End-Stage Renal Disease: CMS Should Improve Design and Strengthen Monitoring of Low-Volume Adjustment
Published: 2013-03-01T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Medicare spent about $10.1 billion in 2011 on dialysis treatments and related items and services for about 365,000 beneficiaries with end-stage renal disease (ESRD). Most individuals with ESRD are eligible for Medicare. As required by the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA), CMS implemented the LVPA to compensate dialysis facilities that provided a low volume of dialysis treatments for the higher costs they incurred. MIPPA required GAO to study the LVPA; GAO examined (1) the extent to which the LVPA targeted low-volume, high-cost facilities that appeared necessary for ensuring access to care and (2) CMS's implementation of the LVPA, including the extent to which CMS paid the 2011 LVPA to facilities eligible to receive it. To do this work, GAO reviewed Medicare claims, facilities' annual reports of their costs, and data on dialysis facilities' location to identify and compare facilities that were eligible for the LVPA with those that received it.
section_title: What GAO Found
paragraphs: The low-volume payment adjustment (LVPA) did not effectively target low-volume facilities that had high costs and appeared necessary for ensuring access to care. Nearly 30 percent of LVPA-eligible facilities were located within 1 mile of another facility in 2011, and about 54 percent were within 5 miles, indicating these facilities might not have been necessary for ensuring access to care. Furthermore, in many cases, LVPA-eligible facilities were located near high-volume facilities. Among the freestanding facilities in GAO's analysis, LVPA-eligible facilities had substantially higher costs per dialysis treatment than the average facility ($272 compared with $235); however, so did other facilities that provided a relatively low volume of treatments (and were isolated) but were ineligible for the LVPA. The design of the LVPA gives facilities an adverse incentive to restrict service provision because facilities could lose a substantial amount of Medicare revenue over 3 years if they reach the treatment threshold. In another payment system, the Centers for Medicare & Medicaid Services (CMS) implemented a tiered adjustment that decreases as facility volume increases. Such an adjustment could diminish the incentive for dialysis facilities to limit service provision and also more closely align the LVPA with the decline in costs per treatment that occurs as volume increases.
Medicare overpaid an estimated $5.3 million in 2011 to dialysis facilities that were ineligible for the LVPA and did not pay an estimated $6.7 million that same year to facilities that were eligible. The payment problems occurred primarily because the guidance issued by CMS on facility eligibility was sometimes not clear or timely and CMS's monitoring of the LVPA was limited. For example, the majority of the ineligible facilities that received the LVPA were hospital-affiliated facilities that failed the volume requirement. Although CMS gave the Medicare contractors guidance for determining how to count treatments when facilities are affiliated with hospitals, the agency did not issue that guidance until July 2012. CMS has conducted limited monitoring of the LVPA, which has left CMS with incomplete information about LVPA administration and payments. For example, CMS was unaware as of January 2013 whether its contractors had recouped erroneous 2011 LVPA payments. In addition, CMS had requested information from its contractors about the implementation of the 2011 LVPA, such as which facilities were eligible for or had received the LVPA, but had not yet verified whether the information it received was complete or in a usable form. Without complete information about the administration of this payment adjustment, CMS is not in a position to ensure that the LVPA is reaching low-volume facilities as intended or that erroneous payments to ineligible facilities are recouped.
section_title: What GAO Recommends
paragraphs: To more effectively target the LVPA and ensure LVPA payment accuracy, GAO recommends that the Administrator of CMS consider restricting payments to low-volume facilities that are isolated; consider changing the LVPA to a tiered adjustment; recoup 2011 LVPA payments that the Medicare contractors made in error; improve monitoring of those contractors; and improve the clarity and timeliness of guidance. The Department of Health and Human Services, which oversees CMS, agreed with GAO's recommendations.

section_title: Letter
paragraphs: In 2011, Medicare spent about $10.1 billion on dialysis care—including  dialysis treatments and related items and services—for about 365,000  beneficiaries. Dialysis removes excess fluids and toxins from the  bloodstream and is the most common treatment for end-stage renal  disease (ESRD)—a condition of permanent kidney failure. Most  individuals with ESRD are eligible for Medicare regardless of their age.
