Evaluation of the ESRD Managed Care Demonstration Operations

Individuals with end stage renal disease(ESRD), most of whom are insured byMedicare, are generally prohibited fromenrolling in Medicare managed care plans(MCPs). CMS of fered ESRD patients theopportunity to participate in an ESRDmanaged care demonstration mandated byCongress. The demonstration testedwhether managed care systems would be ofinterest to ESRD patients and whetherthese approaches would be operationallyfeasible and ef ficient for treating ESRDpatients. This article examines the struc-ture, implementation, and operational out-comes of the three demonstration sites,focusing on: the structure of these managedcare programs for ESRD patients, require-ments needed to attract and enroll patients,and the challenges of introducing managedcare programs in the ESRD arena.

INTRODUCTION

The ESRD population in the U.S. repre-sents the only outright disease-specificform of Medicare eligibility.1 All persons

with ESRD, subject to Social Securityrequirements, are eligible for Medicareregardless of age. ESRD patients, who suf-fer from kidney failure, need either dialysis(which artificially replaces the function ofthe kidney) or a kidney transplant to sur-vive. Both options are expensive andrequire substantial health care and finan-cial resources. To ease the burden of thisdisease among ESRD patients and theircaregivers, about 30 years ago Congressextended Medicare to individuals withESRD. In addition to being the only out-right disease-specific form of Medicareentitlement, the Medicare ESRD programis unusual in that despite wide-scale move-ment of other privately and many publiclyinsured populations into managed carearrangements, the vast majority of ESRDpatients receive care in the fee-for-service(FFS) environment, and are legally barredfrom enrolling in Medicare MCPs.

Managed care’s popularity has soared inrecent decades due to its promise ofreduced health care costs and superiorquality of care. It attempts to achieve thesegoals by emphasizing preventive care,requiring patients to receive care from anetwork of participating providers, andcoordinating the care of patients with com-plex or chronic health conditions. Yet,ESRD patients —whose health care is bothcostly and complex—are barred fromchoosing this system.2 In 1998, CMS

HEALTH CARE FINANCING REVIEW/Summer 2003/Volume 24, Number 4 7

Caitlin Carroll Oppenheimer and Daniel S. Gaylin are with theNational Opinion Research Center. Jennifer R. Shapiro is withthe Centers for Medicare & Medicaid Services (CMS). NancyBeronja is with The Lewin Group. Dawn M. Dykstra and Philip J.Held are with University Renal Research and EducationAssociation. Robert J. Rubin is with Georgetown UniversitySchool of Medicine. The research in this article was fundedunder HCFA Contract Number 500-95-0059. The viewsexpressed in this article are those of the authors and do not nec-essarily reflect the views of National Opinion Research Center,CMS, The Lewin Group, University Renal Research andEducation Association, or Georgetown University School ofMedicine.

1 Technically, there is also another type of disease-specificMedicare entitlement, which is the waived waiting period for thedisabled if they have amyotrophic lateral sclerosis.

Evaluation of the ESRD Managed Care DemonstrationOperations

Caitlin Carroll Oppenheimer, M.P.H., Jennifer R. Shapiro, M.P.H., Nancy Beronja, M.S., Dawn M. Dykstra, Daniel S. Gaylin, M.P.A., Philip J. Held, Ph.D., and Robert J. Rubin, M.D.

2 Under current law, patients enrolled in a health maintenanceorganization (HMO) who develop ESRD are permitted to stay inthe MCP plan and patients with ESRD who are enrolled in anHMO that withdraws from the service area are permitted to joinanother HMO.

launched a demonstration program tostudy the experience of offering managedcare options to Medicare ESRD beneficia-ries. Simultaneously, an evaluation of theprogram was undertaken to evaluate theefficacy and cost of HMO participation forMedicare beneficiaries with ESRD. Thisevaluation compared the structure, process,and outcomes for patients enrolled in thedemonstration sites with those of a similarset of ESRD patients in the FFS sector.

Results from the evaluation of clinicaland financial outcomes of the demonstra-tion are presented elsewhere (Dykstra etal., 2003; Pifer et al., 2003; Shapiro et al.,2003; The Lewin Group and the UniversityRenal and Education Association, 2002).The purpose of this article is to describethe operational outcomes of the demon-stration with regard to three aspects:• What was the structure of these man-

aged care programs for ESRD patients? • What was required to attract and enroll

patients? • What do these sites’ experiences tell us

about the challenges of introducing man-aged care programs in the ESRD arena? The sites’ experiences provide a context

for the clinical outcomes of the demonstra-tion and, importantly, can help forecast thepotential sustainability of ESRD managedcare programs should the law change toopen managed care as an option toMedicare ESRD patients. These experi-ences also illuminate critical organizationalissues relevant to the entire ESRD commu-nity.

BACKGROUND ON THE ESRD POPULATION

From an initial count of about 7,000patients in 1972, the ESRD program todayprovides health insurance for 378,862patients (U.S. Renal Data System, 2002).The cost of treatment for individual patients

with ESRD can be very high; for instance,spending3 on hemodialysis (the most com-mon type of treatment for ESRD patients)and associated care is more than $65,000per patient annually (The Lewin Group,2000). In aggregate, the ESRD programhas consumed a growing share of theMedicare budget, and program costs havecontinued to rise beyond policymakers’expectations (Eggers, 2000). In 2000 alone,Medicare expenditures for ESRD amount-ed to $12.3 billion, representing 71 percentof total U.S. ESRD costs ($17.9 billion)(U.S. Renal Data System, 2002).

The reasons behind the growth in ESRDprogram costs are similar to reasonshealth care costs have increased generally.An increasing number of people are diag-nosed with ESRD as the prevalence ofchronic diseases that lead to ESRD, suchas diabetes and hypertension, continue torise (U.S. Renal Data System, 2002). TheESRD community has also experienced adisproportionate increase in the number ofcostlier patients (e.g., elderly patients orthose with comorbidities) (U.S. Renal DataSystem, 2002).

Pharmaceutical costs have also played arole in the rising costs of the MedicareESRD program. In 1989, Medicare autho-rized coverage of recombinant erythropoi-etin (EPO) therapy for dialysis patients andEPO is now prescribed for the majority ofpatients (Greer, Milan, and Eggers, 1999).4The cost of immunosuppressive drugs,required by transplant recipients to avoidgraft rejection, has also contributed to ris-ing costs in the Medicare ESRD program.Prior to 1993, Medicare covered immuno-suppressive drugs for 12 months. Variouslegislative initiatives extended the duration

8 HEALTH CARE FINANCING REVIEW/Summer 2003/Volume 24, Number 4

3 Includes spending by Medicare as well as other payers.4 Erythropoietin is a hormone produced by the kidney whichstimulates bone marrow to make red-blood cells; with the loss ofkidney function anemia is common among ESRD patients. EPOis a synthetically produced drug that has helped reduce therates of anemia among dialysis patients (National KidneyFoundation, 2000a).

of coverage and the Beneficiary Improve-ment and Protection Act of 2000 (BIPA)eliminated the time limitation for aged anddisabled transplant recipients who wereMedicare eligible at the time of transplant.

ESRD patients have traditionally receivedtheir care in the FFS system, which manybelieve is characterized by a lack of atten-tion on cost management and fragmentedservice provision. Many ESRD patientshave numerous comorbidities along withtheir kidney failure (e.g., diabetes, heartdisease), and could benefit from a morecoordinated approach. Additionally, theFFS system poses challenges for systemat-ic implementation of patient care guide-lines to encourage best practices. In thecase of ESRD patients, examples of suchguidelines include vascular access (themeans by which the patient’s blood streamis connected to a dialysis machine) andanemia management. Despite these short-comings, the FFS system has been a salva-tion for thousands of ESRD patients,enabling these patients to receive lifesav-ing health care services.

DEMONSTRATION FRAMEWORK

One of the most important tools avail-able to CMS in its quest to improve thequality and cost-effectiveness of theMedicare Program is demonstration author-ity (Centers for Medicare & MedicaidServices, 2003a). CMS has the authorityunder certain statutes to waive specificprovisions of the Medicare Program, thusallowing it to test alternative approaches tohealth care delivery and/or payment.Demonstration initiatives can provide thebasis for informed and rational programand policy decisions. Generally speaking,demonstration initiatives must be budgetneutral, i.e., costs under the demonstrationshould not exceed the costs in the absence

of a demonstration, and must hold promisefor replicability on a national basis. Often,Congress mandates the development andimplementation of specified demonstrationinitiatives prior to enactment of full-scaleprogram changes through legislation.

