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Report to Congressional Committees:

United States General Accounting Office:

GAO:

June 2004:

Medicare Dialysis Facilities:

Beneficiary Access Stable and Problems in Payment System Being 
Addressed:

GAO-04-450:

GAO Highlights:

Highlights of GAO-04-450, a report to congressional committees 

Why GAO Did This Study:

Medicare covers about 90 percent of patients with end-stage renal 
disease (ESRD), the permanent loss of kidney function. Most ESRD 
patients receive regular hemodialysis treatments, a process that 
removes toxins from the blood, at a dialysis facility. A small 
percentage dialyzes- at home. From 1991 through 2001, the ESRD patient 
population more than doubled, from about 201,000 to 406,000. As the 
need for services grows, so do concerns about beneficiary access to and 
Medicare payment for dialysis services. The Medicare, Medicaid, and 
SCHIP Benefits Improvement and Protection Act of 2000 directed GAO to 
study beneficiaries’ access to dialysis services. In this report, GAO 
(1) assessed the supply of dialysis facilities and the services they 
provide, overall and relative to beneficiary residence, and (2) 
assessed the extent to which Medicare payments for dialysis services 
are adequate and the methodology is appropriate.
 
In order to assess the supply of dialysis facilities, GAO used 
Facility Surveys collected by the Centers for Medicare & Medicaid 
Services (CMS) and outpatient claims, the bills submitted to Medicare 
by providers of certain outpatient services from 1998 through 2001. To 
assess the adequacy of Medicare payment and the appropriateness of the 
payment methodology, GAO used 2001 Medicare cost reports and outpatient 
claims submitted by freestanding dialysis facilities.

What GAO Found:

GAO found that from December 31, 1998, through December 31, 2001, the 
total number of dialysis facilities nationwide increased at about the 
same rate as the Medicare dialysis population, 16 and 15 percent, 
respectively, and the total number of stations (that is, treatment 
areas and equipment, including dialysis machines, needed to dialyze the 
patient) increased by over 24 percent, a rate greater than the growth 
in the Medicare dialysis population. The dialysis industry opened 
facilities in more counties across the country, although facilities 
were more likely to be available to beneficiaries in urban counties 
than in rural counties. In addition, while almost all facilities 
provided in-facility hemodialysis, fewer facilities provided home 
dialysis.

GAO estimates that total payments to freestanding dialysis facilities 
exceeded providers’ allowable costs by 3 percent in 2001. Although 
payments were higher than costs overall, payments did not meet costs 
for small facilities. In addition, composite rate payments, intended 
to cover the costs of dialysis services associated with a treatment, 
including nursing, supplies, social services, and certain laboratory 
tests, were 11 percent less than the costs of providing those services, 
while payments for separately billed drugs, drugs not included in the 
composite rate, exceeded the costs of those services by 16 percent. 
Because of this imbalance, providers have an incentive to maximize the 
use of profitable separately billed drugs to compensate for inadequate 
payments under the composite rate. 

CMS generally agreed with GAO’s findings. The agency noted that it has 
been working to redesign the payment system since 2000. Under the 
Medicare Prescription Drug, Improvement, and Modernization Act of 2003 
(MMA), the Secretary of Health and Human Services is required to 
develop a report by October 1, 2005 detailing the elements and 
features necessary in the design and implementation of a broader 
payment system that includes separately billed drugs. MMA also requires 
the Secretary to conduct a 3-year demonstration project, beginning 
January 1, 2006, that uses a broader payment system incorporating 
patient characteristics identified in the report.

What GAO Recommends:

www.gao.gov/cgi-bin/getrpt?GAO-04-450.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact A. Bruce Steinwald at 
(202) 512-7119.

[End of section]

Contents:

Letter:

Results in Brief:

Background:

Dialysis Facilities Increased at Same Rate as Beneficiary Population, 
but Supply Varied Geographically and by Treatment Method:

Total Medicare Payments to Freestanding Dialysis Facilities Exceeded 
Costs, but Current Payment Methodology Is Not Appropriate:

Daily Hemodialysis Appears Promising, but Rigorous Data Are Lacking:

Concluding Observations:

Agency and External Reviewer Comments and Our Evaluation:

Appendix I: Scope and Methodology:

Appendix II: Comments from the Centers for Medicare & Medicaid Services:

Appendix III: GAO Contact and Staff Acknowledgments:

GAO Contact:

Acknowledgments:

Tables:

Table 1: Freestanding Dialysis Facility Adjusted Payment-to-Cost Ratios 
for Composite Rate Services and Separately Billed Drugs, Overall and by 
Size, 2001:

Table 2: Freestanding Dialysis Facility Unadjusted Payment-to-Cost 
Ratios for Composite Rate Services, 1998-2001:

Table 3: Most Frequent Items Billed Separately in Association with 
Hemodialysis, 2001:

Figures:

Figure 1: Dialysis Facilities by County, 1998-2001:

Figure 2: Percentage of Beneficiaries on Dialysis Who Reside in 
Counties with at Least One Facility, 1998-2001:

Figure 3: Average Number of Facilities Available per County, by 
Location, 1998-2001:

Figure 4: Average Number of Stations Available per County, by Location, 
1998-2001:

Figure 5: Percentage of Beneficiaries on Dialysis Who Had a Treatment 
Method Available in Their Counties, 1998-2001:

Figure 6: Average Number of Facilities Available per County, by 
Treatment Method, 1998-2001:

Figure 7: Percentage of Beneficiaries on Dialysis in Rural Counties Who 
Had a Treatment Method Available in Their Counties, 1998-2001:

Abbreviations:

AAKP: American Association of Kidney Patients: 
AWP: average wholesale price: 
BIPA: Medicare, Medicaid, and SCHIP Benefits Improvement and Protection 
Act of 2000: 
CMS: Centers for Medicare & Medicaid Services: 
DCI: Dialysis Clinic, Inc.: 
EPO: epoetin:  
ESRD: end-stage renal disease: 
FMC: Fresenius Medical Care: 
HCFA: Health Care Financing Administration: 
HHS: Department of Health and Human Services: 
MedPAC: Medicare Payment Advisory Commission: 
MMA: Medicare Prescription Drug, Improvement, and Modernization Act of 
2003: 
NIH: National Institutes of Health: 
NRAA: National Renal Administrators Association: 
PD: peritoneal dialysis: 
RLC: Renal Leadership Council: 
RPA: Renal Physicians Association:

United States General Accounting Office:

Washington, DC 20548:

June 25, 2004:

Congressional Committees:

Medicare covers approximately 90 percent of all individuals who have 
end-stage renal disease (ESRD), the permanent loss of kidney function, 
and treatment of the disease results in substantial costs to the 
Medicare program. In 2001, Medicare spent an average of approximately 
$46,600 on services for each beneficiary with ESRD, while the average 
per-beneficiary spending across the entire Medicare population was 
about $6,200. ESRD-related expenditures have increased rapidly and are 
expected to continue to increase. From 1991 through 2001, the number of 
individuals with ESRD more than doubled, increasing from about 201,000 
to 406,000. During the same time, while total Medicare expenditures 
increased by 108 percent, ESRD program expenditures increased by 166 
percent, to almost $15.4 billion in 2001. The ESRD population is 
projected to reach approximately 650,000 by 2010[Footnote 1].:

Although some receive kidney transplants, most individuals with ESRD 
depend on regular treatments of dialysis, a process in which excess 
fluids and wastes are removed from the blood.[Footnote 2] In 2001, 
about 90 percent of all dialysis patients underwent hemodialysis, 
typically three times per week, at one of almost 4,000 outpatient renal 
dialysis facilities nationwide.[Footnote 3] In that same year, less 
than 1 percent of hemodialysis patients dialyzed at home, and nearly 
all peritoneal dialysis (PD) patients dialyzed at home.[Footnote 4] 
Nationwide, about 200 hemodialysis patients dialyze five to seven times 
per week, known as daily hemodialysis, which is thought by some 
clinicians to improve patient outcomes.

Dialysis facilities furnish services to patients through one of two 
methods: they provide hemodialysis and supplies and other support 
services in the facility, or they provide equipment, supplies, and 
support services to beneficiaries who dialyze at home. Regardless of 
whether a beneficiary dialyzes at home or in a facility, Medicare pays 
the facility a fixed, prospectively determined amount per treatment, 
known as the composite rate, generally for up to three dialysis 
treatments per week. The composite rate covers many commonly used 
services and items; certain other items, including some drugs and 
supplies, are paid for separately. Medicare adjusts the composite rate 
to account for variation in area wages; however, there is no adjustment 
for length of treatment, treatment method, or beneficiary condition. By 
paying facilities a fixed amount, Medicare seeks to encourage them to 
operate efficiently, as facilities retain the difference if their 
payments exceed their costs of providing necessary services.

The composite rate has not been regularly updated, and is less than $4 
higher today than when it was implemented in 1983. Despite the lack of 
a regular update, the dialysis industry has remained profitable over 
the years by increasing productivity and efficiency. In recent reports, 
the Medicare Payment Advisory Commission (MedPAC)[Footnote 5] has found 
that overall facility profits have steadily declined even though 
Medicare payments for separately billed drugs have exceeded facility 
costs. MedPAC has also found that the composite rate is covering 
progressively less of the costs of composite rate services.[Footnote 6] 
Representatives of the dialysis industry have stated that Medicare 
payments are inadequate overall, and that these low payments are 
resulting in facility closures in certain geographic areas and may 
eventually lead to decreased access for beneficiaries nationwide. In 
2000, the Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000 (BIPA) required the Secretary of the Department 
of Health and Human Services (HHS) to develop a payment system that 
includes clinical laboratory tests and drugs that are routinely used 
but billed separately.[Footnote 7] With the enactment of the Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), 
the Secretary of HHS was required to continue development of a broader 
payment system.[Footnote 8]

BIPA directed us to examine Medicare beneficiaries' access to dialysis 
services.[Footnote 9] As agreed with the committees of jurisdiction, we 
(1) assessed the supply of dialysis facilities and the services they 
provide, both overall and relative to beneficiary residence; (2) 
assessed the extent to which Medicare payments for dialysis services 
are adequate and the payment methodology is appropriate; and (3) 
reviewed whether increased use of daily hemodialysis can improve 
patient care.