As required by the Medicare Improvements for Patients and Providers Act  of 2008 (MIPPA), the Department of Health and Human Services’ (HHS)  Centers for Medicare & Medicaid Services (CMS) recently implemented  several changes to the way Medicare pays for dialysis care, including the  introduction of a low-volume payment adjustment (LVPA) for services  furnished on or after January 1, 2011, to increase the payment rate for  facilities that provide a low volume of dialysis treatments. MIPPA required that the adjustment reflect the extent to which costs incurred by  low-volume facilities exceed the costs incurred by other facilities and  authorized CMS to define the level at which a facility’s treatments are  considered low volume and to determine the amount of the adjustment.  CMS defined the criteria for identifying a facility eligible for the 2011 LVPA  as a facility that, during each of the 3 previous years, (1) provided fewer  than 4,000 total dialysis treatments—including treatments covered by  Medicare and those that were not—and (2) had not opened, closed, or  changed ownership. CMS set the magnitude of the adjustment at   18.9 percent and indicated that the LVPA was designed to encourage  small ESRD facilities to continue operating in areas where beneficiary  access might be jeopardized if such facilities closed.
Medicare’s payment adjustment for low-volume dialysis facilities is one of  several modifications in Medicare’s various payment systems designed to  help maintain beneficiaries’ access to care. These payment modifications  include those that were developed to target small and geographically  isolated providers. Providers that furnish a low volume of services may  incur higher costs of care because they cannot achieve the economies of  scale that are possible for larger providers. Low-volume providers in  areas where other care options are limited may warrant higher payments  because, if Medicare’s payment methods did not account for these  providers’ higher costs of care, beneficiary access to care could be  reduced if these providers were unable to continue operating. In contrast,  low-volume providers that are in close proximity to other providers may  not warrant an adjustment because beneficiaries have other care options  nearby.
MIPPA required us to conduct a study of the LVPA.the committees of jurisdiction, this report: (1) examines the design of the  adjustment and the extent to which it targeted low-volume facilities that  appeared necessary for ensuring access to care and had high costs; and  (2) examines how CMS implemented the LVPA, including the extent to  which CMS paid the 2011 adjustment to facilities that were eligible to  receive it.
To examine the extent to which the 2011 LVPA targeted low-volume  facilities that appeared necessary for ensuring access to care and had  high costs, we used three different Medicare data sources—claims data,  cost reports, and the Dialysis Facility Compare (DFC) database. identified facilities that were available to beneficiaries at the beginning of  2011 using Medicare claims data from 2010 and 2011. Using the  methods specified by CMS in applicable guidance and clarified through  our interviews with the agency, we used Medicare cost reports for 2008,  2009, and 2010 to identify facilities that were eligible for the 2011 LVPA.  We determined the extent to which a facility appeared necessary for  ensuring access to care by evaluating whether it was isolated from other  facilities, which we measured using the facility’s address obtained from  Medicare’s DFC database to calculate the distance to the nearest  facility.
DFC is a database on Medicare’s website that allows users to compare dialysis facilities  nationwide based on factors such as the types of services and quality of care provided.  Medicare-certified providers are required to submit an annual cost report to Medicare  contractors. Dialysis facilities’ cost reports contain provider information, such as the total  number of dialysis treatments and the number covered by Medicare, and the providers’  costs associated with those services. Providers are allowed to define their own cost- reporting year; for example, cost reports may span from January 1 through December 31  or July 1 through June 30. eligible facilities with the average cost per treatment for facilities overall,  we analyzed data from 2010 Medicare cost reports for freestanding  facilities and adjusted those costs for differences in wages and  beneficiaries’ health status. We excluded from our analysis certain  freestanding facilities that had an extremely high or low average cost per  treatment or failed other validity checks, such as reporting more Medicare  treatments than total treatments.independently verify whether the information reported in 2010 cost reports  for freestanding facilities represented an accurate or complete picture of  dialysis facilities’ costs.
