Since November 2006, Amgen’s anti-anemia drug Epogen has surged into mainstream awareness as allegations of overuse and overspending have spread from the pages of the New England Journal of Medicine to The New York Times all the way to hearings at the U.S. House Ways and Means Committee. But where is it all leading to? If a recent U.S. Government Accountability Office (GAO) report is any indication, bundling all dialysis-related drugs into the composite rate could be on the horizon.
Congressional interest in this is that a lot of money is spent on Epogen—$2 billion in 2005 alone; and they would like to make sure that there is not abuse or overuse, and they feel bundling is a reasonable option addressing the cost issues. But if a recent Renal Business Today unscientific Web poll is any indication, the renal community does not support the idea of bundling. When asked, “Should Congress bundle ESRD drug payments into the composite rate,” 76 percent of the respondents said no.
Issues with Bundling
By bundling dialysis payments, Medicare would essentially be giving the clinic a lump sum of money for the clinics to use at their discretion. Spending, however, would still be at the mercy of market price fluctuations, which could put further strain on clinics—especially smaller dialysis units.
One of the big questions around bundling, however, is what services should be included—lab services, drugs, etc.? Specifically, Epogen is a significant component of the cost structure. “It is very difficult to predict how much of the product individual patients will use,” said Leanne Zumwalt, a vice-president with DaVita Inc. Also, the Centers for Medicare & Medicaid Services (CMS) uses base years, which are usually two years behind due to claims filings, to set payments. So there is also an issue about how CMS could use those base years and establishes a payment for the current year in a bundled system. Zumwalt said another concern is how CMS will consider new technologies in the bundled payment system.
Even if bundling were inevitable, how far away would it be? Not until 2011, according to Wachovia analysts George Farmer, PhD, and Francine Pollack, CFA. In a January 3 market report, they said before CMS can even begin bundling EPO with all ESRD-related services, it has to submit a report to Congress. Once that report is submitted, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 requires at least a one-year demonstration that will analyze whether EPO bundling is even feasible.
The problem for the government is that its congressionally-mandated report was due in October 2005 with a three-year demonstration set to start in January 2006. Both parts have been delayed and, according to the GAO, CMS could not say when the report would be available. Farmer and Pollack said they don’t see this process staring any earlier than the second half of 2007. “Thus, until the demonstration is complete and fully analyzed, final implementation of EPO bundling (if the demonstration supports the feasibility of such) may not occur until mid-2011, best guess,” they wrote in the report.
Inside the GAO Report
In 2005, the Medicare ESRD population was approximately 390,000 with expenditures for dialysis and dialysis-related drugs totaling $7.9 billion. The composite rate paid for each treatment includes dialysis and routine services—such as nursing, supplies, equipment, and certain laboratory tests. The “separately billable” payment includes injectable drugs and certain laboratory tests that are not routine or weren’t available when Medicare created the composite rate in 1983—such drugs include epoetin, injectable vitamin D and injectable iron.
The composite rate does not have an annual update and has, over time, covered less of the cost associated with routine dialysis services. In 2006, the composite base rate was approximately $130, according to the November 2006 GAO report. At the same time, payments for separately billable drugs have generally been more that what it costs providers to obtain the drugs. Over time, many of the ESRD drugs paid for under the “separately billable” banner have become routine in the dialysis clinic and accounted for about $2.9 billion in 2005. Epogen cost Medicare $2 billion that same year—more than two-thirds of the agency’s spending on separately billable drugs.
The payment system for Epogen has evolved over time. Between 1994 and 2005, a statute set the reimbursement price for Epogen at $10 per 1,000 units. As of 2006, Medicare is using the ASP+6 system to reimburse separately billable drugs where each drug is paid for using the average sales price plus 6 percent. The ASP prices are based on data submitted by the drug manufacturers to CMS. “Because payments to facilities for separately billable drugs are closer to the cost of acquiring these drugs and because composite rate payments have increased, the degree of cross-subsidization to support services provided under the composite rate has diminished, but the incentive to overuse these drugs has not been eliminated,” the GAO said.
Problems with ASP
The GAO report said it is difficult for CMS to determine whether the ASP+6 reimbursement method for separately billable drugs works because there is a lack of good data to analyze the policy. Epogen, however, is of particular concern to the government because it appears to go against the ASP+6 philosophy, which relies of market forces to moderate manufacturer’s prices, according to the GAO report. This is because Epogen has no competition and is of a single manufacturer—Amgen. The report said the issue of no competition would not be worrisome for rarely used products, but Epogen has raised red flags because it is so widely used in dialysis care and has a large affect on Medicare spending.
According to a past GAO report, in 2001, Medicare’s payment for the composite rate was 11 percent lower on average than facilities’ average cost to provide the items and services included in the composite rate. At the same time, Medicare’s payment for separately billable drugs was 16 percent higher than facilities’ average costs of acquiring these drugs.
The GAO report, therefore, recommends bundling drug payments into the dialysis composite rate. One theory behind this approach is a bundled rate would encourage providers to operate more efficiently—financially and clinically—because they will keep the difference of the Medicare payment if the services provided don’t exceed the reimbursement rate. “For example, a bundled rate would remove the financial incentive for facilities to choose one treatment over another, allowing flexibility to choose treatments that are clinically effective but may require less use of Epogen,” the GAO said in the report.
The GAO said the facility representatives they spoke with supported the idea of a bundled payment but that they emphasized the importance of designing a “sound case-mix adjuster to account for the differences across facilities in the mix of patients using more or less resources than average and the need for an automatic payment update to adjust the bundled rate for inflation.”
“[Bundling] seems superficially easy, but the devil is in the little details,” Zumwalt said. “One the other issues that needs to be discussed is a more robust case-mix adjuster. The Medicare Advantage plans have a robust case-mix adjuster that will pay the HMO or the health plan appropriately to the comorbidities. We don’t have that. That’s a core component in creating a bundle for end-stage renal disease.”
It will take an act of Congress to take issue with EPO bundling or anything in ESRD care. The congressional hearing over the GAO report took place during the last week on the 109th Congress. And with a newly minted Democratic Congress focused on issues overseas, it remains to be seen when and how the 110th Congress will deal with the matter. RBT