Trans­form­ing re­nal care

Dial­y­sis providers an­tic­i­pate ACOs, pay­ment cuts and con­sol­i­da­tion

Modern Healthcare - - KIDNEY CARE REFORM - By Beth Kutscher

When the CMS last year called for kid­ney-care providers to par­tic­i­pate in a new ac­count­able care demon­stra­tion for end-stage re­nal dis­ease, only a few ap­plied. Many small, in­de­pen­dent providers said they couldn’t af­ford the in­vest­ment needed to es­tab­lish a pro­gram that would meet the fed­eral cost sav­ings and qual­ity tar­gets. But oth­ers saw the pro­gram as a way to pre­pare for the in­evitable fu­ture of value-based pay­ment and de­liv­ery.

“I know be­ing in a fee-for-ser­vice en­vi­ron­ment is not go­ing to be sus­tain­able,” said Diane Wish, CEO of the not­for-profit Cen­ters for Dial­y­sis Care in Shaker Heights, Ohio, which has 18 fa­cil­i­ties and 1,850 pa­tients.

The CMS’ ac­count­able care model will be known as an ESRD seam­less care or­ga­ni­za­tion, or ESCO, and the shared-sav­ings pro­gram will be­gin Jan. 1. Be­cause of the short­age of ap­pli­ca­tions, the CMS post­poned the pro­gram un­til 2015, and Wish’s not-for-profit cen­ter has reap­plied.

Wish’s cen­ter plans to bor­row $1.3 mil­lion from its char­i­ta­ble foun­da­tion to en­hance its elec­tronic health-record sys­tem to con­nect with two lo­cal hos­pi­tal sys­tems, so dial­y­sis pa­tients can be tracked in case of hos­pi­tal­iza­tion. It also is adding care man­agers who will work to keep pa­tients out of the hos­pi­tal. About 400 of its pa­tients are ex­pected to qual­ify for the ESCO. Any shared sav­ings the cen­ter earns from the ESCO pro­gram will be used to pay back the foun­da­tion.

While only about 1% of Medi­care pa­tients have end­stage re­nal dis­ease, the cost of their care rep­re­sented more than 7% of Medi­care spend­ing, or $20 bil­lion in 2010. But the CMS, the largest payer for dial­y­sis ser­vices in the U.S., has been mov­ing to cut dial­y­sis costs and pay providers based on out­comes. As a re­sult, the $25 bil­lion dial­y­sis in­dus­try now faces a ma­jor trans­for­ma­tion as it moves from niche providers of­fer­ing a prof­itable ser­vice to what in­sur­ers view as a cost cen­ter un­der the emerg­ing pop­u­la­tion health-man­age­ment ap­proach. In­sur­ers and providers in­creas­ingly are look­ing for ways to pre­vent peo­ple from pro­gress­ing to end-stage re­nal dis­ease and need­ing dial­y­sis.

The CMS last year pro­posed a 9.4% cut in dial­y­sis rates, or about $30 per treat­ment, based on con­cerns that it had over­es­ti­mated the use of an ex­pen­sive group of drugs known as ery­thro­poi­etin-stim­u­lat­ing agents. But it opted to phase in the cut over three to four years, keep­ing pay­ments flat in 2014.

“If CMS were go­ing to have that large of a cut, it would be dev­as­tat­ing to providers be­cause the mar­gins are not that big,” said Deb­bie Cote, pres­i­dent-elect of the Na­tional Re­nal Ad­min­is­tra­tors As­so­ci­a­tion, which rep­re­sents in­de­pen­dent dial­y­sis cen­ters.

As re­im­burse­ment is pared back, and economies of scale be­come in­creas­ingly im­por­tant, the two largest play­ers are likely to roll up the in­dus­try even fur­ther. “It’s go­ing to lead to greater con­sol­i­da­tion, that’s for sure,” said James Cham­bers, a pro­fes­sor at the Tufts Med­i­cal Cen­ter In­sti­tute

Ex­perts say dial­y­sis providers can re­al­ize sav­ings and sur­vive in two ways: they can pur­sue a con­sol­i­da­tion strat­egy that al­lows them to spread their fixed costs over a greater num­ber of cen­ters. Or they can find ways to of­fer the same ser­vice more cheaply.

for Clin­i­cal Re­search and Health Pol­icy Stud­ies.

Ex­perts say dial­y­sis providers can re­al­ize sav­ings and sur­vive in two ways: they can pur­sue a con­sol­i­da­tion strat­egy that al­lows them to spread their fixed costs over a greater num­ber of cen­ters. Or they can find ways to of­fer the same ser­vice more cheaply.

