Letter from Kidney Care Partners (of which ANNA is a member) to the Centers for Medicare and Medicaid Services regarding Physicians’ Fee Schedule Final Rule for Calendar Year 2005


December 8, 2004

The Honorable Mark McClellan


Centers for Medicare and Medicaid Services

U.S. Department of Health and Human Services

Hubert H. Humphrey Building

200 Independence Avenue, SW

Washington, DC  20201


Re:       Comments on the Centers for Medicare and Medicaid Services’ Physicians’ Fee Schedule Final Rule for Calendar Year 2005


Dear Dr. McClellan:

Kidney Care Partners (KCP) would like to have the opportunity to discuss its continuing concerns with the Centers for Medicare and Medicaid Services’ (CMS) Final Rule for the Calendar Year 2005 Physicians’ Fee Schedule (Final Rule).  We previously submitted comments to CMS on the Proposed Rule.  We believe that the Final Rule indicates progress on some important fronts, but we still are very disappointed that CMS has not implemented Section 623 in such a way that providers realize the 1.6 percent increase in the composite rate that was legislated in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA).  We understand that CMS is only interested in receiving additional comments in six specific areas that are not related to any of our concerns.  Therefore, we are writing to outline our concerns and request a follow-up meeting with you to discuss these issues.

As you know, KCP is a coalition of members of the kidney care community including renal patient advocates, nephrologists, dialysis care professionals, providers, and suppliers that works to improve the quality of care of individuals with irreversible kidney failure, known as End Stage Renal Disease (ESRD).[1]  Our concerns are in three areas:  the disproportionate allocation of drug loss offset payments to hospital-based facilities to the great detriment of independent dialysis centers; the premature implementation of a case-mix adjustment that has not been clinically tested and verified; and CMS’ failure to replace an outdated geographic wage index.  The following summarizes these concerns:

The Final Rule Ignores Congressional Intent to Protect Medicare ESRD Facilities

The final physicians’ fee schedule rule ignores Congressional intent to protect Medicare ESRD facilities by failing to implement changes to the prescription drug reimbursement in a revenue neutral manner.  In our comments on the Proposed Rule, we asked that CMS comply with the MMA budget neutrality requirement and ensure that independent facilities receive the same total payment amounts they did before MMA implementation. We understand that CMS believes that the budget neutrality provision applies only to the program as a whole, rather than to hospital-based and independent dialysis facilities respectively.  However, we continue to believe that CMS should construct drug loss offset payments to independent and hospital-based dialysis facilities that are directly related to the losses each type of provider will experience in the aggregate due to the MMA drug payment changes.  The Final Rule disproportionately allocates these dollars to hospital-based facilities.  Our analysis of this impact is as follows:

  • CMS ignored the MMA mandate to protect independent dialysis facilities from changes in the Part B drug reimbursement methodology.  Congress sought to accomplish this goal by providing a budget neutral drug loss offset payment to dialysis facilities related to the losses they would experience in reimbursement for separately billed drugs due to MMA Part B drug payment reforms.  The Conference Report indicates that Congress sought to protect those dialysis facilities that were reimbursed at 95 percent of the Average Wholesale Price (AWP) prior to the MMA.  Only independent dialysis facilities were reimbursed at 95 percent of the AWP; hospital-based facilities were reimbursed on a reasonable cost basis. (Both providers would experience changes in reimbursement for erythropoietin, which was reimbursed at a statutory amount.) 
  • Contrary to this requirement, CMS reduced reimbursement to independent facilities, while increasing it for hospital-based facilities.  CMS’ decision undermines the Congressional intent because the resulting payments to hospitals are higher than the losses they incurred.  Conversely, for independent facilities, CMS’ adjustment increases their losses.  Congress sought to provide two adjustments to payments.  The first was to ensure that losses due to Part B drug reform were properly calculated and converted into drug loss offset payments that were revenue neutral.  Then, Congress sought to provide separately for a 1.6 percent increase in the composite rate, equally applicable to hospitals and independent facilities.  These changes were intended to be revenue neutral.  The drug loss offset payment amount in the Final Rule, however, reduces the reimbursement rate for independent facilities by $1.41 per treatment session, according to the agency’s own calculations, by shifting that amount to hospital-based facilities, which already receive approximately $4.00 more per treatment than independent facilities.  Hospital-based facilities will receive $51 million more in net new dollars.[2]   Independent facilities will lose $51 million, nearly offsetting the value of their 1.6 percent composite rate increase.[3] Over 10 years, this policy, which was determined by CMS and not the Congress, is estimated to increase payments to hospital-based facilities by about $700 million and to decrease payments to independent facilities by $1.8 billion.[4]  This represents a huge redistribution in funding away from the independent facility sector which is providing about 85 percent of all dialysis care in the U.S.  Without Congressional approval, CMS disproportionately transferred drug loss offset dollars from independent to hospital-based facilities.
  • CMS incorrectly asserts that its methodology for determining the drug loss offset payment is consistent with the intent of the MMA and federal law.  Congress did not intend for CMS to reduce the independent facilities’ reimbursement, and we are aware that key members of the Committees of jurisdiction have reaffirmed to CMS their view of Congressional intent on this issue.  While the Social Security Act (SSA) requires the composite rate to differentiate between hospital-based facilities and other renal dialysis facilities, it does not direct that hospitals receive a higher reimbursement rate.   
  • CMS’ drug loss offset payment for independent and hospital-based facilities further deprives the independent facilities of their ability to provide care to 85 percent of all ESRD patients.  Both Congress and MedPAC have recognized the inadequacy of the composite rate and have acknowledged that independent facilities have covered their costs only because of the cross-subsidization of the composite rate with payments for separately billable drugs.  Without a drug loss offset amount that accurately reflects the actual incurred losses due to Part B changes, the drug reimbursement changes will destabilize these facilities that provide care to the vast majority of the more than 300,000 Americans on dialysis.


CMS Should Delay Implementation of the Case-Mix Adjusted PPS Until These Adjusters Can Be Clinically Tested and Verified

Section 623(d)(1) of the MMA establishes a basic case-mix adjusted prospective payment system (PPS).  The case-mix approach proposed under the system is for a very limited number of patient characteristics.  While KCP is pleased that CMS heeded its advice not to implement a case-mix system based on age, gender, and comorbidities at this time, we remain concerned about the case-mix system in the Final Rule.  While we recognize that the agency may feel compelled by the statutory text to implement a case-mix system by January 1, 2005, the agency has the discretion to delay implementation until it has developed a system that adequately predicts resource use for dialysis patients.  An untested system potentially places dialysis patients at risk by significantly redistributing Medicare payments.  Indeed, while KCP members conceptually endorse sound, risk-adjusted payments, there are reasons to believe implementation of this model could generate the unintended result of being less than budget neutral, i.e. removing significant financing from the ESRD system over several years.

  • CMS has discretion to delay implementation of the case-mix adjusted PPS.  Even though the statute indicates that the case-mix system should be in place by January 1, 2005, KCP strongly urges CMS to follow the path it has taken when developing other prospective payment systems to ensure that the system is accurate, predictive, and does not threaten quality of care.  Specifically, the agency delayed implementation of the Hospital Outpatient PPS, as well as the Home Health PPS and the Skilled Nursing Facility PPS.  When establishing these systems, CMS recognized the need for additional time beyond that allocated by Congress to ensure the development of an appropriate case-mix methodology that accurately predicted resource needs.  The delay also provided the agency with more time to collect data and prepare each health care sector for implementation.  Consistent with this historical approach, CMS should take the time it needs to also get the ESRD system right.
  • The Final Rule case-mix methodology is flawed because its adjustors are based on  age, body mass index, and body surface area from claims data and are not clinically tested and verified to predict resource use by dialysis patients during a dialysis treatment.  To establish the case-mix system, CMS proposes adjustments based upon the patient characteristics of age, body mass index (BMI), and a measure of body surface area.