In order to measure the supply of dialysis facilities, we used the 1998 
through 2002 Facility Survey files, which include information on the 
number of hemodialysis stations and the services provided at each 
facility.[Footnote 10] These surveys are administered to all dialysis 
facilities, hospital-based and freestanding, by the Centers for 
Medicare & Medicaid Services (CMS), the agency responsible for managing 
Medicare.[Footnote 11] To identify beneficiaries on dialysis and their 
residence, we analyzed the 1998 through 2001 Medicare outpatient 
claims, the bills submitted by providers of certain outpatient services 
to receive Medicare payment. These claims were the most recent data 
available at the time of our analysis. We assessed the reliability of 
the facility survey and claims data and found them suitable for our 
purposes.

To assess the adequacy of Medicare payment and the appropriateness of 
the payment methodology, we analyzed Medicare freestanding dialysis 
facility cost reports from 1998 through 2001 and Medicare outpatient 
claims data from 2000 and 2001. We performed this analysis in aggregate 
for all freestanding facilities and for different sizes of facilities, 
with size defined using the total number of treatments provided at a 
facility. The Medicare payment methodology is the same for freestanding 
and hospital-based dialysis facilities, but we did not analyze cost 
reports or claims for hospital-based facilities because their reported 
costs are affected by decisions in allocating costs between the 
hospital and the dialysis facility. In 2001, about 84 percent of all 
dialysis facilities nationwide were freestanding. We assessed the 
reliability of the cost report and claims data. We excluded cost 
reports that had questionable data or that did not cover at least 300 
days. We found the remaining cost reports and the claims data suitable 
for our purposes. We interviewed patient advocate organizations, 
clinicians, manufacturers of dialysis equipment, and representatives of 
the dialysis industry, and made site visits to three dialysis 
facilities.

In order to review daily hemodialysis, we surveyed the relevant 
scientific literature, interviewed physicians who provide daily 
hemodialysis, and visited a dialysis facility providing daily 
hemodialysis. Appendix I contains a more complete description of our 
methodology. We conducted our work from July 2002 through June 2004 in 
accordance with generally accepted government auditing standards.

Results in Brief:

From December 31, 1998, through December 31, 2001, the total number of 
dialysis facilities nationwide increased at about the same rate as the 
Medicare dialysis population, 16 and 15 percent, respectively. Over the 
same period, the total number of stations increased by over 24 percent, 
a rate greater than the growth in the Medicare dialysis population. The 
dialysis industry opened facilities in more counties across the 
country, although a greater number of facilities were available to 
beneficiaries in urban counties than in rural counties.[Footnote 12] In 
addition, while almost all facilities provided hemodialysis, fewer 
facilities provided home dialysis.

In 2001, we estimate that overall Medicare payments to freestanding 
dialysis facilities exceeded their Medicare-allowable costs, that is, 
their reasonable costs for services directly related to medical care 
for beneficiaries, by 3 percent. However, payments were less than costs 
for small facilities. While we estimate that composite rate payments 
were 11 percent lower than the costs of providing composite rate 
services, payments for separately billed drugs were 16 percent higher 
than the costs of those drugs. Because of this imbalance, providers 
have an incentive to maximize the use of profitable separately billed 
drugs to compensate for inadequate payments under the composite rate.

Daily hemodialysis appears promising for improving patient outcomes. 
However, studies on the subject are limited in size and scope. 
Definitive conclusions on the extent to which daily hemodialysis 
improves patient care cannot be determined from the existing data.

In commenting on a draft of this report, CMS generally agreed with our 
findings and our conclusion that all outpatient dialysis services 
should be bundled into a single prospective payment amount based on 
facilities' allowable costs. Although in the draft report we had also 
recommended that CMS redesign the prospective payment system for 
dialysis facilities to bundle the costs of services, including 
separately billed drugs, into one payment amount, in its comments CMS 
noted that it would not have the statutory authority to implement such 
a system. CMS also noted that MMA requires the Secretary of HHS to 
report to the Congress by October 1, 2005, on the elements and features 
necessary in the design and implementation of a broader prospective 
payment system. The Secretary is also required to conduct a 3-year 
demonstration project, beginning January 1, 2006, that uses a payment 
system incorporating patient characteristics identified in the report. 
As a result, we deleted the recommendation in the draft report.

Background:

Individuals with ESRD are eligible for Medicare benefits regardless of 
their age.[Footnote 13] In 2001, Medicare covered about 90 percent of 
the 406,000 individuals with the disease. ESRD occurs when an 
individual's kidneys have regressed to less than 10 percent of normal 
baseline function. Without functioning kidneys, excess wastes and 
fluids in the body rise to dangerous levels, and certain hormones are 
no longer produced. The lack of one such hormone, erythropoietin, 
results in anemia, a condition in which an insufficient number of red 
blood cells are available to carry oxygen throughout the body. Diabetes 
and hypertension are the two principal causes of ESRD.

ESRD Population Growth:

The ESRD population has grown steadily over the years and is expected 
to continue to increase. From 1991 through 2001, the total number of 
individuals with ESRD increased from about 201,000 to 406,000, with an 
average annual growth rate of 7 percent. While the growth rate declined 
to about 5 percent in the late 1990s as a result of better preventive 
treatments, experts believe this decline to be temporary. Increases in 
the African-American and Hispanic populations, which have particularly 
high rates of diabetes, are expected to overwhelm this trend and lead 
to even greater growth rates in the future.[Footnote 14]

Renal Dialysis Treatment:

In order to survive, individuals with ESRD require kidney 
transplantation or dialysis, a process in which excess fluids and 
wastes are removed from the blood. In 2001, about 292,000, or 72 
percent, of all individuals with ESRD underwent dialysis, while the 
remaining 28 percent, or about 114,000 individuals, were transplant 
recipients. Transplantation is not a practical option for most 
individuals with ESRD because suitable donated organs are scarce. Also, 
many individuals are older and less healthy by the time they develop 
irreversible kidney failure, making them medically unsuitable for 
transplant. From 1991 through 2001, the total number of dialysis 
patients increased at an average annual growth rate of about 7 percent, 
the same as the ESRD population overall.

In 2001, most dialysis patients received services from one of almost 
4,000 hospital-based or freestanding dialysis facilities located in the 
50 states and the District of Columbia. These facilities provide 
hemodialysis, as well as drugs and related clinical and support 
services for patients who dialyze at home or in a facility. In 
addition, some facilities provide training for home dialysis and may 
furnish the equipment and supplies necessary for home dialysis 
treatment.[Footnote 15] In 1973, when Medicare benefits were extended 
to individuals with ESRD, the majority of dialysis facilities were 
owned and operated by hospitals. By 2001, however, almost 84 percent of 
all dialysis facilities nationwide were freestanding. In addition, for-
profit dialysis facility chains have represented an increasing share of 
the market. By 2001, the four largest for-profit chains accounted for 
about two-thirds of all freestanding facilities, and they provided 
treatment to about two-thirds of all dialysis patients.

Dialysis can be administered using two methods: hemodialysis and PD. 
During hemodialysis, a dialysis machine pumps blood through an 
artificial kidney, called a hemodialyzer, and returns the cleansed 
blood to the body. Hemodialysis is usually administered three times a 
week at a dialysis facility, although patients may choose to undergo 
hemodialysis at home with the assistance of a caregiver. In-facility 
hemodialysis has become the dominant treatment method since the 
introduction of dialysis in the 1960s. In 2001, about 90 percent of all 
dialysis patients underwent in-facility hemodialysis, and less than 1 
percent underwent hemodialysis at home.

In PD, the peritoneal membrane, which surrounds a patient's abdomen, 
acts as a natural blood filter, thus eliminating the need for blood to 
leave the body and filter through a machine. Patients remove the wastes 
and excess fluids from their abdomen manually throughout the day, or a 
machine automates the process while they sleep at night. Unlike 
hemodialysis, these patients generally dialyze at home. PD became an 
alternative to hemodialysis in the 1970s, and utilization peaked in the 
early 1990s, when more than 15 percent of all dialysis patients used 
this treatment method. By 2001, however, utilization had declined to 
about 8 percent of the dialysis population.

Hemodialysis performed five to seven times per week, referred to as 
"daily hemodialysis," more closely approximates the body's continuous 
cleansing of the blood than the conventional regimen of three 
hemodialysis treatments per week. Between dialysis treatments, excess 
wastes and fluids build up in the patient's blood, and many dialysis 
patients experience side effects such as hypertension, anemia, and low 
energy levels, which may adversely affect their clinical outcomes and 
quality of life. Because of these side effects, dialysis patients have 
high rates of hospitalization and often take several medications. Daily 
hemodialysis can take place either at home or in a facility, and 
proponents have asserted that it leads to improved quality of life, 
fewer hospitalizations, reduced use of medications, and overall cost 
savings to Medicare.

