[Federal Register Volume 75, Number 155 (Thursday, August 12, 2010)]
[Rules and Regulations]
[Pages 49030-49214]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-18466]



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Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Parts 410, 413 and 414



Medicare Program; End-Stage Renal Disease Prospective Payment System; 
Final Rule and Proposed Rule

  Federal Register / Vol. 75, No. 155 / Thursday, August 12, 2010 / 
Rules and Regulations  

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 410, 413 and 414

[CMS-1418-F]
RIN 0938-AP57


Medicare Program; End-Stage Renal Disease Prospective Payment 
System

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rule.

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SUMMARY: This final rule implements a case-mix adjusted bundled 
prospective payment system (PPS) for Medicare outpatient end-stage 
renal disease (ESRD) dialysis facilities beginning January 1, 2011 
(ESRD PPS), in compliance with the statutory requirement of the 
Medicare Improvements for Patients and Providers Act (MIPPA), enacted 
July 15, 2008. This ESRD PPS also replaces the current basic case-mix 
adjusted composite payment system and the methodologies for the 
reimbursement of separately billable outpatient ESRD services.

DATES: Effective Date: These regulations are effective on January 1, 
2011, except for Sec.  413.174(f)(6), which will be effective on 
January 1, 2014 and Sec.  413.232(f) and Sec.  413.239(b), which will 
be effective November 1, 2010.

FOR FURTHER INFORMATION CONTACT: William Cymer, (410) 786-4533. Lynn 
Riley, (410) 786-1286, (ESRD Quality Incentive Program).

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background
A. Overview of the Proposed ESRD PPS
B. Legislative History and Statutory Authority for the ESRD 
Prospective Payment System
C. Existing Basic Case-Mix Adjustments
II. Summary of the Proposed Provisions and Responses to Comments on 
the Proposed Rule
    A. The Proposed ESRD PPS Bundle
    1. Composite Rate Services
    2. ESAs and Their Oral Forms
    3. Other Drugs and Biologicals and Their Oral Forms
    a. Oral-Only ESRD-Related Drugs
    b. Other Drugs and Biologicals
    4. Diagnostic Laboratory Tests and Other Items and Services
    5. Physicians' Services
    6. Other Services
    7. Home Dialysis Patients (Method I and II) and Self
    Dialysis Training
    a. Payment for Home Dialysis (Method I and Method II)
    i. Method I--The Composite Rate
    ii. Method II--Dealing Directly with Suppliers
    b. Self-Dialysis Training
    B. Unit of Payment
    C. Data Sources
    1. Patient Claims Data
    2. Medicare Cost Reports
    3. Patient Claim and Cost Report Summary Data 2006-2008
    4. Data for the Case-Mix Analyses, 2006-2008
    5. Prescription Drug Event Data, CY 2007, CY 2008, Jan-Sept 2009
    D. Analytical Approach
    E. Development of ESRD PPS Base Rate
    1. Calculation of the CY 2007 Unadjusted Rate per Treatment
    a. Composite Rate Services
    b. Part B Drugs and Biologicals
    c. Laboratory Tests
    d. Durable Medical Equipment (DME) and Supplies
    e. Dialysis Support Services
    f. Supplies and Other Services Billed by Dialysis Facilities
    g. Former Part D Drugs
    h. Total Medicare Hemodialysis (HD)-Equivalent Sessions
    i. Average MAP per Treatment
    2. Determining the Update Factors for the Budget-Neutrality 
Calculation
    a. Composite Rate Services
    b. Self-Dialysis Support Services for Method II Patients
    c. Part B Drugs And Biologicals
    d. Laboratory Tests
    e. DME Supplies and Equipment
    f. Supplies and Other Services
    g. Former Part D Drugs
    3. Standardization Adjustment
    4. Calculation of the Budget-Neutrality Adjustments
    a. Outlier Adjustment
    b. 98 Percent Budget-Neutrality Adjustment
    5. Calculation of the Transition Budget-Neutrality Adjustment
    F. Regression Model Used To Develop Final Payment Adjustment 
Factors
    1. Regression Analysis
    a. Dependent Variables
    i. Average Cost per Treatment for Composite Rate Services
    ii. Average Medicare Allowable Payment (MAP) for Separately 
Billable Services
    b. Independent Variables
    i. Control Variables
    ii. Case-Mix Adjustment Variables
    2. Choosing Between a Separately Billable Model Based on 
Patient-Year or Patient-Month Data
    3. Patient-Level Adjustments
    a. Patient Age
    b. Patient Sex
    c. Body Surface Area and Body Mass Index
    d. Onset of Dialysis (New Patient Adjustment)
    e. Co-Morbidities
    f. ICD-9-CM Coding
    g. Race/Ethnicity
    h. Modality
    4. Proposed Facility-Level Adjustments
    a. Wage Index
    b. Low-Volume Adjustment
    i. Defining a Low-Volume facility
    ii. Defining the Percent of Increase
    c. Alaska/Hawaii Facilities
    d. Rural
    e. Site Neutral ESRD PPS Rate
    5. Determination of ESRD PPS Payment Adjusters
    G. Pediatric Patients
    1. The Revised Payment Methodology for the Pediatric Payment 
Adjustments
    2. Composite Rate Payments for Pediatric Patients
    3. Separately Billable Services
    4. No Caps Applied to the Separately Billable MAP per Treatment
    5. A Combined Composite Rate and Separately Billable Payment 
Model for Pediatric Patients
    6. Adult Payment Adjustments That Do Not Apply to Pediatric 
Patients
    H. Outlier Policy
    1. Eligibility for Outlier Payment
    a. ESRD Outlier Services
    b. Predicted ESRD Outlier Services MAP Amounts
    c. Estimating the Imputed ESRD Outlier Services MAP Amounts
    i. Data Used To Estimate Imputed ESRD Outlier Services MAP 
Amounts
    ii. Determining Imputed Per Treatment ESRD Outlier Services MAP 
Amount
    d. Outlier Percentage and Fixed Dollar Loss Amounts
    2. Outlier Payments
    3. Hypothetical Outlier Payment Examples
    4. Application of Outlier Policy During the Transition and in 
Relation to the ESA Monitoring Policy, Other Claims Processing 
Tools, and Other CMS Policies
    I. Comprehensive Payment Model Examples
    J. ESRD Bundled Market Basket
    K. Implementation
    1. Transition Period
    a. New ESRD Facilities
    b. Limitation on Beneficiary Charges Under the ESRD PPS and 
Beneficiary Deductible and Co-Insurance Obligations
    2. Claims Processing
    a. Consolidated Billing Rules and Edits
    i. Laboratory Tests
    ii. Drugs and Biologicals
    iii. Home Dialysis
    b. Expansion of the Data Elements Reported on Claims
    3. Miscellaneous Comments
    4. Comments Regarding Monitoring
    5. Comments Beyond the Scope of This Final Rule
    L. Evaluation of Existing ESRD Policies and Other Issues
    1. Exceptions Under the Case-Mix Adjusted Composite Payment 
System
    2. Erythropoiesis Stimulating Agent (ESA) Claims Monitoring 
Policy
    3. ESRD Facility Network Deduction
    4. Bad Debt
    5. Limitation on Review
    6. 50 Percent Rule Utilized in Laboratory Payments
    7. Medicare as a Secondary Payer
    8. Conforming Regulation Changes
    M. Anemia Management and Dialysis Adequacy Measures
    1. Anemia Management Measures: Hemoglobin Less Than 10 g/dL and 
Hemoglobin Greater Than 12 g/dL

