The Proposed Regulations Governing Reimbursement Under the Medicare End Stage Renal Disease Program

Medicare coverage is provided to persons suffering from kidney failure who are either insured under the Social Security Act or are dependents of an insured person. The End Stage Renal Disease Program, which provides this coverage, is generally considered effective in protecting beneficiaries from the catastrophic costs associated with caring for a person with renal failure. However, large and rapidly rising costs have caused great concern about the future of the Program. The Program has been amended to allow patients to dialyze at home, a less costly procedure. Recently, the Health Care Financing Administration (HCFA) proposed to establish a composite rate designed to cover the costs of both home and in-facility dialysis treatments. Each facility would receive a certain payment rate per treatment, adjusted for geographic differences in the cost of labor. GAO reviewed the audits of 13 facilities and the HCFA adjustments to these audits to determine the reliability of the resulting data. GAO believes that the data which HCFA used, and the resulting proposed payment rates, probably overstate what it would cost an efficient and economical provider to deliver the needed services. GAO questioned the accuracy of the cost data obtained on independent end stage renal disease facilities because of the incomplete audits on which the data are based. The 13 facilities reviewed reported $15.4 million in costs, including $6 million in related organization transactions that had not been adequately examined to eliminate inter-company profits and other unallowable costs. Physicians' compensation for administrative services and profit sharing arrangements were included in the audited costs without assessing their reasonableness. Although there are limits on the amount Medicare will reimburse for some services, there is no overall limit on the amount of compensation, benefits, or profits that physicians can receive under the Program. The annual payments which GAO was able to identify ranged as high as $36,000 per facility in addition to whatever the physicians received from Medicare for providing end stage renal disease medical services. Home dialysis costs could probably be lowered substantially by purchasing dialysis machines rather than renting them. GAO has made a limited evaluation of the effectivenenss of the end stage renal disease networks, but the review indicated that most of the networks had not met all of their legal requirements.