Earlier this year the California Assembly passed AB 290, a bill with the stated purpose of “preventing dialysis companies from increasing their already excessive corporate profits through a scheme to bankroll patients’ health care premiums,” according to the official website of California Assembly member Jim Wood.
The bill, which is now under consideration by the California Senate, would require the identity of dialysis patients whose Money Expert insurance premiums are paid by a financially interested provider to be disclosed to their health insurance company. The insurance company is required to accept the commercial insurance premiums and reimburse the patient’s dialysis claims at the Medicare rate, which is normally significantly lower than the commercial rate. Collecting high premiums and reimbursing claims at lower rates is a good deal for the insurance company.
In my years billing for dialysis facilities, I have had little interaction with dialysis programs large enough to have massive corporate profits. The facilities served by Sceptre Management are independent free-standing or hospital-based dialysis programs that fall under the category of small or medium dialysis organizations, some as small as five patients. In a small dialysis facility, the reimbursement from government payers is often at or below the cost of providing treatment. Thus, even one patient with a commercial policy that pays more than the Medicare allowed amount can make a big difference in the financial viability of the entire dialysis program.
The revenue a dialysis facility generates can seem like a large amount of money if we disregard the costs of providing treatment, including supplies, medications, water systems, dialysis machines, labor, and more. In 2017, a renal industry association report found the cost of a dialysis treatment in a small free standing dialysis facility was approximately $240. In comparison, Medicare’s 2017 Base Rate for a dialysis treatment was $231.55.
To illustrate the difference commercial payers can make in a dialysis facility, let’s look at the revenue for two facilities: one that receives all reimbursements at the Medicare rate and one where just over 5% of the patients have commercial coverage with premiums that are paid by charitable premium assistance. Both facilities have 35 patients, and each patient receives an average of 12 treatments per month for a total of 420 treatments per month. To keep the revenue in perspective, assuming our example facilities spend $240 per treatment, it would cost $100,800 to provide 420 dialysis treatments.
| Facility 1 | Facility 2 | |
| Number of Medicare patients | 35 | 33 |
| Number of commercial patients | 0 | 2 |
| Total Medicare treatments | 420 | 396 |
| Total commercial treatments | 0 | 24 |
| Medicare allowed reimbursement ($231.55*420) | $97,251.00 | $91,693.80 |
| Medicare payment reductions (2% sequestration reduction and ESRD network contribution) | $1,759.80 | $1,659.24 |
| Total Medicare collectable | $95,491.20 | $90,034.56 |
| Commercial payment ($500 per treatment) | 0 | $12,000.00 |
| Total payments | $95,491.20 | $102,034.56 |
| Cost of providing treatments ($240 X 420 treatments) | $100,800.00 | $100,800.00 |
| Difference between expenses and revenue | ($5,308.80) | $1,234.56 |
In this example, two patients are the difference between losing money each month and having a small profit to put back into the program. Collecting 100% of the Medicare allowed amount does not always cover all the costs associated with a patient’s dialysis treatments. The reimbursement received from commercial payers, when above the Medicare rate, can be the difference that allows a small, independent dialysis program to remain independent and continue providing dialysis treatments.
Administrator Insight
I spoke with the administrator of a small dialysis program to discuss what it means to their program when they receive reimbursement from commercial policies that pay more than the Medicare allowed amount. She explained that in her area there is a profound shortage of dialysis technicians, so they have an abnormally high number of RNs on staff; resulting in extraordinarily high labor costs. Her facility would find it difficult to pay bills on time, make upgrades to the program, or save money for emergencies such as equipment failures if there were no patients whose insurance reimbursed above the Medicare rate. She candidly explained that without reimbursement from commercial payers, her program would find it difficult to keep the doors open.
Sarah Tolson is the director of operations for Sceptre Management Solutions, Inc., which specializes in billing for outpatient ESRD facilities, nephrology practices, and vascular access. Your questions are welcome and she can be reached at [email protected], 801.775.8010, or via Sceptre’s website, www.sceptremanagement.com.