Medicare Payment:

Since 1983, Medicare has paid dialysis facilities a composite rate for 
each dialysis treatment it administers, generally up to a maximum of 
three treatments per beneficiary per week. The composite rate is a 
prospectively determined payment amount designed to cover the cost of 
services associated with a single dialysis treatment, including nursing 
and other clinical services, social services, supplies, equipment, and 
certain laboratory tests and drugs.[Footnote 16] Because the composite 
rate is prospectively determined, providers receive a fixed payment 
regardless of how much the services actually cost them to deliver. The 
initial fixed payment amount was derived from the median costs of 
providing medical services to beneficiaries across a sample of dialysis 
facilities. A prospective payment methodology encourages providers to 
control the costs and utilization of the services they provide, as they 
retain any difference between the payment and their costs.

In 1972, 40 percent of all dialysis patients underwent hemodialysis at 
home. In 1981, the Congress passed legislation establishing a new 
system for the payment of outpatient dialysis services for Medicare 
beneficiaries. The changes were designed to reduce program costs by 
encouraging home dialysis rather than in-facility dialysis. Under the 
system, a single prospectively determined rate was implemented for home 
and in-facility dialysis.[Footnote 17] However, the percentage of 
patients who undergo dialysis at home has declined since 1983, the year 
the composite rate was implemented. In 1983, the proportion of dialysis 
patients dialyzing at home, whether with hemodialysis or PD, was 12 
percent. By December 31, 2001, less than 9 percent of dialysis patients 
dialyzed at home.

The composite rate has changed minimally since 1983, when the rate 
averaged about $131 for hospital-based facilities and $127 for 
freestanding facilities. The Congress passed legislation that decreased 
the rate by $2 in 1986 and increased it in 1991, 2000, and 
2001[Footnote 18] to about $135 for hospital-based facilities and $131 
for freestanding facilities. From its implementation in 1983 through 
the end of 2003, the real dollar value of the composite rate declined 
by about 65 percent. The dialysis industry remained profitable under 
this relatively flat payment by increasing efficiency and productivity. 
However, industry representatives state that efficiency or productivity 
improvements can no longer make up for the lack of payment increases. 
They also state that although the number of dialysis facilities has 
been increasing throughout the last decade, declining profits may 
reverse that trend and eventually lead to decreased access for Medicare 
beneficiaries.

While the composite rate was intended to pay for all services 
associated with dialysis treatment, Medicare pays separately for 
certain drugs and laboratory tests that have become routine treatments 
since 1983. These drugs include, but are not limited to, epoetin (EPO), 
vitamin D, and iron. Medicare's payment for EPO, a bioengineered 
protein that substitutes for erythropoietin and is used to treat 
anemia, is statutorily set at $10 for every 1,000 units 
administered;[Footnote 19] all other separately billed drugs are paid 
at 95 percent of their average wholesale price (AWP).[Footnote 20] The 
Medicare composite rate includes payment for 16 laboratory tests deemed 
to be routine for dialysis patients. For any of the approximately 1,350 
other laboratory tests that beneficiaries may receive, payment is made 
under a fee schedule to the clinical laboratory that performs the test.

Although facilities are paid under a prospective payment system, CMS 
requires them to complete annual cost reports that are consistent with 
Medicare cost principles. These reports include cost information for 
separately billed drugs as well as items paid through the composite 
rate. Medicare cost principles were designed to ensure that Medicare 
pays for the expenses related to medical care for beneficiaries, and 
that those costs are reasonable and allowable.[Footnote 21] The agency 
periodically audits cost reports to remove unreasonable and 
nonallowable costs and, in the past, has calculated the difference 
between facility costs as reported on the cost reports and their 
allowable costs, referred to as an audit adjustment. The Balanced 
Budget Act of 1997 required the agency to audit dialysis facility cost 
reports, beginning in 1996, at least once every 3 years.[Footnote 22]

In recent years, the Congress has moved toward a broader payment bundle 
for dialysis services. In 2000, BIPA required the Secretary of HHS to 
develop a payment system that includes clinical laboratory tests and 
drugs that are routinely used, but are currently billed separately from 
dialysis treatment.[Footnote 23] BIPA also required the Secretary to 
submit a report and recommendations on this system to the Congress. CMS 
issued the report in 2003, concluding that currently available data 
appear sufficient to expand the payment bundle to include those 
services.[Footnote 24] In December 2003, MMA mandated that effective 
January 1, 2005, a payment system be implemented combining the 
composite rate payment with the amount by which payments for separately 
billed drugs exceed their acquisition costs. Drugs that are currently 
paid separately will continue to be paid outside this system. This 
system must adjust for certain beneficiary characteristics and 
geographic differences in cost.[Footnote 25] In addition, the Secretary 
is required to submit a report to the Congress by October 1, 2005, that 
details the elements and features for the design and implementation of 
a bundled payment system including certain drugs that are currently 
billed separately. The Secretary is then required to establish a 3-year 
demonstration project, beginning January 1, 2006, using a payment 
system that accounts for patient characteristics identified in the 
report.

Dialysis Facilities Increased at Same Rate as Beneficiary Population, 
but Supply Varied Geographically and by Treatment Method:

From 1998 through 2001, the total number of hospital-based and 
freestanding dialysis facilities increased at about the same rate as 
the Medicare dialysis population, and the total number of dialysis 
stations, or treatment areas devoted to providing dialysis to patients, 
increased at a greater rate than the Medicare dialysis population. The 
dialysis industry opened facilities in more counties across the 
country, although the number of facilities available to beneficiaries 
living in urban counties was greater than in rural counties. In 
addition, while almost all facilities provided hemodialysis, fewer 
facilities provided home dialysis.

Growth in Number of Dialysis Facilities Kept Pace with Growth in 
Beneficiary Population:

Based on our analysis of the CMS Facility Survey files, the total 
number of hospital-based and freestanding dialysis facilities increased 
from 3,415 to 3,960, or about 16 percent, from December 31, 1998, 
through December 31, 2001. Over the same period, the number of ESRD 
beneficiaries on dialysis increased about 15 percent. While the annual 
growth in facilities slowed each year, this occurred primarily because 
of a decrease in new facilities, not because of an increase in 
closures. From 1998 through 2001, the number of facilities closing each 
year amounted to less than 1 percent of those that were operating at 
the end of that year.

Because facilities vary in size, a more specific indicator of their 
capacity to provide hemodialysis is the number of dialysis stations in 
use at dialysis facilities. From December 31, 1998, through December 
31, 2001, we estimate that the number of stations increased by over 24 
percent, from about 53,100 to about 66,100, exceeding the growth rate 
of the dialysis population. The annual growth rate of stations was over 
10 percent in 2001, much higher than the 5 percent growth rate of the 
Medicare dialysis population in that year.

In addition, the dialysis industry expanded services to a larger 
portion of the country. The percentage of counties that had at least 
one dialysis facility increased from 41 to 47 percent, so that a total 
of 1,466 counties[Footnote 26] had at least one dialysis facility in 
2001 (see fig. 1). While another 1,599 counties had at least one 
beneficiary on dialysis but no facility in 2001, most of these counties 
were adjacent to at least one other county that had a dialysis 
facility. Of the counties that were not adjacent to another county with 
a facility, many were concentrated in areas of the West and Midwest. 
Beneficiaries living in these counties either traveled to another 
facility or dialyzed at home.

Figure 1: Dialysis Facilities by County, 1998-2001:

[See PDF for image]

[End of figure]

The supply of facilities in counties with beneficiaries on dialysis has 
remained stable. The percentage of beneficiaries on dialysis who 
resided in counties with at least one facility increased from 89 to 91 
percent from 1998 through 2001. In addition, the average number of 
facilities per county, weighted by the number of beneficiaries in each 
county, increased from 11 to 12 from 1998 through 2001, as did the 
weighted average number of stations, which rose from 201 to 234.

More Dialysis Facilities Available in Urban Counties Than in Rural 
Counties:

While overall beneficiary access to dialysis facilities remained 
stable, more facilities are available to beneficiaries on dialysis who 
reside in urban counties than to beneficiaries on dialysis in rural 
counties. From 1998 through 2001, the percentage of urban beneficiaries 
with at least one facility in their counties increased slightly from 97 
to 98 percent, while the percentage of rural beneficiaries with at 
least one facility in their counties increased, but remained much 
lower, from 61 to 67 percent (see fig. 2).

Figure 2: Percentage of Beneficiaries on Dialysis Who Reside in 
Counties with at Least One Facility, 1998-2001:

[See PDF for image]

[End of figure]

Furthermore, beneficiaries on dialysis residing in urban counties had 
more dialysis facilities available in their counties. From 1998 through 
2001, the average number of facilities per urban county, weighted by 
the number of beneficiaries in each county, increased from 14 to 15 
(see fig. 3), and the weighted average number of stations increased 
from 252 to 296 (see fig. 4). From 1998 through 2001, the weighted 
average number of facilities per rural county remained at 1, although 
the weighted average number of stations increased from 10 to 13.

Figure 3: Average Number of Facilities Available per County, by 
Location, 1998-2001:

[See PDF for image]

Note: Averages are weighted by the number of beneficiaries in each 
county.

[End of figure]

Figure 4: Average Number of Stations Available per County, by Location, 
1998-2001:

[See PDF for image]

Note: Averages are weighted by the number of beneficiaries in each 
county.

[End of figure]

Across rural areas, substantial variation may exist in the supply of 
dialysis facilities. For example, 73 percent of beneficiaries on 
dialysis in Florida's 33 rural counties had at least one facility in 
their counties in 2001, while only 39 percent of beneficiaries on 
dialysis in Michigan's 58 rural counties had at least one facility in 
their counties. Although such differences could potentially be 
explained by differences in the geographic size of rural counties, 
rural counties in both Michigan and Florida average roughly 695 square 
miles.