One key ques­tion for providers is how soon the Food and Drug Ad­min­is­tra­tion will ap­prove a generic ver­sion of ery­thro­poi­etin-stim­u­lat­ing agents, which are pro­tein-based drugs for which there cur­rently is no generic ap­proval path­way, said J. Mark Stephens, founder of Prima Health An­a­lyt­ics, a health eco­nomics con­sult­ing firm that fo­cuses mainly on ESRD. The pro­tein-based drugs alone rep­re­sent $2 bil­lion in an­nual CMS spend­ing for ESRD pa­tients.

The two largest dial­y­sis providers, DaVita Health­Care Part­ners and Fre­se­nius Med­i­cal Care, con­trol more than 70% of the mar­ket. Squeez­ing pay­ments could threaten the sur­vival of in­de­pen­dent providers. Larger providers have the re­sources to es­tab­lish part­ner­ships with health sys­tems and in­sur­ers, invest in tech­nol­ogy and achieve the ef­fi­cien­cies and economies of scale needed to be prof­itable un­der value-based pay­ment mod­els.

In­deed, out­pa­tient dial­y­sis cen­ters af­fil­i­ated with DaVita and Fre­se­nius en­joyed higher profit mar­gins than other free-stand­ing fa­cil­i­ties—4.2% com­pared with 3.5% in 2012, ac­cord­ing to a March re­port from the Medi­care Pay­ment Ad­vi­sory Com­mis­sion.

Over­all, for-profit providers op­er­ate 85% of all U.S. dial­y­sis fa­cil­i­ties and treat 89% of dial­y­sis pa­tients, ac­cord­ing to MedPAC. Hos­pi­tals op­er­ate 9% of dial­y­sis fa­cil­i­ties but treat only 7% of pa­tients.

U.S. de­mo­graph­ics and health trends in­di­cate that dial­y­sis will re­main a prof­itable business, at least in the short term, be­cause the in­ci­dence of ESRD is in­creas­ing. “Some peo­ple are us­ing the word ‘epi­demic,’ and that’s a lit­tle ex­treme,” Stephens said. “But (ESRD) is grow­ing and peo­ple on dial­y­sis are liv­ing longer. The fi­nan­cial mar­kets think the de­mo­graph­ics are very good and have re­warded (pub­licly traded dial­y­sis providers).”

Many dial­y­sis providers have crit­i­cized the cost-sav­ings and qual­ity mea­sures that the CMS is plan­ning to use to cal­cu­late shared sav­ings in the ESCO pro­gram.

The mor­tal­ity rate for the ESRD pop­u­la­tion has fallen 19% since 2000, ac­cord­ing to the U.S. Re­nal Data Sys­tem. The im­prove­ment is largely the re­sult of bet­ter in­fec­tion­con­trol mea­sures and a de­crease in deaths re­lated to car­dio­vas­cu­lar dis­ease.

Larger fa­cil­i­ties have higher mar­gins be­cause their costs per treat­ment are lower. On the other end of the spec­trum, Wish said her cen­ter loses $50 to $90 per treat­ment on Medi­care pa­tients. Con­sol­i­da­tion could ac­cel­er­ate in the com­ing years, ex­perts say, es­pe­cially if the CMS goes ahead with pro­posed re­bas­ing of the bun­dled pay­ment rate.

Shares of Den­ver-based DaVita, which has 35% of the dial­y­sis mar­ket, are trad­ing at record highs, de­spite on­go­ing chal­lenges in­te­grat­ing its ac­qui­si­tion of mul­tispe­cialty med­i­cal group Health­Care Part­ners. Ger­many-based Fre­se­nius, which has 37% of the U.S. mar­ket, has seen more volatile trad­ing but in April said it ex­pects to dou­ble its 2013 rev­enue by 2020.

On their most re­cent earn­ings calls, DaVita and Fre­se­nius Med­i­cal Care both re­ported rev­enue growth in kid­ney care. Both com­pa­nies have grown through higher vol­ume, cost cuts, ac­qui­si­tions and open­ing new cen­ters.

DaVita said rev­enue in its kid­ney-care di­vi­sion in­creased 8.2% to $2.3 bil­lion in the sec­ond quar­ter of this year com­pared with the same pe­riod last year. It also raised its ex­pec­ta­tions for full-year op­er­at­ing in­come in the kid­ney care group to a range of $1.55 bil­lion to $1.6 bil­lion, an in­crease from its ear­lier pro­jec­tions of $1.52 bil­lion to $1.58 bil­lion. Fre­se­nius sim­i­larly saw 7% rev­enue growth in its North Amer­i­can dial­y­sis business in this year’s sec­ond quar­ter com­pared with the same pe­riod last year.

Yet the loom­ing Medi­care cuts have nudged even large providers to con­sider ac­count­able care mod­els that could be the fu­ture of dial­y­sis treat­ment.

