U.S. Should Revamp Dialysis Drug Payments, Auditor Says

Dialysis centers run by DaVita HealthCare Partners Inc. (DVA), Fresenius Medical Care AG and other companies aren’t being paid correctly by Medicare because the U.S. is miscalculating drug costs, auditors said.

A report to be released today by the Health and Human Services Department’s Inspector General urged Medicare to recalculate dialysis payments “to reflect current trends in drug acquisition costs.” Prices paid by dialysis centers for Amgen Inc. (AMGN)’s Epogen, the costliest drug used, rose at least 17 percent from 2009 to 2012, the report found. Other prices fell, often by more than Medicare estimated.

The dialysis centers have been a focus of federal investigators for overusing medicines and spending too much for them. In 2011, Medicare began paying dialysis centers a “bundled” payment for all services, including drugs, to discourage misuse of the drugs.

The payment is adjusted each year based in part on what the drugs are expected to cost. Daniel Levinson, the inspector general, said in the report obtained by Bloomberg News that Medicare’s estimates of drug costs are inaccurate. The report didn’t say how the payment should be recalculated or whether it should be reduced.

Medicare is the U.S. health program for the elderly and disabled. The Centers for Medicare and Medicaid Services, which runs the program, canceled a proposed 9.4 percent reduction in payments to the dialysis centers in November. It warned that future payment cuts remain possible.

About 414,000 people in the U.S. in 2010 were on dialysis, a procedure in which waste is periodically removed from the blood in patients with malfunctioning kidneys.

DaVita, based in Denver, is the second-biggest dialysis provider in the U.S. Peter Grauer, the chairman of Bloomberg LP, the parent company of Bloomberg News, has served on DaVita’s board since 1994. Fresenius, based in Bad Homburg, Germany, is the world’s biggest provider of kidney dialysis.

To contact the reporter on this story: Alex Wayne in Washington at awayne3@bloomberg.net

To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net Andrew Pollack, Ben Livesey

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