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    2. Hemodialysis Adequacy Measure: Urea Reduction Ratio (URR)
    3. Additional Comments
    III. Collection of Information Requirements
    A. ICRs Regarding a Low-Volume Adjustment (Sec.  413.232(f))
    B. ICRs Regarding Transition Period (Sec.  413.239)
    IV. Regulatory Impact Analysis
    A. Overall Impact
    B. Anticipated Effects
    1. Effects on ESRD Facilities
    2. Effects on Other Providers
    3. Effects on the Medicare and Medicaid Programs
    4. Effects on Medicare Beneficiaries
    C. Alternatives Considered
    D. Accounting Statement and Table
    E. Conclusion
Regulations Text
Appendix

Acronym List

    Because of the many terms to which we refer by acronym in this 
proposed rule, we are listing the acronyms used and their corresponding 
meanings in alphabetical order below:

Act The Social Security Act
ASC Ambulatory surgical center
AV Arteriovenous
BIPA Medicare, Medicaid, and SCHIP (State Children's Health 
Insurance Program) Benefits Improvement and Protection Act of 2000 
(Pub. L. 106-554)
BMI Body mass index
BSA Body surface area
BLS Bureau of Labor Statistics
CAH Critical assess hospitals
CAPD Continuous ambulatory peritoneal dialysis
CBC Complete blood count
CBSA Core-Based Statistical Area
CCPD Continuous cycling peritoneal dialysis
CDC Centers for Disease Control and Prevention
CFC Conditions for Coverage
CFR Code of Federal Regulations
CKD Chronic kidney disease
CMS Centers for Medicare & Medicaid Services
COLA Cost of living allowance
CPM Clinical performance measure
CR Composite rate
CROWN Consolidated Renal Operations in a Web-Enabled Network
CY Calendar year
DFC Dialysis facility compare
DME Durable medical equipment
EDB Enrollment Data Base
EPO Epoetin alfa
ESA Erythropoiesis stimulating agent
ESRD End-stage renal disease
FI Fiscal intermediary
FY Fiscal year
GAO Government Accountability Office
GI Gastrointestinal
HD Hemodialysis
IDPN Intradialytic parenteral nutrition
IEF Isolated essential facility
IHS Indian Health Service
IPD Intermittent peritoneal dialysis
IPN Intraperitoneal parenteral nutrition
IPPS Inpatient prospective payment system
IQR Interquartile range
Kt/V A measure of dialysis adequacy where K is dialyzer clearance, t 
is dialysis time, and V is total body water volume
LDO Large dialysis organization
LPN Licensed practical nurse
LTC Long term care
MAC Medicare Administrative Contractor
MAP Medicare allowable payment
MBR Master beneficiary record
MCP Monthly capitation payment
MCR Medical cost reports
MedPAC Medicare Payment Advisory Commission
MIPPA Medicare Improvements for Patients and Providers Act of 2008 
(Pub. L. 110-275)
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (Pub. L. 108-173)
MRSA Methylcyline resistance staphylococcus aurues
MSA Metropolitan Statistical Area
MUE Medically unbelievable edit
NAICS North American Industry Classification Systems
NIH National Institutes of Health
NKF-KDOQI National Kidney Foundation's Kidney Disease Quality 
Initiative Clinical Practice Guidelines
NOS Not otherwise specified
NQF National Quality Forum
OMB Office of Management and Budget
OPPS Outpatient prospective payment system
OSCAR Online State Certification and Reporting System
PD Peritoneal dialysis
PDE Prescription drug event
PFS Physician fee schedule
PPI Producer price index
PPS Prospective payment system
PRS Practice-related risk score
PVD Peripheral vascular disease
QIP Quality Incentive Program
REMIS Renal Management Information System
RN Registered nurse
RRB Railroad Retirement Board
RRT Renal replacement therapy
SAF Standard analytical file
SB Separately billable
SDO Small dialysis organization
SIMS ESRD Standard Information Management System
SSA Social Security Administration
UM-KECC University of Michigan, Kidney Epidemiology & Cost Center
URR Urea reduction ratio
USRDS United States Renal Data System
WAC Wholesale acquisition cost

I. Background

A. Overview of the Proposed ESRD PPS

    On September 29, 2009, we published in the Federal Register a 
proposed rule entitled ``End-Stage Renal Disease Prospective Payment 
System'' (74 FR 49922). In that rule, we proposed that the ESRD PPS 
would combine payments for composite rate and separately billable 
services into a single base rate of $198.64 developed from CY 2007 
claims data (74 FR 49944). Under the proposed rule, the base rate would 
be adjusted using patient-specific case-mix adjustment factors 
developed from separate equations for composite rate and separately 
billable services (74 FR 49949). The case-mix adjusters would include 
variables for age, body surface area (BSA), low body mass index (BMI), 
patient sex, eleven co-morbidity categories, and the onset of renal 
dialysis. The proposed adjustment factors were developed using standard 
techniques of multiple regression analysis to yield case-mix adjusted 
payments per treatment. The per treatment payment amounts would also be 
adjusted to reflect urban and rural differences in area wage levels 
using an area wage index developed from Core Based Statistical Area 
(CBSA) definitions (74 FR 49968). The proposed rule also provided that 
ESRD facilities treating patients with unusually high resource 
requirements as measured through their utilization of identified 
services beyond a specified threshold would be entitled to outlier 
payments, that is, additional payments beyond the otherwise applicable 
case-mix adjusted prospective payment amount (74 FR 49988). The 
proposed ESRD PPS also provided for special adjustments for pediatric 
patients (74 FR 49981) and for facilities treating a low-volume of ESRD 
patients) 74 FR 49969), as well as a 4-year transition (phase-in) 
period under which facilities would receive a blend of payments under 
the prior case-mix adjusted composite payment system and the new ESRD 
PPS (74 FR 50003). This final rule will implement a case-mix adjusted 
bundled PPS for Medicare outpatient ESRD dialysis patients beginning 
January 1, 2011, in accordance with the statutory provisions set forth 
in section 153(b) of MIPPA.

