[Federal Register Volume 59, Number 165 (Friday, August 26, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-20626]


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[Federal Register: August 26, 1994]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 412, 413, and 414

[BPD-763-P]
RIN 0938-AG20

 

Medicare Program; End Stage Renal Disease (ESRD) Payment 
Exception Requests and Organ Procurement Costs

AGENCY: Health Care Financing Administration (HCFA), HHS.

ACTION: Proposed rule.

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SUMMARY: These proposed regulations specify the criteria HCFA would use 
to determine if a facility furnishing dialysis services to patients 
with end stage renal disease qualifies for a higher payment under an 
exception to the prospectively determined payment rate.
    These regulations are intended to inform providers of the 
procedures HCFA uses to evaluate payment exception requests. They 
implement existing authority in section 1881 (b)(2) and (b)(7) of the 
Social Security Act (the Act).
    These regulations would also revise the way we compute acquisition 
costs for hearts and livers that are transplanted into Medicare 
beneficiaries.

DATES: Comments will be considered if we receive them at the 
appropriate address, as provided below, no later than 5 p.m. on October 
25, 1994.

ADDRESSES: Mail comments (an original and three copies) to the 
following address:

Health Care Financing Administration, Department of Health and Human 
Services, Attention: BPD-763-P, P.O. Box 26676, Baltimore, MD 21207.

    If you prefer, you may deliver your written comments to one of the 
following addresses:

Room 309-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., 
Washington, DC 20201, or
Room 132, East High Rise Building, 6325 Security Boulevard, Baltimore, 
MD 21207.

    Due to staffing and resource limitations, we cannot accept comments 
by facsimile (FAX) transmission. In commenting, please refer to file 
code BPD-763-P. Comments received timely will be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, in Room 309-G of the 
Department's offices at 200 Independence Avenue, SW., Washington, DC, 
on Monday through Friday of each week from 8:30 a.m. to 5 p.m. (phone: 
(202) 690-7890).
    If you wish to submit comments on the information collection 
requirements contained in this proposed rule, you may submit comments 
to:

Allison Herron, HCFA Desk Officer, Office of Information and Regulatory 
Affairs, Room 3002, New Executive Office Building, Washington, DC 
20503.

Copies: To order copies of the Federal Register containing this 
document, send your request to: New Orders, Superintendent of 
Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date 
of the issue requested and enclose a check or money order payable to 
the Superintendent of Documents, or enclose your Visa or Master Card 
number and expiration date. Credit card orders can also be placed by 
calling the order desk at (202) 783-3238 or by faxing to (202) 275-
6802. The cost for each copy (in paper or microfiche form) is $4.50. As 
an alternative, you may view and photocopy the Federal Register 
document at most libraries designated as U.S. Government Depository 
Libraries and at many other public and academic libraries throughout 
the country that receive the Federal Register. The order desk operator 
will be able to tell you the location of U.S. Government Depositories.

FOR FURTHER INFORMATION CONTACT: Michael Powell, (410) 966-4557

SUPPLEMENTARY INFORMATION:

I. Background

End Stage Renal Disease Payment Exception Requests

    In accordance with section 1881(b)(2) and (b)(7) of the Act, a 
facility that furnishes dialysis services to Medicare patients with end 
stage renal disease is paid a prospectively determined rate for each 
dialysis treatment furnished. This rate is a composite that includes 
all costs associated with furnishing dialysis services except for the 
costs of physician services and certain laboratory tests and drugs, 
which are billed separately. The composite rate may be adjusted 
periodically to reflect actual facility costs.
    When a facility incurs higher costs, HCFA may, under certain 
conditions, grant the facility an exception to its composite rate and 
set a higher prospective rate. The facility must show, on the basis of 
projected cost and utilization trends, that it will have an allowable 
cost per treatment higher than its prospective payment rate and that 
the excess costs are attributable to one or more specific 
circumstances. These conditions are specified in existing regulations 
at 42 CFR 413.170 and are discussed in greater detail in Chapter 27 of 
HCFA's Provider Reimbursement Manual (PRM).
    A facility may incur excess costs when it furnishes dialysis 
services to a patient population with a greater number of pediatric 
patients or sick patients, such as those with heart disease or unstable 
medical conditions, which require special equipment, procedures, 
supplies or staff trained in treating these patients. This is referred 
to as ``atypical service intensity'' or ``patient mix.'' A facility may 
also incur increased costs when it is the only supplier of dialysis 
services in its geographical area (an isolated essential facility), and 
its patients are unable to obtain dialysis services elsewhere without 
considerable hardship. Such an isolated facility may find it difficult 
to find trained staff, may have to pay employees additional wages or 
travel allowances, or may have to pay additional costs to have supplies 
shipped to the area.
    A facility may also incur excess costs as a result of a fire, 
earthquake, flood, or other natural disaster (extraordinary 
circumstances). However, we do not recognize those costs when a 
facility did not maintain adequate insurance, did not file a claim for 
losses covered by insurance, or did not use its self-insurance program.
    Increased training costs may also be associated with a facility's 
self-dialysis training program. A facility may train patients to 
perform self-dialysis with little or no professional assistance in the 
facility or at home. It may also train other individuals to assist 
patients in performing self-dialysis or home dialysis. A facility that 
has training costs greater than its composite training rate may apply 
for an exception, but must prove that the costs are reasonable and 
allowable.
    Typically, a patient undergoes dialysis three times a week. A 
facility may furnish a substantial number of treatments to patients who 
dialyze less frequently than three times a week. As a result, the 
facility typically has higher per treatment cost because the treatments 
involve increased labor or supplies. When this occurs, a facility may 
apply for an exception to the composite rate.

Organ Acquisition Costs

    Under Sec. 412.113, Medicare pays for heart, kidney, and liver 
acquisition costs incurred by transplant centers on a reasonable cost 
basis. Currently, Medicare-certified transplant centers compute 
Medicare acquisition costs for hearts and livers on Supplemental 
Worksheet D-6 of the Hospital Cost Report (Form HCFA-2552). The average 
acquisition costs of hearts and livers transplanted in patients other 
than Medicare beneficiaries are deducted from the total acquisition 
costs for all hearts and livers. Medicare reimburses the remaining 
balance as program costs for these organs. Based on recent cost 
analyses, we are concerned about the very high Medicare costs 
associated with acquiring a small number of hearts and livers. As a 
result, we propose to change the method of computing heart and liver 
acquisition costs to more accurately determine the costs of acquiring 
organs transplanted in Medicare recipients. The method we propose for 
computing acquisition costs for hearts and livers conforms to the 
method used for kidneys because the kidney formula more fairly accounts 
for Medicare's portion of such costs, including organ wastage. The 
kidney formula is specified in Sec. 413.202.

II. Proposed Revisions

End Stage Renal Disease Payment Exception Requests

    On several occasions, we have denied exception requests based on 
application of the criteria contained in our PRM, and the facilities 
have appealed the denials; subsequently some denials have been 
overturned by the Provider Reimbursement Review Board (PRRB) because 
the PRRB is not bound by the guidelines in the PRM. Therefore, we are 
proposing to place in regulations the specific requirements for 
determining exceptions. We are proposing the conditions contained in 
the PRM, with explanations in this preamble, that a facility must meet 
to qualify for a payment exception and the criteria that we use to 
evaluate whether the facility meets the conditions.
    We propose to revise 42 CFR Part 413, Subpart H, Payment for ESRD 
Services. Currently, all our rules for payment for covered outpatient 
maintenance dialysis treatments are in Sec. 413.170. We propose to 
reorganize the content of Subpart H and divide existing Sec. 413.170 
into several smaller sections so that readers can more easily locate 
specific topics.
    Following is a list of the new sections: 

------------------------------------------------------------------------
                   New section                          Old section     
------------------------------------------------------------------------
413.170Scope......................................  413.170(a)          
413.172Principles of Prospective Payment..........  413.170(b)          
413.174Prospective rates for hospital based and     413.170(c)          
 independent ESRD facilities.                                           
413.176Amount of payments.........................  413.170(d)          
413.178Bad debts..................................  413.170(e)          
413.180Procedures for requesting exceptions to      413.170(f)          
 payment rates.                                                         
413.182Criteria for approval of exception requests  413.170(g)          
413.184Payment exception: Atypical service          413.170(g)(1)       
 intensity (patient mix).                                               
413.186Payment exception: Isolated essential        413.170(g)(2)       
 facility.                                                              
413.188Payment exception:                           413.170(g)(4)       
 Extraordinarycircumstances.                                            
413.190Payment exception: Self-dialysistraining     413.170(g)(5)       
 costs.                                                                 
413.192Payment exception: Frequency of dialysis...  413.170(g)(6)       
413.194Appeals....................................  413.170(h)          
413.196Notification of changes in rate-setting      413.170(i)          
 methodologies and payment rates.                                       
413.198Recordkeeping and cost reporting             413.174             
 requirements for outpatient maintenance dialysis.                      
413.200Payment of independent organ procurement     413.178             
 organizations and histocompatibility laboratories.                     
413.202Organ procurement organizations' (OPOs') or  413.179             
 transplant centers' costs for kidneys sent to                          
 foreign countries or transplanted in patients                          
 other than Medicare beneficiaries.                                     
------------------------------------------------------------------------

    Below we discuss the proposed content of Subpart H.

