A new proposal from Medicare has been published in the Federal Registry and it provides a window on how medical care will be delivered in the future under a government-run system. Medicare is proposing to provide a fixed budget for the medical care of dialysis patients and the details of the plan guarantee that patients will have a private company intervening in physician decisions whether to provide expensive but highly beneficial drug therapies.

The end stage kidney disease program, better known as kidney dialysis, is the one aspect of Medicare that applies to persons less than 65 years old. This quirk in the system began in the 1960s in order to help fund the expensive dialysis programs that were feasible but enormously costly on a per treatment basis. These are life-saving treatments and could not possibly be affordable to most patients. Over the years, the program has grown larger and larger because more and more patients were found to benefit from the treatment. The cost per treatment is actually about 64% of the costs 20 years ago, factored for inflation, as tremendous efficiencies have been introduced. But the program has grown to now cost 6.4% of Medicare's total budget or some $23 billion in 2006. This is because over 350,000 patients receive dialysis treatments in the United States.

One way that the system has been able to keep per treatment costs low has been the entry and domination of the industry by large, for profit, public companies like Fresenius Healthcare and Da Vita Healthcare, that can provide the capital and the integration of services to be profitable under a highly constrained cost structure. Kidney specialists are not employed by these companies but supervise care for the patient and are paid directly by Medicare for their services.

But costs continue to rise because of rising numbers of patients receiving dialysis treatments and Medicare has now decided that since drug therapy is a rising source of costs for the dialysis program, a prepayment for drug treatment will be included in a "bundled" payment for dialysis services. The "bundle" of money will go to the for-profit dialysis provider and the company will have to buy and then dispense the medications prescribed by the independent physicians. These key medications will no longer be reimbursed under Medicare's Drug Plan, the so-called "Part D". So if the physician prescribes expensive medications compared to less costly but less effective ones, the company could and probably would lose money.

This is clearly an example of Medicare creating a system that potentially interferes with a physician's best judgment and looks to the possibility of rationing more costly medications. Dialysis unit administrators will have a strong incentive to restrain physicians prescribing the more expensive medications that will likely provide a long term benefit for patients. The particular medicines that will be most affected are those that help improve bone function over the long term in dialysis patients but have little obvious short term effects. It will take years to sort out the impact of this approach.

It is true that hospitals must pay for expensive medications required by hospitalized patients and hospitals try to influence physician utilization of these expensive medications. But hospitals use physician committees to modify utilization in an appropriate fashion. The dialysis providers in a community dialysis unit do not have the resources of a hospital to organize committees of physicians to oversee utilization. Patients in dialysis units will have no inkling whether their medication regimens are based on the best care available or on the bottom line profits of a commercial enterprise. Both the companies and the physicians are being put in a bind by the government plan.

The new approach is open to public comment at this time but this is clearly the new face of rationing. Restrict payments through providing a fixed budget for care. Welcome to the British National Health Service.

Stanley Goldfarb MD is associate dean of clinical education at the University of Pennsylvania School of Medicine and a nephrologist.

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