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Discussion of this approach was stimulated by the controversy that followed the introduction of the 1983 composite rate and the proposed, but limited, 1986 rate reduction.


In addition to Chapter 27 of the Medicare Provider Reimbursement Manual, covered services are currently specified in 42 CFR §§ 410.50 and 410.52 [which recodify 42 CFR §§ 405.231(o) and (p), and 405.2163]; and in HCFA Publication 13-3, Section 3165.


The acquisition of cost data from dialysis providers was hindered in the 1970s by the refusal of proprietary facilities to submit cost data to the Bureau of Health Insurance of the Social Security Administration and, from 1977 onward, to HCFA. They agreed to do so only after a federal district court upheld the authority of HCFA to obtain such data (Rettig, 1980).


Subsequent to the IOM ESRD study committee's February 15, 1990 hearing on rate-setting, Dialysis Clinic, Inc., Nashville, Tennessee, compared the average cost per dialysis treatment calculated according to GAAP and Medicare cost reporting principles for the year ending September 30, 1989. For 51 facilities, urban and rural, the GAAP costs were $ 141.44 compared to Medicare costs of $ 119.53 (personal communication from Ed Attrill, February 16, 1990). North Central Dialysis Centers, Chicago, Illinois, provided similar data. Their GAAP costs for 1987 were $ 121.32 compared to Medicare costs of $ 107.42; for 1988, the figures were $ 127.96 and $ 113.04, respectively (personal communication from Myron P. Nidetz, February 20, 1990).


For example, the decision by the Financial Accounting Standards Board, which establishes GAAP procedures, to require that private corporations account for the pension liabilities of their retirees reflects both the technical and the policy aspects of accounting (FASB, 1985). The lengthy phase-in of this rule, as well as the postponement of certain aspects of it, reflects corporate resistance.


Providers can seek review of HCFA's decisions on allowed costs through the Provider Reimbursement Review Board or the federal courts only when an exception is not granted.


Bad debts are defined by HCFA as "the deductible and coinsurance amounts for which beneficiaries are liable and which, when uncollectible, result in providers being reimbursed less than costs" (48 Fed. Reg. 21273, May 11, 1983). HCFA allows the recovery of bad debt by a facility only when its revenues from the Medicare portion (80 percent) of the composite rate plus the other deductible and copayment collectibles are less than its audited costs. The allowable bad debt is then limited to the lesser of the unrecovered Medicare cost (up to the amount of the audited costs) or the uncollectible deductible and coinsurance amounts.


The revenue picture is clouded, however, by several factors. The precise effects of the Medicare-as-secondary-payer provision are not known, nor is the income derived from auxiliary sources, such as management by independent units of hospital inpatient dialysis units on a contract basis. Finally, there is no information about whether physician-owners are willing to accept losses on facility revenues in order to maximize income from physician reimbursement. See discussion p. 257.


This compares to the labor portion of the standardized amount under PPS, which is 74 percent.


The committee discussed this recommendation during 1989 and 1990. In the Omnibus Budget Reconciliation Act of 1990 [Public Law 101-508, Section 4201(b)], Congress directed ProPAC to "conduct a study to determine the costs and services and profits associated with various modalities of dialysis services provided to end stage renal disease patients" under Medicare. ProPAC was also directed to consider the conclusions and recommendations of this study.

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