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The federal End State Renal Disease (ESRD) program was created by statute in 1972 as a general population entitlement to be administered by Medicare. The program extends al/ Medicare benefits to patients, regardless of age, who are diagnosed as having ESRD, as long as they are fully insured for old age and survivor insurance benefits (Social Security), are entitled to monthly insurance benefits under the Social Security Act, or are spouse or dependent children i ren of individuals with the foregoing Social Security benefits. About 7 percent of all ESRD patients are excluded from this entitlement by these criteria. The two major therapies embraced by the ESRD program are renal dialysis and kidney transplantation. In this first part of a two-part article, dialysis is the focal point. Kidney transplants will be covered in the May-June issue of Physician Executive Maintenance dialysis was first used as a means of prolonging meaningful life in 1960. From then until the ESRD program began, about 9,000 patients at any particular time were receiving long-term renal dialysis, 37 percent of them at home and nearly all through not-for-profit programs. The annual full cost of the therapy at that time ranged from $15,000 to $20,000 per patient. The entitlement program began July 1, 1973. In the first full year of operation (1974), about 16,000 patients were treated at a program cost of $229 million. Five years later, the program cost reached an annual level of $800 million and provided care to about 40,000 patients.* This expenditure represented less than 80 percent of the total cost because of copayments, deductibles, and Part B premiums. Thus, total cost at that point already exceeded $1 billion per year. Ten years after embarking on this effort to use technology to prevent the death of renal failure patients, the program was caring for more than 90,000 patients at an annual program cost of $1.9 billion, i.e., total societal costs approaching $2.5 billion. Today, we are probably spending at an annual rate of $3.2 billion through Medicare, with private costs bringing the total to about $4 billion, all on about 155,000 beneficiaries, of whom about 25,000 are post transplant patients. And another $300 million is probably being spent on the 11,000 or so ESRD patients not eligible for Medicare coverage. One of the reasons we're not sure how much we're spending today is that we don't yet know how much we spent in 1985,1986, or 1987. The 1985 through 1987 "actual" expenditures shown in the accompanying table are outlays to date, but, according to the Health Care Financing Administration ( HCFA), they will increase as "outstanding bills" are processed. Average numbers of enrollees listed in the table are averages of end-of-year numbers for 1974 through 1980, but after 1980 report actual mid-year enrollment data. Measured from 1974 through 1978, total growth in program expenditures has been at an annual compound rate in excess of 20 percent. Most of this is accounted for by a nearly 18 percent per year growth rate in enrollees. Hence, there has been only about a 2-1/4 percent annual rate of increase in expenditures per enrollee. Adjusted by the Medical Care Component of the Consumer Price Index, the per enrollee costs show an average annual rate of decrease of more than 6 percent. This 6 percent per year decrease may also be thought of as a rate of increase in the efficiency of treatment, inasmuch as fewer real resources are being consumed annually by each enrollee. As to dialysis, this efficiency improvement includes higher rates of capacity utilization, learning curve phenomena in the early years of the program, improved technology over the past one and one-half decades (resulting from research that would not have been embarked upon but for the existence of the entitlement program), shifts from higher to lower intensity treatment settings, and lower payment rates. Beyond dialysis, the growth of transplantation efficacy and its substitution for dialysis, to be discussed in more detail in Part 11 of this article, is also reflected in the 6 percent figure. But we also need to exercise caution in our interpretation of this 6 percent. A reduction in the real cost per patient per year is not the same thing as a reduction in the cost per patient. Assuming that technological progress results, through time, in increased extension of life expectancy from the onset of renal failure, a percentage increase of life expectancy greater than the percentage decrease in annual real cost results in lifetime costs rising even as annual costs decline. Thus, efficiency may have improved viewed against output defined as one year of enrollee life, while a different picture may emerge if output is defined as one enrollee for life. Also not contemplated in the efficiency numbers are more subjective factors, including quality of life considerations and the rest of the economic equation: societal benefit. The ESRD program was developed to do more than simply prevent the death of those suffering from irreversible renal failure. Congressional testimony in 1971 indicated a significant optimism that patients on maintenance dialysis would be able to return to the labor force. Regardless of original expectations about case mix characteristics such as age, education, motivation, skills, and other parameters affecting the patient's capacity to return to work, the rapid inclusion of older, sicker, and less educated patients into the ESRD program significantly increased costs without providing corresponding economic benefit.

