Medicare pays 80% of the cost of dialysis treatment and associated medications. Congress directed the Centers for Medicare and Medicaid Services (CMS) to develop both a process of regular and more or less ‘automatic’ updates of composite rate setting and ‘bundling’ as much of the laboratory and ancillary medications as possible into the composite rate. In response to this mandate, CMS revised the wage indexing process, added an annual update, and removed the limits on the wage index range. CMS has moved the ‘margin’ from medication acquisition and administration to an annually revised ‘drug add-on’ to the composite rate and fixed reimbursement of separately billed medication (ancillary) to the average sales price +6%. CMS is funding a demonstration project on near 100% bundling to be completed by 2008 that will include metrics for automatically increasing the base composite rate.