B. Legislative History and Statutory Authority for the ESRD Prospective 
Payment System

    Section 299I of the Social Security Amendments of 1972, Public Law 
92-603, established the ESRD program under Medicare. That law extended 
Medicare coverage to individuals regardless of age who have permanent 
kidney failure, requiring either dialysis or kidney transplantation to 
maintain life, and meet certain other eligibility criteria.
    The enactment of the Omnibus Budget Reconciliation Act of 1981, 
Public Law 97-35, resulted in changes to the ESRD payment system. 
Section 2145 of Public Law 97-35 amended section 1881 of the Act by 
requiring the Secretary to provide by regulation a method for 
determining prospectively

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the amounts of payments for dialysis services furnished by providers of 
services and renal dialysis facilities to individuals in a facility, 
and to such individuals at home. In particular, the law required that 
such method be based on a single composite weighted formula 
(``composite rate'') (which takes into account the mix of patients who 
receive services at a facility or at home and the relative costs for 
furnishing such services) for hospital-based facilities and such a 
single composite rate for other renal dialysis facilities, or that 
payment be based on such other method or combination of methods which 
differentiate between hospital-based and other renal dialysis 
facilities, and which would more effectively encourage more efficient 
delivery of dialysis services and would provide greater incentives for 
increased use of home dialysis.
    As a result of these statutory requirements, on February 12, 1982, 
we published a proposed rule on reimbursement for outpatient dialysis 
services (47 FR 6556) to implement section 1881 of the Act, as amended 
by section 2145 of Public Law 97-35. The regulations provided that each 
facility would receive a payment rate per dialysis treatment 
(``composite rate''), that is adjusted for geographic differences in 
area wage levels for the treatment furnished in the facility or at 
home. We refer to the methodology for payment of outpatient maintenance 
dialysis services on a per-treatment basis as the ``composite payment 
system''.
    Final regulations implementing the composite payment system were 
published on May 11, 1983 (48 FR 21254). The initial payment rates, 
which were developed from Medicare cost reports for fiscal years ending 
in 1977, 1978, and 1979, were established at $127 per treatment for 
independent facilities and $131 for hospital-based facilities. The 
composite payment system was effective August 1, 1983. It was limited 
to payments for the costs incurred by dialysis facilities furnishing 
outpatient maintenance dialysis, including some routinely provided 
drugs, laboratory tests, and supplies, whether furnished by hospital-
based and independent facilities in a facility or at home. We 
established separate rates for hospital-based and independent dialysis 
facilities, and provided a process under which facilities with costs in 
excess of their payment rates could seek exceptions to those rates 
under specified circumstances.
    With regard to home dialysis, this system was the basis for 
reimbursing home dialysis furnished by hospital-based and independent 
facilities (Method I). (The other is Method II, under which the 
beneficiary works directly with a durable medical equipment (DME) 
supplier to obtain the supplies and equipment needed.) For further 
information on the distinctions between Method I and Method II, see 
section II.A.7. of this final rule.
    The composite payment system implemented in 1983 was relatively 
comprehensive with respect to the renal dialysis services included as 
part of the composite payment bundle. However, over time a substantial 
portion of expenditures for renal dialysis services became excluded 
from the composite payment system and reimbursed in accordance with the 
respective fee schedules or other payment methodologies. For example, 
payments for erythropoiesis stimulating agents (ESAs) such as epoetin 
alfa (EPO, for example, Epogen[supreg]) and darbepoetin alfa 
(ARANESP[supreg]) used to treat anemia, and vitamin D analogues 
(paracalcitol, doxercalciferol, calcitriol), are made outside of the 
composite payment system as separately billable services. These 
separately billable services currently comprise about 40 percent of 
total spending for outpatient maintenance dialysis. Thus, the current 
payment for outpatient maintenance dialysis under Medicare represents a 
mix of prospective payment, fee-for-service, and other payment rules.
    Subsequent inflation increases to the composite payment system 
occurred only in response to specific statutory directives. For 
example, between 1983 and 2001, the payment rates were increased only 
three times. A $1.00 increase per treatment was effective January 1, 
1991 as a result of the enactment of the Omnibus Budget Reconciliation 
Act of 1990, Public Law 101-508. The rates were not revised again until 
the enactment of the Medicare, Medicaid, and SCHIP Balanced Budget 
Refinement Act of 1999, Public Law 106-113, which increased the 
payments by 1.2 percent effective January 1, 2000 and January 1, 2001, 
respectively.
    During the last few years, policymakers and other interested 
parties, including the Medicare Payment Advisory Commission (MedPac) 
and the Government Accountability Office (GAO), have examined the 
Medicare outpatient maintenance dialysis payment system and suggested a 
bundled prospective payment approach. See Medicare Payment Advisory 
Commission (MedPAC): Report to the Congress: Medicare Payment Policy, 
March 2001, March 2005, and March 2007, and GAO Report GAO-07-77, End 
Stage Renal Disease: Bundling Medicare's Payment for Drugs with Payment 
for All ESRD Services Would Promote Efficiency and Clinical 
Flexibility, November 2006. The ESRD PPS would combine composite rate 
dialysis services with separately billable services under a single 
payment, adjusted to reflect patient differences in resource needs or 
case-mix. As in any PPS, dialysis facilities would keep the difference 
if Medicare payments exceeded costs for the bundled services, and would 
be liable for the difference if costs exceeded Medicare payments.
    Aside from resulting in a single comprehensive payment for all 
services included in the bundle, we believe the ESRD PPS would meet 
several objectives. These include reducing incentives to overuse 
profitable separately billable drugs, particularly EPO, the targeting 
of greater payments to ESRD facilities with more costly patients to 
promote both equitable payment and access to services, and the 
promotion of operational efficiency. Because of the increased 
flexibility a bundled PPS would provide in the delivery of outpatient 
maintenance dialysis services, we believe that it could also increase 
desirable clinical outcomes, resulting in an enhanced quality of care.
    The Congress has twice required studies on the bundling of 
additional services into the composite payment system. In section 
422(c)(2) of the Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000 (BIPA), Pub. L. 106-554, the Congress required 
the Secretary to issue a report on a bundled system that would include 
separately billable drugs and clinical laboratory services routinely 
used in furnishing dialysis. The Secretary submitted this report, 
Toward a Bundled Outpatient Medicare End Stage Renal Disease 
Prospective Payment System, to Congress in May 2003. That report 
contained three major findings that would form the basis for the 
subsequent development of the ESRD PPS:
    1. Currently available administrative data are adequate for 
proceeding with the development of an expanded outpatient ESRD PPS.
    2. Case-mix adjustment is potentially feasible based on available 
clinical information for ESRD patients in order to pay facilities 
appropriately for treating more costly resource intensive patients.
    3. Current quality review initiatives provide a basis for 
monitoring the impact of a bundled ESRD PPS after implementation, to 
ensure quality of