Beyond these exclusions, we did not  To examine how CMS implemented the LVPA, including the extent to  which CMS paid the 2011 LVPA to facilities that were eligible to receive  the adjustment, we compared the set of facilities that received the  adjustment with those that were eligible to receive it, and interviewed  CMS officials and representatives of dialysis organizations about the  potential sources of any discrepancies. We identified dialysis facilities that  received the LVPA in 2011 using Medicare claims for dialysis treatments  provided in that year and compared these facilities with those that were  eligible. To estimate the amount that Medicare overpaid to ineligible  facilities, we used payment information from Medicare claims. We also  used Medicare claims data to estimate the amount that LVPA-eligible  facilities did not receive—that is, the additional amount that Medicare  would have paid if all eligible facilities had received the adjustment for all  treatments provided to adult beneficiaries in 2011. To examine other aspects of CMS’s implementation of the LVPA, we reviewed CMS  regulations and guidance, interviewed CMS officials, and interviewed  groups representing large and small dialysis organizations.
We took several steps to ensure that the data used to produce this report  were sufficiently reliable. Specifically, we assessed the reliability of the  CMS data we used by interviewing officials responsible for overseeing  these data sources, reviewing relevant documentation, and examining the  data for obvious errors. We determined that the data were sufficiently  reliable for the purposes of our study.
We conducted this performance audit from May 2012 through January  2013 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: End-Stage Renal Disease (ESRD)
paragraphs: Treatment options for individuals with ESRD include kidney transplants or  maintenance dialysis. Kidney transplants are not a practical option on a  wide scale, as suitable donated organs are scarce. Consequently, dialysis  is the treatment used by most individuals with ESRD. Hemodialysis, the  most common form of dialysis, is generally administered three times a  week at facilities that provide these services. During hemodialysis, a  machine pumps blood through an artificial kidney and returns the  cleansed blood to the body. Other dialysis options include receiving  hemodialysis at home and peritoneal dialysis.
section_title: Low-Volume Payment Adjustment (LVPA)
paragraphs: To have been eligible to receive the LVPA in 2011, a facility must have  established that it met the CMS regulatory criteria that, during each of the  3 previous years, it (1) provided fewer than 4,000 total dialysis treatments  and (2) had not opened, closed, or changed ownership. CMS guidance  provided additional detail on the application of these criteria.
To establish eligibility, a facility must provide an attestation statement to  its designated Medicare contractor, which is responsible for verifying that  the facility has met the eligibility criteria. Only after the facility has  submitted its attestation and its designated Medicare contractor has  verified that the facility meets the eligibility criteria will a facility begin to  receive the LVPA for its Medicare-covered dialysis treatments provided to  adult beneficiaries. CMS requires facilities to provide an attestation  because some of the information the Medicare contractors need to  assess a facility’s eligibility—in particular, facilities’ cost reports for the  year preceding the payment year—may be unavailable to the Medicare  contractors until several months after the payment year begins. In cases  where the Medicare contractors could not make a final eligibility  determination at the beginning of the payment year, they were to  conditionally approve LVPA payments; then, once the necessary  information becomes available, the Medicare contractors are required to  reassess the facility’s eligibility for the LVPA. If a Medicare contractor  determines that a facility that received the LVPA was actually ineligible,  the contractor is expected to recoup all LVPA payments made to that  facility within 6 months of that determination.
section_title: LVPA Did Not Effectively Target Low-Volume Facilities That Appeared Necessary for Ensuring Access to Care and Had High Costs
paragraphs: Many of the 326 facilities eligible for the 2011 LVPA were located near  other facilities, indicating that they might not have been necessary for  ensuring access to care. Certain facilities with relatively low volume that  were not eligible for the LVPA had above-average costs and appeared to  have been necessary for ensuring access to care. Moreover, the design  of the LVPA provides facilities with an adverse incentive to restrict their  service provision to avoid reaching the 4,000 treatment threshold.
subsections: section_title: Many LVPA-Eligible Facilities Appeared Unnecessary for Ensuring Access to Care—Nearly 30 Percent Were Located within 1 Mile of Another Facility
paragraphs: Many LVPA-eligible facilities in 2011 were located near other dialysis  facilities, indicating that they might not have been necessary for ensuring  access to care. While LVPA-eligible facilities were more isolated  compared with all dialysis facilities (see fig. 1), nearly 30 percent of  LVPA-eligible facilities were located within a mile of another facility, and  more than 3 percent of LVPA-eligible facilities shared an address with  another facility that was not eligible and was owned by the same  company. In addition, more than half—approximately 54 percent—of  LVPA-eligible facilities were 5 miles or less from another facility. These  results indicate that the patients using many LVPA-eligible facilities may  have had access to multiple facilities for receiving dialysis care, which  suggests that the LVPA does not effectively target facilities that appear  necessary for ensuring access to dialysis care.
