End-Stage Renal Disease:

Medicare Payments for All ESRD Services, Including Injectable Drugs, Should Be Bundled

GAO-07-266T: Published: Dec 6, 2006. Publicly Released: Dec 6, 2006.

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This testimony discusses highlights from GAO's report entitled "End-Stage Renal Disease: Bundling Medicare's Payment for Drugs with Payment for All ESRD Services Would Promote Efficiency and Clinical Flexibility." The report examines Medicare payments for certain drugs provided to patients with end-stage renal disease (ESRD), a condition of permanent kidney failure.

Through Medicare's ESRD benefit, patients receive a treatment known as dialysis, which removes excess fluids and toxins from the bloodstream. Patients also receive items and services related to their dialysis treatments, including drugs to treat conditions resulting from the loss of kidney function, such as anemia and low blood calcium. The Centers for Medicare & Medicaid Services (CMS), the agency that administers the Medicare program, divides ESRD items and services into two groups for payment purposes. In the first group are dialysis and associated routine services--such as nursing, supplies, equipment, and certain laboratory tests. These items and services are paid for under a composite rate--that is, one rate for a defined set of services. Paying under a composite rate is a common form of Medicare payment, also known as bundling. In the second group are primarily injectable drugs and certain laboratory tests that were either not routine or not available in 1983 when Medicare implemented the ESRD composite rate. These items and services are paid for separately on a per-service basis and are referred to as "separately billable." Over time, Medicare's composite rate, which was not automatically adjusted for inflation, covered progressively less of the costs to provide routine dialysis services, while program payments for the separately billable drugs generally exceeded providers' costs to obtain these drugs. As a result, dialysis facilities relied on Medicare's generous payments for separately billable drugs to subsidize the composite rate payments that had remained nearly flat for two decades. In addition, the use of the separately billable drugs by facilities became routine, and program payments for these drugs grew substantially. In 2005, program spending for the separately billable drugs accounted for about $2.9 billion. Medicare's payment for these separately billable drugs is the focus of my remarks today. The remarks are based on the information included in our aforementioned report.

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