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care does not deteriorate in response to the system's efficiency 
incentives.
    The Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (MMA), Public Law 108-173, also required the Secretary to 
submit to the Congress a report detailing the elements and features for 
the design and implementation of a bundled ESRD PPS. Section 623(f)(1) 
of the MMA specified that such a system should include the bundling of 
separately billed drugs, clinical laboratory tests, and other items 
``to the maximum extent feasible''. That section also required the 
report to include a description of the methodology to be used to 
establish payment rates and that the report, detailing the design of an 
appropriate bundled payment system, be submitted to the Congress by 
October 1, 2005. Section 623(e) of the MMA also required a 
demonstration project testing the feasibility of using a fully bundled 
case-mix adjusted ESRD PPS.
    In addition to requiring a report on a bundled ESRD PPS, section 
623 of the MMA amended section 1881(b) of the Act, by requiring 
significant revisions to the composite payment system. Specifically, 
section 623 of the MMA required:
     An increase of 1.6 percent to the composite payment rates 
effective January 1, 2005.
     An add-on to composite rate payments to account for the 
difference in payments for separately billable drugs based on a revised 
drug pricing methodology compared to the previous method.
     A ``basic'' case-mix adjustment to an ESRD facility's 
composite payment rate reflecting a ``limited number of patient 
characteristics.''
     That total payments under the basic case-mix adjusted 
composite payment system be budget neutral.
     An annual increase to the basic case mix adjusted payment 
amounts based on projected growth in expenditures for separately billed 
drugs (the ``growth update'').
     That payment rates be adjusted by a geographic index, as 
determined appropriate by the Secretary (and phased-in to the extent 
such index differed from the previous payment system).
     Reinstatement of the composite rate exceptions process, 
eliminated for most dialysis facilities beginning December 31, 2000 
under BIPA, for ESRD pediatric facilities, effective October 1, 2002.
    On August 5, 2004 and November 15, 2004, we published a proposed 
rule and final rule (69 FR 47487 through 47730 and 69 FR 66235 through 
66915), respectively, implementing the provisions affecting the 
composite payment system effective January 1, 2005, as set forth in 
section 623 of the MMA. We refer to the modified composite payment 
system as the ``basic case-mix adjusted composite payment system''. The 
development and application of the basic case-mix adjustments, using 
regression based adjustment factors for the patient variables of age, 
BMI, and low BMI, are explained in each of those rules. (For more 
information, we refer readers to 69 FR 47529 and 69 FR 66323, 
respectively.) The product of the specific adjusters for each patient, 
multiplied by the otherwise applicable composite payment rate, yielded 
the basic case-mix adjustment required by the MMA. The basic case-mix 
adjusted composite payment system was effective April 1, 2005, and was 
developed from research conducted by the University of Michigan Kidney 
Epidemiology and Cost Center (UM-KECC) and summarized in its report, 
Methodology for Developing a Basic Case-Mix Adjustment for the Medicare 
ESRD Prospective Payment System (May 19, 2004 report and April 1, 2005 
addendum).
    Subsequent to our implementation of the MMA requirements discussed 
above, UM-KECC continued its research to develop a case-mix adjusted 
ESRD PPS that would combine composite rate and separately billable 
services. UM-KECC reported its findings and recommendations in a final 
report submitted to CMS in February 2008, End Stage Renal Disease 
Payment System: Results of Research on Case-Mix Adjustment for an 
Expanded Bundle. That report is available on the internet at: http://www.sph.umich.edu/kecc/assets/documents/UM-KECC%20ESRD%20Bundle%20Report.pdf. UM-KECC's final report formed the 
basis for the Secretary's February 2008 Report to Congress, A Design 
for a Bundled End Stage Renal Disease Prospective Payment System, 
mandated under section 623(f)(1) of the MMA.
    The aspects of the basic case-mix adjusted composite payment system 
implemented as a result of section 1881(b)(12) of the Act are important 
because they provide a foundation for the development of the case-mix 
adjusted bundled ESRD PPS required under Public Law 110-275, the 
Medicare Improvements for Patients and Providers Act of 2008 (MIPPA). 
The basic case-mix adjustment mandated under the MMA is described in 
detail in the next section and only affects the composite rate. It does 
not reflect costs associated with separately billable services. 
Separately billable services, particularly injectable drugs, are a 
significant component of the total dialysis resources used for each 
patient.
    The implementation of the basic case-mix adjustments to the 
composite payment system effective April 1, 2005, and the Secretary's 
February 2008 Report to Congress, suggested that a bundled ESRD PPS 
which combined composite rate and separately billable services to yield 
case-mix adjusted payments was technically feasible. The report defined 
a payment bundle of dialysis-related services, described the 
methodology used to develop the regression based case-mix adjusters and 
the base period payment rates to which the case-mix adjusters would be 
applied, and discussed numerous other issues relevant to the bundling 
of outpatient dialysis services under a system of prospective payments.
    As a result of the July 15, 2008 enactment of MIPPA, section 153(b) 
of MIPPA amended section 1881(b) of the Act to require the 
implementation of an ESRD bundled payment system effective January 1, 
2011 (herein referred to as the ``ESRD PPS''). Consistent with the 
language under the statute, we will refer to hospital-based and 
independent renal dialysis facilities as ``providers'' and 
``facilities'', respectively, and when addressing both types of 
facilities, we will collectively refer to such entities as ``ESRD 
facilities'', as set forth in Sec.  413.171. Section 153(b) of MIPPA 
specifies the following:
     The Secretary must implement a payment system under which 
a single payment is made to a provider of services or a renal dialysis 
facility for ``renal dialysis services'' in lieu of any other payment, 
and for such services and items furnished for home dialysis and self-
care home dialysis support services.
     A definition for the ``renal dialysis services'' that are 
included in the payment bundle.
     The estimated amount of total payments under the ESRD PPS 
for 2011 must be equal to 98 percent of the estimated total amount of 
payments for renal dialysis services paid under Medicare, including 
payments for drugs, that would have been made with regard to services 
in 2011 if the new system was not implemented. Such estimate must be 
made based on per patient utilization data from 2007, 2008, or 2009, 
whichever year has the lowest per patient utilization.
     The ESRD PPS must include adjustments for case-mix 
variables, high cost outlier payments, and low-volume facilities and 
provide for a four-year transition (phase-in) period, with all 
facilities transitioned into the ESRD PPS