The ESRD managed care demonstrationwas initiated as a mechanism to test expand-ed access to managed care systems forESRD program beneficiaries. Congress orig-inally barred ESRD patients from participa-tion in MCPs to address HMOs’ concernsregarding the expense of ESRD enrollees;the enrollment restriction has remained inplace to protect ESRD patients because con-cern exists over the potential incentivesunder managed care to undertreat patientswith a chronic disease (Tax Equity andFiscal Responsibility Act of 1982; OmnibusBudget Reconciliation Act of 1993; RenalPhysicians Association and AmericanSociety of Nephrology, 1995). In recentyears, however, there have been a number ofproposals to permit ESRD beneficiaries toenroll in HMOs under the same conditionsas other Medicare beneficiaries, particularlysince HMOs have had increasing experi-ence with ESRD patients. Moreover, man-aged care offers certain advantages overFFS care, typically including additional ben-efits (e.g., prescription drugs) and reducedfragmentation and more coordination acrossthe range of services required by ESRDpatients (Brown et al., 1993). In addition, allother Medicare beneficiaries—includingthose with chronic illnesses other thanESRD—have the opportunity to chooseamong health plan types on a voluntarybasis. In response to consumer pressure andthe uncertainty surrounding what mighthappen if ESRD beneficiaries were given theopportunity to choose an MCP, Congressmandated a demonstration project in 1993 totest whether ESRD patients could be suc-cessfully treated in a managed care setting.


Specifically, the Omnibus BudgetReconciliation Act of 1993 required CMS toconduct a social HMO (S/HMO) demon-stration project for ESRD patients(Omnibus Budget Reconciliation Act of1993). S/HMO demonstrations provide forthe integration of health and social servicesunder the direct financial management of aprovider of services. The intent was to seewhether extending an integrated system ofcare to ESRD beneficiaries was operational-ly feasible, efficient, and able to improvepatient outcomes compared to the currentFFS system (Cooper, Eggers, andEdington, 1997). Congress wished to deter-mine whether it would be feasible to permitESRD patients to enroll in managed caresettings that were not only responsible forthe total medical care of ESRD enrollees,but also provided a specific case manage-ment function and additional benefits ofparticular interest to the ESRD population.

The demonstration was intended to testthe feasibility and effectiveness of the fol-lowing:• Permitting year-round enrollment and

disenrollment options for ESRD benefi-ciaries to enroll in participating HMOs.

• ESRD-focused case management, withparticular emphasis on whether out-comes of care were improved.

• Preventive and supportive interventionsand more comprehensive benefit cover-age for ESRD patients.

• Integrated administrative and financialarrangements among providers of ser-vices to ESRD beneficiaries.

• An ESRD payment and risk-adjustmentsystem that was an alternative to bothFFS and the current capitation paymentfor ESRD patients in HMOs. The elements that CMS required each

demonstration program to contain areidentified in Table 1. Demonstration siteswere required to have year-round openenrollment for eligible ESRD patients whowere served in the FFS system, includingboth dialysis patients and those with func-tioning kidney grafts who were stillMedicare eligible (e.g., within 3 yearssince transplant). The demonstration siteswere required to undertake active effortsto publicize the potential for demonstrationenrollment to all ESRD patients in the ser-vice area and they were required toattempt to enroll at least 600 patients.

A key component of the demonstrationwas to test the impact of risk-adjustedESRD capitation rates. Enrollees were par-titioned into three discrete treatment sta-tus categories: maintenance dialysis, atransplant episode (defined as 1 month


Table 1

Essential Service Components of the End Stage Renal Disease (ESRD) Managed CareDemonstration Programs: 1996

Service Integration and Case Management. Demonstration sites were required to invest in the structuring of care delivery inorder to better coordinate services and improve outcomes of care and satisfaction for patients. Organizations were expected toprovide all Medicare-covered health services, including kidney transplants, plus additional benefits, and to use a case manager infully integrating these services at the level of the individual beneficiary. Basic functions of case managers include initial screening,assessment, care planning, service provision and/or referral, monitoring, and reassessment.

Clinical Protocols. Demonstration sites were required to develop and implement clinical protocols for common clinical events.Protocols were to be used proactively in disease management rather than just reactively as a strategy for problem management.

Extra Benefits. Demonstration sites were required to provide a benefit package that included all services covered by the sites'regular Medicare risk programs (which included coverage of Medicare coinsurance and deductibles and prescription drugs), plusadditional services of special interest to ESRD patients (e.g., nutritional supplements). Expanded benefits were seen as a meansto encourage voluntary enrollment in the capitated plan and to enhance the breadth, integration, and quality of delivered medicalcare. The costs of the extra, ESRD-specific benefits were intended to be covered by higher payments from Medicare than werepaid to health maintenance organization risk contractors outside of the demonstration.

SOURCE: Centers for Medicare & Medicaid Services ESRD Managed Care Evaluation.

prior to, the month of, and the month fol-lowing a transplant), and the post-trans-plant period of a functioning transplant.Rates for the maintenance dialysis andfunctioning transplant period were furtheradjusted for three age categories (under20, 20-64, and 65 or over), and whether ornot diabetes was the primary cause ofESRD. Demonstration payments wereupdated annually based on the Medicare+Choice county update factors (typicallyabout 2 percent). Dykstra et al. (2003)describe the financial structure of thedemonstration in further detail.

Demonstration Evaluation

Demonstration programs often set out toaddress far-reaching and ambitious goalsonly to hit numerous obstacles and pitfallsalong the way. CMS demonstrations havefrequently encountered slow ramp-up andenrollment, difficulties obtaining beneficia-ry buy-in, and limited ability to adequatelytest the hypothesis within the short dura-tion of the initiative (typically 3-5 years)(Centers for Medicare & Medicaid Services,2003a).

In an effort to both document obstaclesand evaluate outcomes, an evaluation ofthe ESRD managed care demonstrationbegan in August 1997, after the demonstra-tion sites were selected by CMS. Its goalswere to determine how well the demon-stration worked and to offer CMS guidancefor the potential future implementation of amanaged care component to the ESRDprogram. In particular, the evaluationassessed the degree to which managedcare approaches could be successfullyapplied to ESRD. It analyzed differences incosts, access, structure, process, and out-comes of care between managed care andFFS ESRD patients. It also sought to deter-mine if covering additional services, such

as pharmaceuticals, offered advantages inESRD treatment. In short, the evaluationattempted to provide the answer to whetherthe new care delivery and payment struc-tures resulted in similar or better qualitycare than FFS, at equal or lower cost to thegovernment.

Much of the evaluation entailed collec-tion of patient-level clinical, outcomes, andquality-of-life data as well as plan-level finan-cial data. However, the evaluation also cap-tured qualitative information on the struc-ture and operations of the demonstrationsites. This article provides descriptions ofhow the participating managed care organi-zations (MCOs) structured their programsat the outset of the demonstration, andreviews the sites’ experiences operational-izing the demonstration (including discus-sion of some of challenges of implementa-tion that have relevance beyond the demon-stration). The information presented hereinis drawn from 15 site visits conductedbetween October 1997 and May 2002 byevaluation team members from The LewinGroup and University Renal Research andEducation Association.

DEMONSTRATION OPERATIONS

The demonstration was initiated inSeptember 1996 with a planning period atparticipating sites; patient enrollmentbegan in 1998. All ESRD-eligible patientsin the service area who had Medicare PartA and Part B coverage, and for whomMedicare was the primary payer, were eli-gible for enrollment in the demonstration.Enrollment was allowed throughout thedemonstration period and the 3-year man-dated demonstration operations ended inearly 2001.

The Medicare ESRD demonstration wasbegun at three sites across the country:Health Options, Inc. (HOI), a subsidiary of


Blue Cross® Blue Shield® of Florida, basedin Miami, Florida; Kaiser PermanenteSouthern California Region (Kaiser),based in Los Angeles, California; andXantus Health Care Corporation (Xantus),based in Nashville, Tennessee. Kaiser andHOI both met the enrollment goals withKaiser ultimately enrolling a total of 1,649beneficiaries and HOI enrolling a total of967 beneficiaries (including, for both sites,those who later disenrolled or died).Xantus terminated its demonstration pro-gram in early 2000 due to financial difficul-ties experienced in its other operatingunits, having enrolled only 50 ESRD bene-ficiaries. Thus, this article primarilyrecounts the experiences of Kaiser andHOI. We also provide a brief summary ofthe Xantus demonstration and review thereasons behind the demonstration pro-gram’s closure.

Demonstration Programs Structure

The three demonstration plans represent-ed different models of care (Table 2). TheKaiser demonstration plan was a closed-practice plan for specialist and inpatient care(i.e., providers enter an exclusive arrange-ment with Kaiser, and Kaiser operates themajority of facilities). At the outset, themajority of outpatient dialysis services wereprovided under FFS provider contracts,although over the course of the demonstra-tion, Kaiser built or acquired its own dialysiscenters. The HOI site had primarily FFScontracts with the majority of its providers,with the exception of capitation arrange-ments made with primary care nephrolo-gists and certain specialists. The Xantusprogram was a joint effort between an HMOand a single-specialty physician practice.

Kaiser Site

Of the three sites selected for participa-tion in the demonstration, Kaiser had themost well-established managed care pro-gram with experience in treating ESRDpatients. In seeking participation in thedemonstration, Kaiser sought to contributeto knowledge surrounding care manage-ment for the chronically ill.