Many LVPA-eligible facilities were located near high-volume facilities,  suggesting that these LVPA-eligible facilities may not have warranted a  payment adjustment because they were located in areas with a  population base sufficient to support high-volume facilities. Approximately  35 percent of the 326 LVPA-eligible facilities were located within 5 miles  of a high-volume facility.94 percent were located in urban areas, compared with 51 percent of all  LVPA-eligible facilities.
section_title: Certain Ineligible Facilities Had Above-Average Costs and Appeared Necessary for Ensuring Access to Care; LVPA Design May Introduce Adverse Incentives
paragraphs: Compared with all freestanding facilities in our cost analysis, freestanding  LVPA-eligible facilities had substantially higher costs per dialysis  treatment in 2011, but other freestanding facilities that provided a  relatively low volume of treatments were ineligible for the LVPA, even  though they were isolated and incurred above-average costs, because  they exceeded the treatment threshold. The average cost per treatment  for the 216 freestanding facilities that were LVPA-eligible was $272,  compared with $235 for all freestanding facilities—a difference of  approximately 16 percent.freestanding facilities that provided a relatively low volume of treatments,  were isolated, and incurred above-average costs. For example, if the  volume threshold was raised to 5,000 dialysis treatments, 203 additional  freestanding facilities would have been eligible for the 2011 LVPA. Of  these 203 facilities, 68 and 25 were located more than 15 miles and   25 miles, respectively, from another facility, indicating that these facilities  likely were important for ensuring access to care. On average, costs per  dialysis treatment for these two groups of isolated facilities exceeded the  average for all freestanding facilities by approximately 9 percent each— $21 and $22, respectively.
However, the 2011 LVPA did not target other  The design of the LVPA also raises concerns because it provides facilities  with an adverse incentive to restrict their service provision to avoid  reaching the 4,000 treatment threshold. Facilities that reach this threshold  lose eligibility for the next 3 calendar years.  For example, for a facility that provided 3,999 total treatments in 2010 and met all other eligibility  criteria for the LVPA, providing an additional treatment would have  caused the facility to lose eligibility for the LVPA for the next 3 calendar  years, resulting in an estimated $390,000 in lost revenue from Medicare  for 2011 through 2013.
CMS has implemented an adjustment in another payment system that  decreases as facility volume increases—an approach which, if applied to  the LVPA, could diminish the incentive for providers to limit service  provision by making the loss of potential revenue smaller for supplying  additional services.  In addition, such an adjustment—referred to as a  tiered or phased-out adjustment—could more closely align the LVPA with  the decline in cost per treatment that occurs as volume increases. For  example, among freestanding facilities that met the other LVPA eligibility  criteria, the average cost per treatment for facilities that would have  qualified under a 3,000 treatment threshold was $290; the average cost  per treatment for facilities that would have failed a 3,000 treatment  threshold but qualified under a 4,000 treatment threshold was $263, and  the average cost per treatment for facilities that would have failed a 4,000  treatment threshold but qualified under a 5,000 treatment threshold was  $256.
Under the adjustment, hospitals received increased payments per discharge if the  hospital provided fewer than 1,600 discharges a year. The amount of the adjustment was  as much as 25 percent for hospitals with fewer than 200 discharges and decreased  linearly until it was phased out for hospitals with 1,600 or more discharges.
section_title: Medicare Overpaid Facilities Ineligible for the 2011 LVPA and Did Not Pay Some Eligible Facilities; Primary Causes Were Unclear Guidance and Insufficient Monitoring
paragraphs: Medicare overpaid an estimated $5.3 million for the LVPA to dialysis  facilities that did not meet the eligibility requirements established by CMS  and did not pay about $6.7 million to facilities eligible for the LVPA. The  guidance that CMS issued for implementation of the regulatory  requirements was sometimes unclear and not always available when  needed, and the misunderstanding of LVPA eligibility likely was  exacerbated because CMS conducted limited monitoring of the Medicare  contractors’ administration of LVPA payments.
