Treatment options for ESRD include kidney transplantation and dialysis. Kidney transplants are not a practical option on a wide scale, as suitable donated organs are scarce. In contrast, dialysis is the treatment used by most beneficiaries 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. One common complication of ESRD is mineral and bone disorder, which can result in a variety of negative clinical conditions in ESRD patients, including weak and brittle bones and cardiovascular disease. Because mineral and bone disorder is associated with abnormal calcium, phosphorus, and parathyroid hormone (PTH) levels in the blood, treatment of mineral and bone disorder typically involves monitoring the levels of these substances in the blood and providing a combination of medications to control these levels. The medications that are generally provided to treat mineral and bone disorder are vitamin D, calcimimetics, and phosphate binders. Vitamin D and calcimimetics are used to help maintain normal levels of calcium and PTH, while phosphate binders are used to reduce excessive phosphorus levels. Vitamin D is generally administered intravenously, although a small number of patients—usually those who receive dialysis in their home—are treated with the oral form of the drug. Calcimimetics and phosphate binders are available only in oral form. Under the bundled payment system for dialysis care, dialysis organizations are responsible for providing injectable ESRD drugs as well as oral ESRD drugs with injectable equivalents. Dialysis organization personnel typically administer injectable ESRD drugs to beneficiaries when they come in for their dialysis treatments. In contrast, dialysis organization personnel generally are not licensed to dispense oral ESRD drugs with injectable equivalents. As a result, dialysis organizations may operate or contract with a community or mail-order pharmacy to provide these drugs to beneficiaries. Because dialysis organizations are not currently responsible for providing oral-only ESRD drugs under the bundled payment system for dialysis care, beneficiaries typically have coverage for these drugs through other sources, such as Medicare Part D prescription drug plans (PDP) and employer- or union-sponsored drug plans. CMS implemented the bundled payment system for Medicare-covered dialysis care in 1983. CMS has also developed bundled payment systems for other Medicare-covered services in several settings, including inpatient hospitals, skilled nursing facilities, and home health agencies. When implementing a bundled payment system, CMS may determine what services will be covered under the bundle and what the payment rate to providers will be for those services. This rate is generally designed to cover the costs that an efficient provider would incur to provide the bundled services. As required by MIPPA, in January 2011, CMS made the most substantial change in Medicare’s bundled payment for dialysis care since this bundled payment system was implemented in 1983—expanding the bundled payment to cover additional items and services. The bundled payment will be expanded further in 2014. Prior to 2011, Medicare’s bundled payment covered dialysis treatment and certain associated items and services under Part B. This bundled payment did not cover all dialysis-related items and services. Specifically, Medicare paid separately under Part B for injectable ESRD drugs. In addition, for beneficiaries who were enrolled in Medicare Part D PDPs, Medicare covered oral ESRD drugs under Part D. For 2011 through 2013, the bundled payment for dialysis care was expanded to cover, under Part B, additional dialysis-related items and services such as injectable ESRD drugs and oral ESRD drugs with injectable equivalents. Medicare continues to cover oral-only ESRD drugs under Part D. Beginning in 2014, the bundled payment will be expanded again—this time to include coverage for oral-only ESRD drugs. As a result, Medicare will begin paying for these drugs with the bundled payment under Part B rather than covering them under Part D. (See fig. 1 for a summary of changes over time in Medicare’s payment methods for dialysis and related items and services.) In response to a provision in the Balanced Budget Act of 1997, which required CMS to develop a method to measure and report on the quality of dialysis care provided under the Medicare program, CMS developed the ESRD Clinical Performance Measures (CPM) Project. Through the CPM Project, CMS develops quality measures for monitoring various aspects of dialysis care and collects data to support these quality measures. From 1999 through 2008, CMS’s CPM Project collected data to support its quality measures annually using a random national sample of beneficiaries and a paper data collection form completed by dialysis facilities. However, because CMS’s CPM Project collected data for only a national sample of beneficiaries, CMS was limited to using these data to monitor the quality of dialysis care at the national level and not the facility level. Due in part to the limited amount of data that CMS could collect through the paper data collection form, CMS has been developing a new Web- based data collection system—referred to as the Consolidated Renal Operations in a Web-Enabled Network (CROWNWeb). CROWNWeb is designed to collect data for all Medicare beneficiaries receiving