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The Medicare End Stage Renal Disease Program
During the late 1950s it became possible to transplant kidneys between genetically nonidentical donors and recipients. The first facility for long-term dialysis was established in 1962. The following year, the Veterans Administration (now the Department of Veterans Affairs) established a national dialysis program in its hospital network. From 1965 through 1968, the Public Health Service supported a few dialysis centers as a research and demonstration project. Except for these two programs, no systematic mechanism was available in the 1960s to pay for dialysis and transplantation. An expert committee, under the chairmanship of Dr. Carl Gottschalk, was convened by the federal government to evaluate the need for a national ESRD program; it concluded in 1967 that dialysis and transplantation were established therapy for ESRD and that the establishment of a nationally funded clinical program was justified3.
Since all but the wealthiest Americans required financial help to pay for treatment for ESRD, the political clout of virtually all social classes could be mobilized in favor of a national program funded by taxes. In the 1960s and 1970s, when the cost of health care represented a much lower percentage of the gross national product than it does at present, the pressure not to deny lifesaving treatment to Americans solely because of expense was irresistible. In 1972, Congress responded by enacting an amendment to the Medicare law that declared that patients with ESRD, whatever their age, were entitled to Medicare coverage for the cost of their medical care. This amendment was adopted in the context of a broader provision of the legislation, which extended Medicare coverage to the disabled regardless of age. Patients with ESRD were identified as a group of people disabled by their chronic illness, many of whom could be rehabilitated by treatment. Key congressional staff members viewed the End Stage Renal Disease Program as a pilot for national catastrophic health insurance, which it was anticipated would be enacted shortly4.
Cost
The cost of the Medicare End Stage Renal Disease Program has far exceeded initial projections,1 even though the unit cost of treatment in constant dollars has actually decreased. Medical care for the 200,000 patients with ESRD in the United States cost about $6 billion in 1990. More than $5 billion was paid out by the Medicare End Stage Renal Disease Program. Thus, approximately 0.08 percent of the population now accounts for about 0.8 percent of total health care expenditures. In other words, expenditures per person for the medical care of patients with ESRD are about 10 times as high as for the population as a whole. Such high costs are typical of patients with a serious chronic illness that is treatable but not curable.
The Gottschalk report suggested a government-sponsored network of community dialysis centers staffed by salaried physicians. The Veterans Affairs ESRD program is organized in that manner. Instead, the Medicare End Stage Renal Disease Program offered fee-for-service payments to independent providers. For-profit facilities now make up the majority of dialysis providers. Nephrologists are paid a monthly fee for routine care plus fee-for-service payments for additional medical care. Adequate cost comparisons between the Veterans Affairs ESRD program and the entrepreneurial system adopted by Medicare are not available. The ESRD program in the United Kingdom is similar to that proposed in the Gottschalk report. A fixed national budget is allocated through regional health authorities to local facilities treating patients with ESRD, resulting in strict control of expenditures. For many years, the National Health Service budget was inadequate to provide dialysis for all who could benefit from it medically. When public pressure to include more patients became irresistible, capacity was expanded by modest increases in expenditures coupled with the increased use of long-term peritoneal dialysis, a less expensive method of treatment than hemodialysis. Financial incentives and disincentives to providers appear to have had an important influence on the selection of treatments for ESRD throughout the world5. The percentage of patients receiving peritoneal dialysis in the United States is relatively low. The fees for peritoneal dialysis and hemodialysis were equalized a few years ago in an unsuccessful effort to increase the proportion of patients treated by peritoneal dialysis. Some analysts believe that financial incentives continue to favor hemodialysis because providers need to maximize the rate of use of their expensive hemodialysis facilities.
Those who pressed for an entitlement to federally funded care for persons with ESRD have been criticized for underestimating, possibly deliberately, the probable cost of the program. In fact, the cost estimates in the Gottschalk report3 would have been reasonably accurate if the End Stage Renal Disease Program had continued to be restricted to relatively young patients without systemic illnesses, as had been the practice in the 1960s. As clinical experience accumulated and techniques improved, it became apparent that older patients and those with coexisting illnesses could be treated successfully. Approximately half the patients entering the Medicare End Stage Renal Disease Program now are 65 years of age or older. In approximately one quarter, kidney failure is due to diabetes. It is the inclusion of children, the elderly, and patients with systemic diseases that has increased expenditures far beyond initial expectations, even though the cost per dialysis treatment in constant dollars has decreased by more than 60 percent over the 20 years since the Medicare program began. The powerful position of the federal government as the dominant buyer of dialysis services gave it leverage to hold the payment to providers per treatment constant in nominal dollars and even to reduce it twice.
