The Success of Medicare's End-Stage Renal-Disease Program: The Case for Profits and the Private Marketplace

The 92d Congress extended Medicare benefits to patients with end-stage renal disease (ESRD), sparing patients the financial burden of treating this catastrophic illness. The costs of the ESRD program have been contained better than those of health care generally; payment was originally limited by a screen of $138 per dialysis but could be higher if higher cost was documented. About 48 per cent of patients receive dialysis in units outside hospitals. The majority of these units are operated for profit, in which physicians share. The payment to these facilities has remained constant while payment to the nonprofit hospitals' units has increased markedly. Physicians in for-profit units have a strong incentive to learn about costs and control them. They are involved in medical economic management as well as clinical management; this results in integrated administration of health care. The success of the ESRD program in expanding service to meet demand while controlling costs and maintaining quality has been due primarily to the combined effect of setting a price and creating a system of incentives that involves physicians in the medical marketplace. (N Engl J Med. 1981; 305:434–8.) LATE in 1972, a complex Medicare-reform bill was amended with a few short sentences to extend coverage to patients with end-stage renal disease (ESRD). There have since been charges of poor planning, cost overruns, profiteering, and program failure; some have cautioned that a new "medical-industrial complex," which could have an adverse effect on medical care, may be emerging. 1 The weight of evidence suggests, however, that these charges are highly inflated if not completely untrue. As we hope to show, the ESRD program has been highly successful in many ways, and there is a strong case to be made for the . . .