dialysis care, rather than for a sample of beneficiaries, and to allow CMS to monitor the quality of dialysis care at both the national level and the facility level. In general, CMS plans for facilities that are part of large dialysis organizations participating in Medicare to transmit data for their patients from the organization’s data management system to CROWNWeb using an automated process—referred to as “batch” submission. In contrast, CMS plans for facilities that are part of small dialysis organizations participating in Medicare to submit data for their patients to CROWNWeb by manually entering data via the Web. There are three key reasons for including oral-only ESRD drugs in the bundled payment for dialysis care: to encourage more efficient care, to encourage more clinically appropriate care, and to increase access to these drugs for certain beneficiaries. As we and others have noted, bundling payments for items and services related to dialysis care is designed to give dialysis organizations an incentive to provide care more efficiently because organizations retain the difference if Medicare’s bundled payment exceeds the cost of providing such items and services. Therefore, including oral-only ESRD drugs in the bundled payment for dialysis care could introduce an incentive for organizations to select the oral-only ESRD drugs and associated doses that lead to efficient dialysis care in order to increase the amount of money they retain from the bundled payment. Including oral-only ESRD drugs in the bundled payment for dialysis care could also promote clinically appropriate care by removing the financial incentive to use these drugs instead of drugs currently included in the bundled payment. Specifically, dialysis organizations are not responsible for the cost of phosphate binders and calcimimetics because these drugs currently are not included in the bundled payment for dialysis care. As a result, dialysis organizations gain financially if beneficiaries receive these drugs to treat mineral and bone disorder instead of drugs included in the bundled payment, such as vitamin D, even though doing so may not always represent the most clinically appropriate care. For example, two experts on treatment of mineral and bone disorder who we interviewed noted that this financial incentive under the current bundled payment system could lead to increased use of calcimimetics and decreased use of vitamin D to control beneficiaries’ PTH levels. Although calcimimetics can be effective at lowering PTH levels, these drugs may not be appropriate for all beneficiaries and could result in adverse side effects for some beneficiaries. Finally, including oral-only ESRD drugs in the bundled payment for dialysis care could improve access to these drugs for certain beneficiaries, including beneficiaries who do not currently have prescription drug coverage and beneficiaries with Part D prescription drug coverage whose annual drug costs are within a certain range. Approximately 17 percent of all Medicare beneficiaries on dialysis did not have any prescription drug coverage in 2007. Studies have shown that, due to the higher out-of- pocket drug costs they incur, individuals who lack prescription drug coverage are less likely to use prescription drugs than individuals with drug coverage. Furthermore, beneficiaries on dialysis with standard drug coverage through Part D may be subject to increased cost sharing for oral- only ESRD drugs when these beneficiaries’ total annual spending on all prescription drugs falls between $2,840 and $6,448—a coverage gap sometimes called the “doughnut hole.” However, when oral-only ESRD drugs are included in the bundled payment, all beneficiaries on dialysis will be eligible for coverage for these drugs under Medicare Part B, and will not be subject to the Medicare Part D coverage gap for these drugs. Three of the 4 large dialysis organizations in our review reported that they provided oral-only ESRD drugs to some of the Medicare beneficiaries they served in 2010. In contrast, all 16 of the small dialysis organizations in our review reported that they did not provide these drugs to beneficiaries in 2010. Regardless of their experience with providing these drugs to beneficiaries, the large and small dialysis organizations in our review identified several issues that could affect their ability to provide these drugs to beneficiaries in 2014. The four large dialysis organizations in our review generally had some experience with providing oral-only ESRD drugs to Medicare beneficiaries. Specifically, three of the large dialysis organizations in our review reported that they provided oral drugs, including oral-only ESRD drugs, to some of their patients in 2010. Representatives from these three large dialysis organizations explained that their organizations operated community or mail-order pharmacies and provided oral drugs to about 2 to 22 percent of their patients, including some Medicare beneficiaries who were enrolled in a Part D PDP. For example, representatives from one of these large dialysis organizations noted that their organization operated a mail-order pharmacy and provided oral drugs to about 26,000 of its 120,000 patients. These representatives told us that their dialysis organization’s pharmacy typically mailed oral drugs to patients either at their homes or at dialysis facilities.