There are three types of dialysis, which is a process that removes excess fluids and toxins from the bloodstream: (1) hemodialysis performed in a facility (referred to as in-center hemodialysis in this report); (2) hemodialysis performed at home; and (3) peritoneal dialysis, which is generally performed at home. In-center hemodialysis is the most common type of dialysis and was used by about 89 percent of dialysis patients in 2012; the remaining patients received either peritoneal dialysis (9 percent) or home hemodialysis (2 percent). Similarly, almost all— approximately 96 percent of—dialysis facilities had in-center hemodialysis patients in 2012; just over two-fifths of facilities had peritoneal dialysis patients and nearly one-fifth had home hemodialysis patients. The processes for hemodialysis—performed either in a facility or at home—and peritoneal dialysis differ. (See fig. 1.) For in-center hemodialysis treatments, blood flows from the patient’s body through a surgically created vein or a catheter, known as a vascular access site, and through tubing to the dialysis machine. The machine pumps the blood through an artificial kidney, called a dialyzer, to cleanse the excess fluids and toxins from the bloodstream and then returns the cleansed blood to the body. Patients typically receive in-center hemodialysis for 3 to 4 hours three times per week. For home hemodialysis treatments, the process is the same, but the patient performs the treatments and may perform treatments more frequently and at night. For peritoneal dialysis treatments, a catheter is used to fill the patient’s abdomen with a dialysis solution that collects excess fluids and toxins over several hours; those excess fluids and toxins are removed from the body when the patient drains the dialysis solution from the abdomen. To conduct the exchanges—draining and then refilling the abdomen with the dialysis solution—most peritoneal dialysis patients use a machine that performs several exchanges during the night while they are asleep, and other patients do manual exchanges during the day. The three types of dialysis are also associated with various clinical advantages and disadvantages. For example, some studies have suggested that more frequent use of home hemodialysis can achieve better health outcomes for certain patients such as those with hypertension. In another example, some studies have suggested that peritoneal dialysis may have a lower risk for death in the first few years of dialysis therapy, and peritoneal dialysis can also help patients retain residual kidney function. However, the causes of some differences in clinical outcomes between the types of dialysis can be challenging to determine because of differences in patient characteristics; younger patients, for example, were more likely to receive peritoneal dialysis than other types, according to USRDS data. In addition, there may also be clinical disadvantages. For example, home hemodialysis patients’ more frequent use of the vascular access site may result in a higher risk for complications such as damage to the site that requires repair. Additionally, peritoneal dialysis patients may develop peritonitis, an infection of the peritoneal membrane, and the peritoneal membrane may become less effective over time, meaning a patient may eventually have to switch to either home or in-center hemodialysis. Patients’ preferences may influence whether patients receive home dialysis (either peritoneal dialysis or home hemodialysis) or in-center hemodialysis. For example, some patients may prefer home dialysis because they do not need to travel to the facility three times per week, giving them greater flexibility to work during the day and undergo dialysis at night in their home. Some patients also may prefer home dialysis because there may be fewer diet and fluid restrictions and less recovery time following each dialysis treatment. On the other hand, successfully performing home dialysis requires patients to undergo training and assume other responsibilities that they would not otherwise have if they dialyzed in a facility. As a result, patients who feel unprepared to accept such responsibilities or who lack a spouse or caregiver to help them may be less likely to choose home dialysis. For similar reasons, some experts and stakeholders have indicated that switching from in-center to home dialysis can be challenging once patients become accustomed to in- center hemodialysis. Furthermore, the greater complexity of home hemodialysis training—including learning to place needles in the vascular access site and how to respond to alarms from the dialysis machine— relative to peritoneal dialysis training could lead some patients to prefer one type of home dialysis over the other. In addition to patients’ preferences, clinical factors may affect whether patients receive home dialysis or in-center hemodialysis. One factor is whether a patient has received care from a nephrologist prior to beginning dialysis. Patients who did not receive such care and who have an urgent need to start dialysis often do so with in-center hemodialysis because training is not required and because a venous catheter can be placed and used immediately. More lead time can be required for peritoneal dialysis to allow the site where the peritoneal dialysis catheter was placed to heal. As another example, a patient with poor vision or dexterity may have difficulty performing the tasks associated with home dialysis. In addition, a patient who has received multiple abdominal surgeries may not be an appropriate candidate for peritoneal dialysis. Finally, patients with multiple comorbidities (i.e., multiple chronic diseases or disorders) may choose in-center hemodialysis because it can allow the nephrologist to more closely manage those other conditions. Medicare uses different methods to pay (1) dialysis facilities for providing dialysis treatments to patients and for training them to perform home dialysis and (2) physicians for managing patients’ dialysis care and educating them about their condition. For dialysis treatments—including any training that occurs in the first 4 months of treatment—Medicare has paid facilities a single bundled payment per treatment since 2011. The bundled payment is designed to cover the average costs incurred by an efficient facility to provide the dialysis, injectable drugs, laboratory tests, and other ESRD-related items and services. In 2015, Medicare paid a base rate of $239.43 per treatment for up to three hemodialysis treatments per week, and Medicare sets the daily rate for peritoneal dialysis such that payments for 7 days of peritoneal dialysis would equal the sum of payments for three hemodialysis treatments. Medicare adjusts the base rate to account for certain factors that affect the cost of a treatment, including costs to stabilize patients and to provide training during the first 4 months of dialysis treatments, as well as certain other patient and facility factors. CMS implemented its Quality Incentive Program beginning in 2012, which can reduce Medicare payments for dialysis treatments to facilities by up to 2 percent based on the quality of care they provided. When training occurs after the first 4 months of