and pay-for-performance incentives. Until December 31, 2010, Medicare reimbursed dialysis providers separately for each dose of administered erythropoiesis stimulating agents (ESAs), synthetic versions of the endogenous hormone erythropoietin used to treat anemia. This policy may have led to excessive use of ESAs since the per-unit cost of acquiring the drugs was often less than the per-unit Medicare reimbursement (Besarab et al. 1998). From 1991 to 2008, Medicare spending on ESAs increased nearly 10-fold from $200 million to about $2 billion (U.S. Renal Data System 2009). This growth occurred in spite of emerging clinical trial evidence demonstrating lack of benefit or an increased risk for death or stroke among patients treated with ESAs to normal or high levels of hematocrit (Besarab et al. 1998; Drueke et al. 2006; Singh et al. 2006; Pfeffer et al. 2009; Brookhart et al. 2010). In 2007, the National Kidney Foundation (NKF) issued clinical practice guidelines recommending that hematocrit levels in ESRD patients range from 33 to 36 percent (NKF 2007), and the Food and Drug Administration (FDA) released “black-box” warnings suggesting a risk when the target hematocrit level exceeds 36 percent (FDA 2007). Effective January 1, 2011, Medicare introduced an “expanded bundled” payment with performance incentives that altered how providers are paid for dialysis care (Federal Register 2010, 2012). Under the new bundle, Medicare pays providers a fixed sum for dialysis treatments, supplies, laboratory tests, and injectable drugs or their equivalent, including ESAs (MedPAC 2011). This meant that, all else remaining equal, providers could not increase revenue by using more ESAs while reducing ESA use would decrease per-patient provider expenditures. Although the uptake of bundling was expected to be staggered through 2014, over 95 percent of the providers chose to adopt the new payment model immediately (Nissenson, Mayne, and Krishnan 2011). Along with the expanded bundled payment, the Medicare program initiated payment penalties that cut reimbursements by up to 2 percent for dialysis facilities that did not meet a prespecified standard on a composite of three performance indicators in 2012; one pertained to maintaining hematocrit levels above 30 percent, a second pertained to maintaining hematocrit below 36 percent, and a third measure pertained to the Urea Reduction Ratio, a measure of the adequacy of dialysis (Swaminathan et al. 2012). The indicators that are included in the calculation of the payment penalties continue to change and evolve. For example, in 2013, CMS dropped the second measure mentioned above (i.e., hematocrit >36 percent). In this study, we examined the immediate impact of Medicare's dialysis payment reforms on the use of ESAs among ESRD patients undergoing hemodialysis.