Kaiser is a large, closed-system MCO.When the demonstration began, more than2 million covered lives were enrolled inKaiser. Of the 2 million, 168,000 enrolleeswere Medicare beneficiaries, of whom about2,000 had ESRD. Kaiser had been operatinga Medicare risk plan, the Senior Advantageprogram, since 1987.

Kaiser owns and operates the largemajority of medical service sites related toproviding care under the demonstration.At the time of application, Kaiser operated10 medical centers and more than 90 med-ical offices throughout Southern California.The medical staff includes physicians,nurses, and health educators, and the orga-nization has academic and residency affili-ations with the five medical schools inSouthern California. Kaiser operates itsown medical laboratory and more than 130pharmacies throughout the region.Inpatient hospital services provided todemonstration patients were provided byKaiser hospitals and specialty care wasalso provided using Kaiser’s own networkof specialists.

To supplement the 25 nephrologists andother clinical staff in place for its SeniorAdvantage program, Kaiser recruited an addi-tional 120 providers and 112 facilities to pro-vide for demonstration services. Transplantservices were provided through contractual



Tab

le 2

Str

uct

ure

of

the

En

d S

tag

e R

enal

Dis

ease

(E

SR

D)

Man

aged

Car

e D

emo

nst

rati

on

Sit

es:

1998

-200

1

1 K

aise

r P

erm

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te S

outh

ern

Cal

iforn

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egio

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os A

ngel

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Cal

iforn

ia.

2 H

ealth

Opt

ions

, In

c.,

a su

bsid

iary

of

Blu

e C

ross

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lue

Shi

eld®

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sed

in M

iam

i, F

lorid

a.3

Xan

tus

Hea

lth C

are

Cor

pora

tion,

bas

ed in

Nas

hvill

e, T

enne

ssee

.

NO

TE

S:M

.D.i

s D

octo

r of

Med

icin

e.R

.N.i

s R

egis

tere

d N

urse

.M.S

.W.i

s M

aste

r of

Soc

ial W

ork.

R.D

.is

Reg

iste

red

Die

ticia

n.

SO

UR

CE

S:O

ppen

heim

er,

C.C

., an

d G

aylin

, D

.S.,

Nat

iona

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nion

Res

earc

h C

ente

r, S

hapi

ro,

J.R

., C

ente

rs fo

r M

edic

are

& M

edic

aid

Ser

vice

s, B

eron

ja,

N.,

The

Lew

in G

roup

, D

ykst

ra,

D.M

., an

d H

eld,

P.J

.,U

nive

rsity

Ren

al R

esea

rch

and

Edu

catio

n A

ssoc

iatio

n, a

nd R

ubin

, R

.J.,

Geo

rget

own

Uni

vers

ity S

choo

l of

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e, 2

003.

Fea

ture

Prim

ary

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lth M

aint

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izat

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Mod

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ES

RD

Ben

efic

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s in

Ser

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Are

a

Sta

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l Enr

ollm

ent

(Gro

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Dem

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ratio

n S

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sis

Trea

tmen

ts a

ndA

ncill

arie

s

Inpa

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ent

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spla

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of C

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Mos

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acte

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cilit

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Neg

otia

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fee-

for-

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ser

and

cont

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Mos

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spita

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inte

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phro

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in u

nit,

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ser

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s as

prim

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at

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, adj

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anag

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Team

:M.D

., R

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.W.,

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., ph

arm

acis

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d sp

ecia

lists

.

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ust

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(m

anua

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epte

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lect

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odel

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0

June

1,

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967

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m B

each

, D

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and

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cont

ract

ed fa

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Fee

-for

-ser

vice

com

-pa

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per

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of

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icar

e al

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le c

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, pe

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tal (

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sonv

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e M

anag

ers:

Yes.

Team

:M.D

., R

.N.,

M.S

.W.,

R.D

., ph

arm

acis

t, an

d sp

ecia

lists

.

Aug

ust

2000

(m

anua

l);S

epte

mbe

r 20

01(e

lect

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odel

900

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tem

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idso

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All

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All

incl

usiv

e pe

rtr

eatm

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rate

com

para

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with

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icar

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ymen

t le

vels

.

All

cont

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ed h

ospi

tals

, pe

r di

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Com

mun

ity n

ephr

olog

ists

as

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nd a

sin

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.

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preh

ensi

ve c

apita

tion.

Con

trac

ted

with

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tenn

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alC

ente

r an

d S

aint

Tho

mas

Hos

pita

l bot

h in

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hvill

e, T

enne

ssee

.

Cas

e M

anag

ers:

Yes.

Team

:M.D

., R

.N.,

M.S

.W.,

and

R.D

.

Janu

ary

2000

(m

anua

l).

arrangements with three university hospitalsusing a case rate, based on whether the pro-cedure involved a deceased or living donor.

Payments to contracted providers weremade on a capitated basis with adjustmentsfor age, diabetes, and graft status. Kaiseralso paid contracted nephrologists anddialysis facilities a process-based incentiveto compensate for additional care providedto demonstration patients.

During the demonstration period, Kaisermoved to develop and operate dialysis ser-vices through a partnership withFresenius, a large dialysis facility chain. Indeveloping this new facility network, aKaiser nephrologist assumed the role ofmedical director in each of the new facili-ties. Physicians received monetary incen-tives based on dialysis adequacy,5 qualityassurance, serum albumin levels,6 andreductions in hospitalization rates. Kaiser’sexpansion into ownership and operation ofdialysis facilities strained relationshipswith community providers who were con-cerned about losing patients to these newKaiser facilities.

Kaiser developed its demonstration pro-gram based on the pre-ESRD and ESRDcare it was already providing to its currentESRD beneficiaries. The program wasbased on a multidisciplinary team approachto patient-centered care management.Each ESRD enrollee was assigned to ateam including, at minimum, a nephrolo-gist, an ESRD case manager, a renal socialworker, a dietitian, and a pharmacist; otherrelevant providers were included as need-

ed. The care management team used astandardized care plan template to developgoals for each patient and help coordinateefforts among the team; quarterly meet-ings were held to review patients’ careplans.

Each demonstration patient wasassigned a Kaiser nephrologist to serve asthe clinical director of the managementteam, sometimes in addition to thepatient’s community nephrologist (if thatpatient was receiving care in a non-Kaiserfacility). In most cases, the Kaiser nephrol-ogist also served as the patient’s primarycare provider as well as the inpatientprovider. The Kaiser nephrologist wasexpected to see all demonstration patientsat least quarterly.

Case managers were expected to be indaily contact with the nephrologist andcoordinate the multidisciplinary team.Responsibilities of the case managersincluded: (1) monitoring ESRD patient careand promoting quality improvement; (2)coordinating and managing patient needs;(3) providing early intervention, educatingpatients, and encouraging prevention; (4)collecting data on ESRD patient populationand conducting analyses; and (5) managingthe care and cost of ESRD patients.Caseloads of managers were adjusted forthree acuity levels of the patients.

Finally, transplant coordinators werealso involved in patient care. These individ-uals provided case management for alltransplant patients and worked to obtaintransplants for qualified patients as quicklyas possible. The coordinator also providedpatient education and long-term post-trans-plant followup.

Kaiser Quality Improvement

As with the general structure of the pro-gram, Kaiser used its pre-existing qualityassurance program as the basis for such


5 Dialysis adequacy refers to measurements about the averagedose of dialysis that patients receive. Dose is a function ofpatient characteristics (e.g., weight), the amount of time apatient spends on dialysis, and characteristics about the dialysisprocess (e.g., size of the dialyzer, speed of blood flow).(Daugirdas and Ing, 1994)6 Serum albumin is important marker of nutrition(Blumenkrantz et al., 1980) and is predictive of mortality(Leavey et al., 1998; Goldwasser et al., 1993). ESRD patients typ-ically have lower albumin levels compared to the non-ESRD pop-ulation and clinical guidelines for ESRD care suggest routinemonitoring of albumin levels (National Kidney Foundation,2000a).

activities for the demonstration. Key com-ponents of the program included physicianand facility report cards, facility site inspec-tions, quality-of-life questionnaire, qualityoutcomes assessment tool, and vascularaccess tracking tool. Kaiser developed amonthly Dialysis Center and ProviderReport Card to monitor variables on patients,dialysis units, and attending nephrologists.Outcomes were regularly monitoredagainst established standards. Kaiser usedthis report card data to identify patient out-liers and the case managers worked withproviders to develop a plan of action.

Kaiser also implemented several drug-or disease-specific quality initiatives. Forexample, the plan implemented a reviewsystem to monitor the usage of EPO for thedemonstration patients as plan administra-tors had noticed that some units wereusing particularly large quantities of EPO.Under the new initiative, medical justifica-tion was required in order to receive thedrug, and the Kaiser quality improvementteam monitored the dose patients received.Additionally, Kaiser worked closely withproviders to shift from intravenous to sub-cutaneous administration of EPO. EPO isexpensive and should be used as efficient-ly as possible. The literature substantiatesthat for the majority of dialysis patients,subcutaneous administration of EPO ismore effective, on average, by about 33percent. That is, the dose can be reducedfrom three times a week, given intra-venously, to the same dose given only twicea week if given subcutaneous (NationalKidney Foundation, 2000b). Kaiser’sattempts to encourage subcutaneous admini-stration met with resistance from providers,many of whom suggested that patients didnot tolerate subcutaneous administrationwell. Kaiser suggested that oversight wasneeded to ensure that patients switched tosubcutaneous administration of EPO actu-ally continued to receive it that way. By the

end of the demonstration in 2000, Kaiserhad successfully achieved a subcutaneousadministration rate of 67 percent.