subsections: section_title: Medicare Overpaid Facilities Ineligible for the 2011 LVPA by an Estimated $5.3 Million and Did Not Pay an Estimated $6.7 Million to Some Eligible Facilities, including Those That Did Not Request Payments
paragraphs: Medicare overpaid 83 dialysis facilities that were ineligible for the LVPA in  2011 by an estimated $5.3 million, which was nearly one-quarter of the  approximately $22.7 million in LVPA payments made that year. (See   fig. 2.) These facilities were ineligible because, on the basis of applicable  data and methods specified by CMS in its guidance (and clarified through  our interviews with CMS), they did not meet the regulatory requirements  of having (1) provided under 4,000 dialysis treatments in each of the   3 years preceding the payment year and (2) not opened, closed, or had a  change of ownership in the 3 years preceding the payment year.  Medicare contractors are expected to recoup payments made in error  within 6 months of detecting the error, but as of January 2013, CMS did  not know whether any of these overpayments had been recouped.
These overpayments were of two types: payments to dialysis facilities  that were ineligible at the beginning of 2011 and payments to facilities  that were potentially eligible given the data available at the beginning of  2011 but proved ineligible when all pertinent information became   Most of these payments—about $4.8 million—were to   available.73 facilities that were clearly ineligible at the beginning of the year  because data available prior to 2011 showed that the facility did not meet  one or more of the eligibility criteria. The remaining $0.5 million was paid  to 10 facilities that met the eligibility criteria for 2008 and 2009, but when  data on 2010 activity became available were shown not to have met the  eligibility criteria for that year. In cases where Medicare contractors could  not make a final eligibility determination at the beginning of the payment  year, they were to conditionally approve LVPA payments, reassess  eligibility when facilities’ 2010 data became available, and, for facilities  determined to be ineligible, recoup payments within 6 months of  determining ineligibility.
Furthermore, many eligible dialysis facilities did not receive any LVPA  payments in 2011 and others received payments for only part of the year.  These nonpayments amounted to about $6.7 million and affected 273  facilities. Seventy-nine eligible facilities did not receive payments for any  treatments; these payments would have amounted to about $3.4 million.  It is probable that these facilities did not claim the LVPA—that is, they did  not attest to their eligibility, as required in regulations—although it is also  possible that some attested to their eligibility and were incorrectly denied  by their Medicare contractor. Another 194 facilities received some but not  all payments for which they were eligible—in total accounting for another  estimated $3.3 million in nonpayments. Thirty-two facilities did not start  receiving LVPA payments until part way through the year, but then  consistently received payments for all treatments for the remainder of the  year. These are likely facilities that were late in attesting to their eligibility,  resulting in LVPA nonpayments of about $0.9 million. For the remaining  estimated $2.4 million in nonpayments to 162 facilities, the reason is less  clear because there is no discernible pattern. For example, some facilities  received payments for several months, did not receive payments for 1 or  more subsequent months, and then started receiving payments again.  Other facilities received payments for some but not all treatments within a  given month for multiple months in a row. We cannot explain the cause of  these payment inconsistencies, but the inconsistencies could suggest  problems with the claims payment system. Many of the overpayments to  ineligible facilities showed a similar lack of pattern, which also could  suggest problems with the claims payment system.
In 2011, CMS correctly paid the LVPA to 249 facilities for at least some of  their treatments; these payments totaled an estimated $17.4 million.   Fifty-five of these facilities received about $4.2 million in payments for all  their treatments. CMS paid the remaining estimated $13.2 million to the  194 eligible facilities that received the LVPA for only some treatments.
section_title: Unclear and Late Guidance and Insufficient Monitoring Were Primary Contributors to Payment Problems
paragraphs: Although CMS provided opportunities for Medicare contractors and  facilities to ask clarifying questions regarding its implementation of the  requirements for LVPA eligibility, the guidance for implementing these  requirements was sometimes unclear and not always available when  needed. For example, the majority of the facilities that incorrectly received  the LVPA—54 of 83—were hospital-affiliated facilities that failed the  volume threshold. Eventually, CMS specified that Medicare contractors  should combine the treatments of a hospital’s affiliated dialysis facilities in  determining whether the LVPA requirement for fewer than 4,000  treatments had been met. While this method of applying the regulatory  requirement is logical because hospital-affiliated facilities do not file  individual cost reports, CMS did not issue explicit guidance on this topic  until July 2012.
