The report compared Q1 2012 dialysis facility average acquisition costs (AACs) for 11 ESRD drugs (that were separately billable prior to the ESRD PPS implementation) to the estimated reimbursement amounts that Medicare paid for these drugs under the bundled ESRD base rate. The OIG also examined how costs for these 11 drugs changed from Q1 2009 through Q1 2012, and noted the average sales price (ASP)-based Medicare reimbursement for the drugs in Q1 2012.

The report presented four major findings:

Freestanding dialysis facilities purchased ESRD drugs for nine percent less than the drugs’ estimated reimbursement amounts in the ESRD base rate, but the acquisition costs for hospital-based facilities exceeded reimbursement by five percent.
Although the average facility acquisition costs for most drugs under review decreased over the past three years, costs for erythropoiesis-stimulating agents (ESAs) increased.
The Producer Price Index was not a valid predictor of cost changes for most drugs under review.
If ASP-based reimbursement had remained in effect for Q1 2012, payment amounts for the bundle of ESRD drugs would have differed by less than a dollar per treatment.

Based on these findings, OIG made three recommendations to CMS:

Rebase the ESRD base rate to reflect current trends in drug acquisition cost. No explicit response from CMS, though CMS is rebasing the bundle under current law.
Distinguish payments in the ESRD base rate between independent and hospital-based dialysis facilities. CMS did not agree with this recommendation.
Consider updating the ESRD payment bundle using a factor that takes into account drug acquisition costs. CMS agreed with this recommendation.

Many reports over the past year and a half have focused on declined ESA utilization under the bundle. A May 2013 OIG report found that Medicare could have saved $510 million on epoetin alfa and darbepoetin alfa if the 2011 ESRD base rate had been adjusted to reflect the utilization of anemia management drugs in 2011. At that time, OIG recommended, and CMS concurred, that the Agency adjust the base rate to realize program savings associated with decreased utilization of ESAs.

CMS may modify the price index used to update the bundled payment amount relevant to drugs in the upcoming CY 2015 ESRD PPS proposed rule. CMS already signaled that it intends to revisit the weights associated with each of the factors in the ESRD market basket calculation in this year’s rule, and given the evidence that drug utilization and costs have declined, CMS will likely decrease the weight associated with drug costs.

The CY 2015 ESRD PPS proposed rule is expected in early July 2014.

View OIG’s full release.