The cost of many types of new technology, such as computed tomography and magnetic resonance imaging or coronary-artery bypass surgery, exceeds expectations in part because they are used not only when they are of unequivocal value but also when they are of marginal clinical value or none. In these areas, cost savings can be achieved without denying patients access to appropriate medical care. No comparably easy way to save money exists in the End Stage Renal Disease Program. The diagnosis of end-stage kidney disease is readily made. There is no question that dialysis and transplantation are necessary for patients with chronic kidney failure: patients denied one of these treatments die. No less costly alternatives are available. Some argue that federal funding has tempted physicians to initiate dialysis for patients with advanced cancer, dementia, the acquired immunodeficiency syndrome (AIDS), or other conditions, whom they would not have treated if dialysis were not lucrative. It seems more likely that the decision to use dialysis in such cases is due to pressure from patients, families, or referring physicians to do everything possible to extend the patients' lives. In any case, the number of such patients is small, in part because they usually survive only for short periods while receiving dialysis. About 0.5 percent of patients receiving long-term dialysis have AIDS,6 and 1.8 percent have a history of metastatic cancer7. Thus, the share of the overall cost of the End Stage Renal Disease Program attributable to such patients is presumably quite small.
The recent use of recombinant erythropoietin has improved the quality of life of patients receiving dialysis but has also increased the cost of treating them by about $0.5 billion annually. The controversial designation of recombinant erythropoietin as an orphan drug provides unusual protection to the manufacturer against competitors. The federal government has not used its position as the principal purchaser of recombinant erythropoietin effectively to obtain price concessions. The government has also had difficulty in devising a method of paying providers that does not create perverse incentives for the overuse or underuse of recombinant erythropoietin1. An initial policy of fixed payments per administration, regardless of the amount of erythropoietin administered, led to the suspicion that providers gave lower doses than were medically optimal in order to maximize profits. A change to reimbursement based on the dosage has raised questions about overuse. Providers have argued that neither method of payment reimburses them for the additional staff time and supplies required to administer recombinant erythropoietin. Government administrators have focused narrowly on the direct cost of recombinant erythropoietin, yet indirect cost factors must also be considered. Inpatient care accounts for about 40 percent of Medicare expenditures for patients on dialysis1. If recombinant erythropoietin reduces the need for hospitalization by correcting anemia, overall costs may decrease. If patients treated with recombinant erythropoietin live longer, costs will increase. Either outcome would be medically beneficial, but the latter would be economically adverse. These considerations illustrate the complexity of determining the real cost of innovations in medical care.
Although quality of life is better for patients who have received transplants than for those receiving dialysis, only about 10,000 kidney transplantations are performed each year because of a shortage of kidneys. This shortage has limited the direct cost of transplantation, but it has increased the overall cost of the federal End Stage Renal Disease Program. Over a number of years the cost of medical care for a patient who receives a transplant is less than that for a patient receiving dialysis. The limitations on transplantation increase the cost of the End Stage Renal Disease Program by forcing patients to continue receiving dialysis. Paradoxically, federal regulations establish economic disincentives to transplantation. Medicare pays for only one year of costly immunosuppressive medications and eliminates the entitlement for patients with ESRD entirely three years after transplantation. Anecdotal evidence suggests that some patients refuse transplantation because of its potential economic effects. Regulations governing transplantation illustrate the tendency of government administrators to focus narrowly on the direct reduction of costs without considering the quality of life or possible indirect effects on total expenditures.
The governmental response to the increasing cost of the End Stage Renal Disease Program was to ratchet down payments to providers. In the early years of the program, technical advances and economies of scale reduced the cost of dialysis treatments. In recent years, however, attempts by the federal government to reduce payment to providers further have led to widespread criticism that the quality of care was being eroded to the point that the health and even the lives of patients were endangered. Much finger pointing has ensued among providers, patients, and officials at the Health Care Financing Administration1. Providers blame federal officials for reducing reimbursement below the cost of good-quality dialysis. Federal administrators collect data that demonstrate to their satisfaction that most providers make a profit and that payments are adequate to provide good-quality care. Patients have noted with concern the reuse of disposable dialysis coils, the substitution of technicians for nurses, and the decreased availability of social workers and dietitians. Anger has been directed both at providers, who are suspected of reducing the quality of care to maximize profits, and at the government, for focusing on cost to the exclusion of quality. Since implementation of formal quality-assessment procedures had not been a priority of either providers or government, none of the parties to the dispute can provide clear evidence for their views. The history of the End Stage Renal Disease Program illustrates the importance of developing explicit tools for the analysis of medical practices and of the potential economic effect as well as the medical benefit of investing in research on measures of quality. It also demonstrates a form of Gresham's law for expensive health care -- that considerations of cost will drive out considerations of quality in administering a medical program.