Section 413.180  Procedures for Requesting Exceptions to Payment Rates

    We would redesignate the content of Sec. 413.170(f), Procedures for 
requesting exceptions to payment rates, as new Sec. 413.180. In 
Sec. 413.180(d), we propose to expand this item to provide that a 
facility must request an exception to its payment rate within 180 days 
of:
     The effective date of its new prospective payment rate(s);
     The effective date that HCFA opens the exceptions process; 
or
     An extraordinary cost-increasing event, as described in 
Sec. 413.188.
    In determining the 180-day period in which HCFA issues new 
prospective payment rates or opens the exceptions process, HCFA counts 
the effective date as the first day of the 180-day period because 
payment for ESRD services under the new composite rates or an approved 
exception begins that day. An exception request with all required 
documentation must be filed with the intermediary by the 180th day. 
Delivery of the request must be accomplished through a method that 
documents the date of receipt during the intermediary's regular 
business hours. A postmark or other similar mark does not serve as 
documentation of the date of receipt.
    Initially, when the ESRD prospective payment rate regulations were 
promulgated, HCFA intended to annually review composite rates. However, 
when HCFA determined that updated rates could not be issued in the near 
future, it opened the exceptions process without issuing new rates. 
This allowed ESRD facilities additional opportunities (other than when 
new rates are issued) to file for exceptions to their payment rates. 
HCFA has opened the exceptions process twice, permitting facilities 
that had received partial approvals, new facilities or facilities that 
had been previously denied exceptions the chance to file for an 
exception.
    In Sec. 413.180(f), we propose to require that the facility 
applying for an exception request compare its most recently completed 
cost report with those of prior years. Such comparisons may reveal 
significant changes that may indicate errors or problems with the cost 
or statistical data and, thus, the need for HCFA to more intensively 
review the applicable area. Any changes to cost or statistical data 
(for example, treatments) must be explained and the explanation 
included with the documentation supporting the exception request.
    In Secs. 413.180(f)(3) and 413.182, we would require that ESRD 
facilities provide documentation showing that their excessive costs are 
specifically or directly attributable to one or more of the exception 
criteria. As an example, for an atypical service intensity request, the 
facility should be able to document the excessive costs of furnishing 
care to sicker patients. After submitting evidence that it treats 
sicker patients, to document higher labor costs, the facility should 
submit records to show that either a more experienced and better 
trained nursing staff is required to treat these patients, or 
additional nursing staff time is needed, or both. An example of the 
type of records that a provider should submit to document its higher 
nursing costs could consist of staffing schedules, indicating staff and 
patients per shift. The facility could indicate (on the schedules) the 
sicker patients treated and the more experienced or additional staff 
needed to treat them. The monthly staffing schedules should represent 
12 months and coincide with the actual cost reporting period of the 
cost report submitted with the exception request.
    For a hospital facility, if the direct cost of nursing staff in the 
dialysis department increased, the administrative and general (A & G) 
costs allocated to that department would automatically increase. This 
is the result of hospital cost reporting accounting protocol, which 
requires A & G costs to be allocated on the basis of the accumulated 
costs of the other departments. The accounting protocol used for cost 
reporting is separate and distinct from identifying the actual A & G 
costs that are directly attributable to the additional nursing staff 
costs. Since the total A & G costs represent costs allocated to the 
dialysis department, they do not accurately reflect the actual A & G 
costs incurred as a result of the additional nursing staff costs. The 
facility must separately identify the A & G costs directly attributable 
to the additional nursing staff costs.
    In Sec. 413.180(g), we propose to codify in regulations section 
1881(b)(7) of the Act by providing that unless HCFA disapproves a 
composite rate exception request within 60 working days after it is 
filed with its intermediary, the exception is deemed approved. We 
believe the Congress viewed the 60 days as beginning when we have a 
fully documented exception request. Therefore, the first day for 
counting the 60 working days is the date that the exception request is 
filed with all required documentation with the intermediary, not the 
date it was mailed nor the date postmarked on the package. For this 
reason, facilities are advised to send their requests by a method that 
documents the date of receipt during the intermediary's regular 
business hours. We would require that intermediaries review and process 
all exception requests within 15 working days, and we would process the 
exceptions within 45 working days. If we fail to process a composite 
rate exception request timely, we would deem the renal facility's rate 
request approved.

Section 413.182  Criteria for Approval of Exception Requests

    We propose to redesignate the content of Sec. 413.170(g), criteria 
for approval of exception requests, as Sec. 413.182. In this section we 
would list the criteria that may be the basis of a rate exception. 
These criteria are: Atypical service intensity (patient mix), as 
specified in a new Sec. 413.184; Isolated essential facility (new 
Sec. 413.186); Extraordinary circumstances (new Sec. 413.188); Self-
dialysis training costs (new Sec. 413.190); or Frequency of dialysis 
(new Sec. 413.192).
    HCFA occasionally receives one-month time studies from facilities 
attempting to show that they are entitled to an exception. HCFA does 
not require one-month time studies and has not considered a one-month 
time study as adequate documentation to justify an exception. In the 
event that a time study is used, an applicant should refer to the 
general Medicare principles regarding the adequacy of periodic time 
sampling described in chapter 23 of the Provider Reimbursement Manual 
(HCFA Publication 15-1).

Section 413.184  Payment Exception: Atypical Service Intensity (Patient 
Mix)

    In new Sec. 413.184, paragraph (a) would repeat the content of 
existing Sec. 413.170(g)(1). We would specify in a new paragraph (b) 
the documentation required of a facility requesting a rate exception 
under this provision.
    We would require that a facility submit a list of all outpatient 
dialysis patients (including all home patients) treated during the most 
recently completed fiscal or calendar year showing:
     Patients who received transplants, including the date of 
transplant;
     Patients awaiting a transplant who are medically able, 
have given consent, and are on an active transplant list, and projected 
transplants;
     Home patients;
     Infacility patients, staff assisted or self-dialysis;
     Individual patient diagnoses;
     Diabetic patients;
     Patients isolated because of a contagious disease;
     Age of patients;
     Mortality rate broken out by age and diagnosis;
     Number of patient transfers, reasons for transfers and any 
related information; and
     Total number of hospital admissions for the facility's 
patients, reason for, and length of stay for, each admission.
    When adjudicating exception requests, to determine if a substantial 
proportion of the facility's outpatient maintenance dialysis treatments 
involve more intense dialysis services and special dialysis procedures, 
HCFA will compare the above data submitted by providers to data 
contained in HCFA's Patient Profile Tables. The information in the 
Tables is developed annually and represents information on persons with 
end-stage renal disease covered by Medicare. While the number of 
treatments is used when determining whether a facility furnishes a 
substantial proportion of treatments to atypical patients, it is the 
typical or the atypical patient mix that generates the total treatment 
count used in this determination. In determining whether a facility's 
patients are atypically sick, each patient category is individually 
compared to its corresponding specific norm (national average). Various 
combinations of factors might lead to a determination that a facility 
has an atypical patient mix. For example, a facility might qualify for 
an exception for atypical patient mix if the percentage of its diabetic 
patients, older patients, and mortality rate were significantly higher 
than the national averages.
    By its very nature, an exceptions process addresses situations that 
are not anticipated, and, because of the myriad combinations of factors 
that are possible, we cannot articulate a single specific standard that 
encompasses all of these situations. Instead, HCFA will evaluate each 
request on a case-by-case basis to determine if the characteristics of 
the patient population are such that it might be beyond the facility's 
control to incur higher costs. (Facilities will still have to 
demonstrate that the atypical patient mix, in fact, caused higher 
costs.)
    We would also require that a facility submit the following 
documentation on nursing personnel (registered nurses (RNs), licensed 
practical nurses (LPNs), technicians and aides) costs incurred during 
the most recently completed fiscal or calendar year cost report 
showing:
     Amount of remuneration of each employee;
     Number of personnel;
     Amount of time spent in the dialysis unit; and
     Staff to patient ratio based on total hours, with an 
analysis of productive and nonproductive hours.
    The facility must demonstrate that its nursing personnel costs have 
been allocated properly between each mode of care, and that the 
additional nursing hours per treatment are not the result of an excess 
number of employees in the outpatient maintenance renal dialysis 
department. Normally, when determining whether there is an excess 
number of employees assigned to a facility's dialysis department, HCFA 
uses staff to patient ratios. However, in addition to the staff to 
patient ratios, we might also consider staffing schedules, as 
previously discussed.
    When adjudicating exception requests, HCFA will utilize the above 
data to determine if the facility's patients received significantly 
more nursing hours per treatment than patients would receive in other 
facilities and whether the facility's higher per treatment costs were 
necessitated by the special needs of the patients.
    We would also require that a facility submit documentation on 
supply costs incurred during the most recently completed fiscal or 
calendar year cost report showing:
     By modality, a complete list of supplies used routinely in 
a dialysis treatment; and
     The make and model number of dialyzer and component cost 
of each dialyzer.
    The facility must demonstrate that excess supply cost per treatment 
is caused by the special needs of the patients and is not the result of 
inefficiency. The facility must submit documentation to demonstrate 
that it prudently purchases items and services (for example, uses bulk 
purchase discounts when available).
    When adjudicating exception requests, HCFA will utilize the above 
data to determine if the facility's patients received supplies that are 
medically necessary to meet special medical needs of the facility's 
patients.