Kaiser also had an aggressive programto ensure that fistulas were patients’ prima-ry access sites. Three major kinds of vas-cular access dominate ESRD practice: arte-rial venous fistulas involve using a patients’own vein; synthetic grafts are placed usinga synthetic tube implanted under the skin;and catheters. Outcomes are superior forfistulas though grafts are more common(U.S. Renal Data System, 2002; Young,2002). Specific guidelines were implement-ed as part of a vascular access continuousquality improvement process. These guide-lines addressed triage, timelines for ser-vice provision, and access type. In 1999Kaiser reported a primary fistula rate of 69percent among new accesses placed.

HOI Site

In contrast to Kaiser’s group-model man-aged care structure, HOI is a wholly ownedfor-profit subsidiary of Blue Cross®/BlueShield® of Florida that relies on contractswith an independent network of providersto provide patient care. Providers are paidbased on capitation, FFS, diagnosis-relatedgroups, and per-diem rates. At the time thedemonstration was initiated, HOI was thesecond largest HMO in southern Florida,with total enrollment nearing 300,000 cov-ered lives. When it applied for the demon-stration, HOI had been operational for 11years, but it did not yet have an establishedESRD program.

Advanced Renal Option (ARO) was thedemonstration program run by HOI; whileHOI operates throughout Florida, the orga-nization limited demonstration operationsto Dade, Broward, and Palm Beach coun-ties. ARO was designed to operate as a sep-arate program within HOI’s organization,with a mixture of administrative staff being


dedicated to the demonstration and draw-ing on HOI staff in some instances (e.g.,marketing staff).

HOI’s provider arrangements and con-tracting for the demonstration were consis-tent with its traditional structure (Table 2).When HOI applied for the demonstration,its network of more than 2,800 physiciansincluded 77 nephrologists. The network ofparticipating nephrologists for the demon-stration consisted primarily of those clini-cians with whom HOI contracted fornephrology services for all HOI enrolleesprior to the demonstration. HOI had pre-existing relationships with 51 dialysis unitsin the target area and established demon-stration-specific contracts with at least sev-eral dozen of the dialysis facilities, relyingon a contract with one of the major nation-al chains to secure the services of about 20units. As with the nephrology contracts,HOI generally limited its network of dialy-sis facilities to those with which the planhad existing contracts. Dialysis facilitieswere selected based on where the nephrol-ogists practiced.

Nephrologists were compensated in theform of a global capitation rate, based onprimary care services delivered in theinpatient and outpatient settings, renal careand management of dialysis in both set-tings, and referral to other specialties.Dialysis units were paid on a negotiatedcomposite rate inclusive of equipment, sup-plies, labor, selected drugs, and medica-tions, similar to the way Medicare current-ly pays for these services.

HOI intended to use incentive programswith nephrologists and with dialysis facili-ties, though the structure of the initialincentive program for nephrologists raisedconcerns at CMS about the potential nega-tive impact on patients’ hospitalization.Specifically, the original incentive plan fornephrologists included bonus payments for

meeting target hospitalization rates, alongwith other targets such as 75 percent ofpatients receiving appropriate preventiveservices and 60 percent of patients partici-pating in educational programs. The incen-tive program was restructured with gov-ernment approval; however the plan includ-ed the requirement that the medical lossratio had to reach 90 percent before HOIwould make physician payments.7 Thisfinancial point was never reached, effective-ly eliminating HOI’s incentive program.

HOI used established contracts with the36 hospitals in the area to provide neededcare for demonstration patients, with pay-ment based on per diem rates. Transplantservices were provided through a contractwith Jacksonville Methodist Hospital,located about 300 miles from HOI’s demon-stration service area.

Access to non-nephrology specialists (e.g.,vascular surgeons, cardiologists, etc.) bydemonstration patients was gained throughHOI’s established network of providers.Some specialists in ARO’s network were paidon a capitated basis while others were paidon an FFS basis. Additionally, part waythrough the demonstration, HOI contractedwith freestanding clinics to provide routinevascular access services.

HOI also developed a multidisciplinaryteam approach to providing care. Eachteam included a nephrologist, nurse practi-tioner, case manager, social worker, dietit-ian, facility nurse, technicians, radiologist,and a vascular surgeon. Additional special-ists that could have participated in apatient’s care plan included cardiologistsand endocrinologists.


7 Medical loss ratio refers to the aggregate costs of medical ser-vices as a percentage of total HMO premium revenue, and iscommonly used in the insurance industry as an index of howwell payment levels to the HMO match up with the costs of deliv-ering the medical services covered by the health plan. In theHMO industry, a medical loss ratio close to 85 percent is con-sidered reasonable, with the remaining 15 percent or so of rev-enue available to cover administrative costs and profit (Dykstraet al., 2003).

The nephrologist served as the primarycare physician and provided referrals,authorizations, and arrangements for spe-cialty and hospital care. The nephrologistwas responsible for: (1) establishing a planof care for all patients; (2) assessing trans-plant candidacy; (3) determining modalityand access type (when appropriate); (4)working with the patient to identify anappropriate rehabilitation plan; and (5)determining dietary, nutritional, and phar-maceutical prescriptions.

The nurse practitioner’s role was towork with the nephrologist and serve asthe primary caregiver for both renal andnon-renal services. It was anticipated thatthe nurse practitioner would see patientson a weekly basis and would be in a posi-tion to identify and treat potential problemsearly on.

The case manager’s role was to coordi-nate all aspects of clinical and supportivecare. According to HOI’s job description,the ESRD care manager was responsiblefor “…evaluating and monitoring ESRDcare services for quality, continuity, casemanagement intervention, timely reports,coordinating/managing meetings, andpatient education.” Additionally, the casemanager focused the plan of care for eachpatient to “…continually improve the quali-ty of renal patient care.” Upon enrollmentin the demonstration, the case managermet with the patient at the dialysis facilityand collaborated with the patient, family,and members of the health care team todevelop the plan of care. The case manag-er also held quarterly meetings withnephrologists, and participated in monthlyfacility care management meetings at thedialysis facility. On average, each casemanager handled 50 patients. Toward theend of the demonstration, when HOIresources for the demonstration werestrained and the program was winding

down (Dykstra et al., 2003), case man-agers’ case loads increased to approxi-mately 70 patients.

HOI Quality Assurance

Although HOI had anticipated develop-ing demonstration-specific quality assur-ance activities, the basic operations of thedemonstration demanded all the resourcesHOI allocated to the project, and HOI didnot implement planned activities.

HOI did implement an initiative to iden-tify why drug costs were higher thanexpected in the early phase of the demon-stration. Dialysis-related costs were slight-ly elevated due to high utilization of EPO incertain practices. After an investigationinto EPO use and implementation of a newinitiative, HOI was able to decrease EPOuse to more normal levels. Specifically, thenew initiative was a review system forevery instance that a physician prescribedmore than a level determined potentiallyexcessive by HOI. The review used clinicalguidelines to determine whether the pre-scribed dose was actually warranted,approving it for those extreme cases.However, if the high-dose prescription wasdetermined to be unnecessary, the clinicwas responsible for its cost.

Xantus Site

A private, for-profit corporation char-tered by Tennessee, Xantus was an HMOdedicated to serving the State’s Medicaidpopulation. In joining the demonstration,Xantus sought to prove that a program ofcare for ESRD patients could be developedfrom scratch, relying on a small, locallydesigned program. The Xantus site wasdistinguished from the other sites in that itdid not treat Medicare or ESRD patientsprior to the demonstration.


For reasons described later in this arti-cle, the Xantus demonstration site neverhit its stride, enrolling only 50 patientsprior to its early withdrawal from the pro-gram. Nevertheless, basic structures werein place to provide care for its enrollees.Specifically, all HMO management ser-vices (e.g., marketing, claims processing,and utilization management office func-tion) were provided by Xantus. A for-profitnetwork independent practice associationmodel HMO, licensed to operate through-out Tennessee, Xantus operated throughindividual contracts with providers. For thedemonstration, Xantus had contracts withall of the nephrologists in the region andnearly 20 dialysis facilities. The hospitalscontracted for the demonstration werethose hospitals in the demonstration ser-vice area with existing Xantus contracts.Similarly, non-nephrologist physicianswere also among those with currentXantus contracts. Xantus also contractedwith various other entities for the provisionof ancillary services, including homehealth, durable medical equipment, skillednursing facilities, transportation, pharma-cy, and psychiatry. Transplantation wasavailable at two locations.

