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The US Centers for Medicare & Medicaid Services (CMS; Medicare) has issued its long-awaited final rule for dialysis patients. Entitled “Medicare Program; End-Stage Renal Disease Prospective Payment System,” (.pdf; 1.3MB) the final rule contains the “bundling” arrangement for dialysis services which becomes effective 1 January 2011. (Here’s the much easier to digest CMS fact sheet.) Under the new rule, Medicare will pay a single, predetermined fee for each dialysis treatment, covering the entire “bundle” of services (dialysis, supplies, drugs, and lab tests). As a result, the use of intravenous drugs to treat anemia—notably Amgen’s Epogen—will likely be sharply reduced.

Previously, Medicare paid a predetermined fee for dialysis services, but some drugs—like Epogen—were reimbursed separately. That system gave dialysis providers a financial incentive to overuse Epogen which increased the patients’ risk of heart attacks and strokes. Because Epogen is now part of the “bundle,” it will likely be underused and patients’ quality of life will suffer. While Medicare has set up adequate standards for quality of care—including maintaining patients’ hemoglobin levels between 10-12—it remains to be seen how these standards will be enforced. When my hemoglobin falls below 11.3, I’m wiped out; when it’s below 10, I’m virtually immobile and barely conscious.

Cheryl Clark, writing for HealthLeaders Media, cites CMS as saying, “the law requires CMS to reduce the payment rates to a dialysis facility by up to two percent if that facility fails to meet or exceed the established performance scores with regard to performance standards established for each quality measure.”

Epogen is incredibly expensive because Amgen has had a US monopoly on erythropoietin since 1989. Amgen’s original patent expired in 2004, but because of the broken intellectual property laws in the US, Amgen received a total of seven patents on the same work, some of which won’t expire until 2015.

A 2,000-unit vial of the drug currently costs US$49.99 from a veterinarian supply house; my current dosage is 18,000 units each dialysis run or about US$900 per week, retail. Dialysis providers pay Amgen’s Wholesaler Acquisition Price (WAP). According to the third amended complaint in US v. DaVita, Inc. (.pdf; 156KB), Amgen’s WAP was “calculated based on a 20% reduction from the Average Wholesale Price (AWP). ... The total possible discounts totaled 14.5% off the listed WAP, which itself was heavily discounted off the AWP.”

Under the current Medicare reimbursement plan, dialysis providers were able to make a profit on the spread between the Epogen they purchased at less than wholesale and the Medicare reimbursement rate. Forbes reported in April 2007 that “Medicare also reimburses at 6% above the average sales price of the drug. A Morgan Stanley report estimated that dialysis chains made 25% of their profits on the Epogen spread. Last year 21% of DaVita’s revenue came from reimbursements for Epogen.”

Because of the Epogen expense, dialysis providers may begin to administer it by separate injection (less is needed when the drug is injected directly); something the providers rejected when the drug was reimbursed separately. Some oral drugs—most notably Amgen’s Sensipar and Genzyme’s Renvela—won’t be included in the bundle until 1 January 2014. These drugs, while crucial to the health of dialysis patients, aren’t typically taken during the dialysis treatment.

The Medicare dialysis payment rule sets a base “bundled” payment rate of US$229.63 per treatment.

Medicare’s Quality Incentive Program (QIP), which takes effect 1 January 2012, ties a dialysis provider’s payment to how well it meets Medicare’s performance standards. “For the first time in any of our payment systems, the quality of care facilities furnish to patients will be reflected in their payment rates,” said Donald Berwick, Medicare’s newly-appointed administrator, in a statement. Quality measures included in the QIP include urea reduction ratios (a measure of dialysis adequacy) and the previously mentioned anemia levels. The QIP also mandates that dialysis providers’ facility performance scores be made publicly available.