Section 413.186  Payment Exception: Isolated Essential Facility

    We would redesignate Sec. 413.170(g)(2) as new Sec. 413.186, retain 
the existing content of Sec. 413.170(g)(2) and add documentation 
requirements for facilities to use when applying for a payment rate 
exception based on being an isolated essential facility.

Isolated Facility

    To be considered ``isolated,'' a facility must document that it is 
located outside an established Metropolitan Statistical Area and 
provides dialysis to a permanent patient population, as opposed to a 
transient patient population.

Essential Facility

    To be considered essential, the facility must document that a 
substantial number of its patients cannot obtain dialysis services 
elsewhere without substantial additional hardship and the additional 
hardship the patients will incur, generally, will be in travel time and 
cost.

Cost per Treatment

    The facility must document that its cost per treatment is 
reasonable and explain how the facility's cost per treatment in excess 
of its composite rate relates to the isolated essential facility 
criteria. For example, if a facility incurs higher supply costs, it 
will need to identify the additional costs incurred on a per treatment 
basis and then relate that additional cost per treatment to the 
exception criteria.

Additional Information

    The facility must also furnish, in a format that concisely explains 
the facility's cost and patient data to support its request, the 
following information:
     A list of current and requested payment rates for each 
modality.
     An explanation of how the facility's costs in excess of 
its composite rate payment are attributable to the isolated essential 
facility criteria specified above in this section.
     An explanation of any unusual geographic conditions in the 
area surrounding the facility.
     A copy of the latest filed cost report and a budget 
estimate for the next 12 months on cost report forms.
     An explanation of unusual costs reported on the facility's 
actual or budgeted cost reports and any significant changes in budgeted 
costs and data compared to actual costs and data reported on the latest 
filed cost report.
     The name, location of, and distance to, the nearest ESRD 
facility.
     A list of patients, treatment modality, commuting distance 
and commuting time to current and next nearest ESRD facility.
     The historical and projected patient to staff ratios and 
number of machines used for maintenance dialysis treatments.
     A computation of the facility's treatment capacity, 
computed by dividing the maintenance treatments actually furnished by 
the total maintenance treatments that could have been furnished (in 
other words, total stations multiplied by the number of hours of 
operation divided by the average length of dialysis) for the year.
     The geographic boundaries and population size of the 
facility's service area.

Section 413.188  Payment Exception: Extraordinary Circumstances

    We would redesignate Sec. 413.170(g)(4) as Sec. 413.188 with no 
changes except for the addition of internal paragraph coding.

Section 413.190  Payment Exception Self-Dialysis Training Costs

    In new Sec. 413.190, paragraph (a) would repeat the content of 
existing Sec. 413.170(g)(5). To that we would add the documentation 
that we would require of a facility requesting a rate exception under 
this provision. We would require that a facility justify its exception 
request by separately identifying those elements contributing to its 
costs in excess of the composite training rate. We consider the 
facility's total costs, cost finding and apportionment, including its 
allocation methodology, to determine if costs are properly reported by 
treatment modality. Exception requests for a higher training rate will 
be granted only with respect to those cost components relating to 
training such as technical staff, medical supplies, and the special 
costs of education (manuals and education material). Overhead and other 
indirect costs do not generally form a basis for granting an exception.
    The facility must provide the following information to support its 
exception request:
     A copy of the facility's training program.
     Computation of the facility's cost per treatment for 
maintenance and training sessions including an explanation of the cost 
difference between the two modalities.
     Class size and patients' training schedules.
     Number of training sessions required, by treatment 
modality, to train patients.
     Number of patients trained for the current year and the 
prior 2 years on a monthly basis.
     Projection for the next 12 months of future training 
candidates.
     The number and qualifications of staff at training 
sessions.

Accelerated Training Exception

    An ESRD facility may bill Medicare for a dialysis training session 
only when a patient receives a dialysis treatment (which normally is 
three times a week). If an ESRD facility elects to train all its 
patients using a particular modality more often than during each 
dialysis treatment and, as a result, the number of its billable 
training dialysis sessions is less than its actual training sessions, 
the facility may request a composite rate limited to the lesser of the 
facility's projected training cost per treatment (CPT) or the CPT the 
facility would have received in training a patient. For example, 
facility x trains patients 5 days a week for a 3-week training period 
(15 training sessions). Facility Y trains patients only during a 
dialysis session, 3 per week, but for a 5-week training period. Both 
facilities' composite training rates were determined to be $150 per 
treatment. Facility X's payment would be adversely affected, since its 
payment would be limited to the number of billable training sessions. 
Facility X's payment would be $1,350 (3 weeks  x  3 treatments per week 
 x  $150) compared to facility Y's $2,250 payment (5 weeks  x  3 
treatments per week  x  $150). To correct this situation, an exception 
may be approved (assuming the facility documents costs) to increase 
facility X's rate not to exceed $250 per treatment ($2,250  9).
    An ESRD facility may bill a maximum per patient of 25 training 
sessions for hemodialysis training and 15 training sessions for 
continuous cycling peritoneal dialysis (CCPD) and continuous ambulatory 
peritoneal dialysis (CAPD) training. To ensure adequate patient 
training, HCFA presumes a minimum number of training sessions per 
patient in calculating exception rates, 15 for hemodialysis and 5 for 
CAPD and CCPD, where the renal facility's actual experience is less 
than the minimum number of training sessions. The minimum and maximum 
numbers are based on HCFA's national data and general program 
statistics. These numbers represent the minimum and maximum number of 
treatments necessary to adequately train a patient and have been 
established to avoid paying any additional costs associated with over-
training as well as assuring that quality of care is not jeopardized by 
not adequately training a patient.
    For example, a facility trains all its CAPD and CCPD patients in 3 
training sessions, and its composite training rate is determined to be 
$150. To calculate a facility's training exception rate, the facility's 
training rate is multiplied by 15 (the maximum training sessions per 
patient) and then divided by the facility's actual training sessions, 
unless the actual sessions are less than the minimum. Using the 
facility's actual training sessions, the exception training rate would 
be $750 ($150  x  15 = $2,250  3). However, based on using the 
minimum of 5 training sessions, the approved training rate would be 
$450 ($150  x  15 = $2250  5).
    To justify an accelerated training exception request, an ESRD 
facility must document that all training sessions provided under a 
particular modality are to be provided during the shorter but more 
condensed period. The facility must submit with the exception request a 
list of patients, by modality, trained during the most recent cost 
report period, and the list must include each beneficiary's name, age, 
and training status (completed, not completed, being retrained, or in 
the process of being trained). The total treatments from the patient 
list must agree with the total treatments reported on the cost report 
filed with the request. We propose to deny exception requests that a 
facility submits without the above documentation.