A threshold concern of KCP members is that the Final Rule does not contain sufficient information to permit a full evaluation of the analysis upon which CMS relied when selecting these adjustors for the case-mix system.  In other words, no data are provided to support the premise that these factors contribute to significant differences in average cost per treatment. Given the importance of the analysis, CMS should ensure that everyone interested in the regulations has access to the data necessary to evaluate its validity and potential impact.

In addition, CMS staff have noted as recently as the November 19th Open Door Forum on ESRD that these case-mix adjusters are data-based, rather than clinically tested and verified. They commented that these adjusters are better than no adjusters, but this simply is not the case. 

Furthermore, the Final Rule discriminates against elderly dialysis patients in that the reimbursement is higher for those beneficiaries age 18-44 than for those age 45 and older.  While the younger patients may experience more aggressive dialysis, they are healthier overall than their aged counterparts.  It is obvious in our clinical experience that the frail elderly consume more healthcare resources and professional staff time in general than do healthier younger patients.  Such information is not contained in data derived from a system where reimbursement is the same across all patient ages and characteristics.

  • Delaying the implementation of the case-mix adjusted PPS will allow CMS to test and validate case-mix factors and prevent patients from being adversely affected by use of an inappropriate case-mix methodology.  Surely, CMS should understand the clinical basis for its case-mix adjusters prior to implementing this system. CMS should rely upon the discretion it has used in the past to delay implementation of the case-mix adjusted PPS, so that it can ensure that it has established a clinically tested and verified methodology, has the data it needs, and has worked collaboratively with the renal community on implementation.


CMS Should Adjust the Geographic Wage Index

In our comments to the Proposed Rule, KCP members strongly urged CMS to adjust the geographic wage index.  Although CMS did not act to adjust the geographic wage index in the Final Rule, this issue deserves further consideration.

  • The current geographic wage index is based on data that are twenty years old. An adjusted geographic wage index would not only be based upon new data, but also would incorporate the Office of Management and Budget (OMB) definitions of Metropolitan Statistical Areas (MSA), Combined Statistical Areas (CSAs), and “micropolitan.”  Congress recognized the need for such an update and directed CMS to adjust the geographic wage index in the MMA’s Section 623(d).  Additionally, MedPAC, in its March 2001 Report to Congress, recommended that CMS update its information on wage rates in different markets by occupation and provider type. 
  • CMS should move forward on a report on the impact of implementing an adjusted geographic wage index.  In our comments to the Proposed Rule, we suggested that CMS implement an adjusted geographic wage index.  The adjusted index should apply the OMB definitions of MSAs, CSAs, and “micropolitan” to the dialysis community in a manner that is consistent with the agency’s methodology for hospitals.  KCP continues to believe that CMS should update the geographic wage index and hopes that the agency will move forward on a report on the impact of implementing an adjusted geographic wage index.


KCP members sincerely appreciate the opportunity to present our concerns to you and await the opportunity to meet with you to further discuss these issues. 


Kathleen E. Means


Kidney Care Partners



cc:  The Honorable Tommy G. Thompson

[1] A list of Kidney Care Partners coalition members is included in Attachment A.

[2] The Don Moran Group, Preliminary Impact Analysis of ESRD PPS Final Rule for Kidney Care Partners.

[3] Id.

[4] Id.



Attachment A – Kidney Care Partners Coalition Members

Abbott Laboratories

Aksys, Ltd.

American Kidney Fund

American Nephrology Nurses Association

American Regent, Inc.


Baxter Healthcare Corporation

Bone Care International

California Dialysis Council

Centers for Dialysis Care

DaVita, Inc.

Fresenius Medical Care North America

Gambro Healthcare/USA


Medical Education Institute

National Kidney Foundation

National Renal Administrators Association

Northwest Kidney Centers

Physicians Dialysis, Inc.

Renal Care Group

Renal Physicians Association

Renal Support Network

Satellite Health Care

Sigma-Tau Pharmaceuticals, Inc.

Watson Pharma, Inc.