CMS guidance to Medicare contractors for determining whether a facility  had met the LVPA requirement of not having opened, closed, or changed  ownership during the 3 years preceding the payment year was neither  clear nor timely. According to our interviews with CMS officials, the  agency’s intention was for contractors to verify that each of the facility’s  cost reports for the previous 3 years covered exactly 12 months; however  the connection between the regulatory requirement and the duration of  the cost-reporting periods has not been explicitly made in CMS guidance.  (For example, an October 2010 internal technical direction letter stated  that, in order to meet the LVPA eligibility verification requirements,  Medicare contractors needed to confirm that fewer than 4,000 total  treatments were provided for each of the 12-month cost-reporting  periods—however, it was not clear which regulatory verification  requirement(s) the sentence was implementing.) CMS officials  explained that three cost-reporting periods of exactly 12 months (which  need to be consecutive) are a time frame that would exhibit business  practice patterns that demonstrate a facility is consistently low-volume  and that, because cost reports correspond with the facility’s fiscal year,  using them provides a snapshot of a facility’s financial ability to incur  costs for furnishing renal dialysis. Furthermore, CMS officials noted that  having three cost-reporting periods of exactly 12 months each was a  reasonable method of assessing the regulatory requirement because,  generally, if a facility opened, closed, or had a change in ownership (in  which case the facility may receive a new provider number), this would  cause a break in the cost-reporting period and thus lead a facility to have  one or more cost reports that spanned fewer than 12 months. In July  2011, CMS issued public guidance clarifying that the relevant periods  during which a facility had not opened, closed, or had a change in  ownership were the three cost-reporting periods before the payment year  and not the 3 calendar years before the payment year.helped clarify that the 12-month rule was sufficient for assessing that a  facility had not opened, closed, or had a change in ownership, as of  January 2013, no CMS guidance has been explicit on this topic, and no  guidance has stated that each cost-reporting period must be exactly   12 months.
Unclear and late guidance for determining whether a facility had opened,  closed, or changed ownership led to misunderstanding about which  facilities were eligible, and at least some of the misunderstanding  persisted as of September 2012. For example, when we questioned a  representative of a large dialysis organization in September 2012 about  some of the organization’s facilities that we found to have not received  the 2011 LVPA despite being eligible, the representative still believed  those facilities were ineligible because they had a change in ownership  during the previous 3 calendar years. In fact, these facilities were still  eligible for the 2011 LVPA because the change in ownership occurred  after the end of the facilities’ 2010 cost-reporting period and they  therefore had 2008, 2009, and 2010 cost reports that each covered  exactly 12 months. In addition, when we questioned the representative  about some of the organization’s facilities that we found to have  incorrectly received the 2011 LVPA, the representative still believed those  facilities met all the regulatory requirements and therefore had been  eligible. However, because these facilities opened in December 2007 and  complied with CMS’s general requirement that cost reports not span less  than a month, they had a 2008 cost report that spanned slightly more  than 12 months. This made these facilities ineligible for the 2011 LVPA.  When we shared this example with CMS, a CMS official stated that the  agency had not considered the possibility that a facility could have a cost  report spanning more than 12 months. Additionally, when we questioned  a representative from a different large dialysis organization in September  2012 about some of that organization’s facilities that we found to have  incorrectly received the 2011 LVPA, the representative still believed that  those facilities had been eligible because the changes in ownership for  those facilities did not result in new provider numbers. However, these  facilities were ineligible because the changes in ownership caused a  break in the cost-reporting period and thus the facilities had at least one  cost report that spanned fewer than 12 months.
