Medicare

Medicare helps patients suffering from kidney failure with the costs of dialysis treatments by paying dialysis facilities a predetermined amount per outpatient treatment. A full year of dialysis treatments at Medicare's average payment rates costs more than $19,000, of which the program pays 80 percent and the patient 20 percent. The dialysis industry believes that the Medicare dialysis payment rates should be raised, but the Health Care Financing Administration has proposed reducing the fees. This report answers the following questions: Are the definitions Medicare uses to define costs for payment rate-setting purposes adequate? What is the quality of the most recent audited cost data for rate-setting purposes? Do costs incurred by integrated and nonintegrated firms differ? (An integrated firm might run two or more dialysis facilities through a home or office or own related businesses, such as a laboratory or a supply company, to support its dialysis facilities.) GAO found that 1990 Medicare audits of dialysis facility cost reports were incomplete and poorly done. If the audits had been adequately done, additional unallowable costs would probably have been uncovered and removed from the cost reports, resulting in a further reduction of the median cost per treatment. GAO also found that integrated facilities provide dialysis treatments at substantially lower cost than nonintegrated firms.

GAO found that: (1) HCFA and the dialysis industry disagree about the cost-finding principles that should be applied in gathering data used to set composite rates; (2) Medicare cost principles are more appropriate than generally accepted accounting principles for rate-setting purposes; (3) the composite rate has remained the same since 1983, but the number of outpatient providers has increased 67 percent and most providers report costs below their Medicare payment rate; (4) end stage renal disease (ESRD) audits are necessary to ensure that accurate cost data are used for rate setting and that they conform with Medicare cost principles; (5) audits performed by intermediaries and subcontractors were incomplete and poorly done; and (6) integrated facilities can provide dialysis treatment at lower cost by allocating expenses among more than one facility.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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