the patient’s dialysis treatments, Medicare pays dialysis facilities the bundled payment plus an additional fixed amount (often referred to as the training add-on). The training add-on is for the facilities’ additional staff time to train the patient. This training, which can happen in an individual or group setting, is required to be furnished by a registered nurse. The number of treatments that include home dialysis training—called training treatments—varies by type of dialysis and by patient. Medicare currently pays facilities a training add-on amount of $50.16 per treatment for up to 25 home hemodialysis training treatments or a daily equivalent rate for up to 15 days of peritoneal dialysis training; CMS increased the training add- on payment from $33.44 to $50.16 in 2014. Medicare pays physicians (typically nephrologists) a monthly amount per patient to manage patients’ dialysis care. This monthly amount covers dialysis-related management services such as establishing the frequency of and reviewing dialysis sessions, interpretation of tests, and visits with patients. To receive the payment, Medicare requires the physician to provide at least one face-to-face visit per month to each patient for examining the patient’s vascular access site. The monthly amount paid to the physician for managing in-center patients varies on the basis of the patient’s age and the number of visits provided to the patient, but the amount for managing the care of a home patient varies only on the basis of the patient’s age and not the number of visits. Besides the monthly payment for patients’ dialysis care, Medicare provides a one-time payment to physicians of up to $500 for each patient who completes home dialysis training under the physician’s supervision; this payment is separate from Medicare’s payments to facilities for training patients. Medicare also pays physicians to provide kidney disease education to patients who have not yet started dialysis. Congress established the Kidney Disease Education (KDE) benefit as part of the Medicare Improvements for Patients and Providers Act of 2008 to provide predialysis education to Medicare patients with Stage IV chronic kidney disease. Topics to be covered include the choice of therapy (such as in- center hemodialysis, home dialysis, or kidney transplant) and the management of comorbidities, which can help delay the need for dialysis. Historical trends in the overall percentage of all dialysis patients on home dialysis—including both Medicare and non-Medicare patients—show a general decrease between 1988 and 2008 and a more recent increase thereafter through 2012. According to USRDS data, 16 percent of 104,200 dialysis patients received home dialysis in 1988. Home dialysis use generally decreased over the next 20 years, reaching 9 percent in 2008, and then slightly increased to 11 percent of 450,600 dialysis patients in 2012—the most recent year of data available from USRDS. (See fig. 2.) More generally, the percentage of all patients on home dialysis declined from 1988 through 2012 because the number of these patients increased at a slower rate than the total number of all patients on dialysis. During the time period from 1988 through 2012, most home dialysis patients received peritoneal dialysis as opposed to home hemodialysis. The more recent increase in use of home dialysis is also reflected in CMS data for adult Medicare dialysis patients, showing an increase from 8 percent using home dialysis in January 2010 to about 10 percent as of March 2015. Literature we reviewed and stakeholders we interviewed suggested several factors that may have contributed to the trends in home dialysis use from 1988 through 2012. Looking at the initial decline between 1988 and 2008, contributing factors may have included increased capacity to provide in-center hemodialysis and changes in the dialysis population. Increased capacity to provide in-center hemodialysis. The growth in facilities’ capacity to provide in-center hemodialysis from 1988 to 2008 outpaced the growth in the dialysis patient population over the same time period. Specifically, the number of dialysis stations, which include the treatment areas and dialysis machines used to provide in-center hemodialysis, increased at an average annual rate of 7.3 percent during this time period, while the number of patients increased at an average annual rate of 6.8 percent. As a result, dialysis facilities may have had a greater financial incentive to treat patients in facilities in an effort to use this expanded capacity, according to literature we reviewed. Changes in the dialysis population. The increased age and prevalence of comorbidities in the dialysis population may have reduced the portion considered clinically appropriate for home dialysis. Dialysis patients who are older and those with comorbid conditions may be less physically able to dialyze at home. From 1988 to 2008, the mean age of a dialysis patient rose from 52.2 years to 58.6 years. Similarly, the proportion of the dialysis population affected by various comorbid conditions increased during this time period. For example, the percentage of dialysis patients with diabetes as the primary cause of ESRD increased from 24.6 percent in 1988 to 43.1 percent in 2008. Medicare payment methods and concerns about the effectiveness of peritoneal dialysis may have played a role in the decline in home dialysis use between 1988 and 2008, but changes in both factors may have also contributed to recent increases in use. Medicare payment methods for injectable drugs. Medicare payment methods prior to 2011 may have given facilities a financial incentive to provide in-center rather than home dialysis. Before 2011, Medicare paid separately for injectable drugs rather than including them in the bundled payment. As a result, Medicare payments to facilities for dialysis care—including the payments for injectable drugs—could have been lower for home patients because of their lower use, on average, of injectable drugs. However, the payment changes in 2011 reduced the incentive to provide in-center hemodialysis relative to home dialysis because the Medicare payment for dialysis treatments and related services, such as injectable drugs, no longer differed based on the type of dialysis received by the patient. Concerns about effectiveness of peritoneal dialysis. Several studies published in the mid-1990s indicated poorer outcomes for peritoneal dialysis compared to hemodialysis, and these studies may have made some physicians reluctant to prescribe peritoneal dialysis, according to stakeholders and literature we reviewed. However, stakeholders identified more recent studies indicating that outcomes for peritoneal dialysis are comparable to hemodialysis. These newer studies may have contributed to the recent increases in home dialysis use by mitigating concerns about the effectiveness of peritoneal dialysis and by making physicians more comfortable with prescribing it. Estimates from dialysis experts and other stakeholders suggest that further increases in the use of home dialysis are possible over the long term. The home dialysis experts and stakeholders we interviewed indicated that home dialysis could be clinically appropriate