Nephrologists served as primary careproviders, working with Xantus-employedcase managers. The case managers visitednewly enrolled patients at their homes andmet with patients at least bimonthly. Casemanagers reportedly were successful atfacilitating communication between patientsand nephrologists.

Attracting Patients to theDemonstration

One goal in evaluating the marketingand enrollment activities of demonstrationsites is to determine whether programssought to attract a favorable mix of patients,encouraging comparatively healthier, and

thereby less costly, patients to the demon-stration. The service packages offered ineach site and a review of marketing andenrollment activities are described below,and Shapiro et al. (2003) provide a detaileddescription of the patients that chose toenroll in the demonstration.

The basic service package offered atdemonstration locations was similar and issummarized in Table 3. All sites eliminatedco-insurance and deductibles on servicesand offered coverage for prescriptiondrugs, as well as provided nutritional sup-plements at no cost to the enrollee.Consistent with the CMS requirements,the sites offered extra benefits beyond theservices offered in the traditional MedicareProgram. The benefits were supposed toequal the additional 5 percent payment thesites were receiving above the 95 percentrates paid to regular Medicare-risk con-tractors. Beyond the nutritional supple-ments and health education services, theadditional services offered at each sitewere different. Kaiser covered dental ser-vices, and eye care; and HOI providedtransportation to dialysis, home health ser-vices, and a rehabilitation program. Xantuscovered home visits and educational semi-nars and videotapes.

Kaiser Enrollment and Marketing

Kaiser used a two-pronged marketingapproach to attract patients to the demon-stration. First, Kaiser contacted patientsdirectly to publicize the demonstration andhighlight the enhanced benefits and ser-vices they expected to be attractive topatients. Second, they expanded providercontracting arrangements in order toexpand the pool of beneficiaries who mightbe eligible to enroll in the demonstrationwithout having to change nephrologists.For all marketing activities Kaiser devel-oped materials that included brochures,


letters, open houses, and videos. In actual-ity, most of their marketing focused onpatients, reflecting in part the providercommunity’s ambivalence toward thedemonstration caused by concern thatpatients who joined the demonstrationwould remain Kaiser patients at the con-clusion of the program. Kaiser’s marketingto patients was seen as essential in order tocounteract these attitudes by the non-Kaiser provider community. As a result ofthis intense outreach, marketing costs forthe demonstration were significantly high-er than anticipated (Dykstra et al., 2003).

Enrollment processes were in place bythe time the first patients joined thedemonstration. To facilitate enrollment anddata collection, Kaiser had established adatabase to track the enrollment issuesthat influenced ESRD patients’ willingnessand ability to participate in the demonstra-tion. However, Kaiser reported that therewas a 45- to 60-day gap between the sub-mission of the enrollment application andthe start of service delivery. Much of thisdelay was caused by the process of eligibil-ity screening with CMS, as it was difficultto determine when patients did not paytheir Part B premiums, and therefore losteligibility for the demonstration.

Enrollment of rollover patients—ESRDpatients already in Kaiser’s existing man-aged care plan that were otherwise eligiblefor the demonstration—occurred once aCMS-set minimum number of patients newto Kaiser through the demonstration pro-gram had enrolled. Kaiser sent a letter toits ESRD patients explaining the demon-stration to them and offering them partici-pation. For every two new demonstrationpatients Kaiser enrolled, it was allowed toenroll one rollover patient.

Kaiser’s administrators reported theimpression that patients enrolled in thedemonstration primarily for financial rea-

sons. Patients without supplemental insur-ance and those who had recently lost theirinsurance were both likely to enroll in the demonstration. Medi-Cal (California’sMedicaid Program) patients who had acost share also saw some cost savings byjoining the demonstration, although Medi-Cal patients with no cost share tended notto enroll. As the demonstration proceeded,Kaiser reported that a reputation for highquality of care became a factor in patients’reported decisions to enroll.

Kaiser was concerned about the initialenrollment, which was lower than expected.Discussions with patients and providersrevealed three main concerns aboutenrolling in the demonstration: (1) whatwould happen to patients at the end of thedemonstration; (2) concerns about partici-pating in managed care, and (3) a lack ofknowledge about the demonstrationamong providers. Kaiser implemented sev-eral steps to address patient concerns.These activities included developing addi-tional contracts with nephrologists thatallowed patients to enroll in the demon-stration without changing providers, pay-ing CMS to send out additional mailings topatients; distributing informational materi-als to dialysis units, working with facilitysocial workers to encourage demonstra-tion referrals, and speeding up the contact-ing of rollover patients by using electronicfiles to track enrollment. These initiativesto boost enrollment were successful. Bythe end of the demonstration Kaiser hadenrolled 1,649 patients, 50 (3 percent) ofwhom disenrolled (including patients wholeft the service area) before the end of thedemonstration, and another 243 died whilein the demonstration. Table 4 providesdemographic characteristics by modalityfor the sample of Kaiser’s enrollees includ-ed in the data collection effort for evalua-tion.



Tab

le 3

Ser

vice

s an

d B

enef

its

Cov

ered

Bey

on

d M

edic

are

for

the

ES

RD

Man

aged

Car

e D

emo

nst

rati

on

Sit

es:

1998

-200

1

Ref

er t

o fo

otno

tes

at e

nd o

f th

e ta

ble.

Ser

vice

/Ben

efit

Coi

nsur

ance

and

Ded

uctib

les

Pre

scrip

tion

Dru

g B

enef

it

Nut

ritio

nal S

uppl

emen

ts

Den

tal a

nd V

isio

n C

are

Tran

spor

tatio

n B

enef

it

Hea

lth E

duca

tion

Reh

abili

tatio

n P

rogr

am

Kai

ser1

No

copa

y fo

r ph

ysic

ian

serv

ices

(in

clud

ing

phys

ical

s an

d im

mun

izat

ions

), in

patie

ntst

ays,

ski

lled

nurs

ing

faci

lity

(SN

F)

stay

co

vere

d 10

0 da

ys p

er p

erio

d, e

mer

genc

yro

om s

ervi

ces,

the

rapi

es,

hom

e he

alth

, an

dla

b te

sts.

No

copa

y an

d no

ann

ual m

axim

um.

All

rena

l-rel

ated

vita

min

s, p

hosp

hate

bind

ers,

iron

sup

plem

enta

tion

and

oral

nut

ri-tio

nal s

uppl

emen

ts p

rovi

ded

free

of

char

ge;

IDP

N c

over

ed w

ith a

ppro

val f

or m

edic

alne

cess

ity.

Rou

tine

dent

al c

lean

ing

and

exam

tw

ice

aye

ar a

t no

cha

rge,

rou

tine

eye

care

with

$60

eye

glas

s fr

ame

allo

wan

ce (

lens

es f

ree

ofch

arge

), n

o co

pay.

Not

offe

red.

Gro

up a

nd p

eer

coun

selin

g, s

peci

al h

ealth

educ

atio

n cl

asse

s, w

elln

ess

prog

ram

s sp

ecifi

c to

the

ES

RD

pop

ulat

ion,

pro

vide

dfr

ee o

f ch

arge

.

Not

offe

red.

HO

I2

No

copa

y fo

r ph

ysic

ian

serv

ices

(in

clud

ing

annu

al p

hysi

cal a

nd a

cces

s to

pre

vent

ive

serv

ices

).

No

copa

y fo

r pr

escr

iptio

n dr

ugs

and

dial

ysis

-rel

ated

non

-pre

scrip

tion

drug

s.

Pro

vide

d fr

ee o

f ch

arge

in t

he d

ialy

sis

unit.

Not

offe

red.

Tran

spor

t to

and

fro

m d

ialy

sis

if ne

eded

, as

dete

rmin

ed b

y th

e so

cial

wor

ker

and

case

man

ager

.

Pro

gram

s av

aila

ble

on a

wid

e va

riety

of

topi

cs:d

iet,

soci

al s

uppo

rt,

rena

l dis

ease

man

agem

ent,

care

of

vasc

ular

acc

ess,

car

eof

per

itone

al a

cces

s, d

iabe

tes

man

agem

ent,

and

hype

rten

sion

man

agem

ent.

Par

ticip

atio

n in

a p

rogr

am o

f ex

erci

se,

occu

patio

nal t

hera

py,

neur

olog

ical

re

habi

litat

ion,

am

pute

e re

habi

litat

ion,

and

refe

rral

to

a re

nal e

mpl

oym

ent

prog

ram

.

Xan

tus3

$70

mon

thly

pre

miu

m (

roug

hly

equi

vale

ntto

the

mon

thly

out

-of-

pock

et c

oins

uran

cean

d de

duct

ible

s pa

id b

y an

ave

rage

Med

icar

e be

nefic

iary

).M

edic

aid

wou

ld p

ayth

e pr

emiu

m fo

r du

ally

elig

ible

pat

ient

s.T

his

prem

ium

was

elim

inat

ed s

hort

ly a

fter

end

stag

e re

nal d

isea

se (

ES

RD

) de

mon

stra

tion

star

tup.

Up

to $

780

per

year

;$10

cop

ay p

er

pres

crip

tion

(cop

ay w

as e

limin

ated

sho

rtly

afte

r de

mon

stra

tion

star

tup)

.

