Understanding the basic case-mix adjustment for the composite rate.

In April 2005, Medicare began adjusting payments to dialysis providers for composite-rate services for a limited set of patient characteristics, including age, body surface area, and low body mass index. We present analyses intended to help the end-stage renal disease community understand the empirical reasons behind the new composite-rate basic case-mix adjustment. The U-shaped relationship between age and composite-rate cost that is reflected in the basic case-mix adjustment has generated significant discussion within the end-stage renal disease community. Whereas greater costs among older patients are consistent with conventional wisdom, greater costs among younger patients are caused in part by more skipped sessions and a greater incidence of certain costly comorbidities. Longer treatment times for patients with a greater body surface area combined with the largely fixed cost structure of dialysis facilities explains much of the greater cost for larger patients. The basic case-mix adjustment reflects an initial and partial adjustment for the cost of providing composite-rate services.

Economic impact of case-mix adjusting the dialysis composite rate.

The Medicare program reimburses dialysis providers a flat rate for a bundle of services that comprise the basic dialysis treatment. This payment system is being modified to incorporate case-mix adjustment for age and body size, which have been shown to influence dialysis costs. This study simulated the economic impact of the recently issued Medicare rule on case-mix adjustment by estimating the variation in payments across patients, facilities, and broad classes of facilities. Case-mix adjustment results in considerable patient-level variation in payments (dollar 12.99 SD in case-mix adjusted payments). The variation across dialysis facilities is smaller but still economically significant (dollar 3.77 SD). However, there was little evidence that particular classes of facilities (e.g., ownership, chain membership, size) will be substantially advantaged or disadvantaged by case-mix adjustment. There do seem to be modest changes in the regional distribution of payments.

Is case-mix adjustment necessary for an expanded dialysis bundle?

Congress has required CMS to expand the Medicare outpatient prospective payment system (PPS) for dialysis services to include as many drugs and diagnostic procedures provided to end stage renal disease (ESRD) patients as possible. One important implementation question is whether dialysis facility case mix should be reflected in payment. We use fiscal year (FY) 2000 cost report and patient billing and clinical data to determine the relationship between costs and case mix, as represented by several patient demographic, diagnostic, and clinical characteristics. Results indicate considerable variability in costs and case mix across facilities and a significant and substantial relationship between case mix and facility cost, suggesting case mix payment adjustment may be important.