The number of dialysis facilities may be lower or nonexistent in 
certain geographic locations for certain reasons. The population of 
beneficiaries on dialysis is relatively small, and it may not be 
financially feasible to operate facilities in areas that do not have a 
sufficient number of beneficiaries needing dialysis. For example, while 
nearly 73 percent of counties were designated as rural in 2001, only 22 
percent of beneficiaries on dialysis lived in those counties; about 
half of all rural counties were home to 15 or fewer beneficiaries on 
dialysis. Also, many industry representatives we interviewed stated 
that it was difficult to recruit and retain nurses to staff facilities. 
Shortages of nurses can hamper the industry's ability to open 
facilities or keep facilities sufficiently staffed in certain 
geographic areas.

Number of Facilities Providing Home Dialysis Much Lower Than Number of 
Facilities Providing Hemodialysis:

Dialysis facilities provided in-facility hemodialysis almost 
universally, but the number of facilities providing home dialysis (PD 
and home hemodialysis) was much lower and declining. According to our 
analysis of the CMS Facility Survey files, 98 percent of dialysis 
facilities provided hemodialysis each year from 1998 through 2001. Over 
the same period, the percentage of dialysis facilities providing PD 
decreased from 46 to 40 percent, and the percentage of dialysis 
facilities providing home hemodialysis decreased from 10 to 8 percent.

Beneficiaries on dialysis also had more facilities available in their 
counties that provided hemodialysis than home dialysis.[Footnote 27] 
The percentage of beneficiaries on dialysis who had a facility 
providing hemodialysis in their counties increased from 89 to 91 
percent from 1998 through 2001 (see fig. 5). In contrast, the 
percentage of beneficiaries on dialysis who had a facility providing PD 
in their counties slightly decreased, from 76 to 75 percent, and the 
percentage of beneficiaries on dialysis who had a facility providing 
home hemodialysis in their counties declined from 47 to 45 percent. 
From 1998 through 2001, the average number of facilities providing 
hemodialysis per county, weighted by the number of beneficiaries in 
each county, increased slightly from 10 to 12 (see fig. 6). Over the 
same period, the weighted average number of facilities providing PD per 
county fell from 6 to 5, and on average, only 1 facility per county 
provided home hemodialysis.

Figure 5: Percentage of Beneficiaries on Dialysis Who Had a Treatment 
Method Available in Their Counties, 1998-2001:

[See PDF for image]

[End of figure]

Figure 6: Average Number of Facilities Available per County, by 
Treatment Method, 1998-2001:

[See PDF for image]

Note: Averages are weighted by the number of beneficiaries in each 
county.

[End of figure]

In rural counties, the number of facilities offering home dialysis 
remained low. From 1998 through 2001, the percentage of rural 
beneficiaries on dialysis with a facility providing hemodialysis in 
their counties increased from 61 to 67 percent (see fig. 7). In 
contrast, the percentage of rural beneficiaries on dialysis with a 
facility providing PD increased slightly from 27 to 28 percent, and the 
percentage of rural beneficiaries with a facility providing home 
hemodialysis increased from 3 to 4 percent. Beneficiaries on dialysis 
in rural counties had a weighted average of one facility providing 
hemodialysis per county and no facility providing PD or home 
hemodialysis. In addition, there were rural counties with beneficiaries 
on dialysis but no facilities. These beneficiaries dialyzed either in a 
neighboring county or at home.

Figure 7: Percentage of Beneficiaries on Dialysis in Rural Counties Who 
Had a Treatment Method Available in Their Counties, 1998-2001:

[See PDF for image]

[End of figure]

The number of facilities providing home dialysis may have been low for 
several reasons. Some providers and nephrologists we interviewed stated 
that many physicians are either unfamiliar with home dialysis or 
believe that patients have better outcomes with in-facility 
hemodialysis. They also reported that home programs are often not 
financially feasible for facilities unless there is a substantial 
number of patients receiving the treatment method, because facilities 
must hire staff to train and manage the care of these patients. Some 
providers and nephrologists also stated that facilities have a 
financial disincentive to provide home dialysis, because greater 
utilization of PD may result in unused hemodialysis stations and may 
reduce the need for certain profitable drugs like EPO. They also 
reported that PD may be favorable for beneficiaries in rural areas, 
where facilities can be more distantly located.

Total Medicare Payments to Freestanding Dialysis Facilities Exceeded 
Costs, but Current Payment Methodology Is Not Appropriate:

We estimate that after adjusting to exclude nonallowable costs, total 
payments to freestanding dialysis facilities exceeded providers' costs 
in 2001. Although payments were higher than costs overall, payments to 
small facilities were lower than costs. In addition, while composite 
rate payments were well below the costs of those services, separately 
billed drug payments far exceeded the costs of those services. Because 
of this imbalance in the payment structure, providers have an incentive 
to maximize the use of profitable separately billed drugs to compensate 
for inadequate payments under the composite rate.

Payments to Freestanding Facilities Generally Exceeded Allowable Costs, 
but Small Facilities Were an Exception:

We estimate that Medicare payments to freestanding dialysis facilities 
exceeded their Medicare-allowable costs by 3 percent, on average. In 
order to calculate this percentage, we used costs as reported on 
dialysis facilities' cost reports and used an adjustment to exclude 
nonallowable costs. Before the adjustment, we estimate that on average, 
payments were 1 percent below costs, a payment-to-cost ratio of 
0.99,[Footnote 28] for composite rate services and separately billed 
drugs in 2001. Past agency audits have demonstrated that dialysis 
facilities have included nonallowable costs in their cost reports. The 
Health Care Financing Administration (HCFA) conducted audits of a 
random sample of 1988 and 1991 dialysis facility cost reports and found 
that providers' allowable costs were about 90 percent and 89 percent, 
respectively, of reported costs. HCFA also audited the 1996 reports but 
did not calculate a similar percentage of reported costs that were 
allowable.[Footnote 29] When MedPAC compared the 1996 cost reports 
before and after auditing, it found that the allowable cost per 
treatment for composite rate services and separately billed drugs for 
freestanding facilities was about 96 percent of the reported cost per 
treatment.[Footnote 30] Because providers have historically included 
nonallowable costs on their cost reports, we applied MedPAC's 
adjustment, which is the most conservative and most recent adjustment, 
to our payment-to-cost ratio of 0.99 and derived an adjusted payment-
to-cost ratio of 1.03 for 2001. Although we calculated an overall 
payment-to-cost ratio for 2001 only,[Footnote 31] MedPAC has reported a 
decrease in these ratios from 1.14 in 1996 to 1.04[Footnote 32] in 
2001.[Footnote 33]

Although payments exceeded costs overall in 2001, they did not exceed 
costs for all sizes of facilities. For example, payments were well 
below allowable costs for small facilities,[Footnote 34] with an 
adjusted payment-to-cost ratio of 0.91 (see table 1).[Footnote 35] 
Given the fixed costs a facility incurs in terms of staffing, 
equipment, supplies, and rent, revenue from the small patient base in 
these facilities may not be sufficient to meet costs.

Table 1: Freestanding Dialysis Facility Adjusted Payment-to-Cost Ratios 
for Composite Rate Services and Separately Billed Drugs, Overall and by 
Size, 2001:

Facilities: All; 
Overall payment-to-cost ratio: 1.03.

Facilities: Small; 
Overall payment-to-cost ratio: 0.91.

Facilities: Medium; 
Overall payment-to-cost ratio: 1.02.

Facilities: Large; 
Overall payment-to-cost ratio: 1.05.

Source: GAO analysis of CMS data.

Notes: Payment-to-cost ratios among facilities in the 50 states and the 
District of Columbia. Ratios are weighted by total Medicare payments 
received by each facility. A payment-to-cost ratio of 1.00 indicates 
that payments equal costs. A ratio above 1.00 indicates that payments 
are greater than costs and below 1.00 indicates that payments are lower 
than costs. We defined the size of the facility based on the 25th and 
75th percentiles of total dialysis treatments. Small facilities are 
those reporting a number of dialysis treatments less than the 25th 
percentile, medium facilities are those reporting a number of dialysis 
treatments greater than or equal to the 25th percentile and less than 
or equal to the 75th percentile, and large facilities are those 
reporting a number of treatments greater than the 75th percentile.

[End of table]

Current Payment Methodology Is Not Appropriate:

The Medicare payment methodology for dialysis services is not 
appropriate. In 2001, composite rate payments to freestanding 
facilities, intended to cover the costs of a variety of services 
associated with a dialysis treatment, such as nursing, supplies, social 
services, and certain laboratory tests, were well below the costs of 
those services. In addition, the composite rate does not include all 
the services beneficiaries on dialysis typically receive, and does not 
account for variation in service utilization and costs among 
beneficiaries. Separately billed drug payments, however, far exceeded 
the costs of those items. Because utilization of separately billed 
drugs is largely unconstrained,[Footnote 36] providers have an 
incentive to overutilize them to compensate for lower payments under 
the composite rate. In addition, composite rate payments for home 
dialysis treatments far exceeded the costs of those services, but 
payments for home dialysis training were well below the costs of those 
services.

We estimate that from 1998 through 2001, composite rate payments were 
well below the costs of composite rate services. During these years, 
the unadjusted[Footnote 37] payment-to-cost ratio for composite rate 
services was below 1.00 and steadily decreased every year, falling from 
0.94 to 0.89 (see table 2).

Table 2: Freestanding Dialysis Facility Unadjusted Payment-to-Cost 
Ratios for Composite Rate Services, 1998-2001:

Payment-to-cost ratio; 
1998: 0.94; 
1999: 0.93; 
2000: 0.91; 
2001: 0.89.