Sel

ecte

d nu

triti

onal

sup

plem

ents

pro

vide

dfr

ee o

f ch

arge

, de

liver

ed t

o di

alys

is u

nit

orne

phro

logi

st’s

offi

ce.

Not

offe

red.

Unl

imite

d tra

nspo

rtat

ion

to a

nd fr

om d

ialy

sis

cent

er a

nd n

ephr

olog

ists

’offi

ce,

base

d on

dem

onst

rate

d ne

ed.

Edu

catio

nal s

emin

ars

and

vide

otap

es.

Not

offe

red.


Tab

le 3

—C

on

tin

ued

Ser

vice

s an

d B

enef

its

Cov

ered

Bey

on

d M

edic

are

for

the

ES

RD

Man

aged

Car

e D

emo

nst

rati

on

Sit

es:

1998

-200

1

1 K

aise

r P

erm

anen

te S

outh

ern

Cal

iforn

ia R

egio

n, L

os A

ngel

es,

Cal

iforn

ia.

2 H

ealth

Opt

ions

, In

c.,

a su

bsid

iary

of

Blu

e C

ross

®/B

lue

Shi

eld®

, ba

sed

in M

iam

i, F

lorid

a.3

Xan

tus

Hea

lth C

are

Cor

pora

tion,

bas

ed in

Nas

hvill

e, T

enne

ssee

.4

Dur

ing

the

time

perio

d of

the

dem

onst

ratio

n, c

over

age

for

out-

of-a

rea

dial

ysis

bec

ame

a be

nefit

tha

t M

edic

are-

risk

plan

s w

ere

requ

ired

to p

rovi

de.

NO

TE

S:E

SR

D is

end

sta

ge r

enal

dis

ease

.ID

PN

is in

trad

ialy

tic p

aren

tera

l nut

ritio

n.C

MS

is C

ente

rs fo

r M

edic

are

& M

edic

aid

Ser

vice

s.

SO

UR

CE

S:O

ppen

heim

er,

C.C

., an

d G

aylin

, D

.S.,

Nat

iona

l Opi

nion

Res

earc

h C

ente

r, S

hapi

ro,

J.R

., C

ente

rs fo

r M

edic

are

& M

edic

aid

Ser

vice

s, B

eron

ja,

N.,

The

Lew

in G

roup

, D

ykst

ra,

D.M

., an

d H

eld,

P.J

.,U

nive

rsity

Ren

al R

esea

rch

and

Edu

catio

n A

ssoc

iatio

n, a

nd R

ubin

, R

.J.,

Geo

rget

own

Uni

vers

ity S

choo

l of

Med

icin

e, 2

003.

Ser

vice

/Ben

efit

Hom

e H

ealth

Ser

vice

s

Out

-of-

Are

a C

over

age

4

Kai

ser1

Not

hing

abo

ve M

edic

are

cove

red

serv

ices

.

Cov

ered

for

up t

o 60

day

s pe

r ye

ar o

ut o

fpl

an.

HO

I2

Mad

e av

aila

ble

for

post

-sur

gica

l fol

low

up

for

new

or

revi

sed

acce

ss s

ites,

exi

t si

teca

thet

er c

are,

dia

betic

wou

nd c

are,

and

othe

r se

rvic

es a

s ne

eded

.

Up

to 3

0 da

ys p

er y

ear

at a

n ap

prov

ed

faci

lity.

Xan

tus3

Hom

e vi

sits

mad

e av

aila

ble.

Ful

l cov

erag

e of

the

ben

efits

pac

kage

whe

n ou

tsid

e of

the

ser

vice

are

a, s

ubje

ctto

the

hea

lth p

lan’

s an

d C

MS

’def

initi

ons

ofem

erge

ncy

and

urge

ntly

nee

ded

serv

ices

.

HOI Enrollment and Marketing

HOI selected the target areas of Dade,Broward, and Palm Beach counties becauseof the size of the patient population in thesecounties, as well as the population’s racialand socioeconomic diversity. HOI’s market-ing approach was based on educatingnephrologists in the area about the potentialbenefits of the demonstration, and it washoped that nephrologists, in turn, wouldencourage their patients to enroll. HOI uti-lized a dedicated sales force to market thedemonstration to providers and patients inthe service area. This educational outreachwas based on networking among physicians,direct mailing to providers, and in-personmeetings with groups of providers. In addi-tion to efforts aimed at nephrologists, HOIlaunched educational meetings with poten-tial patients and marketed the programthrough the Florida ESRD patient newsletter.

At the start of the demonstration, HOImodeled its enrollment processes for thedemonstration on its existing programs.Specifically, enrollment was handled by HOI’stelemarketing unit, which was experienced inmanaged care. Additional training was pro-vided to staff to ensure that they were pre-pared to handle demonstration-related issues.

HOI developed three mailings to send toall ESRD beneficiaries residing in the ser-vice area. The primary enrollment collec-tion instruments were an enrollment formand a toll-free enrollment line. The enroll-ment process was highly focused on pro-viding personal attention; for instance, fol-lowup calls were provided even after apatient enrolled.

HOI changed its enrollment process tocounter problems that arose and to makethe process run more smoothly. At thestart of the demonstration, outdated crite-ria used by CMS to determine patient eligi-bility resulted in the initial rejection ofmany eligible patients who wanted toenroll in the demonstration. HOI respond-ed to this problem by working with CMS’regional and national offices on streamlin-ing the eligibility determination process,which, although successful in terms ofstreamlining the enrollment process,caused HOI to expend more resourcesthan had expected.

At the beginning of the demonstration,HOI enrolled patients based on self-report-ed Medicare eligibility. However, theyfound that some of these patients weredetermined by CMS to be ineligible for theprogram. In order to minimize financial


Table 4

Selected Characteristics for a Sample of Kaiser Permanente Southern California Region ESRDManaged Care Demonstration Patients: 1999

Characteristic Peritoneal Dialysis Transplant Hemodialysis Rollover Hemodialysis Active

Sample Size 82 62 211 470Mean Age (Years) 49.4 47.6 61.6 56.2

PercentOther than White 48.8 31.1 41.4 38.0Hispanic or Latino 17.1 30.6 20.9 29.8Male 52.4 48.4 57.3 64.4Cause of ESRDDiabetes 24.4 22.6 39.8 39.1Glomerulonephritis 18.3 17.7 8.1 11.1Hypertension 22.0 27.4 22.7 23.8Other 12.2 9.7 8.1 11.5Unknown/Missing 23.4 22.6 21.3 14.5

NOTES: ESRD is end stage renal disease. Hemodialysis Rollover patients were receiving care from Kaiser prior to the demonstration. HemodialysisActive patients were newly enrolled in the Kaiser program.

SOURCES: Oppenheimer, C. C., and Gaylin, D.S., National Opinion Research Center, Shapiro, J. R., Centers for Medicare & Medicaid Services,Beronja, N., The Lewin Group, Dykstra, D. M., and Held, P.J., University Renal Research and Education Association, and Rubin, R. J., GeorgetownUniversity School of Medicine, 2003.

risk, HOI began enrolling patients onlyafter their eligibility status had been veri-fied through Medicare and the patient wasdetermined to be in the CMS data system.

Similar to Kaiser, initial enrollment at HOIwas also slower than anticipated. Patientscited the following reasons for not wantingto join the demonstration: (1) not wanting tochange physician or dialysis unit, (2) fear ofmanaged care and participating in a demon-stration project, (3) physicians’ active dis-couragement against joining, (4) concernabout giving up supplemental health insur-ance, and (5) questions about insurance cov-erage after the demonstration ended. HOIaddressed some of these patient concernsearly in the enrollment process. Forinstance, they addressed questions aboutsupplemental insurance by telling patients tokeep their supplemental insurance for a fewmonths in case they did not like the demon-stration and wanted to disenroll. HOI alsoworked on options to guarantee supplemen-tal insurance through Florida BlueCross®/Blue Shield® for patients who disen-rolled at the end of the demonstration.

In response to patient concerns aboutthe distance to the transplant center inJacksonville, HOI implemented a programto have the hospital transplant surgeon

regularly visit the Miami region. The caremanagers also discussed patients’ con-cerns about what was to happen at the endof the demonstration and assured patientsthat they would be able to enroll in HOIafter the demonstration concluded.

In November 2000, HOI closed its enroll-ment period for new patients as part of thewind-down process of the demonstration.They enrolled 967 patients in the demon-stration program, 118 (12 percent) of whomdisenrolled (including patients that movedout of the service area), and another 170died while in the demonstration. Table 5 pro-vides demographic characteristics by modal-ity for the sample of HOI enrollees includedin the data collection for the evaluation.