for at least half of patients. However, the percentage of patients who could realistically be expected to dialyze at home is lower because of other factors such as patient preferences. For example, at a meeting in 2013, the chief medical officers of 14 dialysis facility chains jointly estimated that a realistic target for home dialysis would be 25 percent of dialysis patients. To achieve this target, they said that changes, such as increased patient education and changes to payment policies, would need to occur. As another example, physician stakeholders we interviewed estimated that 15 to 25 percent of dialysis patients could realistically be on home dialysis. In the short term, however, an ongoing shortage of peritoneal dialysis solution has reduced the use of home dialysis, and this shortage could have a long-term impact as well. Medicare claims data analyzed by CMS show that the percentage of Medicare dialysis patients on home dialysis had reached 10.7 percent in August 2014, when the shortage was first announced, but has since declined to 10.3 percent, as of March 2015. CMS officials attributed this decline to the shortage in the supply of peritoneal dialysis solution because the decline did not occur among facilities owned by one large dialysis facility chain that manufactures its own peritoneal dialysis solution and has not experienced a shortage. Some dialysis facility chains told us that, because of this shortage, they limited the number of new patients on peritoneal dialysis. In addition, one physician association stated that the shortage could have long-term implications. They said that some physicians are reluctant to prescribe this type of dialysis, even when a facility has the capacity to start a patient on peritoneal dialysis, because of uncertainties about peritoneal dialysis supplies. Medicare payments to dialysis facilities, including those that provided home dialysis, gave them an overall financial incentive to provide dialysis, as shown by their generally positive Medicare margins. The average Medicare margin for all 3,891 freestanding facilities in our analysis was 4.0 percent in 2012—that is, Medicare payments exceeded Medicare allowable costs for dialysis treatments by 4.0 percent. Similarly, the average Medicare margin for the 1,569 freestanding facilities that provided one or both types of home dialysis was 4.20 percent in 2012. (See table 1.) Focusing on those facilities that provided home dialysis, nearly all (94 percent) provided both in-center and one or both types of home dialysis. In addition, although margins were positive, on average, for these facilities, we found that the Medicare margin for large facilities (7.21 percent) was considerably higher, on average, than for small facilities (-3.49 percent). We also found that most of the patient years (81 percent) were devoted to in-center hemodialysis, followed by peritoneal dialysis (15 percent) and home hemodialysis (4 percent). Small and large facilities followed the same pattern. In addition to giving an incentive to provide dialysis in general, Medicare payments to facilities likely encourage the use of peritoneal dialysis—the predominant type of home dialysis—over the long term. The payment rate for peritoneal dialysis is the same as the rate for hemodialysis provided in facilities or at home, but the cost of providing peritoneal dialysis is generally lower, according to CMS and stakeholders we interviewed. When CMS established the current payment system, it stated that its decision to have a single payment rate regardless of the type of dialysis would give facilities a powerful financial incentive to encourage the use of home dialysis, when appropriate. Another financial incentive that exists for both peritoneal dialysis and home hemodialysis is that facilities can receive additional months of payments for patients under 65 who undergo home dialysis training. Specifically, for patients under age 65, Medicare coverage typically begins in the fourth month after the patient begins dialysis, but coverage begins earlier if the patient undergoes home dialysis training. This incentive is augmented because payments to facilities are significantly higher during the first 4 months of dialysis. These incentives to provide home dialysis, compared to in-center hemodialysis, are consistent with CMS’s goal of fostering patient independence through greater use of home dialysis among patients for whom it is appropriate. Although over the long term facilities may have a financial incentive to encourage the use of one or both types of home dialysis, the impact of this incentive could be limited in the short term. This is because, in the short term, we found that expanding the provision of in-center hemodialysis at a facility generally tends to increase that facility’s Medicare margin and that the estimated increase is more than would result if the facility instead expanded the provision of either type of home dialysis. In particular, we found that, on average, facilities that provided home dialysis could improve their financial position in the short term by increasing their provision of in-center hemodialysis. An additional patient year of in-center hemodialysis improved the margin by an estimated 0.15 percentage points—for example, from 4.20 to 4.35 percent. (See fig. 3.) In contrast, increasing home dialysis resulted in a smaller benefit. Adding a patient year of peritoneal dialysis improved the margin by an estimated 0.08 percentage points and adding a patient year of home hemodialysis had no statistically significant effect on the margin; the estimated 0.04 percentage point reduction on average in the margin was not statistically different from zero. The pattern of the results in figure 3 for the three types of dialysis was similar for small and large facilities. (See results in app. I.) Our findings on the relative impact of the incentives in the short term are generally consistent with information on the cost of each type of dialysis provided to us by CMS and stakeholders we interviewed. First, consistent with our finding that facilities have a greater short-term incentive for in- center hemodialysis, stakeholders we interviewed said that facilities’ costs for increasing their provision of in-center hemodialysis may be lower than for either type of home dialysis. For example, although the average cost of an in-center hemodialysis treatment is typically higher than the average cost of a peritoneal dialysis treatment, facilities may be able to add an in- center patient without incurring the cost of an additional dialysis machine because each machine can be used by six to eight patients. In contrast, when adding a home patient, facilities generally incur costs for additional equipment, which is dedicated to a single patient. Second, some stakeholders said that the cost of providing home hemodialysis, in particular, can be higher than other types of dialysis in part because home hemodialysis patients often receive more than three treatments per week and Medicare’s policy is not to pay for these additional treatments unless medically justified. Finally, when comparing the two types of home dialysis, CMS and the stakeholders generally reported that the cost of