Source: GAO analysis of CMS data.

Notes: Payment-to-cost ratios among facilities in the 50 states and the 
District of Columbia. Ratios are weighted by total Medicare payments 
received by each facility. A payment-to-cost ratio of 1.00 indicates 
that payments equal costs. A ratio above 1.00 indicates that payments 
are greater than costs and below 1.00 indicates that payments are lower 
than costs.

[End of table]

Furthermore, the composite rate does not pay for all services routinely 
provided during a dialysis session. While the composite rate was 
designed to pay for services associated with a single dialysis session, 
certain items or services introduced since the creation of the rate are 
paid separately. We determined that three separately billed drugs, EPO, 
vitamin D, and iron, and drug-related supplies were provided to most 
dialysis beneficiaries and frequently accompanied hemodialysis 
treatments (see table 3). For example, 98 percent of beneficiaries 
received EPO in 2001 and, on average, at every dialysis treatment.

Table 3: Most Frequent Items Billed Separately in Association with 
Hemodialysis, 2001:

Item: EPO; 
Percentage of beneficiaries[A] receiving item: 98; 
Frequency of billing among beneficiaries receiving item[B, C]: 
Every treatment.

Item: Drug-related supplies; 
Percentage of beneficiaries[A] receiving item: 84; 
Frequency of billing among beneficiaries receiving item[B, C]: 
Every 9th treatment.

Item: Iron; 
Percentage of beneficiaries[A] receiving item: 79; 
Frequency of billing among beneficiaries receiving item[B, C]: 
Every 17th treatment.

Item: Vitamin D; 
Percentage of beneficiaries[A] receiving item: 70; 
Frequency of billing among beneficiaries receiving item[B, C]: 
Every 9th treatment.

Item: Hepatitis B vaccine; 
Percentage of beneficiaries[A] receiving item: 25; 
Frequency of billing among beneficiaries receiving item[B, C]: 
Every 60th treatment.

Item: Vancomycin; 
Percentage of beneficiaries[A] receiving item: 24; 
Frequency of billing among beneficiaries receiving item[B, C]: 
Every 50th treatment.

Item: Levocarnitine; 
Percentage of beneficiaries[A] receiving item: 5; 
Frequency of billing among beneficiaries receiving item[B, C]: 
Every 12th treatment. 

Source: GAO analysis of CMS data.

[A] Beneficiaries receiving in-facility hemodialysis.

[B] Medicare instructs providers to record each drug administration on 
the claim separately, and accordingly, we defined one administration of 
a drug as one record on the claim. Some providers may aggregate the 
units of several administrations as one record. To the extent this is 
the case, the billing frequencies for these specific drugs likely 
underestimate the actual administration frequencies.

[C] Per in-facility hemodialysis treatment. Beneficiaries typically 
receive 3 treatments per week, or about 13 per month.

[End of table]

The composite rate also does not adjust for factors that may affect the 
cost of providing dialysis services.[Footnote 38] Providers we 
interviewed told us that certain beneficiaries require more services 
than others because of the presence of conditions including diabetes, 
hypertension, vascular access problems,[Footnote 39] and other physical 
impairments. They stated that care for these beneficiaries may be more 
costly due to additional staff time, additional resources, or more 
frequent dialysis. There is currently no adjustment to the composite 
rate to account for variation in the costs of providing services to 
beneficiaries who consume more resources than average.

While composite rate payments were well below costs, we estimate that 
payments for separately billed drugs far exceeded the costs of those 
drugs in 2001, with an unadjusted payment-to-cost ratio of 1.16. 
Because utilization of separately billed drugs is largely unconstrained 
and because payments for these items exceeded costs, providers have an 
incentive to overutilize them. Representatives from one of the largest 
chain providers and several nephrologists we interviewed reported that 
this incentive to overutilize exists because separately billed drug 
payments compensate for losses on composite rate services. However, 
several nephrologists and researchers we interviewed also reported that 
beneficiaries who undergo PD, or who otherwise dialyze more frequently 
than three times per week, have a reduced need for separately billed 
drugs.

In addition to the imbalance in payment between composite rate services 
and separately billed drugs, an imbalance exists between payments for 
home dialysis treatments and home dialysis training. Two industry 
representatives and representatives of a patient advocacy organization 
we interviewed stated that Medicare payments for home dialysis training 
do not cover the costs of the service. We found that in 2001, the 
unadjusted payment-to-cost ratio for composite rate payments for home 
dialysis treatments was 1.11 and for home dialysis treatments and 
training combined was 1.04.[Footnote 40] The unadjusted payment-to-cost 
ratio for composite rate payments for home dialysis training alone was 
0.38, indicating that payments were well below costs. A perception that 
facilities are losing money on the initial home dialysis training, even 
though payments are above costs for the training and treatment 
combined, may serve as a disincentive to offering the home dialysis 
treatment method.

Daily Hemodialysis Appears Promising, but Rigorous Data Are Lacking:

Daily hemodialysis, which is performed five to seven times per week, 
may improve patients' clinical outcomes and quality of life because it 
more closely approximates the body's continuous cleansing of the blood. 
The literature indicates that daily hemodialysis patients have a 
greater amount of toxin removed from their bodies, or a more adequate 
dialysis dosage, than conventional hemodialysis patients.[Footnote 41] 
Dialysis dosage is important because research suggests that inadequate 
dosage correlates with increased mortality. In addition, studies report 
that anemia and malnutrition, two serious conditions associated with 
increased morbidity and mortality, improve with daily 
hemodialysis,[Footnote 42] as does patient quality of life.[Footnote 
43] For example, patients on daily hemodialysis experience less fatigue 
and enjoy a wider range of dietary choices. Studies also report that 
patients on daily hemodialysis have a reduced need for medication, 
including EPO[Footnote 44] and drugs to control blood 
pressure,[Footnote 45] and a reduced number of 
hospitalizations.[Footnote 46]

Although studies on daily hemodialysis report improvements in patient 
outcomes, these studies are limited in size and scope. The daily 
hemodialysis patient base is extremely small, given that few dialysis 
facilities provide the treatment, and those that do have few patients 
using it. Although no national data exist on the utilization of daily 
hemodialysis, nephrologists we spoke with who provide daily 
hemodialysis estimate that approximately 200 patients are undergoing 
the treatment nationwide. Published studies are principally 
nonrandomized and have small sample sizes, typically fewer than 25 
patients, and therefore do not provide definitive evidence supporting 
the treatment. Specifically, studies do not evaluate whether observed 
improvements in mortality can be attributed to the treatment itself or 
to some other factor. To definitively assess the treatment, more 
rigorous data are needed.

Dialyzing more frequently has drawbacks. Although patients may 
experience better outcomes, daily hemodialysis increases the number of 
times a patient connects to the hemodialysis machine, and may increase 
transportation costs if a patient chooses to dialyze at a facility 
rather than at home. Such increased burdens may outweigh the benefits 
for a significant number of patients. Even so, providers and 
nephrologists we interviewed estimated that anywhere from 10 to 50 
percent of the dialysis population would choose to undergo daily 
hemodialysis.

Several studies, each of which evaluated the costs of one to two 
facilities, have found that facility costs increase upon implementation 
of daily hemodialysis.[Footnote 47] Industry representatives reported 
that despite the possible benefits of daily hemodialysis, it is not 
currently financially feasible to offer it to a large number of 
Medicare beneficiaries because Medicare does not routinely pay for more 
than three dialysis treatments per week. However, if beneficiaries who 
undergo daily hemodialysis have a reduced need for other Medicare 
services, such as drugs and inpatient stays, the Medicare program may 
realize overall cost savings.

Research currently being conducted by the National Institutes of Health 
(NIH) may provide more rigorous data on daily hemodialysis, although it 
will not determine whether there is an overall cost savings to 
Medicare. With partial funding from CMS, NIH has funded four centers to 
test whether it is feasible to randomize a representative sample of 
patients into either conventional or daily hemodialysis. The trials 
will track a number of patient outcomes for at least 6 months, 
including anemia, nutritional status, blood pressure, medication use, 
and hospitalizations, but they are not designed to enroll enough 
patients to conclusively determine whether differences in mortality or 
hospitalizations are significant. Trial results, which will not be 
available until 2007, will determine whether NIH should continue with a 
large-scale trial that would measure the impact of more frequent 
dialysis on mortality or cardiovascular outcomes or both.

Concluding Observations:

From December 31, 1998, through December 31, 2001, beneficiary access 
to dialysis facilities and services appeared stable. The total number 
of dialysis facilities nationwide increased at about the same rate as 
the Medicare dialysis population, and the total number of stations 
nationwide increased at a faster rate than the Medicare dialysis 
population. Over the same period of time, the number of counties with 
at least one facility increased.

On average, Medicare payments to freestanding dialysis facilities for 
composite rate and separately billed services combined exceeded 
providers' estimated allowable costs by 3 percent in 2001. However, 
composite rate payments were well below the costs of composite rate 
services, and separately billed drug payments far exceeded the costs of 
separately billed drugs. The current payment methodology gives 
providers an incentive to overutilize separately billed drugs in order 
to compensate for losses on composite rate services and does not 
account for possible cost differences in treating beneficiaries. A 
payment methodology that bundled the services a facility provides into 
a prospective payment amount would encourage providers to control the 
costs and utilization of these items, as they retain the difference if 
their payments exceed their costs of providing necessary services. A 
system that is based on allowable costs and accounts for possible cost 
differences in treating beneficiaries would ensure that Medicare pays 
appropriately for the efficient delivery of services.