[[Page 49034]]

on January 1, 2014. ESRD facilities may make a one-time election before 
January 1, 2011, to be paid under the ESRD PPS and not go through the 
transition period.
     The ESRD PPS may include other payment adjustments, as the 
Secretary determines appropriate, including the use of a geographic 
index, and potential adjustments for pediatric patients and rural ESRD 
facilities, and may provide for a unit of payment as the Secretary 
specifies (for example, per treatment or per unit of time).
     The ESRD PPS payment amounts must be annually increased by 
an ESRD bundled market basket beginning in 2012, and during the 
transition.
     Section 623(e) of the MMA, which requires a demonstration 
project of the use of a case-mix adjusted bundled ESRD PPS, was 
repealed.
    Section 153(a)(1) of MIPPA also requires that the composite payment 
rates be increased by 1.0 percent effective for services furnished on 
or after January 1, 2009, and before January 1, 2010, and increased by 
1.0 percent for services furnished on or after January 1, 2010. In 
addition, section 153(a)(2) of MIPPA requires that the payment rate for 
dialysis services furnished on or after January 1, 2009, by ESRD 
providers of services, be the same as the payment rate for such 
services furnished by renal dialysis facilities. On November 19, 2008, 
we published the CY 2009 Physician Fee Schedule final rule (73 FR 
69754), implementing the site neutral composite rate for ESRD 
facilities and the CY 2009 1.0 percent increase to the composite rate. 
On November 25, 2009, we published in the Federal Register the CY 2010 
1.0 percent increase to the composite rate in the CY 2010 Physician Fee 
Schedule final rule (74 FR 61901).
    In the following sections of this final rule, we describe the ESRD 
PPS we are implementing effective January 1, 2011, in compliance with 
the statutory requirements of MIPPA, and in response to the comments 
received in connection with the proposed rule published September 29, 
2009.

C. Existing Basic Case-Mix Adjustments

    Resources required to furnish routine dialysis such as staff and 
equipment time vary by patient. Because of the variation in resources 
required to furnish routine dialysis to individuals with varying 
patient characteristics, facilities that treat a greater than average 
proportion of resource-intensive patients could be economically 
disadvantaged if they are paid a rate based on average resources. In 
addition, patients who are costlier than average to dialyze may face 
difficulties gaining access to care because a fixed composite payment 
rate could create a disincentive to treat such patients. The purpose of 
a case-mix adjustment based on patient characteristics is to make 
higher payments to ESRD facilities treating more resource-intensive 
patients, according to objective quantifiable criteria.
    The costs of providing the routine maintenance dialysis services 
that are paid under the composite rate are reported on the Medicare 
cost reports for hospital-based and independent ESRD facilities (Forms 
CMS 2552-96 and CMS 265-94, respectively). In order to determine a 
basic case-mix adjustment that could be applied to each ESRD facility's 
composite rate, UM-KECC further examined the relationship between 
facility-level costs for composite rate services based on the Medicare 
cost reports for hospital-based and independent facilities, and the 
average characteristics of patients treated by the facility. The 
research used data from Medicare cost reports for 3,254 ESRD facilities 
for 2000 to 2002, patient characteristics/co-morbidity data from CMS's 
Medical Evidence Form 2728 (Form 2728) for 1995 through 2002, and 
Medicare claims for approximately 360,000 ESRD patients. Based on 
standard techniques of multiple regression analysis, UM-KECC found that 
age and body size had significant relationships to composite rate 
costs. The body size variables were BSA and low BMI, calculated based 
on a patient's height and weight which is reported on Medicare claims.
    A BMI less than 18.5 kg/m\2\ is considered a clinical measure of 
underweight status and is an indicator of patients who are malnourished 
or suffering from co-morbidities such as wasting syndrome. BSA is 
closely associated with the duration and intensity of dialysis required 
to achieve targets for dialysis adequacy. Facilities with a larger 
proportion of patients with a greater than average BSA, or with a BMI 
lower than 18.5, were found to have greater composite rate costs. The 
research also revealed a U-shaped relationship between age and 
composite rate costs, with the youngest and oldest age groups incurring 
greater costs for composite rate services due to resource needs.
    The outcome of UM-KECC's research was a set of basic case-mix 
adjusters or multipliers for ESRD patients based on three variables. 
These variables were: (1) The patient's age (five groups), (2) BSA (a 
patient-specific value based on incremental differences from the 
national patient average), and (3) BMI category (two groups, value 
either less than, or equal to/greater than 18.5 kg/m\2\). CMS also 
developed a special adjuster for pediatric patients outside of UM-
KECC's research methodology based on analysis of a sample of Medicare 
cost reports. The adjuster for each of these three variables is 
multiplied by the facility's composite rate to yield the current 
``basic'' case-mix adjustment for each ESRD patient according to the 
specified patient characteristics.
    These adjusters are as follows:

[[Page 49035]]

[GRAPHIC] [TIFF OMITTED] TR12AU10.008

    The above multipliers were derived from the coefficients of the 
regression model used to predict facility differences in composite rate 
costs based on UM-KECC's research. For example, the case-mix adjuster 
for a 47 year old ESRD patient who is underweight (BMI < 18.5 kg/m\2\) 
and has a BSA of 2.0 m\2\ would be calculated as follows:

Age Adjuster 1.055
BSA Adjuster 1.037(2.0-1.84)/0.1 = 1.060
Low BMI Adjuster 1.112
Case-Mix Adjuster 1.055 x 1.060 x 1.112 = 1.244
    The resulting case-mix adjustment factor of 1.244 for this patient 
would be multiplied by the facility's otherwise applicable wage 
adjusted composite payment rate.
    The basic case-mix adjustment mandated under the MMA only affects 
the composite rate. It does not reflect costs associated with 
separately billable services. Separately billable services, 
particularly injectable drugs, are a significant component of the total 
dialysis resources used for each patient. Prior to the enactment of 
MIPPA on July 15, 2008, however, CMS did not have authority to bundle 
those services into a case-mix adjusted PPS.