home hemodialysis, including training, was higher than for peritoneal dialysis. They said that home hemodialysis training is more costly because of the greater complexity such as learning to place needles in the vascular access site and to respond to alarms. Stakeholders also told us that Medicare payments cover only a portion of the upfront costs for training a patient, particularly one on home hemodialysis. CMS increased the training add-on payment beginning in 2014 in response to public comments it received on the cost of home hemodialysis training, but the agency lacks reliable data for determining whether the revised payment is adequate. Specifically, CMS lacks reliable data on the cost of home dialysis treatment and training and on the staff time needed to provide training. We found that the cost report data on facilities’ costs for each type of dialysis, including costs for home dialysis training, were not sufficiently reliable. Although we determined that data on facilities’ total costs across all types of dialysis were sufficiently reliable for purposes of our analysis, stakeholders reported that these total costs were not accurately allocated to each type of dialysis and to training. One reason for this inaccuracy may be that some facilities allocated certain types of costs, such as dialysis-related drugs and supplies, based on the number of treatments for each type of dialysis. Representatives of these facilities reported that CMS’s Medicare Administrative Contractors had approved this allocation method. However, the number of treatments by type of dialysis may not be a reliable basis for allocating such costs. For example, studies have shown that utilization of dialysis-related drugs differs by type of dialysis, and stakeholders reported that supply costs can as well. In addition, CMS officials told us that they do not regularly review the reliability of these data. We also found that CMS lacks consistent data on the staff time required to provide home dialysis training even though the agency used the number of hours of nursing time as the basis for its training add-on payment rate. For example, in 2012, CMS acknowledged that 1 hour did not necessarily correspond to the amount of time needed to train a patient, even though CMS used 1 hour as the basis. More recently, despite the fact that CMS increased the training add-on by basing it on 1.5 hours of nursing time, CMS said that the public comments it received did not provide consistent information on the number of hours spent on training; the number of hours reported in these comments varied from 2 to 6 hours per treatment. The adequacy of training payments could affect facilities’ incentives for providing home dialysis, but it is unclear whether these payments are adequate given CMS’s lack of reliable data on the cost of training and by type of dialysis. Reliable cost report data are important for CMS to be able to perform effective fiscal management of the program, which involves assessing the adequacy of payment rates. In particular, if the training payments are inadequate, facilities may be less willing to provide home dialysis, which could undermine CMS’s goal of encouraging the use of home dialysis when appropriate. Medicare physician payments for dialysis care do not consistently result in incentives for physicians to prescribe home dialysis. In addition, few Medicare patients have used Medicare’s KDE benefit, and this low usage may be due to statutory payment limitations on the types of providers permitted to furnish the benefit and on the Medicare patients eligible to receive it. Finally, physicians’ limited exposure to home dialysis during nephrology training programs is a third factor that may constrain the extent to which physicians prescribe home dialysis. We found that the structure of Medicare’s monthly physician payments— one of several factors that could affect the use of home dialysis—may give physicians a disincentive for prescribing home dialysis, which could undermine CMS’s goal of encouraging the use of home dialysis when appropriate. CMS, when it established the current method of paying physicians a monthly payment to manage patients’ dialysis, stated that this method would encourage the use of home dialysis by giving physicians an incentive to manage home patients. According to CMS, this incentive would exist because the monthly payment rate for managing the dialysis care of home patients, which requires a single in- person visit, was approximately equal to the rate for managing and providing two to three visits to in-center patients. However, we found that, in 2013, the rate of $237 for managing home patients was lower than the average payment of $266 and maximum payment of $282 for managing in-center patients. (See table 2.) This difference in payment rates may discourage physicians from prescribing home dialysis. Physician associations and other physicians we interviewed told us that Medicare payments may give physicians a disincentive for prescribing home dialysis. They stated that, even though the payment levels for managing home patients are typically lower, the visits with home patients are often longer and more comprehensive; this is in part because physicians may conduct visits with individual home patients in a private setting, but they may be able to more easily visit multiple in-center patients on a single day as they receive dialysis. The physician associations we interviewed also said that they may spend a similar amount of time outside of visits to manage the care of home patients and that they are required to provide at least one visit per month to perform a complete assessment of the patient. In addition, while physicians can receive a higher payment for providing more than one visit to in-center patients, these additional visits may be provided by nurse practitioners and certain other nonphysician practitioners, who may be less costly. CMS has not revised the overall structure for paying for physicians to manage dialysis patients’ care since 2004, although it has addressed some stakeholder concerns such as how it paid physicians when home patients were in the hospital. In contrast to the monthly payments, Medicare physician payments related to patients’ training may provide physicians with financial incentives for prescribing home dialysis. For certain patients who start home training—those under 65 who are eligible for Medicare solely due to ESRD—the monthly payments to physicians can begin in the first month rather than the fourth month of treatment, which may provide physicians with an incentive to prescribe home dialysis. In addition, Medicare makes a one-time payment of up to $500 for each patient who has completed home dialysis training under the physician’s supervision. One stakeholder told us that this training payment may provide an incentive for physicians to prescribe home dialysis. Few Medicare patients have used the KDE benefit, which covers the choice of therapy (such as in-center hemodialysis, home dialysis, or kidney transplant) and the management of comorbidities, and stakeholders generally told us this low usage was related to payment limitations on the types of providers who are permitted to furnish the benefit