Data Used by HCFA in Preparing Its Proposal for the End Stage Renal Disease Program

Medicare coverage is provided to persons suffering from kidney failure who are insured under the Social Security Act or are dependents of an insured person. The End Stage Renal Disease (ESRD) Program, which provides this coverage, is generally considered effective in protecting beneficiaries from the catastrophic costs associated with caring for a person with renal failure. However, large and rapidly rising program costs have caused great concern about the future of the program. The ESRD Program has been amended to allow patients to dialyze at home, a less costly procedure. Health Care Financing Administration (HCFA) data show that about 17 percent of ERSD beneficiaries dialyze at home. Recently, HCFA proposed to establish a composite rate designed to cover the costs of both home and in-facility dialysis treatments. Each facility would receive a certain payment rate per treatment, adjusted for geographic differences in the cost of labor. GAO reviewed the audits for 13 facilities and the HCFA adjustments to these audits to determine the reliability of the resulting data. GAO did not believe that the audits provided HCFA with the data necessary to adequately establish a prospective reimbursement system, because the audits did not result in the elimination of substantial amounts of unreasonable and unallowable costs reported by the facilities. None of the audits determined the costs to related organizations of selling dialysis supplies or the costs at which the supplies could be obtained from nonrelated organizations. Substantial portions of costs were included in the cost reports which HCFA used without adequate assurance of compliance with Medicare regulations. There is no overall limit on the amount of compensation, benefits, or profits that physicians can receive under the ESRD Program. GAO found that significant opportunities exist for lowering home dialysis costs. For example, the annual cost of purchasing dialysis machines is much less than that for renting them. Large differences were found in the amounts charged per treatment by different medical suppliers and in various dialysis machine rental rates. Several facilities providing equipment or supplies for their home patients added a surcharge for their services to the costs of these items. ESRD networks have not met their legislative responsibilities, and few have had any impact on the quality of care provided.