In 2012, DaVita pur­chased Health­Care Part­ners, which has con­tracts with thou­sands of doc­tors in five states, to gain ex­per­tise in cap­i­tated and risk-based mod­els. Its Vil­lageHealth di­vi­sion also works on a cap­i­tated pay­ment ba­sis with health plans and gov­ern­ment agen­cies to cre­ate a dis­ease-man­age­ment pro­gram for kid­ney-care pa­tients with spe­cial needs.

Fre­se­nius fol­lowed suit last June, pay­ing $600 mil­lion to be­come the majority owner of Ta­coma, Wash.-based Sound In­pa­tient Physi­cians, which pro­vides hos­pi­tal­ist ser­vices at more than 100 hos­pi­tals and post-acute-care fa­cil­i­ties. The ac­qui­si­tion al­lows Fre­se­nius to bet­ter co­or­di­nate care for its dial­y­sis pa­tients when they’re hos­pi­tal­ized. That same month, Fre­se­nius formed a part­ner­ship with Aetna to co­or­di­nate care for the in­surer’s Medi­care Ad­van­tage mem­bers with ESRD.

With the CMS propos­ing penal­ties for read­mis­sions as part of the ESCO pro­gram, part­ner­ships with acute-care providers will be cru­cial for dial­y­sis cen­ters. Re­lated to that is the need for health in­for­ma­tion tech­nol­ogy in­ter­op­er­abil­ity. While even small dial­y­sis providers have elec­tronic health records, those plat­forms don’t al­ways com­mu­ni­cate with the EHRs at lo­cal health sys­tems. With­out that con­nec­tion, dial­y­sis providers can be left in the dark when their pa­tients are hos­pi­tal­ized.

“That has been a black hole,” said Joyce Jack­son, CEO of North­west Kid­ney Cen­ters, the 10th largest dial­y­sis provider in the U.S., with a 3% mar­ket­share. The Seat­tle­based not-for-profit provider has adopted a tech­nol­ogy called the Emer­gency Depart­ment In­for­ma­tion Ex­change, which de­liv­ers im­me­di­ate no­ti­fi­ca­tion when a pa­tient is in the emer­gency room. Most hos­pi­tals aren’t us­ing EHR sys­tems that are tai­lored for dial­y­sis pa­tients.

For this rea­son and oth­ers, many dial­y­sis providers have crit­i­cized the cost-sav­ings and qual­ity mea­sures that the CMS is plan­ning to use to cal­cu­late shared sav­ings in the ESCO pro­gram. “The way (the ESCO pro­gram is) con­structed is not par­tic­u­larly fa­vor­able,” said Dr. Allen Nis­senson, chief med­i­cal of­fi­cer for DaVita Kid­ney Care. “We’re go­ing to par­tic­i­pate, but there are a lot of prob­lems with it.”

Both DaVita and Fre­se­nius say they have sub­mit­ted ap­pli­ca­tions for the ESCO pro­gram. Ap­pli­ca­tions to par­tic­i­pate were due June 23 for large dial­y­sis or­ga­ni­za­tions and Sept. 15 for other dial­y­sis providers.

ESCOs have the same goals as Medi­care ACOs—to im­prove qual­ity of care and re­duce costs by giv­ing providers fi­nan­cial in­cen­tives to meet cost and qual­ity tar­gets. But they’re geared to­ward the ESRD pa­tient group, which re­quires par­tic­u­larly ex­pen­sive care. The per capita cost of dial­y­sis in­creased 4% from 2011 to 2012, from $27,700 to nearly $29,000, ac­cord­ing to MedPAC. Many of th­ese pa­tients have com­plex phys­i­cal and be­hav­ioral health prob­lems.

ESCOs re­quire col­lab­o­ra­tion be­tween at least one dial­y­sis fa­cil­ity, a nephrol­ogy group and at least one other provider or sup­plier, and must have at least 500 Medi­care ESRD pa­tients un­der their care.

Providers hope the CMS will grant waivers to ESCO par­tic­i­pants so they can in­cor­po­rate ser­vices that wouldn’t tra­di­tion­ally be cov­ered un­der Medi­care, such as pro­vid­ing trans­porta­tion to lower-in­come pa­tients to get to ap­point­ments. Such waivers will be key to help­ing pa­tients change their be­hav­iors to im­prove their health, Wish said.

The long-term out­look for the dial­y­sis in­dus­try will de­pend on how quickly providers adapt to the new pay­ment mod­els. “Re­im­burse­ment is al­ways go­ing to be a wild card,” said Stephens at Prima Health An­a­lyt­ics.

In­sur­ers and providers are look­ing for ways to pre­vent peo­ple from pro­gress­ing to end-stage re­nal dis­ease.

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