While CMS has continued to issue clarifying guidance and provide  Medicare contractors and facilities with opportunities to ask clarifying  questions, evidence shows that CMS’s guidance for determining LVPA  eligibility was not fully and correctly implemented. In particular, none of  the estimated $5.3 million in 2011 overpayments had been recouped by  June 2012, based on an analysis of claims, and CMS was not aware of  any overpayments that had been recouped by January 2013. This  suggests that many Medicare contractors either had not yet discovered  the payments made in error or were not aware of their obligation to  reassess facilities’ eligibility once the cost report for the previous year  became available and to recoup overpayments within 6 months of  discovery. Another possible reason for overpayment or nonpayment of  the LVPA is that some of the guidance was sent only to Medicare  contractors and was not publicly available. Medicare contractors are  responsible for ensuring that facilities receive any required information  based on this guidance, and that function is particularly important for the  LVPA because in order to receive the LVPA a facility must first attest to  its eligibility, which it will do only if it believes it is eligible. We do not know  the extent to which continued misunderstanding of LVPA eligibility stems  from Medicare contractors’ failure to share the relevant portions of this  nonpublic guidance or from facilities’ not understanding the guidance that  they received.
Much of the misunderstanding and resulting payment problems related to  eligibility were exacerbated by CMS’s limited monitoring of the Medicare  contractors and its consequent limited knowledge about implementation  of the LVPA. While CMS requested information about the 2011 LVPA  from Medicare contractors in October 2011 and again in July 2012, as of  January 2013, it had not yet verified whether the information it received  was complete or in a usable form. In particular, CMS still did not know  which facilities were eligible for the 2011 LVPA, which facilities had  attested to being eligible for the adjustment, nor which facilities received  the 2011 LVPA.
section_title: Conclusions
paragraphs: CMS intended the LVPA to encourage small ESRD facilities to continue  operating in areas where beneficiary access might be jeopardized if such  facilities closed. However, as designed, the LVPA does not effectively  achieve this goal because it does not target all relatively low-volume,  high-cost facilities that are in areas where beneficiaries may lack other  dialysis care options, and it targets some facilities that appeared  unnecessary for ensuring access to dialysis, such as dialysis facilities  located in close proximity to other facilities. In addition, facilities currently  face a large loss in potential revenue if they reach the LVPA treatment  threshold. This creates an adverse incentive for facilities to restrict their  service provision to avoid reaching the treatment threshold.
In addition to these concerns about more appropriately targeting the  LVPA, we also found significant issues associated with its  implementation, including frequent LVPA overpayments. These  overpayments primarily stemmed from unclear and untimely CMS  guidance and persisted because of CMS’s insufficient monitoring of  Medicare contractors. Without clear, timely guidance and stronger  monitoring of Medicare contractors’ implementation of the guidance,  Medicare may continue to pay facilities that are not eligible for the LVPA  and to not pay many facilities that are eligible. Although the amount of  money involved was small—overpayments and nonpayments totaling  about $12 million in 2011 for the $10.1 billion ESRD program—payment  problems with the adjustment undermined its purpose, which is to  encourage small ESRD facilities to continue operating in areas where  beneficiary access might be jeopardized without them.
section_title: Recommendations for Executive Action
paragraphs: To more effectively target facilities necessary for ensuring access to care,  we recommend that the Administrator of CMS consider restricting the  LVPA to low-volume facilities that are isolated.
To reduce the incentive for facilities to restrict their service provision to  avoid reaching the LVPA treatment threshold, we recommend that the  Administrator of CMS consider revisions such as changing the LVPA to a  tiered adjustment.
To ensure that future LVPA payments are made only to eligible facilities  and to rectify past overpayments, we recommend that the Administrator  of CMS take the following four actions:  require Medicare contractors to promptly recoup 2011 LVPA  payments that were made in error;  investigate any errors that contributed to eligible facilities not  consistently receiving the 2011 LVPA and ensure that such errors are  corrected;  take steps to ensure that CMS regulations and guidance regarding the  LVPA are clear, timely, and effectively disseminated to both dialysis  facilities and Medicare contractors; and  improve the timeliness and efficacy of CMS’s monitoring regarding the  extent to which Medicare contractors are determining LVPA eligibility  correctly and promptly redetermining eligibility when all necessary  data become available.
section_title: Agency and Industry Comments and Our Evaluation
paragraphs: We received written comments on a draft of this report from HHS, which  are reprinted in appendix I. HHS agreed with our recommendations and  stated it would explore refinements to the design of the LVPA and take  actions to improve its implementation. HHS also provided technical  comments, which we incorporated as appropriate.