II. Summary of the Proposed Provisions and Responses to Comments on the 
Proposed Rule

    The proposed rule was published in the Federal Register on 
September 29, 2009 with a comment period that ended on November 16, 
2009 (74 FR 49922). We received approximately 1475 public comments, 
including comments resulting from a large write-in campaign regarding 
oral Part D drugs. Interested parties that submitted comments included 
numerous dialysis facilities, the national organizations representing 
dialysis facilities, nephrologists, and patients, the major chain 
facilities, clinical laboratories, pharmaceutical manufacturers, 
hospitals and their representatives, individual dialysis patients, and 
MedPAC. Following publication of the proposed rule, we received several 
requests to extend the comment period to allow time for stakeholders to 
understand the proposed ESRD payment changes and to formulate comments 
that would be meaningful to CMS. On November 4, 2009 we published a 
notice (74 FR 57127) in the Federal Register extending the public 
comment period an additional 30 days to December 16, 2009, to provide 
additional time for the public to examine the proposed rule and provide 
meaningful comments on its provisions. In this final rule we provide a 
summary of each proposed provision, a summary of the public comments 
received, our responses to them, and any changes to the proposed ESRD 
PPS we are implementing in this final rule as a result of comments 
received. Below we address general comments received regarding the 
proposed rule.
    Comment: Clinicians, health systems, medical supply companies, 
patients, and hospital-based and independent ESRD facilities from 
small, medium, and large dialysis organizations requested that rather 
than proceeding by issuing a final rule, CMS issue its next public 
notice as an interim final rule with an additional opportunity for 
public comment prior to the implementation deadline. Commenters 
provided several reasons for this position including:
     A lack of clarity and specificity with regard to the 
proposals in the proposed rule will make implementation difficult and 
compromise ESRD facilities' viability. Specifically, operational 
questions remain unanswered such as the way in which billing for 
laboratory tests would occur during the transition, the way in which 
medical history would be retrieved for purposes of the co-morbidity 
adjustments, and the way in which ESRD facilities would provide 
patients with oral drugs. Commenters noted that absent additional 
clarification in these areas it would be difficult to implement the 
provisions of the ESRD PPS in the short timeframe between the expected 
publication of a final rule and its implementation on January 1, 2011.
     A lack of transparency with regard to the data used in 
developing the proposed rule. Specifically, some commenters noted that 
they did not have access to Part D data or CMS' rate setting data file 
that would have facilitated their ability to fully analyze the impact 
of the ESRD PPS.
     The absence of administrative or judicial reviews, a 
feature mandated by MIPPA, would mean there would be an inability to 
challenge payment making it

[[Page 49036]]

even more important that the provisions of the final ESRD PPS rule are 
correct.
     The additional time associated with issuing an interim 
final rule would help bring to light inequities between ESRD provider 
types and the level of owned service lines including laboratory, 
pharmacy, equipment and supplies.
     Concern about the potential for unintended patient and 
provider consequences that may result from the ESRD PPS and believed 
that issuing an interim final rule would reduce this risk by allowing 
additional time to address stakeholder concerns.
    Response: We understand the commenters' interest in ensuring that 
potential unintended negative consequences associated with the new ESRD 
PPS are minimized. However, we believe that we have adequately 
reflected the essential elements of the ESRD PPS in the proposed rule 
including basic issues associated with implementing the system and have 
received a comprehensive collection of public comments from a wide 
array of stakeholders to which we have responded in this rule. 
Specifically, as noted in section II.K.2. of this final rule, we have 
clarified the way in which provider billing for laboratory tests would 
occur during the transition. We have also clarified our position with 
respect to co-morbidity adjustments and their associated administrative 
burden in section II.F.3. of this final rule. As noted in section 
II.K.2. of this final rule, we have addressed implementation issues 
associated with ESRD facility provision of oral drugs.
    With regard to the lack of transparency in sharing the data that 
was used in developing the ESRD PPS proposed rule, we note that the 
files to which commenters refer contain patient-specific data. To 
maintain patient confidentiality and privacy we are unable to share 
such data. However, we posted detailed information by facility which 
was used for purposes of assessing facility-level impact.
    In addition, we note that following publication of the ESRD PPS 
proposed rule, we posted the CY 2011 Proposed Rule ESRD PPS Facility 
Level Impact File to the ESRD Payment Web site (http://www.cms.hhs.gov/ESRDPayment/PAY/itemdetail.asp?filterType=none&filterByDID=99&sortByDID=4&sortOrder=descending&itemID=CMS1228517&intNumPerPage=10). This file includes facility 
level data that was used by CMS to assess the impact of the proposed 
ESRD PPS.
    Given that we have issued a proposed rule containing a detailed 
proposal for an ESRD PPS, allowed for an extended 90-day public comment 
period, and carefully considered the comments received, we believe that 
a final rule is appropriate. In addition, because of the January 1, 
2011 implementation deadline mandated by MIPPA, we believe that 
finalizing the rule now will maximize the amount of time ESRD 
facilities will have to implement the provisions of this rule prior to 
the implementation deadline. For these reasons we are issuing this 
document as a final rule.