Xantus Enrollment and Marketing

Initially, Xantus marketed the demon-stration program through multiple directmailings to eligible patients. In addition,Xantus representatives set up informationbooths at dialysis centers to promoteenrollment in the demonstration. Xantusbegan service delivery in September 1998.In the first 8 months of the program,Xantus enrolled a total of 26 patients in therestricted five-county service area. Although


Table 5

Selected Characteristics for a Sample of Health Options, Inc., ESRD Managed CareDemonstration Patients: 1999

Characteristic Peritoneal Dialysis Transplant Hemodialysis

Sample Size 27 13 594Mean Age (Years) 51.9 45.3 60.4

PercentOther than White 29.6 45.5 48.1Hispanic or Latino 11.1 7.7 24.8Male 48.1 84.6 62.5Cause of ESRD Diabetes 14.8 15.4 31.6Glomerulonephritis 11.1 15.4 10.6Hypertension 25.9 15.4 24.8Other 7.4 7.7 8.2Unknown/Missing 40.7 46.2 24.8

NOTE: ESRD is end stage renal disease.

SOURCES: Oppenheimer, C. C., and Gaylin, D.S., National Opinion Research Center, Shapiro, J. R., Centers for Medicare & Medicaid Services,Beronja, N., The Lewin Group, Dykstra, D. M., and Held, P.J., University Renal Research and Education Association, and Rubin, R. J., GeorgetownUniversity School of Medicine, 2003.

demonstration managers were optimisticabout expanding into a larger service area,they experienced significant delays inobtaining an expanded Medicare-risk con-tract. In order to increase enrollment, thedemonstration site eliminated the $70monthly premium and the copayments forprescriptions. The site believed that thesechanges positively affected enrollment lev-els. By the time enrollment at the Xantusdemonstration site was frozen inNovember 1999, a total of 50 patients hadenrolled in the program.

IMPLICATIONS FOR FUTURE ESRDMANAGED CARE PROGRAMS

In assessing what can be learned fromthe demonstration experiences, in terms ofoperational outcomes, that may be relevantfor future organizations, three questionscan be explored:• Can MCOs create relationships with

nephrologists and dialysis facilities thatare clinically, fiscally, and logistically fea-sible and enticing?

• Is managed care attractive to ESRDpatients?

• Can the MCOs succeed financially?Each of the demonstration sites faced

challenges contracting with providers, andthe underlying issues are likely to be facedagain should MCOs be allowed to developmanaged care programs for ESRD patientsin the near future. Kaiser faced negativeattitudes initially about the demonstrationby community physicians and dialysis facil-ities, and HOI and Xantus experienced dif-ficult, and ultimately unresolvable, negotia-tions with the providers they expected tocontract with for significant service lines.

Kaiser Demonstration Challenge

Relationship with Providers

During the initial stages of the demon-stration, reaction to the demonstration pro-gram from the non-Kaiser provider com-munity, including both physicians and dialysis units, was fairly negative. Bothnephrologists and facilities were con-cerned that Kaiser would use the demon-stration to expand its market share result-ing in a loss in revenue for both categoriesof providers. At the time of demonstrationstartup, the non-Kaiser dialysis units wereparticularly concerned because of Kaiser’spartnership with Fresenius in whichKaiser opened new dialysis facilities. Non-Kaiser nephrologists were also concernedabout disruptions in the continuity of caredue to difficulty communicating routinepatient updates with Kaiser nephrologists.

Nevertheless, both nephrologists andfacilities acknowledged to the evaluationteam Kaiser’s reputation for providinghigh-quality care and reported that theywould maintain a neutral stance about thedemonstration when asked by theirpatients for advice about participating inthe demonstration. However, according toPifer et al. (2003), compared to HOI, alower proportion of Kaiser patients report-ed that they enrolled in the demonstrationon the recommendation of their physician.

Over time, community nephrologistsand contract dialysis units exhibited amore positive attitude toward the demon-stration. In interviews conducted by theevaluation team, providers reported thatKaiser made substantial efforts in theircommunications with community providers,


including involving community providersin demonstration service delivery-relatedissues through special committees and theprovision of quality monitoring reports.Kaiser care managers also made efforts tostrengthen relationships with the commu-nity providers. Further, comfort withKaiser increased on the part of contractedproviders when providers did not experi-ence a substantial decline in patient vol-ume due to enrollment in the demonstra-tion.

HOI Demonstration Challenge

Contracting with a Transplant Provider

At the time that HOI submitted its pro-posal to CMS for the demonstration, theHMO had a tentative agreement withJackson Memorial Hospital in Miami toprovide transplant services. However, sub-sequent contract negotiations, which last-ed more than a year, proved exceedinglydifficult and ultimately the two organiza-tions could not come to a financial agree-ment. The failure to contract with the onlytransplant center local to the demonstra-tion counties forced HOI to contract withJacksonville Methodist Hospital, 300 milesaway.8 Nephrologists expressed concernthat most patients would not be willing totravel to Jacksonville for a transplant.

To address the issue of distance betweenthe contracted transplant center anddemonstration enrollees, halfway throughthe demonstration HOI arranged for thetransplant surgeon to spend time eachmonth in Miami to conduct pre-transplantworkups. The clinical consequences of thisarrangement are currently being analyzed.It is reasonable to assume that this aspectof the demonstration program affectedHOI’s patient recruitment to the demon-

stration, and possibly patient satisfaction aswell. HOI experienced a larger number ofdisenrollees from the demonstration thandid Kaiser. Many metropolitan areas have asingle transplant center, which may putsome MCPs at a disadvantage in negotiat-ing for services that meet geographic prox-imity requirements.

Xantus Demonstration Challenge

Contracting with Nephrologists

The Xantus demonstration plan as pro-posed to CMS was based on a partnershipwith and model of care institutionalized bythe largest single nephrology practice inthe region representing more than 60 per-cent of patients and 75 percent of nephrol-ogists. Shortly after winning the demon-stration contract, difficult negotiationsresulted in dissolution of the partnershipbetween the two groups. This changerequired Xantus to remodel their demon-stration program.

One key change was that Xantus estab-lished contracts with all nephrologists inthe service region instead of just nephrolo-gists in the large nephrology group prac-tice. Thus, the program looked more like anetwork model than originally anticipated(the original plan looked more like ahybrid between staff model for nephrolo-gy, case management, and primary careservices, and network model for other ser-vices). Another change was that Xantushired case managers (originally it wasplanned that the case managers would behired, managed, and compensated by thelarge nephrology group practice). Thisarrangement failed to create the hoped-forclose, day-to-day working relationshipbetween the case manager and nephrolo-gists. It was also originally planned that thegroup practice would hire social workersand dieticians; instead, demonstration


8 HOI’s contract with Jacksonville Methodist Hospital to providetransplant services required approval by CMS. Future analyseswill investigate access to transplantation in the demonstration.

patients were required to access such ser-vices in the traditional manner throughtheir dialysis facility. Finally, with the lossof the partnership with the large grouppractice, the site lost much of its manage-ment-level ESRD expertise and its primaryplanned referral source (the group prac-tice had over 600 patients and Xantusassumed that most of these patients wouldenroll at the encouragement of their physi-cian).

Two additional issues significantlyaffected Xantus’ ability to maintain ademonstration program. The first was therequirement that Xantus obtain aMedicare-risk contract, and the secondwas the financial health of the largerXantus Corporation. Xantus won thedemonstration contract prior to obtaining aMedicare-risk contract. Only after theaward was made and the contract wassigned did CMS clarify that Xantus neededto acquire such a contract in order to pro-vide demonstration services. Therefore,before Xantus could begin providingdemonstration services, it was necessaryfor the plan to invest considerable resourcesand time into obtaining the Medicare-riskcontract. One outcome of this effort wasthat Xantus was able to obtain their riskcontract for a service region of only fivecounties as opposed to the 40 countyregion proposed for the demonstration.Thus, the demonstration was also limitedto operating in the five-county area. Thischange reduced the estimated eligiblenumber of demonstration patients from1,400 to 842.

The Xantus demonstration program wasable to develop a new network of physi-cians and succeeded in obtaining therequired Medicare-risk contract, however,due to financial difficulties in the organiza-tion’s other business lines, Tennesseeplaced Xantus, as a whole, under receiver-ship, and CMS placed a freeze on ESRD

demonstration enrollment effective Novem-ber 1, 1999. By mutual agreement betweenXantus and CMS, the demonstration at thissite was discontinued as of April 1, 2000.The residual 44 demonstration enrolleeswere notified March 1, 2000, and receivedassistance from Xantus staff, dialysis facilitysocial workers, State Department ofCommerce and Insurance staff, the ESRDnetwork, and the CMS regional office inobtaining secondary coverage to supple-ment Medicare.

WILL ESRD PATIENTS ENROLL INMANAGED CARE?

One goal in conducting the demonstra-tion evaluation was to determine whetherESRD patients are willing to participate inmanaged care and whether enrollingpatients are representative of the underly-ing population. The two sites that complet-ed the demonstration proved that ESRDpatients are indeed willing to trade somefreedom of choice in health care forincreased access to pharmaceuticals andreduced copayments. For a separate pre-sentation and discussion of the patientcharacteristics willing to enroll in thedemonstration, refer to Shapiro etal.(2003). As shown, patients who enrolledin this demonstration were not representa-tive of the typical ESRD patient; they tendedto be younger and healthier. Additionally,demonstration disenrollees spent moretime in the hospital during the programcompared to continuous enrollees, indicat-ing that selection effects continued toappear even after initial enrollment.Another evaluation finding was that patientsatisfaction with the demonstration wasgenerally quite high (Pifer et al., 2003). It isworth noting that HOI, using the networkmodel, appeared to have an easier timerecruiting patients than Kaiser during theearly days of the demonstration, which


may have been related to the level ofencouragement patients in each locationreceived from their providers (Pifer, 2003).