With regard to our recommendation that CMS consider restricting the  LVPA to low-volume facilities that are isolated, HHS stated that CMS will  explore potential refinements. HHS stated that other factors, in addition to  geographic isolation, may contribute to an ESRD facility being low-volume  and that the department had studied the costs of both rural and nonrural  facilities and decided not to implement an adjustment on the basis of rural  location. We did not analyze all the reasons facilities were low-volume,  nor did we recommend a payment adjustment for rural facilities. However,  we believe that providing increased payments to facilities in close  proximity to one another may not be warranted. We also note that, while  facilities certified on or after January 1, 2011, that apply for the LVPA  must combine all of the treatments provided by facilities under common  ownership within 25 miles to determine eligibility, this restriction does not  ensure that only isolated facilities receive the LVPA. For example, two  facilities not under common ownership could be located in close proximity  and still receive the LVPA.
In response to our recommendation to consider revisions such as  changing the LVPA to a tiered adjustment, HHS stated that it would  explore whether refinements to the LVPA are necessary. HHS stated that  the incentive for facilities to limit dialysis services would exist regardless  of where the decrease in payment occurred. We agree that such a  change would not eliminate the incentive to limit dialysis services, but we  believe it would reduce the incentive.
HHS concurred with our recommendation about ensuring proper  payments and rectifying past overpayments. HHS also listed specific  actions it plans to take to implement the recommendation, including using  multiple methods to communicate with Medicare contractors and ESRD  facilities to deliver clear and timely guidance.
We invited two organizations to provide oral comments on our draft  report: the Kidney Care Council (KCC), which represents dialysis facility  companies, and the National Renal Administrators Association (NRAA),  which represents independent dialysis facilities. Representatives from  these organizations expressed their appreciation for the opportunity to  review the draft.
Both KCC and NRAA noted that facilities within close proximity to another  facility may still be necessary for ensuring access to dialysis care (for  example, if the other facility is operating at capacity) or access to choice  of dialysis modality (for example, if the other facility does not offer the  same dialysis options). While these situations may occur, if CMS  determines a single larger facility could provide appropriate services  where two or more smaller facilities exist now, paying the LVPA to the  existing smaller facilities may not be warranted.
NRAA agreed with our finding that CMS guidance on LVPA eligibility was  unclear and not transparent to facilities. Additionally, NRAA noted that  CMS’s guidance requiring that hospitals—but not large dialysis  organizations—sum the treatments across all of their affiliated facilities  when determining eligibility for the LVPA was inconsistent. We agree  there is some inconsistency; however, it will be somewhat reduced  starting in 2014 as CMS requires that facilities certified after January 1,  2011, sum their treatments across all facilities that are under common  ownership and within 25 miles. NRAA also disagreed with the statement  that hospital cost reports are the only source of information on total  treatments provided by hospital-affiliated facilities. As we note in the  report, CMS officials told us that cost reports are the only source of total  treatments.
Both KCC and NRAA requested more details on GAO’s  recommendations related to improving the design of the LVPA. Our  recommendations—that CMS should (1) more effectively target facilities  necessary for ensuring access to care by considering restricting the LVPA  to low-volume facilities that are isolated and (2) reduce the incentive for  facilities to restrict their service provision by considering revisions such as  changing the LVPA to a tiered adjustment—outlined the factors CMS  should consider in improving the LVPA. We did not specify details of the  design because we believe CMS should have flexibility in how to more  effectively target facilities necessary for ensuring access to care and  reduce their incentive to restrict service provision.
KCC urged GAO to recommend that CMS pay out LVPA payments that  CMS failed to make. We believe facilities are best positioned to determine  and pursue their own rights to appeal Medicare claims determinations.
Technical comments from KCC and NRAA were incorporated in the draft  as appropriate.
We are sending copies of this report to the Secretary of Health and  Human Services. The report will also be available at no charge on our  website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-7114 or cosgrovej@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report.
section_title: Appendix I: Comments from the Department of Health and Human Services
section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Phyllis Thorburn,   Assistant Director; Todd D. Anderson; Alison Binkowski;   William Black; George Bogart; Elizabeth T. Morrison; Brian O’Donnell;  and Jennifer Whitworth made key contributions to this report.