As required by law, CMS is currently designing a bundled prospective 
payment system. In 2003, CMS reported to the Congress that currently 
available data appear sufficient to expand the payment bundle to 
include drugs and other services currently paid separately. MMA 
requires the Secretary of HHS to issue a second report by October 1, 
2005, that details the elements and features for the design and 
implementation of a bundled system, and then implement a 3-year 
demonstration project beginning January 1, 2006, that is based on that 
system.

Agency and External Reviewer Comments and Our Evaluation:

We received written comments on a draft of this report from CMS (see 
app. II). We also received technical comments from NIH, which we 
incorporated where appropriate, and oral comments from seven external 
reviewers. The external reviewers represented industry and patient 
organizations. They included the American Association of Kidney 
Patients (AAKP); the Renal Physicians Association (RPA); Dialysis 
Clinic, Inc. (DCI), the largest nonprofit dialysis chain; Fresenius 
Medical Care (FMC), the largest for-profit dialysis chain; the National 
Kidney Foundation, a foundation for the prevention and treatment of 
kidney disease; the National Renal Administrators Association (NRAA), 
which represents employees at dialysis facilities; and the Renal 
Leadership Council (RLC), an association representing the four largest 
for-profit dialysis facility chains.

CMS Comments and Our Evaluation:

In commenting on a draft of this report, CMS generally agreed with our 
findings and our conclusion that all outpatient dialysis services 
should be bundled into a single prospective payment amount based on 
facilities' allowable costs. Although in the draft report we had also 
recommended that CMS redesign the prospective payment system for 
dialysis facilities to bundle the costs of services, including 
separately billed drugs, into one payment amount, in its comments CMS 
noted that it would not have the statutory authority to implement such 
a system. CMS also noted that MMA requires the Secretary of HHS to 
report to the Congress by October 1, 2005, on the elements and features 
necessary in the design and implementation of a broader payment system. 
The Secretary is also required to conduct a 3-year demonstration 
project, beginning January 1, 2006, using a payment system 
incorporating patient characteristics identified in the report. CMS 
also asked that we recognize its research on a bundled payment system 
that has been under way since October 2000. As a result of these 
comments, we deleted the recommendation in the draft report. In 
addition, although MMA was discussed in our draft report, we more 
prominently highlighted it and CMS's research in the report.

CMS also stated that while our findings on beneficiary access were 
reassuring, it is concerned that we did not specifically address access 
issues at the regional level. According to CMS, its staff has been told 
that hospitals in certain regions, such as New England and New York, 
are having difficulty discharging and placing ESRD patients in dialysis 
facilities in those areas. We acknowledged in the draft report that 
supply varied geographically and by treatment method. We based our 
findings on aggregate indicators, such as trends in numbers of stations 
and facilities relative to the beneficiary population, which all 
suggested that access had been stable from 1998 through 2001. We would 
not have been able to identify the extent to which supply has changed 
since 2001, as 2001 data were the most recent available at the time of 
our analysis.

Industry and Patient Organization Comments:

Comments from the industry representatives and patient organizations 
centered on three different areas: beneficiary access to dialysis, the 
data used in our analysis of Medicare payment adequacy, and the 
appropriateness of the current payment methodology.

Many comments addressed our finding that beneficiary access to dialysis 
is stable. Five external reviewers stated that Medicare payments are 
currently inadequate, and due to inadequate payments, facilities are 
closing in areas where Medicare beneficiaries constitute a high 
percentage of dialysis patients. RPA specifically was concerned that 
facilities may try to maximize their numbers of private-pay patients 
and minimize their numbers of Medicare beneficiaries in the future. 
Three external reviewers asserted that access is currently decreasing 
due to staffing shortages at available facilities, particularly with 
respect to nurses. These reviewers also stated that certain minority 
populations, such as Native Americans, and certain areas of the 
country, such as rural and inner city areas, are currently experiencing 
access problems.

Several external reviewers commented on access issues specifically 
related to home dialysis. NRAA agreed with our finding that payment for 
home training is inadequate and therefore serves as a barrier to home 
dialysis. RPA agreed that one reason for low utilization of PD is that 
PD patients use less of the profitable separately billed drugs. AAKP 
provided the same assertion and added that the lack of training for 
nephrologists serves as a barrier to home dialysis.

Industry representatives expressed concerns regarding our payment 
analysis, specifically the use of data from 2000 and 2001 and our 
application of an audit adjustment to facility cost data. DCI stated 
that facility costs have risen since 2001; therefore, our analysis does 
not reflect current conditions. FMC, RLC, and NRAA stated that using an 
audit adjustment based on 1996 cost reports does not result in an 
accurate assessment of costs; they asserted that the amount of 
nonallowable costs that facilities include on their cost reports has 
decreased since 1996.

Several groups commented on the appropriateness of the current payment 
methodology. Two industry representatives, DCI and RLC, acknowledged 
that an incentive exists to overutilize separately billed drugs in 
order to compensate for losses on composite rate services, and the 
physician association, RPA, acknowledged that there is excessive use of 
these drugs. However, another industry group, NRAA, stated that our 
assertion that an incentive to overutilize exists was extreme. In 
addition, four external reviewers were concerned that bundling costs 
would create an incentive for facilities to either underserve 
beneficiaries or to accept only those beneficiaries who use relatively 
few resources. Four external reviewers were concerned that there would 
be no regular update to the payment rate if a bundled rate was 
established, which could limit access to new technology.

Our Evaluation of Industry and Patient Organization Comments:

Concerning the comments that access is decreasing overall, for certain 
regions and certain populations and for home dialysis, we acknowledged 
in the draft report that supply may vary geographically and by 
treatment method. However, also as noted in the draft report, we based 
our finding that beneficiary access to dialysis is stable on aggregate 
indicators, such as trends in numbers of stations and facilities 
relative to the beneficiary population. In particular, we noted that 
few facilities closed from 1998 through 2001, with the number of 
facilities closing each year amounting to less than 1 percent of those 
operating at the end of the year. We were not able to analyze the 
adequacy of facility staffing due to a lack of adequate data.

With respect to our adjustment of facility cost data, BIPA required 
that we use audited cost data when analyzing the adequacy of Medicare 
payment. Although CMS is currently auditing the 2001 cost reports, the 
agency's last completed audit was of the 1996 cost reports. Given the 
increase in health care costs over time, we did not believe it was 
appropriate to assess the adequacy of Medicare payment using only 1996 
cost reports. In order to satisfy the requirements of our mandate, we 
estimated the percentage of costs on the unaudited 2001 cost reports 
that were Medicare allowable. To do so, we relied on an audit 
adjustment calculated by MedPAC. MedPAC's adjustment was based on the 
1996 cost reports and was lower than the previous two audit adjustments 
calculated by HCFA in 1988 and 1991. We believe it is appropriate to 
apply MedPAC's 1996 audit adjustment to 2001 costs because it is the 
most recent of the last three audit adjustments. We also noted in the 
draft report that it is the most conservative of the three adjustments.

With respect to our conclusion that the current payment methodology is 
not appropriate, we acknowledge that a prospective payment could create 
an incentive to underserve beneficiaries, because providers retain the 
difference if their payments exceed their costs. However, this 
incentive exists under all prospective payment systems. If the bundled 
payment amount is based on facilities' allowable costs of delivering 
services, and takes into account possible cost differences in treating 
beneficiaries, facilities will be financially better equipped to 
deliver the appropriate level of service to each beneficiary.

Industry representatives and patient organizations also raised several 
issues that went beyond the scope of our report. These issues included 
whether Medicaid and physician payments are adequate and the Medicare 
definition of allowable costs.

Reviewers also made technical comments, which we incorporated where 
appropriate.

We are sending copies of this report to the Administrator of CMS and 
appropriate congressional committees. The report is available at no 
charge on GAO's Web site at http://www.gao.gov. We will also make 
copies available to others on request.

If you or your staffs have any questions, please call me at (202) 512-
7119. Another contact and key contributors to this report are listed in 
appendix III.

Signed by: 

A. Bruce Steinwald: 
Director, Health Care--Economic and Payment Issues:

List of Committees:

The Honorable Charles E. Grassley: 
Chairman: 
The Honorable Max Baucus: 
Ranking Minority Member: 
Committee on Finance: 
United States Senate:

The Honorable William M. Thomas: 
Chairman: 
The Honorable Charles B. Rangel: 
Ranking Minority Member: 
Committee on Ways and Means: 
House of Representatives:

The Honorable Joe L. Barton: 
Chairman: 
The Honorable John D. Dingell: 
Ranking Minority Member: 
Committee on Energy and Commerce: 
House of Representatives:

[End of section]

Appendix I: Scope and Methodology:

In conducting this study, we analyzed the Centers for Medicare & 
Medicaid Services (CMS) Facility Survey files, Medicare cost reports, 
and Medicare outpatient claims. We interviewed officials from CMS and 
the National Institute of Diabetes & Digestive & Kidney Diseases. We 
also interviewed representatives from the American Association of 
Kidney Patients, American Nephrology Nurses' Association, Forum of End 
Stage Renal Disease (ESRD) Networks, National Kidney Foundation, 
National Renal Administrators Association, and Renal Physicians 
Association; representatives from five national dialysis facility 
chains, a national manufacturer of dialysis equipment, and several 
private health insurance companies; and nephrologists who provide daily 
hemodialysis. We conducted site visits at three dialysis facilities, 
one of which provides daily hemodialysis, and interviewed officials at 
these facilities.