Section 413.192  Payment Exception Frequency of Dialysis

    We would redesignate paragraph (g)(6) of Sec. 413.170 as 
Sec. 413.192 and add the following provisions.
    Existing Sec. 412.170(g)(6) specifies that, to qualify for an 
exception to the prospective payment rate based on frequency of 
dialysis, the facility must have a substantial portion of outpatient 
maintenance dialysis treatments furnished to patients who dialyze less 
frequently than three times per week. A facility that furnishes a 
substantial portion of outpatient maintenance dialysis services to 
patients who dialyze less frequently than three times per week 
typically has higher costs per treatment because the treatments that 
are furnished to these patients last longer and involve higher labor 
and supply costs. For a facility to qualify as having a substantial 
portion of outpatient maintenance dialysis treatments furnished to 
patients who dialyze less frequently than three times per week, a 
facility must be able to document that it has a decrease in treatments 
in excess of 15 percent, and cost increases due to frequency. Because 
the facility is only dialyzing patients twice a week instead of three 
times, if 100 percent of their patients dialyze twice a week, the 
facility would lose 33.3 percent of treatments on an annual basis. HCFA 
has determined that 15 percent of lost treatments is substantial.
    The percentages calculated above, and HCFA's determination of what 
is substantial is explained below. If a facility had 200 patients and 
all the patients dialyzed twice a week, then the facility would be 
losing 200 billable treatments a week or 33.3 percent. This calculation 
is as follows:

200 patients x 3 times a week=600 treatments a week;
200 patients x 2 times a week=400 treatments a week;
Lost treatments=200 treatments a week.
Lost treatmentstotal treatments=percentage of lost treatments 
(200600=33.3 percent).

    To arrive at a reasonable determination of substantial, we 
concluded that slightly less than half a facility's treatments would 
have to be furnished to patients who dialyze less frequently than three 
times a week. This calculation is as follows:

200 patients x 3 times a week=600 treatments a week;
100 patients x 2 times a week=200 treatments a week;
100 patients x 3 times a week=300 treatments a week;
Total treatments furnished=500 treatments a week.
Lost treatments=100 treatments (100600=16.67 percent).

    We propose to require that, in order to document that it furnishes 
a substantial number of dialysis treatments at a frequency less than 
three times per week, a facility submit the following information. The 
facility must submit a list of patients who received outpatient 
dialysis treatments for the latest historical cost report that is being 
filed with the request. The list must indicate--
     Whether the patients are permanent, transient or 
temporary;
     The medically prescribed frequency of dialysis; and
     The number of dialysis treatments that each patient 
received on a weekly and yearly basis and an explanation of any 
discrepancy between that calculation and the number of treatments 
reported on the facility's cost report.
    The facility must also submit a list of patients used to project 
treatments. The list must indicate--
     Whether the patients are permanent, transient or 
temporary;
     The medically prescribed frequency of dialysis;
     The number of dialysis treatments that each patient is 
projected to receive on a weekly and yearly basis, an explanation of 
any discrepancy between that calculation and the number of treatments 
reported on the facility's projected cost report, and an explanation 
for any change between prior actual and projected data.
    In order for HCFA to determine if the facility meets the 15 percent 
requirement discussed above, the following information must be 
submitted:
     A schedule showing the number of treatments to be 
furnished twice a week and the number of treatments that would have 
been furnished if each beneficiary were dialyzed three times a week, 
including a computation of the facility's projected cost per treatment 
using projected treatments based on the twice a week calculation and 
the three times a week calculation.
     A schedule showing the computation of the percentage 
decrease in the number of treatments, which must be at least 15 percent 
to be deemed substantial for approval of an exception.

Section 413.194  Appeals

    Existing Sec. 413.170(h) would be redesignated as Sec. 413.194. In 
new Sec. 413.194, in addition to coding and editorial changes, we would 
make clear that exhaustion of administrative remedies is a prerequisite 
for judicial review.

Section 413.196  Notification of Changes in Rate-Setting Methodologies 
and Payment Rates

    Existing Sec. 413.170(i) would be redesignated as Sec. 413.196 with 
only coding and editorial changes.

Section 413.198  Recordkeeping and Cost Reporting Requirements for 
Outpatient Maintenance Dialysis

    Existing Sec. 413.174 would be redesignated as Sec. 413.198.

Section 413.200  Payment of Independent Organ Procurement Organizations 
and Histocompatibility Laboratories

    Existing Sec. 413.178 would be redesignated as Sec. 413.200. In new 
Sec. 413.200(b), we would revise the definition of ``Freestanding.'' We 
would provide that an organ procurement organization (OPO) or a 
histocompatibility laboratory is freestanding unless it--
     Is subject to the control of the hospital with regard to 
the hiring, firing, training and paying of employees; and
     Is considered as a department of the hospital for 
insurance purposes (including malpractice insurance, general liability 
insurance, worker's compensation insurance, and employee retirement 
insurance).
    We would remove from the definition of ``freestanding'' the 
requirement that hospital-based OPOs service a single transplant 
center. Section 4009(g) of the Omnibus Budget Reconciliation Act of 
1987 (Public Law 100-203) required that OPOs be designated by Medicare 
to include no more than one OPO per service area. As the certification 
process limited only one to an area and some of the OPOs were hospital-
based, limiting the OPO's responsibility to a single transplant center 
became impractical. An OPO (whether independent or hospital-based) is 
required to service all transplant centers in its area. Accordingly, it 
would be very rare when a hospital-based OPO would service a single 
transplant center.

Section 413.202  Organ Procurement Organizations' (OPOs') or Transplant 
Centers' Costs for Kidneys Sent to Foreign Countries or Transplanted in 
Patients Other Than Medicare Beneficiaries

    Existing Sec. 413.179 would be redesignated as Sec. 413.202 with 
changes discussed below.

Organ Acquisition Costs

    To ensure that there is a more reasonable and accurate 
determination of the Medicare program's share of heart and lung 
acquisition costs, we propose to pay transplant hospitals using the 
same method that we use to determine Medicare's share of the cost of 
acquiring kidneys. As noted earlier, organ acquisition costs are paid 
to Medicare-certified transplant centers as cost passthroughs 
(Sec. 412.113(d)). The cost of acquiring kidneys for transplant is 
determined by using a formula specified in Sec. 413.179. Existing 
Sec. 413.179 (redesignated as Sec. 413.202 in this proposed rule) 
requires that transplant hospitals compute Medicare kidney acquisition 
costs based on the ratio of the number of usable kidneys transplanted 
into Medicare beneficiaries to the total number of usable kidneys 
applied to reasonable costs. We propose to expand the applicability of 
redesignated Sec. 413.202 to include hearts and livers by making it 
apply to ``organs'' instead of ``kidneys.'' We believe that this 
revision would result in a more reasonable determination of Medicare 
heart and liver acquisition costs because the kidney formula more 
fairly accounts for Medicare's portion of such costs, including organ 
wastage. We would cross refer Sec. 412.113 to Sec. 413.202 to ensure 
proper cost determination.
    By making this change, we would ensure that acquisition costs of 
organs transplanted in non-Medicare recipients are excluded from 
Medicare payment. Section 1861(v)(1)(A) of the Act requires that the 
cost of services be borne by the appropriate payor. Accordingly, the 
cost associated with organs not used by Medicare beneficiaries must be 
borne by the responsible individual or third party payor. The law 
precludes Medicare from paying any costs associated with organs not 
used by Medicare beneficiaries.
    Consequently, we would require that Medicare-certified transplant 
centers and organ procurement organizations (OPOs) separate costs 
associated with organs transplanted in non-Medicare recipients from 
Medicare allowable costs prior to final settlement by the Medicare 
fiscal intermediary. To separate costs, we would require that the 
transplant centers compute the ratio of the number of organs used for 
Medicare beneficiaries to the total number of organs used and adjust 
the costs for organs transplanted in patients other than Medicare 
beneficiaries (proposed Sec. 413.202).

Payment for Erythropoietin (EPO)/Epoietin (EPO)

    Erythropoietin (EPO) is an anti-anemia drug given to dialysis 
patients with a specified level of anemia. Payments to ESRD facilities 
are made in increments of 1,000 unit doses, rounded to the nearest 100 
units. Section 13566 of the Omnibus Budget Reconciliation Act of 1993 
(OBRA '93) decreased the maximum payment for EPO from $11 to $10 per 
1,000 units, which is specified in section 1881(b)(11)(B)(ii) of the 
Act. This amount is subject to adjustment by HCFA, if necessary. 
Existing Sec. 413.170(c) provides that HCFA publishes annually a 
Federal Register notice indicating whether an update in the EPO payment 
amount is appropriate and requesting public comment. We would revise 
redesignated Sec. 413.174(f) to add the statutory reference and to 
clarify that when we determine that an adjustment to the payment amount 
is necessary, we publish a Federal Register notice proposing a revision 
to the EPO payment amount, but that we will no longer publish a notice 
routinely on an annual basis.

III. Response to Comments

    Because of the large number of items of correspondence we normally 
receive on a proposed rule, we are not able to acknowledge or respond 
to them individually. However, we will consider all comments that we 
receive by the date and time specified in the ``Dates'' section of this 
preamble, and we will respond to the comments in the preamble to the 
final rule.

