Medicare-Based Payment and the New Medicare Dialysis Rules: Drowning Plans in the Details

By: John R. Christiansen, J.D., Chief Legal Officer, DCC, Inc.

Medicare-based payment for out-of-network dialysis claims determinations looks simple on paper. It may also violate anti-discrimination laws, and more than that, new Medicare payment regulations are about to make it very hard to get the right information to make these seemingly simple determinations.

The simple thing about Medicare-based reimbursement is drafting the plan language. What could be simpler, for example, than just stating that the plan will pay dialysis claims at, say, 150% of the amount Medicare pays? The information source is public and easy to find and the calculation is simple as can be. So why not just do it?

This has never been quite so simple as it seems, and as of 2015 it will become a lot more complicated. The source of the difficulty is a new set of dialysis payment rules under the Medicare ESRD “Quality Incentive Program” (“ESRD QIP”) which will be applied starting January 1, 2015.

Under the QIP Medicare will no longer paying standardized rates for dialysis. Instead, each dialysis facility will be paid at a rate determined by its “TPS” (“Total Performance Score”) based on its performance under a set of “Clinical Measures” and “Reporting Measures.” This system actually began development in 2012, as the Centers for Medicare and Medicaid Services (“CMS”) analyzed proposed quality measures and data from dialysis facilities and began scoring facilities. It will really kick in starting in 2015, with a number of changes projected through 2018. The new system has turned a simple exercise in multiplication into a complicated calculus using up to 16 factors.

Understanding what this change is and what it means requires a little background of Medicare reimbursement for dialysis. The existing system, which has been in use under more or less the same terms for many years, uses a “market basket” approach to determine the “Prospective Payment System Base Rate” (“PPS Base Rate”) for dialysis reimbursement. The market basket is the bundle of the various costs providers incur to provide dialysis services, and the PPS Base Rate is the amount Medicare will reimburse. The PPS Base Rate is applied nationally, but is subject to adjustment because a facility provides a particularly low volume of dialysis treatments (not a factor for outpatient dialysis providers), or based on geographical variation based on area wage differences.

Since the market basket is also subject to annual adjustment, even applying the PPS Base Rate is not as simple as it seems. Still, the existing system nonetheless appears to provide a pretty simple Medicare-based determination: Just find out this year’s PPS Base Rate, adjust for volume and geographic variation, and multiply by the chosen percentage. But the ESRD QIP is about to make this a lot more complicated.

Under the QIP dialysis facilities have been required to report detailed quality information to CMS. CMS has been using this information, and expert recommendations, to develop a set of “Clinical Measures” and “Reporting Measures.” This starts with a set of six Clinical Measures and four Reporting Measures in 2015, which will be slightly adjusted and increased to a total of eleven measures in 2016, then adjusted again in 2017 and increased to 16 measures in 2018. Each dialysis facility will be scored on these measures, and a TPS determined which will be applied in the following year. The facility’s dialysis reimbursement rate for that year is then adjusted according to its TPS for the prior year.

The following diagram from the CMS proposed rule on the QIP shows part of the calculation of a facility’s TPS1:


This is just the first of five steps required to determine a facility’s TPS.

This means that starting in 2015, plans which pay dialysis claims on a Medicare-percentage basis will need to know the facility’s TPS for the prior year as well as the current year, and how Medicare applies that TPS, to determine dialysis claims. This information may not be readily available, either: CMS already publishes some hospital TPS data, but the information is not fully processed and not necessarily very clear. Plans may therefore have to do some calculations of their own using the five-step formula, and are at risk of misinterpreting the numbers or making errors in the formula. Either of these may be grounds for a provider to appeal, and even bring the plan into litigation.

Simple Medicare-based plan language will therefore soon begin leading plans into the weeds of complex calculations. This is a risky new world, and one in which the appeal of plan language simplicity is clearly outweighed by the problems caused when you try to apply it.

1 From US Department of Health and Human Services Centers for Medicare and Medicaid Services, Medicare Program; End-Stage Renal Disease Prospective Payment System, Quality Incentive Program, and Durable Medical Equipment, Prosthetics, Orthotics, and Supplies; Proposed Rule, 79 Fed.Reg. 40208 (July 11, 2014) 


Renalogic, headquartered in Phoenix, AZ, was founded in 2002 as a specialty dialysis cost-containment company to help clients understand the unique market dynamics in the dialysis provider community. The company has evolved to become a comprehensive provider of data-driven, end-to-end chronic kidney disease (CKD) care and cost management programs for the self-insured industry. Renalogic’s professional team includes leaders in healthcare administration, care management, legal specialists in ERISA and healthcare law, contract negotiation, payer/provider negotiation, and clinical experts.