To analyze the supply of freestanding and hospital-based dialysis 
facilities, we used the Facility Survey files from 1998 through 2002, 
and to identify ESRD beneficiaries on dialysis, we used Medicare 
outpatient claims from 1998 through 2001, the most recent years for 
which data were available at the time of our analysis. From the 
Facility Survey files, we identified all dialysis facilities operating 
the entire year, opening during the year, and closing during the year, 
and the number of stations at each facility.[Footnote 48] We identified 
a facility as offering a treatment method if it provided at least one 
treatment or had at least one patient using that method. From the 
Medicare outpatient claims, we identified Medicare ESRD beneficiaries 
receiving dialysis each year, and their residence by ZIP code. We then 
calculated the number of dialysis facilities operating the entire year 
and the number of beneficiaries receiving dialysis for each county in 
the 50 states and in the District of Columbia, which we considered a 
county. We determined the average number of facilities and stations in 
each county, weighted by the number of beneficiaries in each county. We 
defined a county as urban if it was in a metropolitan statistical area 
and as rural if it was outside a metropolitan statistical area, as 
determined by the Office of Management and Budget.[Footnote 49] We 
assessed the reliability of the Facility Survey file and claims data by 
analyzing trends in the number of beneficiaries on dialysis and 
dialysis facilities over time and comparing these to trends reported by 
CMS. We determined that the data were reliable for our purposes.

To calculate payment-to-cost ratios for composite rate services only, 
we used cost reports for freestanding renal dialysis facilities from 
1998 through 2001, the most recent data available. The Medicare payment 
methodology is the same for freestanding and hospital-based dialysis 
facilities, but we did not analyze cost reports or claims for hospital-
based facilities because their reported costs are affected by decisions 
in allocating costs between the hospital and the dialysis facility. In 
2001, about 84 percent of all dialysis facilities nationwide were 
freestanding. We first edited the cost reports to exclude those 
facilities located outside the 50 states or the District of Columbia, 
those with cost reporting periods less than 300 days, and those that 
reported composite rates outside the range of possible rates from the 
Medicare program. We excluded 577 of the 2,983 cost reports, or about 
19 percent. From the remaining cost reports, we calculated each 
provider's total Medicare payments and total reported costs. We 
calculated the proportion of total cost attributable to Medicare 
beneficiaries using the proportion of each facility's treatments that 
was furnished to Medicare beneficiaries. We summed payments and costs 
across all providers to obtain payment-to-cost ratios from 1998 through 
2001 weighted by total Medicare payments received by each facility. 
Additionally, we stratified ratios by dialysis treatment method, as 
reported in the cost reports. We assessed the reliability of the cost 
report data by comparing our payment-to-cost ratios to those published 
by the Medicare Payment Advisory Commission. We determined that the 
data were reliable for our purposes.

In order to calculate 2001 payment-to-cost ratios for overall costs, 
that is, composite rate services and separately billed drugs, we used 
2001 cost reports for freestanding renal dialysis facilities and 2000 
and 2001 Medicare outpatient claims data.[Footnote 50] We first edited 
the cost reports to exclude those facilities located outside the 50 
states or the District of Columbia, those with cost reporting periods 
fewer than 300 days, and those that reported composite rates outside 
the range of possible rates from the Medicare program. Payment 
information for individual drugs is not available on Medicare 
outpatient claims prior to July 1, 2000, and therefore we did not 
calculate these ratios for years prior to 2001.[Footnote 51] We used 
the claims data to obtain payments for separately billed drugs, as they 
are not available in the cost reports. We obtained the total costs of 
separately billed drugs from the cost reports and calculated the 
proportion attributable to Medicare beneficiaries using the proportion 
of each facility's treatments that was furnished to Medicare 
beneficiaries. We then added our previously calculated composite rate 
payments and costs and summed total payments and total costs for all 
providers to obtain an overall payment-to-cost ratio for 2001 weighted 
by total Medicare payments received by each facility. We stratified the 
ratios by size. We defined the size of the facility based on the 25th 
and 75th percentiles of total dialysis treatments each facility 
reported in its cost report. Small facilities are those reporting a 
number of dialysis treatments less than the 25th percentile, medium 
facilities are those reporting a number of dialysis treatments greater 
than or equal to the 25th percentile and less than or equal to the 75th 
percentile, and large facilities are those reporting a number of 
treatments greater than the 75th percentile. We could not calculate 
these ratios by treatment method, as separately billed drug costs are 
not reported by treatment method on the cost report.

In order to identify separately billed items or services frequently 
billed in association with in-facility hemodialysis, we used 2001 
Medicare outpatient claims data. We limited our claims population to 
those that reported only in-facility hemodialysis and no other 
treatment method. We defined "frequently billed" as those separately 
billed services that were billed over 100,000 times annually. We 
excluded laboratory services because these are typically billed 
directly to Medicare by the laboratory, not by the dialysis facility. 
Medicare instructs providers to record each drug administration on the 
claim separately, and accordingly, we defined one administration of a 
drug as one record on the claim. It is possible, however, that some 
providers aggregate the units of several administrations. To the extent 
this is the case, the billing frequencies for these specific drugs 
likely underestimate the actual administration frequencies.

To review cost and clinical data on daily hemodialysis, we examined 25 
articles obtained through a MEDLINE literature search for studies on 
daily hemodialysis published from 1998 through 2002. We examined an 
additional 11 articles referred to us during our interviews.

We conducted our work from July 2002 through June 2004 in accordance 
with generally accepted government auditing standards.

[End of section]

Appendix II: Comments from the Centers for Medicare & Medicaid 
Services:

DEPARTMENT OF HEALTH & HUMAN SERVICES 
Centers for Medicare & Medicaid Services:
Administrator 
Washington, DC 20201:

DATE: APR 2 7 2004:

TO: A. Bruce Steinwald:

Director, Health Care-Economic and Payment Issues:

General Accounting Office:

FROM: Mark B. McClellan, M.D., Ph.D. 
Administrator:
Centers for Medicare & Medicaid Services:

Signed by: Mark B. McClellan: 

SUBJECT: General Accounting Office Draft Report, Medicare Dialysis 
Facilities: Beneficiary Access Stable, but Methodology Needs 
Improvement (GAO-04-450):

Thank you for the opportunity to review the GAO draft report entitled 
Medicare Dialysis Facilities: Beneficiary Access Stable, but 
Methodology Needs Improvement 
(GAO 04-450), in which GAO recommended that the Centers for Medicare & 
Medicaid Services (CMS) first, redesign the prospective payment system 
(PPS) for dialysis facilities to bundle the costs of services delivered 
to Medicare beneficiaries into one payment amount. And that, second, 
this payment system should be based on facilities' allowable costs of 
delivering services.

The GAO posed two issues for analysis: (1) Given that the composite 
payment rates have only been minimally revised since their inception in 
1983, has beneficiary access to outpatient maintenance dialysis been 
adversely affected? And (2) does the end stage renal disease (ES RD) 
composite rate payment system need to be revised to include separately 
billable services?

The GAO concluded that despite minimal changes to the ESRD composite 
payment rates, beneficiary access to dialysis services has not been 
impaired. Composite rate payments to dialysis facilities are less than 
composite rate costs. However, payments for separately billable 
dialysis services exceed separately billable costs by an amount more 
than sufficient to make up the shortfall and generally provide an 
overall profit margin. This unintended cross subsidization between 
composite rate and separately billable dialysis services should be 
eliminated by bundling all outpatient dialysis services into a single 
prospective payment amount based on ESRD facility costs.

The GAO's findings with respect to beneficiary access are similar to 
those of MEDPAC in a Report to Congress. While these findings are 
reassuring, we are concerned that GAO's analysis did not specifically 
address regional access issues of which we have been made aware, such 
as those in New England and New York. Regional office staff have 
informed us that hospitals are having difficulty discharging and 
placing ESRD patients in dialysis facilities in those areas.

We concur with the GAO's conclusion that all outpatient dialysis 
services should be bundled into a single prospective payment amount 
based on facility costs to the extent feasible. However, we point out 
that CMS currently does not have the statutory authority to implement 
this recommendation. As part of outpatient ESRD reform, section 623(d) 
of Pub. L. 108-173, the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) mandated the development of a basic 
case mix adjustment to the composite payment rates, effective January 
1. 2005. While the initial case mix adjustment will be restricted to 
comply with the MMA's directive that it reflect a "limited number of 
patient characteristics," adoption of such a risk adjuster will begin 
to address a major limitation of the current payment system, which is 
its inability to account for patient variation in resource consumption. 
The statute, however, specifically prohibits CMS from bundling any 
additional items and services into the composite payment rate.

Section 623(f) of the MMA requires the Secretary to submit a Report to 
Congress by October 1, 2005 detailing the design and features of a 
fully bundled ESRD PPS. The proposed fully bundled ESRD PPS will be the 
subject of a three-year demonstration project beginning January 1, 
2006. Given the GAO's endorsement of a bundled ESRD PPS, we believe 
that its recommendation should be revised to acknowledge the statutory 
limitations to revising the payment system for dialysis services. It 
should also recognize CMS' sponsored research to develop the bundled 
payment system that has been underway since October 2000. 

[End of section]

Appendix III: GAO Contact and Staff Acknowledgments:

GAO Contact:

Nancy A. Edwards, (202) 512-3340:

Acknowledgments:

Kevin J. Dietz, Joanna L. Hiatt, Maria Martino, and Yorick F. Uzes made 
major contributions to this report.

FOOTNOTES

[1] See J.L. Xue, et al., "Forecast of the Number of Patients with End-
Stage Renal Disease in the United States to the Year 2010," Journal of 
the American Society of Nephrology, vol. 12 (2001): 2753-2758.

[2] Dialysis is administered either by a machine that filters blood 
through an artificial kidney (hemodialysis) or by filtering the blood 
through the lining of the patient's abdominal area, called the 
peritoneal membrane (peritoneal dialysis). 