and on the Medicare patients eligible to receive it. According to USRDS, less than 2 percent of eligible Medicare patients used the KDE benefit in 2010 and 2011—the first two years it was available—and use of the benefit has decreased since then. When CMS implemented the KDE benefit, the agency identified specific categories of providers—physicians, physician’s assistants, nurse practitioners, and clinical nurse specialists—as eligible to receive payment for furnishing the benefit. Stakeholders, including physician associations, told us that other categories of trained healthcare providers (such as registered nurses, social workers, and dieticians who may be part of the nephrology practice) are also qualified to provide predialysis education. However, when asked if other types of providers could be eligible to receive payment, CMS officials said that the statute specified the categories of providers and that the agency was limited to those providers. Dialysis facilities are also not eligible to receive payment for the KDE benefit. Although facility representatives said that they were equipped to provide education to these patients, including education on the choice of type of dialysis, CMS and some other stakeholders said that one reason facilities are not eligible to provide the KDE benefit is their financial interest in treatment decisions. For example, the KDE benefit is designed to provide objective education to patients on steps that can be taken to delay the need for dialysis and on the choice of therapies, which includes kidney transplant, as well as home dialysis and in-center hemodialysis. Some of these options could be contrary to dialysis facilities’ financial interest. Similarly, CMS identified a specific category of patients—those with Stage IV chronic kidney disease—as eligible to receive the KDE benefit. Physician stakeholders said that certain other categories of patients, such as those in Stage III or those in Stage V but who have not started dialysis, may also benefit from Medicare coverage of timely predialysis education. However, when asked if other categories of patients could be eligible to receive the KDE benefit, CMS officials said that the agency was limited by statute to Stage IV patients. The low usage of the KDE benefit, which may be a result of these payment limitations, suggests that it may be difficult for Medicare patients to receive this education, which is designed to help them make informed treatment decisions. Literature and stakeholders have underscored the value of predialysis education to help patients make informed treatment decisions, and also indicated that patients who receive it may be more likely to choose home dialysis. Literature we reviewed and nearly all of the stakeholders we interviewed indicated that physicians have limited exposure to home dialysis during nephrology training programs and thus may not feel comfortable prescribing it. One study found that 56 percent of physicians who completed training said they felt well trained and competent in the care of peritoneal dialysis patients, and 16 percent felt this way in the care of home hemodialysis patients. Furthermore, another study found that physicians who felt more prepared to care for peritoneal dialysis patients were more likely to prescribe it. Literature we reviewed and stakeholders identified two main factors that may limit physicians’ exposure to home dialysis while they undergo nephrology training: The nephrology board certification examination administered by the American Board of Internal Medicine does not emphasize home dialysis, particularly home hemodialysis. The examination blueprint published by the board shows that approximately 9 percent of the board certification examination is dedicated to questions regarding ESRD, which may include hemodialysis and peritoneal dialysis but, according to one board official, is unlikely to include home hemodialysis. Literature and stakeholders suggested that greater emphasis on home dialysis on certification examinations might lead to a greater emphasis on home dialysis in nephrology training. According to an Institute of Medicine report, the way Medicare provides graduate medical education payments may discourage nephrology training outside of the hospital, and one stakeholder said this system may impede physician exposure to home patients. Medicare pays teaching hospitals directly to help cover the costs of graduate medical education, including the salaries of the physicians in training. Hospitals have the option to allow physicians to train at a second, off-site location—for example, a dialysis facility with a robust home dialysis program—if the hospital continues to pay the physicians’ salaries. However, the stakeholder said that hospitals may be reluctant to allow physicians to train at a second, off-site location, such as a dialysis facility, because patients at such locations may not be served primarily by the hospital. The American Society of Nephrology has acknowledged that nephrology training in home dialysis needs to improve. As a result, the society has developed and disseminated guidelines identifying training specific to home dialysis and providing suggestions on curriculum organization to increase physician exposure to home patients. For example, the guidelines suggest physicians in training should demonstrate knowledge of the infectious and noninfectious complications specific to peritoneal dialysis and home hemodialysis. They also suggest a program’s curriculum should include observation of and participation in a patient’s training to conduct home dialysis. The number and percentage of patients choosing to dialyze at home have increased in recent years, and our interviews with home dialysis experts and stakeholders indicated potential for future growth. To realize this potential, it is important for the incentives associated with Medicare payments to facilities and physicians to be consistent with CMS’s goal of encouraging the use of home dialysis among patients for whom it is appropriate. One aspect of payment policy—training add-on payments to facilities—has a direct impact on facilities’ incentives for providing home dialysis. However, whether these training payments are adequate continues to be unclear because CMS lacks reliable data on the cost of home dialysis treatment and training for assessing payment adequacy. If training payments are inadequate, facilities may be less willing to provide home dialysis. In addition, the way Medicare pays physicians to manage the care of dialysis patients may be discouraging physicians from prescribing home dialysis. Finally, the limited use of the KDE benefit suggests that it may be difficult for Medicare patients to receive this education, which is designed to help them make informed decisions related to their ESRD treatment, including decisions on the choice of the type of dialysis, as well as options such as kidney transplant and steps to delay the need for dialysis. To determine the extent to which Medicare payments are aligned with costs for specific types of dialysis treatment and training, the Administrator of CMS should take steps to improve the reliability of the cost report data for treatment and training