IV. Collection of Information Requirements

    Sections 413.184, 413.186, 413.190, and 413.192 of the regulations 
contain information collection or recordkeeping requirements, or both, 
that are subject to review by the Office of Management and Budget under 
the Paperwork Reduction Act of 1980 (44 U.S.C. 3501 et seq.). The 
information collection requirements concern the documentation required 
of a facility furnishing dialysis services to patients with end stage 
renal disease that requests an exception to the prospective payment 
rate. The respondents who will provide the information include 
providers that furnish dialysis services to patients with end stage 
renal disease. No new reporting burden will exist as a result of this 
regulation, since we propose to place in regulations current 
documentation requirements already published in Chapter 27 of the PRM. 
Therefore, the public reporting burden for this collection of 
information would be the same as that for Chapter 27, which was 
approved by OMB on September 21, 1991 for use through September 30, 
1994, under control number 0938-0296. Organizations and individuals 
desiring to submit comments on the information collection and 
recordkeeping requirements should direct them to the OMB official whose 
name appears in the ``ADDRESSES'' section of this preamble. A notice 
will be published in the Federal Register after approval of the 
regulations' information collection requirements is obtained.

V. Regulatory Impact Statement

    We generally prepare a regulatory flexibility analysis that is 
consistent with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 
through 612) unless the Secretary certifies that a proposed rule would 
not have a significant economic impact on a substantial number of small 
entities. For purposes of the RFA, all hospitals and ESRD facilities 
are considered to be small entities. Individuals and States are not 
included in the definition of a small entity.
    Also, section 1102(b) of the Act requires the Secretary to prepare 
a regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 603 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 50 beds.

Payment Exception Requests

    The purpose of this portion of the proposed rule is to codify in 
regulations existing policy concerning an ESRD facility's request for 
an exception to its prospectively determined payment rate. This policy 
is contained in chapter 27 of the Provider Reimbursement Manual (PRM). 
This proposed rule would affect all ESRD facilities, including 
hospital-based and freestanding, that file for an ESRD exception 
request.
    Our records indicate that as of December 31, 1990, there were 1,968 
facilities eligible to file exception requests. Of these, 275 or 14 
percent of the facilities filed exception requests during the December 
1, 1989 to May 29, 1990 exception period. This resulted in 194 granted 
requests (mostly partially granted) and 81 denials. During our most 
recent exception request cycle, for the period March 1, 1991 through 
August 27, 1991, 135 facilities filed exception requests. This resulted 
in 87 requests being granted at least in part and 48 denials.
    Under current procedures, an ESRD facility requesting an exception 
to its prospective payment rate complies with the instructions 
contained in chapter 27 of the PRM. A facility whose request is granted 
only partially or is denied an exception may appeal its request to the 
Provider Reimbursement Review Board (PRRB). The PRRB is bound by the 
statute and regulations and, in interpreting them, may come to a 
different conclusion than if it followed program instructions. If we 
codify in regulations details now found in the PRM instructions, the 
PRRB would be presented with more specific bases for adjudicating an 
appeal of a partially denied or denied exception request.

Organ Acquisition Costs

    In 1992, there were 66 hospitals certified to perform heart 
transplants and 33 hospitals certified to perform liver transplants. 
These amount to less than two percent of all Medicare participating 
hospitals. In 1991, there were 182 liver transplants and 335 heart 
transplants performed on Medicare beneficiaries. Although the number of 
Medicare transplants represents less than one-fourth of the total 
number of heart and liver transplants, a preliminary review of cost 
report data indicates the average Medicare acquisition cost per liver 
and per heart is higher than the average non-Medicare acquisition cost. 
Most organ procurement costs are incurred before a recipient is 
identified as a Medicare beneficiary; thus, we do not believe the 
Medicare program's share of acquisition costs should exceed the non-
Medicare share. We believe that the current method of cost 
reimbursement contains the potential for transplant centers to include 
some non-Medicare costs in the Medicare costs.
    This proposed rule would extend the formula used to compute kidney 
acquisition costs to other organs, including hearts and livers. 
Acquisition costs would be based on the ratio of the number of usable 
organs transplanted into Medicare beneficiaries to the total number of 
usable organs. It would not affect our obligation to pay allowable 
organ acquisition costs, but would prevent Medicare from bearing costs 
associated with non-Medicare procedures. Based on the number of 
Medicare organ transplants, we anticipate annual Medicare program 
savings associated with this provision of less than $5 million. 
Facilities that have been correctly reporting non-Medicare acquisition 
costs would not be affected by this proposal. Facilities that have not 
would find their Medicare payments reduced to better reflect Medicare's 
share of allowable acquisition costs.
    For the reasons stated above, we are not preparing analyses for 
either the RFA or section 1102(b) of the Act since we have determined, 
and the Secretary certifies, that this proposed rule would not result 
in a significant economic impact on a substantial number of small 
entities and would not have a significant economic impact on the 
operations of a substantial number of small rural hospitals.
    In accordance with the provisions of Executive Order 12866, this 
regulation was not reviewed by the Office of Management and Budget.

List of Subjects

42 CFR Part 412

    Administrative practice and procedure, Health facilities, Medicare, 
Puerto Rico, Reporting and recordkeeping requirements.

42 CFR Part 413

    Health facilities, Kidney diseases, Medicare, Puerto Rico, 
Reporting and recordkeeping requirements.

42 CFR Part 414

    Administrative paractice and procedure, Health facilities, Health 
professions, Kidney diseases, Medicare, Reporting and recordkeeping 
requirements, Rural area, X-rays.
    42 CFR Chapter IV would be amended as set forth below:
    A. 42 CFR part 412 is amended as follows:

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL 
SERVICES

    1. The authority citation for part 412 is revised to read as 
follows:

    Authority: Secs. 1102, 1815(e), 1820, 1871, 1881, and 1886 of 
the Social Security Act (42 U.S.C. 1302, 1395g(e), 1395i-4, 1395hh, 
1395rr, and 1395ww).

    2. Section 412.113 is amended by revising paragraph (d) to read as 
follows:


Sec. 412.113  Other payments.

* * * * *
    (d) Heart, kidney, and liver acquisition costs incurred by 
hospitals with approved transplantation centers. Payment for heart, 
kidney, and liver acquisition costs incurred by hospitals with approved 
transplantation centers is made on a reasonable cost basis, as provided 
in Sec. 413.202.
    B. 42 CFR part 413 is amended as follows:

PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR 
END-STAGE RENAL DISEASE SERVICES

    1. The authority citation for part 413 continues to read as 
follows:

    Authority: Secs. 1102, 1814(b), 1815, 1833(a), 1861(v), 1871, 
1881, 1883, and 1886 of the Social Security Act as amended (42 
U.S.C. 1302, 1395f(b), 1395g, 1395l(a), 1395x(v), 1395hh, 1395rr, 
1395tt, and 1395ww).

    2.-3. Section 413.170 is revised to read as follows:


Sec. 413.170  Scope.

    Basis and purpose. This subpart implements section 1881(b)(2) and 
(b)(7) of the Act by--
    (a) Setting forth the principles and authorities under which HCFA 
is authorized to establish a prospective payment system for outpatient 
maintenance dialysis furnished in or under the supervision of an ESRD 
facility approved under subpart U of part 405 of this chapter (referred 
to as ``facility'' in this section). For purposes of this section and 
Sec. 413.198, outpatient maintenance dialysis means outpatient 
dialysis, home dialysis and self-dialysis and home dialysis training, 
as defined in Sec. 405.2102(f)(2)(ii), (f)(2)(iii), and (f)(3) of this 
chapter, and includes all items and services specified in Secs. 410.50 
and 410.52 of this chapter.
    (b) Providing procedures and criteria under which a facility may 
receive an exception to the prospective payment rates established under 
this section; and
    (c) Establishing procedures and criteria for a facility to appeal 
its payment amount under the prospective payment system.
    4. A new Sec. 413.172 is added to read as follows:


Sec. 413.172  Principles of prospective payment.

    (a) Payments for outpatient maintenance dialysis are based on rates 
set prospectively by HCFA.
    (b) All approved ESRD facilities must accept the prospective 
payment rates established by HCFA as payment in full for covered 
outpatient maintenance dialysis.
    (c) HCFA publishes the methodology used to establish payment rates 
and changes in those rates in the Federal Register, as provided in 
Sec. 413.196(b).


Sec. 413.174  [Redesignated as Sec. 413.198]

    5. Existing section 413.174 is redesignated as Sec. 413.198.
    6. A new Sec. 413.174 is added to read as follows:


Sec. 413.174  Prospective rates for hospital-based and independent ESRD 
facilities.