[3] In this report, we refer to outpatient renal dialysis facilities as 
"dialysis facilities."

[4] In this report, we use the term "hemodialysis" to refer to in-
facility hemodialysis, and we use the term "home dialysis" to include 
both PD and home hemodialysis.

[5] MedPAC is an independent federal body, established by the Balanced 
Budget Act of 1997, that advises the Congress on issues affecting the 
Medicare program. See Pub. L. No. 105-33, § 4022, 111 Stat. 251, 350.

[6] Medicare Payment Advisory Commission, Report to the Congress: 
Medicare Payment Policy (Washington D.C.: March 2001, March 2002, and 
March 2003).

[7] Pub. L. No. 106-554, App. F, § 422(c)(1), 114 Stat. 2763, 2763A-
517. 

[8] See Pub. L. No. 108-173, § 623, 117 Stat. 2066, 2312-17. 

[9] Pub. L. No. 106-554, App. F, § 422(d), 114 Stat. 2763, 2763A-517.

[10] A station is typically defined as the treatment area and 
equipment, including the dialysis machine, needed to dialyze the 
patient. 

[11] In July 2001, the agency's name was changed from the Health Care 
Financing Administration (HCFA) to CMS. In this report, we refer to the 
agency as HCFA when discussing actions it took or was required to take 
under that name.

[12] We defined a county as urban if it was in a metropolitan 
statistical area and as rural if it was outside a metropolitan 
statistical area, as determined by the Office of Management and Budget.

[13] Generally, to be eligible for benefits under Medicare, a person 
with ESRD must be (1) entitled to a monthly insurance benefit under 
Title II of the Social Security Act (or an annuity under the Railroad 
Retirement Act), (2) fully or currently insured under Social Security, 
or (3) the spouse or dependent child of a person who meets at least one 
of the first two requirements. 42 U.S.C. § 426-1(2000).

[14] See Xue, et al., "Forecast of the Number of Patients with End-
Stage Renal Disease in the United States to the Year 2010."

[15] Instead of receiving equipment and supplies from a facility, 
beneficiaries may choose to order them through a supplier. 
Beneficiaries choosing this option still receive the ancillary clinical 
and social services from a facility.

[16] Facilities receive a supplemental payment for training 
beneficiaries on home hemodialysis or PD. The facility receives a 
composite rate payment for the dialysis services and an additional 
amount for costs associated with training, such as the instruction 
beneficiaries receive from facility staff while dialyzing. 

[17] Pub. L. No. 97-35, § 2145, 95 Stat. 357, 799-800. See H. Conf. 
Rep. No. 97-208, at 948-9 (1981).

[18] MMA increases the composite rate by 1.6 percent for services 
furnished on or after January 1, 2005. See Pub. L. No. 108-173, § 
623(a), 117 Stat. 2066, 2315. 

[19] 42 U.S.C. § 1395rr (b)(11)(B)(ii)(2000). While the Secretary of 
HHS is authorized to adjust this payment, it has remained the same 
since 1994. 

[20] MMA changed Medicare's payment formula for drugs. In general, 
payments for outpatient drugs furnished in 2004 will equal 85 percent 
of AWP. Separately billed drugs furnished in connection with dialysis 
services will continue to be paid at 95 percent of AWP in 2004. See 
Pub. L. No. 108-173, § 303(b), 117 Stat. 2066, 2238.

[21] An example of a nonallowable Medicare cost is the cost of 
transporting beneficiaries to and from a dialysis facility, because 
transportation is not directly related to medical care. The salary of a 
facility administrator is an example of a cost that is allowable but, 
depending upon the salary amount, may not be reasonable. For example, 
in most instances, the Medicare compensation for a facility 
administrator may not exceed $90,000. If a facility claims $100,000 as 
compensation, Medicare would consider $10,000 of the amount as an 
unreasonable cost, unless the facility can justify a compensation rate 
over the $90,000 limit. 

[22] Pub. L. No. 105-33, § 4558(a), 111 Stat. 251, 463.

[23] Pub. L. No. 106-554, App. F, § 422(c)(1), 114 Stat. 2763A-517.

[24] U.S. Department of Health and Human Services, Toward a Bundled 
Outpatient Medicare End-Stage Renal Disease Prospective Payment System 
(Baltimore, Md.: 2003).

[25] Pub. L. No. 108-173, § 623(d), 117 Stat. 2066, 2313-14.

[26] In 2001, there were a total of 3,140 counties in the 50 states. In 
addition, we include the District of Columbia as a county.

[27] Proximity to a facility is somewhat less critical for 
beneficiaries who perform home dialysis because they are not required 
to regularly visit a facility for dialysis treatments. 

[28] A payment-to-cost ratio of 1.00 indicates that payments equal 
costs. A ratio above 1.00 indicates that payments are greater than 
costs and below 1.00 indicates that payments are lower than costs.

[29] CMS is currently auditing the 2001 cost reports and expects to 
complete this task in 2005. 

[30] Medicare Payment Advisory Commission, March 2003. 

[31] We were unable to determine a payment-to-cost ratio for the 
composite rate and separately billed drugs before 2001 because, prior 
to July 1, 2000, the Medicare outpatient claims data contained payment 
information for all services included on the claim but not for each 
individual service. 

[32] Our 2001 payment-to-cost ratio differs from MedPAC's ratio because 
we used a more recent version of the 2001 cost report file. 

[33] Medicare Payment Advisory Commission, March 2003. 

[34] We defined the size of the facility based on the 25th and 75th 
percentiles of total dialysis treatments. Small facilities are those 
reporting a number of dialysis treatments less than the 25th 
percentile, medium facilities are those reporting a number of dialysis 
treatments greater than or equal to the 25th percentile and less than 
or equal to the 75th percentile, and large facilities are those 
reporting a number of treatments greater than the 75th percentile. 

[35] From the 1996 cost reports, MedPAC also calculated that the 
allowable cost per treatment for composite rate services and separately 
billed drugs for small and large freestanding facilities was 97 percent 
of the reported cost per treatment and for medium freestanding 
facilities was 96 percent of the reported cost per treatment. Our 
definition of size and MedPAC's definition of size are the same. 
(Medicare Payment Advisory Commission, March 2003.) 

[36] While facilities must report specific clinical indicators in order 
to provide EPO to beneficiaries, other separately billed drugs are 
administered when they are deemed medically necessary by the physician.

[37] MedPAC's adjustment to exclude nonallowable costs specifically 
applies to the combined costs of composite rate services and separately 
billed drugs. Therefore, we did not apply this adjustment to the 
payment-to-cost ratios for either the composite rate or separately 
billed drugs individually, and refer to those ratios as unadjusted. 

[38] The only adjustment to the composite rate accounts for variation 
in area wages.

[39] In order to filter a patient's blood during hemodialysis, the 
vascular system, or bloodstream, must be accessed through a fistula, 
graft, or catheter. The access site must be continually maintained to 
help prevent complications, such as narrowing of the blood vessel or 
infection of the site.

[40] Providers' separately billed drug costs are not reported by 
treatment method on the cost report, and therefore, we cannot calculate 
payment-to-cost ratios for the composite rate and separately billed 
drugs together by treatment method.

[41] For example, see J. Traeger, et al., "Daily Versus Standard 
Hemodialysis: One Year Experience," Artificial Organs, vol. 22, no. 7 
(1998): 558-563.

[42] For an example of improvements in anemia, see J.D. Woods, et al., 
"Clinical and Biochemical Correlates of Starting 'Daily' Hemodialysis," 
Kidney International, vol. 55, no. 6 (1999): 2467-2476. For an example 
of improvements in malnutrition, see R. Galland, et al., "Short Daily 
Hemodialysis Rapidly Improves Nutritional Status in Hemodialysis 
Patients," Kidney International, vol. 60, no. 4 (2001): 1555-1560.

[43] For example, see P.F. Vos, et al., "Clinical Outcome of Daily 
Dialysis," American Journal of Kidney Diseases, vol. 37, no. 1, suppl. 
2 (2001): S99-S102.

[44] For example, see Vos, et al. 

[45] For example, see A. Pierratos, et al., "Nocturnal Hemodialysis: 
Three-Year Experience," Journal of the American Society of Nephrology," 
vol. 9, no. 5 (1998): 859-868.

[46] For example, see R.S. Lockridge, Jr., et al., "Nightly Home 
Hemodialysis: Fifteen Months of Experience in Lynchburg, Virginia," 
Home Hemodialysis International, vol. 3 (1999): 23-28.

[47] For example, see P.E. Mohr, et al., "The Case for Daily Dialysis: 
Its Impact on Costs and Quality of Life," American Journal of Kidney 
Diseases, vol. 37, no. 4 (2001): 777-789. 

[48] Facilities indicate on their annual surveys whether they closed 
during the survey year. However, we found that many facilities that 
indicated they closed during the year then continued to operate in the 
next year. This discrepancy may occur for a variety of reasons, 
including when facilities indicate they are closing when they are 
actually changing ownership. We used the 2002 file to adjust the number 
of closings in 2001.

[49] For 1998 and 1999 analyses, we used metropolitan statistical area 
definitions as of June 30, 1996, and for 2000 and 2001 analyses, we 
used metropolitan statistical area definitions as of June 30, 1999.

[50] We did not include separately billed laboratory services in our 
payment-to-cost ratios because they are billed by the laboratory that 
performed the test, rather than by the dialysis facility. 

[51] Prior to July 1, 2000, Medicare outpatient claim files provide the 
total payment for all services that a provider records on each claim, 
but not the individual payments for each service. 

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