While Xantus’ limited enrollment ofpatients was due to numerous factors, onefactor that was seen to influence enroll-ment was the preponderance of dually-eli-gible patients (i.e., eligible for bothMedicaid and Medicare) in the region(estimated by Xantus to be about 50 per-cent of ESRD patients). TennCare (TennesseeMedicaid Program) benefits were quitecomprehensive—TennCare beneficiarieswith ESRD received unlimited prescriptionbenefits; were able to apply for a trans-portation benefit; and were not required topay copayments. Thus, many eligiblepatients lacked any real incentive for join-ing the program.

LESSONS LEARNED

This demonstration can be considered asuccess in that two sites were able toimplement managed care programs forESRD patients. Although Xantus faced sig-nificant hurdles developing its demonstra-tion program, it was ultimately undone byfactors unrelated to the demonstration, andthus its failure should not diminish theaccomplishments of CMS, Kaiser, and HOIin executing this initiative. In generalizingKaiser’s and HOI’s experiences, it shouldbe noted that if managed care becomes anoption in the Medicare ESRD program,then there are far more network modelHMOs than there are closed group mod-els. HOI’s program of managed care forESRD patients was created specifically forthe demonstration. Thus, HOI’s approachand experiences are possibly more rele-vant to other potential programs than theprogram at Kaiser.

Many aspects of the service packagewere similar between the sites. In otherways, the programs were structured invery different ways. Again, the mostnotable difference is that Kaiser is a groupmodel HMO with a closed delivery system,while HOI was a network model HMO.This distinction had implications beyondthe way providers were paid—it likelyaffected the degree of control that theHMOs exercised over provider practices.Kaiser tried to actively influence providerpractices, thereby instituting what mightbe called a disease management program.Examples include Kaiser’s move to subcu-taneous EPO, its aggressive vascularaccess program, and its protocol for prima-ry care physician nephrologists and othercaregivers to perform quarterly preventivecheckups for all patients. In contrast, HOIexerted little effort to influence providerpractices. Although HOI’s structure cer-tainly did not prohibit it from pursuingsuch management approaches, it is likelythat due to the exclusive relationshipbetween Kaiser and its nephrologists,Kaiser had an easier time influencingbehavior change among providers.

Other factors unrelated to the demon-stration program structure also shaped thedemonstration plans’ experiences. Theseinclude the sites’ previous experience withESRD patients, relative size, and their rela-tionships with providers.

A major criterion by which to evaluatethe feasibility of implementing a managedcare option in Medicare ESRD is whetherproviding such care is financially feasiblefor the sponsoring organization. From theperspective of the demonstration sites, theinitiative did not produce a financial wind-fall for either Kaiser or HOI. The capitationrevenues received by HOI did not cover


total demonstration expenses in any yearof the demonstration. Kaiser experienced anet loss during the first year of the pro-gram and very modest net income (2 per-cent or less) in the final 2 years of thedemonstration (Dykstra et al., 2003). Thedemonstration differs significantly fromwhat might occur if the barrier to managedcare for ESRD patients is lifted in that theywould likely be integrated into traditionalMedicare+Choice programs rather thanenroll in stand-alone ESRD managed careprograms, thus reducing the financialimpact of this population on a given HMO.Nevertheless, some stand-alone ESRD dis-ease management programs have beendeveloped. We raise the issue here toacknowledge the importance of the finan-cial outcomes from the plans’ perspectiveson the future of manage care in the ESRDmarket. However, it is worth noting thatboth Kaiser and HOI received authoriza-tion from CMS to receive a capitated pay-ment for demonstration patients based onthe demonstration rates. This arrangementallows both sites to continue providingmost of the demonstration benefits toenrollees and is intended to serve as abridge to the new BIPA-mandated ESRDrisk-adjusted capitation rates (Centers forMedicare & Medicaid Services, 2003b).

Developing and implementing a demon-stration program of this magnitude requiresa great deal of resources and commitmenton the part of the demonstrations sites andthe sponsoring organization. The demon-stration outcomes, viewed in the context ofthe structural and operational arrange-ments described in this article, provide astrong foundation for CMS, Congress, andthe broader ESRD community to rely uponas they consider the full range of policyoptions regarding ESRD patient (andprovider) participation in managed careprograms.

REFERENCES

Blumenkrantz, M.J., Kopple, J.D., Gutman, R.A., etal.: Methods for Assessing Nutritional Status ofPatients With Renal Failure. American Journal ofClinical Nutrition 33:1567-1585, 1980.Brown, R.S., Bergeron, J.W., Clement, D.G., et al.:Does Medicare Work for Medicare? An Evaluation ofthe Medicare Risk Program for HMOs.Mathematica Policy Research Inc. Princeton, NJ.December 1993.Centers for Medicare & Medicaid Services, person-al communication. Baltimore, MD. June 27, 2003a.Centers for Medicare & Medicaid Services: ESRDManaged Care Demonstration. Internet address:http://cms.hhs.gov/ esrd/6.asp (Accessed 2003b.)Cooper, B.S., Eggers, P.W., and Edington, B.M.:Development of an End-Stage Renal DiseaseManaged Care Demonstration. Advances in RenalReplacement Therapy 4(4): 332-339, October 1997.Daugridas, J.T., and Ing, T.: Handbook of Dialysis.Little, Brown. Boston, MA. 1994.Dykstra, D.M., Beronja, N., Menges, J., et al.: ESRDManaged Care Demonstration: FinancialImplications. Health Care Financing Review24(4):59-75, Summer 2003. Eggers, P.W.: A Quarter Century of MedicareExpenditures for ESRD. Seminars in Nephrology20(6):516-522, 2000.Goldwasser, P., Mittman, N., Antignani, A., et al.:Predictors of Mortality in Hemodialysis Patients.Journal of the American Society of Nephrology 3:1613-1622, 1993. Greer, J.W., Milam, R.A., and Eggers, P.W.: Trendsin Use, Cost and Outcomes Of Human RecombinantErythropoietin, 1989-98. Health Care FinancingReview 20(3):55-62, Spring 1999.Leavey, S.F., Strawderman, R.L., Jones, C.A., et al.:Simple Nutritional Indicators as IndependentPredictors of Mortality in Hemodialysis Patients.American Journal of Kidney Disease 31(6):997-1006,1998.The Lewin Group: Capitation Models for ESRD:Methodology and Results. Renal PhysiciansAssociation and American Society of Nephrology.Rockville, MD and Washington, DC. 2000.The Lewin Group and the University RenalResearch and Education Association: Evaluation ofCMS’ ESRD Managed Care Demonstration. FinalReport to the Centers for Medicare & MedicaidServices. Baltimore, MD. June 2002.


National Kidney Foundation: Kidney/DialysisOutcomes Quality Initiative (K/DOQI): ClinicalPractice Guidelines for the Treatment of Nutrition inChronic Renal Failure. National Kidney FoundationInc. New York. 2000a.National Kidney Foundation: Kidney/DialysisOutcomes Quality Initiative (K/DOQI): ClinicalPractice Guidelines for the Treatment of Anemia ofChronic Kidney Disease. National KidneyFoundation Inc. New York. 2000b.Omnibus Budget Reconciliation Act of 1993(OBRA), Public Law 103-66, Section 13567(b).Pifer, T.B., Bragg-Gresham, J.L., Dykstra, D.M., etal.: Quality of Life and Patient Satisfaction: ESRDManaged Care Demonstration. Health CareFinancing Review 24(4):45-58, Summer, 2003.Renal Physician’s Association and AmericanSociety of Nephrology: Position on Managed Careand Neprohology. 1995.

Shapiro, J.R., Dykstra, D.M., Pisoni, R., et al.:Patient Selection in the ESRD Managed CareDemonstration. Health Care Financing Review24(4):31-43, Summer, 2003.Tax Equity and Fiscal Responsibility Act of 1982(TEFRA). 42 U.S.C. Sec 1359mm(d).U.S. Renal Data System: USRDS 2002 Annual DataReport. National Institutes of Health. Bethesda,MD. 2002.Young, E.W., Dykstra, D.M., Goodkin, D.A., et al.:Hemodialysis Vascular Access Preferences andOutcomes in the Dialysis Outcomes and PracticePatterns Study (DOPPS). Kidney International 61(6): 2266-2277, 2002.

Reprint Requests: Caitlin Carroll Oppenheimer, M.P.H., NationalOpinion Research Center, 1350 Connecticut Avenue, NW.,Washington, DC 20036. E-mail: [email protected]


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Evaluation of the ESRD Managed Care Demonstration Operations

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