    (a) In accordance with section 1881(b)(7) of the Act, HCFA 
establishes prospective rates using a methodology that--
    (1) Differentiates between hospital-based facilities and 
independent ESRD facilities;
    (2) Effectively encourages efficient delivery of dialysis services; 
and
    (3) Provides incentives for increasing the use of home dialysis.
    (b) For purposes of rate-setting and payment under this section, 
HCFA considers any facility that does not meet all of the criteria of a 
hospital-based facility to be an independent facility. A determination 
under this paragraph is an initial determination under Sec. 498.3 of 
this chapter.
    (c) For purposes of rate-setting and payment under this section, 
HCFA will determine that a facility is hospital-based if the--
    (1) Facility and hospital are subject to the bylaws and operating 
decisions of a common governing board. This governing board, which has 
final administrative responsibility, approves all personnel actions, 
appoints medical staff, and carries out similar management functions;
    (2) Facility's director or administrator is under the supervision 
of the hospital's chief executive officer and reports through him or 
her to the governing board;
    (3) Facility personnel policies and practices conform to those of 
the hospital;
    (4) Administrative functions of the facility (for example, records, 
billing, laundry, housekeeping, and purchasing) are integrated with 
those of the hospital; and
    (5) Facility and hospital are financially integrated, as evidenced 
by the cost report, which reflects allocation of overhead to the 
facility through the required step-down methodology.
    (d) In determining whether a facility is hospital-based, HCFA does 
not consider--
    (1) An agreement between a facility and a hospital concerning 
patient referral;
    (2) A shared service arrangement between a facility and a hospital; 
or
    (3) The physical location of a facility on the premises of a 
hospital.
    (e) If all the physicians furnishing services to patients in an 
ESRD facility elect the initial method of payment (as described in 
Sec. 414.313(c) of this subchapter), the prospective rate (as described 
in paragraph (a) of this section) paid to that facility is increased by 
an add-on amount as described in Sec. 414.313.
    (f) Erythropoietin (EPO)/Epoietin (EPO).
    (1) When EPO is furnished to an ESRD patient by a Medicare approved 
ESRD facility or a supplier of home dialysis equipment and supplies, 
payment is based on the amount specified in paragraph (f)(3) of this 
section.
    (2) The payment is made only on an assignment basis, that is, 
directly to the facility or supplier, which must accept, as payment in 
full, the amount that HCFA determines.
    (3) HCFA determines the payment amount in accordance with the 
following rules:
    (i) The amount is prospectively determined, as specified in section 
1881(b)(11)(B)(ii) of the Act, reviewed and adjusted by HCFA, if 
necessary, and paid to hospital-based and independent dialysis 
facilities and to suppliers of home dialysis equipment and supplies, 
regardless of the location of the facility, supplier, or patient.
    (ii) If HCFA determines that an adjustment to the payment amount is 
necessary, HCFA publishes a Federal Register notice proposing a 
revision to the EPO payment amount and requesting public comment.
    (iii) Any increase in this amount for a year does not exceed the 
percentage increase (if any) in the implicit price deflator for gross 
national product (as published by the Department of Commerce) for the 
second quarter of the preceding year over the implicit price deflator 
for the second quarter of the second preceding year.
    (iv) The Medicare payment amount is subject to the Part B 
deductible and coinsurance.
    (g) In addition to the prospective payment described in this 
section, HCFA makes an additional payment for certain drugs furnished 
to ESRD patients by a Medicare-approved ESRD facility. HCFA makes this 
payment directly to the ESRD facility. The facility must accept the 
allowance determined by HCFA as payment in full. Payment for these 
drugs is made as described below:
    (1) Hospital-based facilities. HCFA makes payment in accordance 
with the cost reimbursement rules set forth in this part.
    (2) Independent facilities. HCFA makes payment in accordance with 
the methodology set forth in Sec. 405.517 of this chapter for paying 
for drugs that are not paid on a cost or prospective payment basis.
    7. A new Sec. 413.176 is added to read as follows:


Sec. 413.176  Amount of payments.

    (a) If the beneficiary has incurred the full deductible applicable 
under Part B of Medicare before the treatment, the intermediary pays 
the facility 80 percent of its prospective payment rate.
    (b) If the beneficiary has not incurred the full deductible 
applicable under Part B of Medicare before the treatment, the 
intermediary subtracts the amount applicable to the deductible from the 
facility's prospective rate and pays the facility 80 percent of the 
remainder, if any.


Sec. 413.178  [Redesignated as Sec. 413.200]

    8. Existing Sec. 413.178 is redesignated as Sec. 413.200.
    9. A new Sec. 413.178 is added to read as follows:


Sec. 413.178  Bad debts.

    (a) HCFA reimburses each facility its allowable Medicare bad debts, 
up to the facility's costs as determined under Medicare principles, in 
a single lump sum payment after the facility's cost reporting period 
ends.
    (b) A facility must attempt to collect deductible and coinsurance 
amounts owed by beneficiaries before requesting payment from HCFA for 
uncollectible amounts. Section 413.80 specifies the collection efforts 
facilities must make.
    (c) A facility must request payment for uncollectible deductible 
and coinsurance amounts owed by beneficiaries by submitting an itemized 
list of all specific uncollectible amounts related to covered services.


Sec. 413.179  [Redesignated as Sec. 413.202]

    10. Existing Sec. 413.179 is redesignated as Sec. 413.202.
    11. A new Sec. 413.180 is added to read as follows:


Sec. 413.180  Procedures for requesting exceptions to payment rates.

    (a) All payments for outpatient maintenance dialysis furnished at 
or by facilities are made on the basis of prospective payment rates.
    (b) If a facility projects on the basis of prior year cost and 
utilization trends that it will have an allowable cost per treatment 
higher than its prospective rate set under this chapter and if these 
excess costs are attributable to one or more of the factors in 
Sec. 413.182, the facility may request that HCFA approve an exception 
to that rate and set a higher prospective payment rate.
    (c) This higher payment rate is subject to the rules governing the 
amount of payment in Sec. 413.176.
    (d) A facility must request an exception to its payment rate within 
180 days of--
    (1) The effective date of its new prospective payment rate;
    (2) The effective date that HCFA opens the exceptions process; or
    (3) The date on which an extraordinary cost increasing event 
occurs, as described in Secs. 413.182(c) and 413.188.
    (e) The facility must demonstrate to HCFA's satisfaction that the 
requirements of this section and the criteria in Sec. 413.182 are fully 
met. The burden of proof is on the facility to show that one or more of 
the criteria are met and that the excessive costs are justifiable under 
the reasonable cost principles set forth in this part. The burden of 
proof is not on HCFA to show that the criteria are not met and that the 
facility's costs are not allowable.
    (f) If requesting an exception to its payment rate, a facility must 
submit to HCFA its most recently completed cost report as required 
under Sec. 413.198 and whatever statistics, data, and budgetary 
projections are determined by HCFA to be needed to adjudicate the 
exception. HCFA may audit any cost report or other information 
submitted. The materials submitted to HCFA must--
    (1) Separately identify elements of cost contributing to costs per 
treatment in excess of the facility's payment rate;
    (2) Show that the facility's costs, including those costs that are 
not directly attributable to the exception criteria, are allowable and 
reasonable under the reasonable cost principles set forth in this part;
    (3) Show that the elements of excessive cost are specifically 
attributable to one or more conditions specified in Sec. 413.182;
    (4) Specify the amount of additional payment per treatment the 
facility believes is required for it to recover its justifiable excess 
costs; and
    (5) Specify that the facility has compared its most recently 
completed cost report with prior years. The facility must explain any 
material cost changes and include the data and explanation with the 
documentation supporting the exception request.
    (g) An exception request is deemed approved unless it is 
disapproved within 60 working days after it is filed with its 
intermediary.
    (h) In determining the facility's payment rate under the exception 
process, HCFA excludes all costs that are not reasonable or allowable 
under the reasonable cost principles set forth in this part.
    (i) Except for exceptions approved under Sec. 413.182(c), a 
prospective exception payment rate approved by HCFA applies for the 
period from the date the complete exception request was filed with its 
intermediary until the earlier of the--
    (1) Date the circumstances justifying the exception rate no longer 
exist; or
    (2) End of the period during which the announced rate was to apply.
    (j) A prospective exception payment rate approved by HCFA under 
Secs. 413.182(c) and 413.188 applies from the date of the extraordinary 
event until the end of the period during which the prospective 
announced rate was to apply, unless HCFA determines that another date 
is more appropriate. If HCFA does not extend the exception period and 
the facility believes that it continues to require an exception to its 
rate, the facility must reapply in accordance with the procedures in 
this section.
    (k) HCFA denies exception requests submitted without the 
documentation specified in Sec. 413.182 and the applicable cross-
references.
    (l) Facilities that have been denied exception requests during the 
180 days may file a subsequent exception request if all required 
documentation is filed with the intermediary by the 180th day.
    12. A new Sec. 413.182 is added to read as follows:


Sec. 413.182  Criteria for approval of exception requests.