In addition, the young, well-educated, highly skilled chronic dialysis patient with few comorbidities became increasingly less likely to return to work as time passed, perhaps as levels of aspiration and optimism declined.3 Efforts to capture some return on the public instrument may have driven much of the change in the ESRD program over the past 10 years; for example, these changes now encourage transplantation over maintenance dialysis. Initially, maintenance dialysis was provided almost exclusively in the hospital setting. As the procedure became more routine, independent or "freestanding" dialysis centers began

e success of the independent centers is understandable in view of a 1975 congressional study showing annual costs for clinic or freestanding dialysis to be 14,000-20,000, about half of the 30,000 and up cost for care provided in hospital-based centers. In 1983, Medicare began to capitate the care of dialysis patients, further stimulating use of freestanding clinics, with their greater efficiencies associated with a narrow focus. The 1983 capitation move, combined with payment cuts put in place in 1981, stimulated cost-cutting measures at the dialysis clinics and promoted the growth of dialysis chains. Efforts to cut costs also led to the reuse of dialysis kidneys," the plastic filters at the heart of the dialysis machine's function. This now appears to be a relatively safe procedure, but, when reuse was first instituted, the need for meticulous cleaning between uses was not fully understood and quality may have suffered. Other indicators continue to be quoted by investigators as suggestive of decreasing quality in both freestanding and hospital-based dialysis units. The most often observed measure is the 1-to-3 staff/patient 3 mix of 1983 that changed to 1-to-5 by 1985. The concern for quality led the Department of Health and Human Services Inspector General to state, "We have built [ESRD] programs without proper controls, on the faith that the professionals would police themselves. That, I can assure you, is flawed judgment. Early in the ESRD program, Congress began to look for mechanisms to stimulate alternative treatment programs. Initially promising alternatives to staff-performed dialysis were developed for both hospital and home settings, but they have not captured a large proportion of the chronic dialysis population. As noted, the payment system for hospital, freestanding, and home dialysis was restructured in 1981, and in 1983 HCFA further reduced Medicare payments for freestanding and The same 1975 congressional study showed that patients could be maintained at home, with then-available home dialysis technology, for only 4,000-6,000 per year. Self-administered home hemodialysis is the most popular alternative to dialysis performed by professional staff. Dialysis was first performed in a home setting in Boston in 1964 and quickly grew in scope; up to 75 percent of dialysis patients in some states were using it by 1969.' Home dialysis was favored by Congress because of the apparent cost savings, but this segment of the ESRD program fell to 15 percent of patients by 1978. Policy decisions had inadvertently put in place inphysicians to favor freestanding dialysis centers. Equipment, operational costs, physician fees, dialysis assistant costs, and the waiting period for entitlement have all been blamed for the shift away from home care. Changes in payment patterns beginning in 1981 helped to reverse this trend, but in 1985 home hemodialysis accounted for only 5.1 percent of ESRD patients, and this declined to 3.8 percent in 1987. Expectations are for this segment of the ESRD program to remain stable at best, and recent attacks on the paymesnt system to develop to encourage home dialysis may result in continued reductions in patient selection of this mode of therapy. In February 1989, HCFA issued proposed guidelines for limiting the annual amount to be allowed for supplies and equipment used in home dialysis. The proposed limit would be based on a national average composite rate per dialysis treatment. Continuous Ambulatory Peritoneal Dialysis and its variants promised lower costs, improved return-to-work rates, and a greater sense of well-being for patients. Recent analysis, however, suggests that early reports of differences in quality of life may have been due to patients' characteristics influencing their selection of therapy type, rather than to the therapy's intrinsic benefits. Original predictions of cost savings are now debated, and were probably overstated. Whatever the causes, poor patient participation in dialysis alternatives is evident. In 1985, all alternative therapies accounted for 22 percent of the total dialysis population. By 1987, this number had declined to 20 percent.6 In Part II of this article, we will shift our attention to kidney transplantation and explore some economic comparisons between transplantation and dialysis.
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Title Annotation:End State Renal Disease; Medicare's ESRD Program, part
Author:Long, Hugh W.
Publication:Physician Executive
Article Type:column
Date:Mar 1, 1989
Previous Article:Are your economic incentives self-defeating?
Next Article:Survey aimed at public giving.

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