A. The Proposed ESRD PPS Bundle

    Section 1881(b)(14)(A)(i) of the Act, as added by section 153(b) of 
MIPPA, specifies that the ESRD PPS must represent a single payment to 
ESRD facilities for ``renal dialysis services'' in lieu of any other 
payment, and home dialysis supplies, equipment, and support services 
furnished pursuant to section 1881(b)(4) of the Act. Section 
1881(b)(14)(B) of the Act, which identifies the renal dialysis services 
that are to be included in the ESRD PPS payment bundle, provides the 
following:

    * * * the term ``renal dialysis services'' includes--
    (i) Items and services included in the composite rate for renal 
dialysis services as of December 31, 2010;
    (ii) Erythropoiesis stimulating agents and any oral form of such 
agents that are furnished to individuals for the treatment of end 
stage renal disease;
    (iii) Other drugs and biologicals that are furnished to 
individuals for the treatment of end stage renal disease and for 
which payment was(before application of this [new ESRD PPS]) made 
separately under this title, and any oral equivalent form of such 
drug or biological; and
    (iv) Diagnostic laboratory tests and other items and services 
not described in clause (i) that are furnished to individuals for 
the treatment of end stage renal disease.
1. Composite Rate Services
    Section 1881(b)(14)(B)(i) of the Act requires that the ESRD PPS 
payment bundle include composite rate services. As we indicated in the 
proposed rule, the current case-mix adjusted composite payment system 
represents a limited PPS for a bundle of outpatient renal dialysis 
services that includes maintenance dialysis treatments and all 
associated services including historically defined dialysis-related 
drugs, laboratory tests, equipment, supplies and staff time (74 FR 
49928). Therefore, consistent with the statute, we proposed to include 
the items and services included in the composite rate for renal 
dialysis services as of December 31, 2010, (including self-dialysis 
training services), such as labor, supplies, and equipment.
    We proposed to define composite rate services at proposed Sec.  
413.171. We also proposed that the composite rate services would not 
only include payments for the costs of services directly related to 
dialysis, but would also include payments authorized in accordance with 
the composite payment rate exception provisions set forth in 42 CFR 
413.180 through 413.186 (74 FR 49928). The costs for such composite 
rate services were included in our computation of the proposed ESRD PPS 
base rate, as explained in section II.E. of this final rule, as well as 
in the development of the proposed composite rate regression model used 
to create the two equation patient specific case-mix adjusters that 
would be applied to the base rate. We did not receive any public 
comments on our proposed inclusion of the renal dialysis services 
currently covered under the composite payment system for inclusion 
under the bundled ESRD PPS. Therefore, we are finalizing our definition 
of composite rate services as renal dialysis services as proposed in 
Sec.  413.171.
2. ESAs and Their Oral Forms
    Section 1881(b)(14)(B)(ii) of the Act requires that ESAs and any 
oral form of such agents that are furnished to individuals for the 
treatment of ESRD be included in the ESRD PPS payment bundle. We 
proposed that payments for injectable ESAs, (for example, 
Epoetin[supreg] and ARANESP[supreg]) would be included in the 
calculation of the proposed ESRD PPS base rate, as well as in the 
separately billable regression model used to create the two equation 
patient specific case-mix adjusters for the proposed ESRD PPS (74 FR 
49928). Therefore, consistent with our interpretation of the statute, 
we proposed that no additional payment would be provided for ESAs and 
their oral forms outside of the bundle of renal dialysis services 
included in the ESRD PPS. We also noted that oral versions of ESAs do 
not currently exist, but we further proposed that to the extent oral 
forms are approved after the implementation of the ESRD PPS, those 
drugs would be paid under the ESRD PPS (74 FR 49928). We set forth 
provisions regarding the inclusion of ESAs and their oral forms as 
renal dialysis services in the ESRD PPS payment bundle at proposed 
Sec.  413.171.
    We received a few comments regarding our proposal to bundle ESAs 
and those comments are addressed below.
    Comment: Some commenters expressed concern that bundling drugs

[[Page 49037]]