    HCFA may approve exceptions to an ESRD facility's prospective 
payment rate if the facility demonstrates by convincing objective 
evidence that its total per treatment costs are reasonable and 
allowable under the relevant cost reimbursement principles or this part 
413 and that its per treatment costs in excess of its payment rate are 
directly attributable to any of the following criteria:
    (a) Atypical service intensity (patient mix), as specified in 
Sec. 413.184.
    (b) Isolated essential facility, as specified in Sec. 413.186.
    (c) Extraordinary circumstances, as specified in Sec. 413.188.
    (d) Self-dialysis training costs, as specified in Sec. 413.190.
    (e) Frequency of dialysis, as specified in Sec. 413.192.
    13. A new Sec. 413.184 is added to read as follows:


Sec. 413.184  Payment exception: Atypical service intensity (patient 
mix).

    (a) To qualify for an exception to the prospective payment rate 
based on atypical service intensity (patient mix)--
    (1) A facility must demonstrate that a substantial proportion of 
the facility's outpatient maintenance dialysis treatments involve 
atypically intense dialysis services, special dialysis procedures, or 
supplies that are medically necessary to meet special medical needs of 
the facility's patients. Examples that may qualify under this criterion 
are more intense dialysis services that are medically necessary for 
patients such as--
    (i) Patients who have been referred from other facilities on a 
temporary basis for more intense care during a period of medical 
instability and who return to the original facility after 
stabilization;
    (ii) Pediatric patients who require a significantly higher staff-
to-patient ratio than typical adult patients; or
    (iii) Patients with medical conditions that are not commonly 
treated by ESRD facilities and that complicate the dialysis procedure.
    (2) The facility must demonstrate clearly that these services, 
procedures or supplies and its per treatment costs are prudent and 
reasonable when compared to those of facilities with a similar patient 
mix.
    (3) A facility must demonstrate that--
    (i) Its nursing personnel costs have been allocated properly 
between each mode of care; and (ii) The additional nursing hours per 
treatment are not the result of an excess number of employees.
    (b) Documentation:
    (1) A facility must submit a listing of all outpatient dialysis 
patients (including all home patients) treated during the most recently 
completed fiscal or calendar year showing--
    (i) Patients who received transplants, including the date of 
transplant;
    (ii) Patients awaiting a transplant who are medically able, have 
given consent, and are on an active transplant list, and projected 
transplants;
    (iii) Home patients;
    (iv) Infacility patients, staff-assisted or self-dialysis;
    (v) Individual patient diagnosis;
    (vi) Diabetic patients;
    (vii) Patients isolated because of a contagious disease;
    (viii) Age of patients;
    (ix) Mortality rate broken out by age and diagnosis;
    (x) Number of patient transfers, reasons for transfers and any 
related information; and
    (xi) Total number of hospital admissions for the facility's 
patients, reason for, and length of stay, of each session.
    (2) The facility must also--
    (i) Submit the following documentation on costs of nursing 
personnel (registered nurses, licensed practical nurses, technicians 
and aides) incurred during the most recently completed fiscal or 
calendar year cost report showing--
    (A) Amount each employee was paid;
    (B) Number of personnel;
    (C) Amount of time spent in the dialysis unit; and
    (D) Staff to patient ratio based on total hours, with an analysis 
of productive and nonproductive hours.
    (ii) Submit the following documentation on supply costs incurred 
during the most recently completed fiscal or calendar year cost report 
showing--
    (A) By modality, a complete list of supplies used routinely in a 
dialysis treatment;
    (B) The make and model number of dialyzer, and component cost of 
each dialyzer; and
    (C) That supplies are prudently purchased (for example, that bulk 
discounts are used when available).
    14. A new Sec. 413.186 is added to read as follows:


Sec. 413.186  Payment exception: Isolated essential facility.

    (a) To qualify for an exception to the prospective payment rate 
based on being an isolated essential facility--
    (1) The facility must be the only supplier of dialysis in its 
geographical area;
    (2) The facility's patients must be unable to obtain dialysis 
services elsewhere without substantial additional hardship; and
    (3) The facility's excess costs must be justifiable.
    (b) Criteria for approval of exception requests: In determining 
whether a facility qualifies for an exception based on its being an 
isolated essential facility, HCFA considers--
    (1) Local permanent residential population density;
    (2) Typical local commuting distances for medical services;
    (3) Volume of treatments; and
    (4) Dialysis facility usage by area residents other than the 
applying facility's patients.
    (c) Documentation:
    (1) Isolated. To be considered isolated, the facility must document 
that it is located outside an established Metropolitan Statistical Area 
and provides dialysis to a permanent patient population, as opposed to 
a transient patient population.
    (2) Essential. To be considered essential, the facility must 
document--
    (i) That a substantial number of its patients cannot obtain 
dialysis services elsewhere without additional hardship; and
    (ii) The additional hardship the patients will incur, generally, in 
travel time and cost.
    (3) Cost per treatment. The facility must--
    (i) Document that its cost per treatment is reasonable; and
    (ii) Explain how the facility's cost per treatment in excess of its 
composite rate relates to the isolated essential facility criteria 
specified in paragraph (b) of this section.
    (4) Additional information. The facility must also furnish the 
following information in a format that concisely explains the 
facility's cost and patient data to support its request:
    (i) A list of current and requested payment rates for each 
modality.
    (ii) An explanation of any unusual geographic conditions in the 
area surrounding the facility.
    (iii) A copy of the latest filed cost report and a budget estimate 
for the next 12 months prepared on cost report forms.
    (iv) An explanation of unusual costs reported on the facility's 
actual or budgeted cost reports and any significant changes in budgeted 
costs and data compared to actual costs and data reported on the latest 
filed cost report.
    (v) The name, location of, and distance to, the nearest renal 
dialysis facility.
    (vi) A list of patients by modality showing commuting distance and 
time to the current and the next nearest renal dialysis facility.
    (vii) The historical and projected patient to staff ratios and 
number of machines used for maintenance dialysis treatments.
    (viii) A computation showing the facility's treatment capacity, 
arrived at by taking the total stations multiplied by the number of 
hours of operation for the year divided by the average length of a 
dialysis treatment.
    (ix) The geographic boundaries and population size of the 
facility's service area.
    15. A new Sec. 413.188 is added to read as follows:


Sec. 413.188  Payment exception: Extraordinary circumstances.

    (a) To qualify for an exception to the prospective payment rate 
based on extraordinary circumstances, the facility must substantiate 
that it incurs excess costs beyond its control due to a fire, 
earthquake, flood, or other natural disaster.
    (b) HCFA does not grant an exception based on increased costs if a 
facility chose not to--
    (1) Maintain adequate insurance protection against such losses 
(through the purchase of insurance, the maintenance of a self-insurance 
program, or other equivalent alternative); or
    (2) File a claim for losses covered by insurance or utilize its 
self-insurance program.
    16. A new Sec. 413.190 is added to read as follows:


Sec. 413.190  Payment exception: Self-dialysis training costs.

    (a) To qualify for an exception to the prospective payment rate 
based on self-dialysis training costs, the facility must establish that 
it incurs per treatment costs for furnishing self-dialysis and home 
dialysis training that exceed the facility's payment rate for such 
training sessions.
    (b) To justify its exception request, a facility must--
    (1) Separately identify those elements contributing to its costs in 
excess of the composite training rate; and
    (2) Demonstrate that its per treatment costs are reasonable and 
allowable.
    (c) HCFA considers the facility's total costs, cost finding and 
apportionment, including its allocation of costs, to determine if costs 
are properly reported by treatment modality.
    (d) Exception requests for a higher training rate are limited to 
those cost components relating to training such as technical staff, 
medical supplies, and the special costs of education (manuals and 
education material) and do not generally include overhead and other 
indirect costs.
    (e) Documentation: The facility must provide the following 
information to support its exception request:
    (1) A copy of the facility's training program.
    (2) Computation of the facility's cost per treatment for 
maintenance sessions and training sessions including an explanation of 
the cost difference between the two modalities.
    (3) Class size and patients' training schedules.
    (4) Number of training sessions required, by treatment modality, to 
train patients.
    (5) Number of patients trained for the current year and the prior 2 
years on a monthly basis.
    (6) Projection for the next 12 months of future training 
candidates.
    (7) The number and qualifications of staff at training sessions.
    (f) Accelerated training exception:
    (1) An ESRD facility may bill Medicare for a dialysis training 
session only when a patient receives a dialysis treatment (which 
normally is three times a week).
    (2) If an ESRD facility elects to train all its patients using a 
particular treatment modality more often than during each dialysis 
treatment and, as a result, the number of its billable training 
dialysis sessions are reduced, the facility may request a composite 
rate limited to the lesser of the--
    (i) Facility's projected training cost per treatment; or
    (ii) Cost per treatment the facility would have received in 
training a patient if it had trained patients only during a dialysis 
treatment.
    (3) An ESRD facility may bill a maximum per patient of 25 training 
sessions for hemodialysis training and 15 training sessions for 
continuous cycling peritoneal dialysis (CCPD) and continuous ambulatory 
peritoneal dialysis (CAPD) training.
    (4) In computing the payment amount under an accelerated training 
exception, to ensure adequate patient training, HCFA uses a minimum 
number of training sessions per patient, (15 for hemodialysis and 5 for 
CAPD and CCPD) when the facility actually provides fewer than the 
minimum number of training sessions.
    (5) To justify an accelerated training exception request, an ESRD 
facility must document that all training sessions provided for a 
particular modality are provided during the shorter but more condensed 
period.
    (6) The facility must submit with the exception request a list of 
patients, by modality, trained during the most recent cost report 
period, and the list must include each beneficiary's--
    (i) Name;
    (ii) Age; and
    (iii) Training status (completed, not completed, being retrained, 
or in the process of being trained).
    (7) The total treatments from the patient list must be the same as 
the total treatments reported on the cost report filed with the 
request.
    17. A new Sec. 413.192 is added to read as follows:


Sec. 413.192  Payment exception: Frequency of dialysis.

    (a) To qualify for an exception to the prospective payment rate 
based on frequency of dialysis, the facility must establish that it has 
a substantial portion of outpatient maintenance dialysis treatments 
furnished to patients who dialyze less frequently than three times per 
week.
    (b) For purposes of this section, substantial means the number of 
treatments furnished by the facility is at least 15 percent lower than 
the number if all patients dialyzed three times a week.
    (c) Per treatment payment rates granted under this exception may 
not exceed the amount that results in weekly payment per patient equal 
to three times the facility's prospective composite rate, exclusive of 
any exception amounts.
    (d) Documentation: To document that an ESRD facility furnishes a 
substantial number of dialysis treatments at a frequency less than 3 
times per week per patient, the facility must submit the following 
information:
    (1) A list of patients receiving outpatient dialysis treatments for 
the cost report that is being filed with the request. The list must 
indicate--
    (i) Whether the patients are permanent, transient or temporary;
    (ii) The medically prescribed frequency of dialysis; and
    (iii) The number of dialysis treatments that each patient received 
on a weekly and yearly basis and an explanation of any discrepancy 
between that calculation and the number of treatments reported on the 
facility's cost report.
    (2) A list of patients used to project treatments. The list must 
indicate--
    (i) Whether the patients are permanent, transient or temporary;
    (ii) The medically prescribed frequency of dialysis;
    (iii) The number of dialysis treatments that each patient is 
projected to receive on a weekly and yearly basis, an explanation of 
any discrepancy between that calculation and the number of treatments 
reported on the facility's projected cost report, and an explanation 
for any change between prior actual and projected data.
    (3) A schedule showing the number of treatments to be furnished 
twice a week and the number of treatments that would have been 
furnished if each patient were dialyzed three times a week, including a 
computation of the facility's projected costs per treatment using the--
    (i) Projected number of treatments furnished twice a week; and
    (ii) Number of treatments if patients dialyze three times a week.
    (4) A schedule showing the computation of the percentage decrease 
in the number of treatments.
    18. A new Sec. 413.194 is added to read as follows:


Sec. 413.194  Appeals.

    (a) Appeals under section 1878 of the Act. (1) A facility that 
disputes the amount of its allowable Medicare bad debts reimbursed by 
HCFA under Sec. 413.178 may request review by the intermediary or the 
Provider Reimbursement Review Board (PRRB) in accordance with subpart R 
of part 405 of this chapter.
    (2) A facility must request and obtain a final agency decision 
prior to seeking judicial review of a dispute regarding the amount of 
allowable Medicare bad debts.
    (b) Other appeals. (1) A facility that has requested higher payment 
per treatment in accordance with Sec. 413.180 may request review from 
the intermediary or the PRRB if HCFA has denied the request in whole or 
in part. In such a case, the procedure in subpart R of part 405 of this 
chapter is followed to the extent that it is applicable.
    (2) The PRRB, subject to review by the Administrator under 
Sec. 405.1875 of this chapter, has the authority to review the action 
taken by HCFA on the facility's requests.
    (3) A facility must request and obtain a final agency decision 
prior to seeking judicial review of the denial, in whole or in part, of 
the exception request.
    (c) Procedure. (1) The facility must request review within 180 days 
of the date of the decision on which review is sought.
    (2) The facility may not submit to the reviewing entity, whether it 
be the intermediary or the PRRB, any additional information or cost 
data that had not been submitted to HCFA at the time HCFA evaluated the 
exception request.
    (d) Determining amount in controversy. For purposes of determining 
PRRB jurisdiction under subpart R of part 405 of this chapter for the 
appeals described in paragraph (b) of this section--
    (1) The amount in controversy per treatment is determined by 
subtracting the amount of program payment from the amount the facility 
requested under Sec. 413.180; and
    (2) The total amount in controversy is calculated by multiplying 
the amount in controversy per treatment by the projected number of 
treatments for the exception request period (as specified in 
Sec. 413.180(g) and (h)).
    19. A new Sec. 413.196 is added to read as follows:


Sec. 413.196  Notification of changes in rate-setting methodologies and 
payment rates.

    (a) HCFA or the facility's intermediary notifies each facility of 
changes in its payment rate. This notice includes changes in individual 
facility payment rates resulting from corrections or revisions of 
particular geographic labor cost adjustment factors.
    (b) Changes in payment rates resulting from incorporation of 
updated cost data or general revisions of geographic labor cost 
adjustment factors are announced by notice published in the Federal 
Register without opportunity for prior public comment. Revisions of the 
rate-setting methodology are published in the Federal Register in 
accordance with the Department's established rulemaking procedures.
    20. Newly redesignated Sec. 413.200 is amended by revising the 
heading and paragraph (b) to read as follows:


Sec. 413.200  Payment of independent organ procurement organizations 
and histocompatibility laboratories.

* * * * *
    (b) Definitions. For purposes of this section:
    Freestanding--An OPO or a histocompatibility laboratory is 
freestanding unless it--
    (1) Is subject to the control of the hospital in regard to the 
hiring, firing, training and paying of employees; and
    (2) Is considered as a department of the hospital for insurance 
purposes (including malpractice insurance, general liability insurance, 
worker's compensation insurance, and employee retirement insurance).
    Histocompatibility laboratory means a laboratory meeting the 
standards and providing the services for kidneys or other organs set 
forth in Sec. 405.2171(d) of this chapter.
    OPO means an organization that meets the definition in Sec. 485.302 
of this chapter.
* * * * *


Sec. 413.202  [Amended]

    21. In newly redesignated section 413.202, the following changes 
are made:
    (a) The heading is revised to read as follows: 413.202  Organ 
procurement organizations' (OPOs') or transplant centers' costs for 
organ sent to foreign countries or transplanted in patients other than 
Medicare beneficiaries.
    (b) The term ``organs'' is substituted for ``kidneys'' in the text 
wherever the term appears.
    (c) The phrase ``military transplant hospital'' is substituted for 
``military renal transplant hospital''.
    C. 42 CFR part 414 is amended as follows:

PART 414--PAYMENT FOR PART B MEDICAL AND OTHER HEALTH SERVICES

    1. The authority citation for part 414 continues to read as 
follows:

    Authority: Secs. 1102, 1833(a), 1834 (a) and (h), 1871, and 1881 
of the Social Security Act (42 U.S.C. 1302, 1395l(a), 1395m (a) and 
(h), 1395hh, and 1395rr).

    2. Section 414.313 is amended by revising paragraph (a) to read as 
follows:


Sec. 414.313  Initial method of payment.

    (a) Basic rule. Under this method, the intermediary pays the 
facility for routine professional services furnished by physicians. 
Payment is in the form of an add-on to the facility's composite rate 
payment, which is described in part 413 subpart H of this subchapter.
* * * * *
    3. Section 414.314 is amended by revising paragraph (a)(5) to read 
as follows:


Sec. 414.314  Monthly capitation payment method.

    (a) Basic rules. * * *
    (5) Payment for physician administrative services (Sec. 414.310) is 
made to the dialysis facility as part of the facility's composite rate 
(part 413 subpart H of this subchapter) and not to the physician under 
the MCP.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: May 15, 1994.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.

    Dated: August 10, 1994.
Donna E. Shalala,
Secretary.
[FR Doc. 94-20626 Filed 8-25-94; 8:45 am]
BILLING CODE 4120-01-P