associated with specific types of dialysis. The Administrator of CMS should examine Medicare policies for monthly payments to physicians to manage the care of dialysis patients and revise them if necessary to ensure that these policies are consistent with CMS’s goal of encouraging the use of home dialysis among patients for whom it is appropriate. To ensure that patients with chronic kidney disease receive objective and timely education related to this condition, the Administrator of CMS should examine the Kidney Disease Education benefit and, if appropriate, seek legislation to revise the categories of providers and patients eligible for the benefit. We received written comments on our draft report from the Department of Health and Human Services (HHS). These comments are reprinted in appendix II. Because Medicare payments for home dialysis have implications for patients and the dialysis industry, we also obtained comments on our draft from groups representing home dialysis patients, large and small dialysis facility chains and independent facilities, and nephrologists. Following is our summary of and response to comments from HHS and these patient and industry groups. In written comments on a draft of this report, HHS reiterated its goal of fostering patient independence through greater use of home dialysis among patients for whom it is appropriate and pointed out that home dialysis use has increased since 2011 when the bundled payment system was implemented. HHS concurred with two of our three recommendations. In response to our first recommendation that CMS improve the reliability of cost report data for training and treatment associated with specific types of dialysis, HHS said that it is willing to consider reasonable modifications to the cost report that could improve the reliability of cost report data. HHS also stated that it was conducting audits of cost reports as required by the Protecting Access to Medicare Act of 2014. HHS also concurred with our second recommendation to examine Medicare policies for monthly payments to physicians to manage patients’ dialysis to ensure that these policies are consistent with CMS’s goal of encouraging home dialysis use when appropriate. HHS said that it would review these services through CMS’s misvalued code initiative, which involves identifying and evaluating physician services that may not be valued appropriately for Medicare payment purposes and then adjusting Medicare payment as needed. We believe that this examination and any resulting revisions to these payment policies have the potential to address our recommendation. HHS did not concur with our third recommendation that CMS examine the KDE benefit and, if appropriate, seek legislation to revise the categories of providers and patients eligible for the benefit. HHS said that CMS works continuously to appropriately pay for ESRD services and must prioritize its activities to improve care for dialysis patients. While we acknowledge the need for HHS to prioritize its activities to improve dialysis care, it is important for HHS to help ensure that Medicare patients with chronic kidney disease understand their condition, how to manage it, and the implications of the various treatment options available, particularly given the central role of patient choice in dialysis care. The limited use of the KDE benefit suggests that it may be difficult for Medicare patients to receive this education and underscores the need for CMS to examine and potentially revise the benefit. We received comments from five groups: (1) Home Dialyzors United (HDU), which represents home dialysis patients; (2) the National Renal Administrators Association (NRAA), which represents small dialysis facility chains and independent facilities; (3) DaVita, which is one of the two large dialysis facility chains; (4) Fresenius, which is the other large dialysis facility chain; and (5) the Renal Physicians Association (RPA), which represents nephrologists. The groups expressed appreciation for the opportunity to review the draft, and the three groups that commented on the quality of the overall report stated that it accurately addressed issues related to the use of home dialysis. Three of the groups commented on some or all of our recommendations, while the remaining two groups did not comment specifically on this aspect of our report. Specifically, HDU, NRAA, and RPA agreed with our first recommendation that CMS improve the reliability of cost report data for treatment and training associated with specific types of dialysis. A fourth group—Fresenius—expressed concern about the reliability of data on the costs of home dialysis, which was consistent with our recommendation that CMS needs to improve the reliability of these data. RPA, in addition to agreeing with this recommendation, questioned the reliability of the data on total facility costs that we used for our analysis. Although it was beyond the scope of our report to verify the accuracy of each facility’s cost report, we took several steps to assess the cost report data that we analyzed. These steps included verifying the cost report data for internal consistency and checking the number of dialysis treatments reported against Medicare claims. The fact that implementing these steps caused us to exclude some facilities’ data from our analysis suggests that the potential exists to improve the accuracy of these data. CMS’s implementation of our recommendation and auditing of cost reports under the Protecting Access to Medicare Act of 2014 create the opportunity for CMS to begin addressing this issue. NRAA, another group that agreed with our first recommendation, recommended that we or CMS develop mechanisms in addition to the cost reports to more accurately capture the resources devoted to providing home dialysis to each patient, but developing such mechanisms was beyond the scope of this report. One group (HDU) agreed with our second recommendation that CMS examine and, if necessary, revise Medicare payment policies for physicians to manage the care of dialysis patients, but a second group (RPA) urged us to reconsider the recommendation out of concern that implementing it could lead to cuts in physician payments for home dialysis. While RPA agreed that the current payment method gives physicians a disincentive for prescribing home dialysis, the group emphasized that it was only one of numerous factors that affect this treatment decision. RPA also stated that it would support certain payment changes that would increase physicians’ incentives to prescribe home dialysis, which could include using performance measures to promote home dialysis use. However, RPA expressed concern that the process CMS may use for examining and potentially revising this payment method could lead to cuts in physician payments for home dialysis, which RPA asserted would further discourage its use and be contrary to the intent of our recommendation. We agree that Medicare’s current method of paying physicians to manage patients’ dialysis care is one of several factors that could influence physicians’ decisions to prescribe home dialysis and described these factors in our report. In addition, while we do not know what changes, if any, CMS will