OIG again expressed concern that CMS’s reimbursement methodology for drugs used in administering dialysis to end-stage renal disease (ESRD) patients may not adequately reflect the acquisition costs of the drugs, according to a recent report by the Office of Inspector General’s Office of Evaluations and Inspections. Building upon concerns expressed in a 2010 report that criticized the use of the Producer Price Index (PPI) for Prescription Drugs as a predictor of the acquisition cost of ESRD drugs, the report reiterates OIG’s earlier recommendation that another metric be used to determine appropriate reimbursement rates for prescription drugs in the ESRD payment bundle.

A report by the Office of Audit Services in 2013 similarly argued that the ESRD base rate substantially overcompensated providers for anemia management drugs. That report agreed with a 2012 report out of the Government Accountability Office (GAO) that urged Congress to mandate that CMS rebase the dialysis bundled payment rate to reflect decreased utilization of erythropoietin stimulating agents (ESAs) like epoetin alfa (“Epo”). Both reports argued that the base rate for the ESRD bundled payment should be adjusted to reflect decreased utilization of ESAs arising out of the FDA’s announcement of serious safety concerns with the drugs in 2011. The CY 2014 dialysis base rate began the implementation of a substantial reduction in per-treatment payments to reflect this decrease. However, in the most recently issued report, OIG argues that savings due to decreases in utilization may have been offset by increases in acquisition costs for the drugs.

The 2014 report found that while independent dialysis facilities were able to obtain drugs for 9% less, in the aggregate, than the reimbursement amounts in the ESRD base rate, hospital-based facilities paid 5% more than the reimbursement amounts, in the aggregate. As a result, in addition to its recommendations that CMS rebase the ESRD base rate and update the payment bundle for ESRD services to include a factor that takes drug acquisition costs into account, OIG also recommended that CMS distinguish between independent and hospital-based dialysis facilities in ESRD base rate payments. CMS did not concur with that recommendation.

CMS pays dialysis facilities a per-treatment bundled rate that has, since 2011, included payment for all of the drugs commonly administered to dialysis patients. Epo is the most expensive drug in the bundle by a large margin. Prior to implementing the bundled rate, drugs were reimbursed separately based on the average sales price (ASP) of the drugs. Since 2011, the payment rate for the drugs has been based on the PPI for Prescription Drugs as determined by the Bureau of Labor Statistics. According to the OIG, the PPI does not accurately predict cost changes—it predicted a 25% increase in drug costs in 2012, but acquisition costs for most drugs decreased, rather than increased. Only Epo increased in cost, but only by 17%.

This most recent report continues the high level of attention that OIG and CMS have both devoted to ESRD drug expenditures in recent years—and understandably considering the substantial upheaval in payment methodology, increasing patient population, and high cost of treatment. Yet the report, while critical, does not recommend a method that CMS might use to more accurately reflect drug costs in the ESRD base rate going forward. It merely states that CMS should consider developing one—an insubstantial recommendation for such a complex problem. This leaves providers, so recently shaken by a huge reduction in per-treatment payment rates, increasingly uncertain about the future of Medicare reimbursement for ESRD services. Of one thing, it seems, they can be certain—CMS and OIG are paying attention.