Dialysis Drug Costs Too High for Hospitals, According to HHS Inspector General Report

Medicare has miscalculated the costs of dialysis drugs in bundled costs, according to a report released by the US Health and Human Services Office of the Inspector General in late March.

In the first quarter of 2012, independent dialysis facilities could purchase ESRD drugs for less than the reimbursement amounts provided by the ESRD base rate (9 percent below, in the aggregate), but average acquisition costs for hospital-based dialysis facilities exceeded reimbursement amounts (5 percent above, in the aggregate), the report noted. By law, CMS was required to lower the bundled rate for 2014.

The OIG report noted that in the past three years, “dialysis facilities’ average acquisition costs for the majority of drugs under review had decreased, but average costs for epoetin alfa, (which) represented more than three-quarters of the drug costs in responding facilities, had increased by at least 17 percent.” (Available at http://oig.hhs.gov/oei/reports/oei-03-12-00550.pdf.)

The Journal of the American Medical Association noted that on a per treatment basis, the use of erythropoiesis-stimulating agents (ESAs) for treating anemia, as well as iron, vitamin D agents, and antibiotics decreased by 38% from 2007 to 2012 as dialysis facilities began their belt-tightening efforts and bundling took effect.

While the acquisition costs for most of the drugs under review have decreased, the costs for drugs that represented the majority of facilities’ total drug costs have increased, OIG reported. Thus, any savings resulting from a decrease in utilization may potentially be offset by the drugs’ cost increase.

The OIG report recommended that CMS:

  • Redetermine the basis of the ESRD base rate to reflect current trends in drug acquisition costs, as required by law;
  • Distinguish payments in the ESRD base rate between independent and hospital-based dialysis facilities, the latter of which have trouble purchasing drugs at below CMS reimbursement levels; and
  • Consider updating the ESRD payment bundle using a factor that takes into account drug acquisition costs.

With regard to the recommendations, CMS did not explicitly state whether it agreed with the first recommendation, and clearly didn’t agree with the second, but CMS did agree that the third recommendation was warranted: that CMS should closely consider drug costs when updating the bundled payment.