make to physician payments for managing patients’ dialysis care, we believe the intent of our recommendation—to ensure that these payments are consistent with CMS’s goal to encourage the use of home dialysis when appropriate—is clear. Three groups (HDU, NRAA, and RPA) agreed with our third recommendation that CMS examine the KDE benefit and if appropriate seek revisions to the categories of providers and patients eligible for the benefit. RPA also emphasized its agreement with our findings that the statutory limitations on the providers and patients eligible for the benefit have contributed to the limited use of the benefit. These groups also urged other changes to the KDE benefit such as removing the requirement for a copayment and making documentation requirements more flexible. The limitations in the categories of eligible providers and patients were cited in our interviews with stakeholders as the main reasons for the limited use of the KDE benefit, but we acknowledge that other opportunities may exist for improving the benefit’s design. NRAA also pointed out that facilities currently educate patients with chronic kidney disease on the choice of type of dialysis but are not reimbursed by Medicare for doing so. We stated in the report that, according to the large and small dialysis facility chains we interviewed, they have the capacity to educate such patients about their condition. However, we also reported the concern raised by CMS and certain other stakeholders that the education provided by facilities may not be objective because they have a financial interest in patients’ treatment decisions. The patient and industry groups also made several comments in addition to those described above. DaVita, NRAA, and RPA stated that the use of telehealth by physicians to manage the care of dialysis patients could facilitate the use of home dialysis. We noted in the report that certain visits for managing in-center patients can be provided via telehealth. CMS has established a process for identifying other services—such as managing home patients—that could be provided via telehealth under Medicare, and examining this process was beyond the scope of this report. HDU, NRAA, and RPA stressed the importance of patient-centered dialysis care and of ensuring that patients have sufficient information to make informed decisions on the type of dialysis. We agree that patient preferences and patient education are central to decisions regarding the type of dialysis and have described these and other factors that could affect these decisions. DaVita and RPA stressed the impact of the ongoing shortage of peritoneal dialysis solution. In particular, DaVita said the shortage is the biggest barrier to the use of home dialysis. We agree that this shortage could have a long-term impact on the use of home dialysis and revised the report to incorporate this perspective. DaVita and HDU asserted that Medicare’s method of paying for dialysis care separately from other services, such as inpatient care, could affect incentives for providing home dialysis. For example, DaVita suggested that the incentive to provide home hemodialysis could increase if a single entity were financially responsible for all Medicare services provided to a Medicare patient. This incentive could increase because, according to DaVita, the cost of inpatient care may be lower for home hemodialysis patients than for in-center hemodialysis patients. We agree that choosing one type of dialysis over another could affect the use of other types of Medicare services, but examining such implications was beyond the scope of this report. NRAA and RPA appreciated that our report addressed the role of nephrology training programs in the use of home dialysis, and both groups said that we or CMS should further examine how physicians can receive greater exposure to home dialysis through these programs. RPA said that this examination could also address the role of Medicare payments for graduate medical education. While we acknowledge the importance of these issues, further examination of them was beyond the scope of our report. In addition to the comments described above, the patient and industry groups provided technical comments on the draft, which we incorporated as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Secretary of Health & Human Services and other interested parties. In addition, the report will be available at no charge on the GAO 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 our report. GAO staff who made key contributions to this report are listed in appendix III. This appendix describes the data and methods we used for our analysis of Medicare margins, which was part of our effort to examine incentives associated with Medicare payments to dialysis facilities. We analyzed Medicare cost report data for 2012 from freestanding facilities located in the 50 states and the District of Columbia. We took steps to restrict our analysis to data from facilities with similar cost and payment structures. We did not include hospital-based facilities in our analysis because these facilities’ reported costs may be driven in part by hospitals’ methods for allocating overhead costs within these hospitals rather than by the costs of the dialysis facility itself. Because of possible differences in cost structures, we excluded facilities that (1) provided any pediatric or intermittent peritoneal dialysis treatments, (2) were government-owned, or (3) had cost reporting periods not equal to calendar year 2012, which generally occurred when facilities changed ownership, opened, closed, or changed Medicare status during the year. Because of possible differences in payment structures, we also limited our analysis to facilities that elected to be paid fully under the bundled payment system. Implementing these steps resulted in the exclusion of approximately 19 to 20 percent of the 5,380 freestanding facilities originally in the cost report data set. We also took several steps to assess the reliability of facilities’ cost report data on total costs, total Medicare payments, and the number of dialysis treatments provided. In particular, we checked for and excluded facilities with internal inconsistencies among variables such as reporting that they provided more treatments to Medicare patients than to Medicare and non- Medicare patients combined or reporting negative treatment numbers. In addition, we excluded facilities that reported unusually high or low average costs or average Medicare payments, which may be indicative of data entry errors. Finally, we compared the number of Medicare-covered treatments reported on the cost reports to similar data from Medicare claims on the number of paid treatments, and we excluded facilities with inconsistencies. Implementing these steps to assess the reliability of the data resulted in the exclusion of an additional approximately 8 to 9 percent of the 5,380 freestanding facilities originally in the cost report data set, leaving 3,891 (72 percent) of these facilities in our analysis. We focused our analysis primarily on the 1,569 of these 3,891 freestanding facilities that provided home dialysis (defined as either home hemodialysis and/or peritoneal dialysis) to