Equity, Access, and Rationing
Before the federal End Stage Renal Disease Program began, capacity for long-term dialysis was far less than was needed. Many facilities8,9 used social criteria to select the few patients they could accommodate. These included the patients' age (adults less than 45 years old were preferred), ability to support themselves, emotional stability and maturity,8 and potential for "return to a useful role in society"9. Critics described selection by such criteria as an "ethical muddle"10. Because of the tendency there to select people who conformed to middle-class values, the Seattle area was described as "no place for a Henry David Thoreau with bad kidneys"10. The psychiatric criteria used were criticized for mixing psychiatry with moral judgments11. The validity of such harsh criticism is indicated by data obtained by Evans et al.,12 who compared the sociodemographic characteristics of patients receiving long-term dialysis in 1967, six years before the federal program began, with those of patients in 1978 (Table 1). In 1967, well-educated white men with stable marriages were overrepresented. By 1978, the population served by the End Stage Renal Disease Program included proportionately more members of minorities, women, and people with less education, reflecting much more closely the population of patients with ESRD. Inequitable access to limited lifesaving treatment is not necessarily due to overt discrimination. The membership of the early selection committees reflected the demographic features of the medical profession or of articulate and influential elements of nonmedical society, rather than those of the population of potential beneficiaries. It is not surprising that committee members tended to favor recipients like themselves.
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No country has ever officially sanctioned the use of age as a criterion for access to treatment for ESRD. De facto age barriers were imposed initially, however, both in the United States and in the United Kingdom15,16. Children and people older than 45 or 55 years of age were not considered for dialysis by the pioneer units in the United States. The federal End Stage Renal Disease Program eliminated the age barrier in this country. In the United Kingdom, informal policy limited dialysis to patients under the age of 55. General practitioners, who were aware of the policy, did not refer older patients to nephrologists16 . However, many general practitioners were uneasy about this gatekeeper role and dubious about the morality of advising patients that medical rather than economic factors precluded dialysis. Ultimately, patient-advocacy groups generated enough pressure on the British health system to reduce the barrier to dialysis for older patients. The history of dialysis programs indicates that without a consensus that there are ethically acceptable criteria other than medical efficacy for selecting patients for livesaving therapy, neither the public nor the medical profession will support explicit rationing. Despite increasing concern that too many patients are undergoing dialysis in the United States, Congress has shown no inclination to address this issue, although it has had many opportunities to do so during the past 20 years.
Lessons of the End Stage Renal Disease Program
Which lessons from the 20-year history of the Medicare End Stage Renal Disease Program are applicable to current efforts to reorganize the U.S. health care system? First, even when technological advances of unequivocal value are used only for appropriate patients, expenditures may greatly exceed projections by sophisticated analysts. Clinical experience and later refinements in the technology tend to extend its use to broader groups of patients than initially anticipated. Examples other than long-term dialysis include heart and liver transplantation and the use of recombinant erythropoietin for an increasing variety of nonrenal anemias. Escalation of health care costs because of medical advances cannot be prevented merely by eliminating the misuse or overuse of new forms of technology.
Second, society resists limits on expenditures that deny patients access to medically appropriate life-sustaining care. In the absence of a major change in social attitudes, U.S. patients and medical professionals will resist implicit or explicit rationing of life-sustaining care. Moreover, inadequate funding of life-sustaining technology will lead to unacceptable inequities in access according to sex, ethnic group, and social and economic class.
Third, a government program can successfully impose limits on prices in an entrepreneurial system with many independent providers. Physicians and institutional providers will continue to offer services even if reimbursement is decreased. However, they will resist decreases through the political process, both directly and through groups of patients who are fearful of reduced availability or lowered quality of medical care. Moreover, they will be tempted to "work the system" in order to maximize their net income. Clinically inappropriate behavior may result. In the dialysis program, the length of dialysis treatments may be reduced excessively, inadequate doses of recombinant erythropoietin may be used, or economic imperatives may lead to the improper selection of treatment methods. Similar issues have arisen in the Medicare program as a whole. The fixed payment per dialysis treatment in the End Stage Renal Disease Program was a forerunner of the system of payment according to diagnosis-related groups later applied by Medicare to all acute hospital care. In this broader arena, providers are alleged to "work the system" by inappropriately coding diagnoses and by discharging patients inappropriately early.
Fourth, faced with mounting expenditures, government administrators and Congress focus narrowly on opportunities for cost reductions. Within limits, decreases in reimbursement may encourage cost-reducing technical innovation and full use of facilities to achieve economies of scale. Excessive reductions require decreases in the quality of care. It is imperative that we develop quality-assessment programs, without which it is impossible to evaluate the opposing views of administrators, providers, and patients about the effect of reductions in payment on the quality of care.
Source Information
From the Department of Medicine, Boston University Medical Center, Boston City Hospital, and University Hospital, Boston.
Address reprint requests to Dr. Levinsky at the Department of Medicine, Boston University Medical Center, 88 E. Newton St., Boston, MA 02118.
References
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