Medicare dialysis patients in 2012. We determined that the data on total costs, total Medicare payments, and number of dialysis treatments provided were sufficiently reliable for the purposes of our analysis. (𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 𝑝𝑝𝑀𝑀𝑝𝑝𝑝𝑝𝑀𝑀𝑝𝑝𝑝𝑝𝑝𝑝− 𝐸𝐸𝑝𝑝𝑝𝑝𝑀𝑀𝑝𝑝𝑀𝑀𝑝𝑝𝑀𝑀𝑀𝑀 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 𝑀𝑀𝑐𝑐𝑝𝑝𝑝𝑝𝑝𝑝) We calculated the Medicare margin for all facilities that provided home dialysis. (See table 3.) When calculating the average margin for facilities in our analysis, we weighted the average by the total number of Medicare-covered patient years of dialysis. We classified facilities as small or large based on whether their number of Medicare patient years was below or above the median number of patient years among the facilities in our analysis that provided home dialysis. To examine incentives associated with each type of dialysis, we used multiple linear regression analysis to estimate the extent to which adding a patient year of peritoneal dialysis, home hemodialysis, and in-center hemodialysis was associated with an increase or decrease in facilities’ Medicare margins. The explanatory variables of our regression model included, for each type of dialysis, a binary variable for whether or not the facility provided that type of dialysis and a continuous variable with the number of patient years for that type of dialysis. To control for other factors that could affect a facility’s Medicare margin, our model also included binary variables for whether or not the facility was located in an urban area or whether or not the facility was affiliated with a large dialysis facility chain. See table 4 for more information about the characteristics included in the model. As shown in table 5 and discussed further in the report, the results of our regression model show the effect on facilities’ Medicare margin from adding one patient year of a given type of dialysis. In addition to the contact named above, William Black, Assistant Director; George Bogart; Andy Johnson; Corissa Kiyan; Hannah Marston Minter; Richard Lipinski; Elizabeth T. Morrison; Vikki Porter; and Eric Wedum made key contributions to this report.

Summary: In 2013, Medicare spent about $11.7 billion on dialysis care for about 376,000 Medicare patients with end-stage renal disease, a condition of permanent kidney failure. Some of these patients performed dialysis at home, and such patients may have increased autonomy and health-related quality of life. GAO was asked to study Medicare patients' use of home dialysis and key factors affecting its use. This report examines (1) trends in home dialysis use and estimates of the potential for wider use, (2) incentives for home dialysis associated with Medicare payments to dialysis facilities, and (3) incentives for home dialysis associated with Medicare payments to physicians. GAO reviewed CMS policies and relevant laws and regulations, and GAO analyzed data from CMS (2010-2015), the United States Renal Data System (1988-2012), and Medicare cost reports (2012), the most recent years with complete data available. GAO also interviewed CMS officials, selected dialysis facility chains, physician and patient associations, and experts on home dialysis. The percentage of dialysis patients who received home dialysis generally declined between 1988 and 2008 and then slightly increased thereafter through 2012, and stakeholder estimates suggest that future increases in the use of home dialysis are possible. Dialysis patients can receive treatments at home or in a facility. In 1988, 16 percent of 104,200 dialysis patients received home dialysis. Home dialysis use generally decreased over the next 20 years, reaching 9 percent in 2008, and then slightly increased to 11 percent of 450,600 dialysis patients in 2012—the most recent year of data for Medicare and non-Medicare patients. Physicians and other stakeholders estimated that 15 to 25 percent of patients could realistically be on home dialysis, suggesting that future increases in use are possible. In the short term, however, an ongoing shortage of supplies required for peritoneal dialysis—the most common type of home dialysis—reduced home dialysis use among Medicare patients from August 2014 to March 2015. Some stakeholders were also concerned the shortage could have a long-term impact. Medicare's payment policy likely gives facilities financial incentives to provide home dialysis, but these incentives may have a limited impact in the short term. According to the Centers for Medicare & Medicaid Services (CMS) within the Department of Health and Human Services (HHS), setting the facility payment for dialysis treatment at the same rate regardless of the type of dialysis gives facilities a powerful financial incentive to encourage the use of peritoneal dialysis when appropriate because it is generally less costly than other dialysis types. However, GAO found that facilities also have financial incentives in the short term to increase provision of hemodialysis in facilities, rather than increasing home dialysis. This is consistent with information from CMS and stakeholders GAO interviewed. For example, facilities may be able to add an in-center patient without paying for an additional dialysis machine, because each machine can be used by six to eight in-center patients. In contrast, for each new home patient, facilities may need to pay for an additional machine. The adequacy of Medicare payments for home dialysis training also affects facilities' financial incentives for home dialysis. Although CMS recently increased its payment for home dialysis training, it lacks reliable cost report data needed for effective fiscal management, which involves assessing payment adequacy. In particular, if training payments are inadequate, facilities may be less willing to provide home dialysis. Medicare payment policies may constrain physicians' prescribing of home dialysis. Specifically, Medicare's monthly payments to physicians for managing the care of home patients are often lower than for managing in-center patients even though physician stakeholders generally said that the time required may be similar. Medicare also pays for predialysis education—the Kidney Disease Education (KDE) benefit—which could help patients learn about home dialysis. However, less than 2 percent of eligible Medicare patients received the benefit in 2010 and 2011, and use has declined since then. According to stakeholders, the low usage was due to statutory limitations in the categories of providers and patients eligible for the benefit. CMS has established a goal of encouraging home dialysis use among patients for whom it is appropriate, but the differing monthly payments and low usage of the KDE benefit could undermine this goal. GAO recommends that CMS (1) take steps to improve the reliability of the cost report data, (2) examine and, if necessary, revise policies for paying physicians to manage the care of dialysis patients, and (3) examine and, if appropriate, seek legislation to revise the KDE benefit. HHS concurred with the first two recommendations but did not concur with the third. GAO continues to believe this recommendation is valid as discussed further in this report.