will restrict nephrologists' ability to prescribe necessary 
medications. One commenter stated that including medications like EPO 
and oral medications will limit nephrologists from prescribing what is 
necessary.
    Response: We believe that the ESRD PPS will establish a bundled 
payment system based on the average cost of care with adjustments that 
target more payment to more resource intensive ESRD patients. In 
situations where costs for treating patients exceed an established 
threshold, the outlier policy would apply. The outlier policy is 
discussed in detail in section II.F.4. of this final rule. We expect 
that ESRD facilities and health care providers will continue to 
advocate on behalf of patients who require more than the average 
utilization of ESRD-related items and services. We note that the 
responsibility for determining the appropriateness of medical care 
resides with the ESRD facility, physicians, and the interdisciplinary 
team as stipulated by the ESRD Conditions for Coverage. Under Sec.  
494.90, an ESRD facility would be out of compliance if it did not meet 
the patient's documented needs as shown in the patient plan of care.
    Comment: Several commenters expressed concern that the inclusion of 
ESAs in the payment bundle will result in dialysis facilities 
decreasing the amounts of EPO given to patients, resulting in an 
increase in blood transfusions for anemia management, and increased 
stress on the nation's blood supply.
    Response: Section 1881(b)(14)(B)(ii) of the Act requires that ESAs 
be included in the ESRD PPS. While the inclusion of any item or 
dialysis service in the payment bundle provides an incentive for 
dialysis facilities to maximize profits by skimping on the provision of 
that item or service, we point out that an important part of our 
Quality Incentive Program (QIP) is the monitoring of hemoglobin levels 
among dialysis patients to ensure that target levels are met, and that 
anemia management does not deteriorate under the ESRD PPS (see section 
II.M. of this final rule). We also plan to monitor the incidence of 
transfusions among dialysis patients subsequent to the implementation 
of the PPS to ensure that blood transfusions do not replace effective 
anemia management with ESAs as a result of the system's payment 
incentives. More information about monitoring efforts planned due to 
the implementation of the ESRD PPS appears in section II.L. of this 
final rule and in future issuances.
    Comment: A few commenters opposed the inclusion of EPO or 
intravenous iron in the bundle, claiming that if included, there will 
be a decrease in the use of these drugs resulting in decreased 
hemoglobin levels, necessitating more in-hospital blood transfusions. 
Another commenter stated that bundling would result in a shift to 
subcutaneous administration of ESAs with additional needle sticks, 
decreases in hemoglobin levels, and an increase in transfusions. 
Several commenters cited the USRDS 2008 Annual Data report as showing a 
large decrease in the use of red blood cell transfusions since 1992. 
One commenter questioned how patients will obtain EPO as it is 
expensive. One commenter referenced National Kidney Foundation (NKF) 
guidelines to support their statement that ``intravenous iron is * * * 
more efficacious at helping patients maintain adequate iron levels in 
clinical studies of patients * * * undergoing hemodialysis and 
therefore is generally the preferred recommended therapy.'' Another 
commenter claimed, based on their analysis of two patients' 
reimbursement under the proposed ESRD PPS, that their facility would 
face significant financial loss, especially for those receiving large 
doses of EPO. Some commenters suggested that we include only 
intravenous ESAs. One commenter stated that ESRD-related intravenous 
drugs include those used in the treatment of anemia, and therefore, 
their oral equivalents should be included in the bundle.
    Response: We have no authority to exclude ESAs from the ESRD PPS 
bundled payment. As we explained in the proposed rule (74 FR 49928), 
section 1881(b)(14)(B)(ii) of the Act requires that ESAs and any oral 
form of such agents that are furnished to individuals for the treatment 
of ESRD be included in the ESRD PPS payment bundle. We explained that 
the payments for injectable ESAs (for example Epoetin alfa 
(Epogen[reg]) and darbepoetin (ARANESP[reg]), which are separately 
payable outside of the current basic case-mix adjusted composite 
payment system, would be included in the calculation of the proposed 
ESRD PPS base rate. We also noted in the proposed rule that while we 
were currently unaware of any other injectable ESAs or oral forms of 
such ESAs used for the treatment of ESRD, if any such agents would 
become available subsequent to the implementation of the ESRD PPS on 
January 1, 2011, they would be considered renal dialysis services and 
subject to payment under the ESRD PPS (74 FR 49928). We are not aware 
that a shift to subcutaneous administration of ESAs from intravenous 
administration will lead to decreases in hemoglobin levels and 
increases in transfusions.
    Although several commenters suggested that ESRD beneficiaries may 
be denied appropriate and necessary treatment because of the perceived 
negative financial impact of the ESRD bundled payment system, we point 
out that section 1881(b)(14)(B)(ii) is clear in requiring that ESAs and 
any oral forms of ESAs must be included in the ESRD PPS payment bundle. 
In addition, as discussed in section II.M. of this final rule, we will 
monitor anemia management as part of the ESRD QIP.
    Comment: Several commenters expressed concern that the bundling of 
ESAs poses a financial disincentive for adequate anemia management, and 
will lead to the maintenance of hemoglobins at the lowest possible 
level, resulting in worse outcomes for patients.
    Response: Section 1881(b)(14)(B)(ii) of the Act is very clear in 
requiring that ESAs and any oral equivalent forms of ESAs furnished for 
the treatment of ESRD must be included in the ESRD PPS payment bundle. 
We have no discretion with respect to their inclusion or exclusion.
    We do not understand the commenters' conclusion that maintaining 
hemoglobins at the least possible level will result in worse patient 
outcomes. We expect ESRD facilities to provide the appropriate 
medications at the appropriate dosage to maintain patient hemoglobins 
at the required level. We note that we will be closely monitoring the 
anemia management of ESRD patients subsequent to the implementation of 
the ESRD PPS as part of CMS's QIP.
    Therefore, after considering the public comments and for the 
reasons stated above, we are not making changes to the proposed 
Medicare regulation at Sec.  413.171 and are finalizing the inclusion 
of ESAs and their oral forms as renal dialysis services in the ESRD PPS 
payment bundle.
3. Other Drugs and Biologicals and Their Oral Forms
    Section 1881(b)(14)(B)(iii) of the Act specifies that other drugs 
and biologicals that were furnished to individuals for the treatment of 
ESRD and for which payment was made separately under this title, prior 
to the implementation of the ESRD PPS, and their oral equivalent forms, 
must be included in the ESRD PPS payment bundle. In the proposed rule, 
we noted the reference to ``this title,'' in the statutory language, 
and we interpreted clause (iii) as requiring the inclusion in the ESRD 
PPS payment bundle of all drugs and biologicals that were

[[Page 49038]]

separately payable under title XVIII of the Act prior to the 
implementation of MIPPA (74 FR 49928). We proposed at Sec.  413.171 
that drugs and biologicals used to treat ESRD that were separately 
payable prior to January 1, 2011, be included as part of the proposed 
ESRD PPS payment bundle (74 FR 50022). Accordingly, we proposed to 
include such drugs and biologicals in the development of the proposed 
patient-specific case-mix adjusters and in the calculation of the 
proposed ESRD base rate to which the adjusters would be applied. In the 
proposed rule, we identified the top eleven injectable drugs furnished 
to Medicare ESRD beneficiaries which we proposed to include in the 
payment bundle (See Table 8 at 74 FR 49940). Table 8 also contained a 
category of miscellaneous other injectable drugs, as well as a line 
item reflecting other services furnished by ESRD facilities. The 
identification and treatment of these other injectable drugs and 
services are addressed in later in this section.
    We identified specific National Drug Codes (NDCs) for drugs and 
biologicals previously payable under Part D that we proposed to include 
in the payment bundle. However, we proposed that the ESRD PPS would 
apply, regardless of the emergence of new drugs or biologicals or 
different NDCs for the classes of drugs and biologicals included in the 
ESRD PPS bundle. Finally, we noted that section 1881(b)(14)(B) of the 
Act specifically excludes vaccines from the payment bundle and, 
therefore, we did not include vaccines in the proposed ESRD PPS. We 
requested comments on our proposals above.
    We received numerous public comments related to inclusion of ESRD-
related injectable drugs and biologicals; the inclusion of oral 
equivalents of ESRD injectable drugs; and the inclusion of oral-only 
ESRD-related drugs (that is, drugs for which there is no injectable 
equivalent or other form of administration) currently paid under Part D 
in the payment bundle. Most of the commenters were opposed to the 
inclusion of all oral drugs and biologicals, claiming that their 
inclusion would lead to poorer patient outcomes because the proposed 
amount per treatment of $12.47 reflected in the calculation of the base 
rate (Table 8 at 74 FR 49940) was claimed to be inadequate to cover the 
average cost of these drugs. The comments received are summarized 
below.
a. Oral-Only ESRD-Related Drugs
    Comment: Several commenters agreed with CMS that clause (iii) of 
section 1881(b)(14)(B) of the Act can be interpreted broadly to 
encompass all drugs furnished to individuals for the treatment of ESRD, 
including oral drugs. In particular, the commenters did not interpret 
the subsequent reference to ``any oral equivalent form of such drug or 
biological'' as limiting the scope of oral drugs that may be included. 
Another commenter stated that one possible interpretation of MIPPA 
gives CMS authority to broaden the bundle to include former Part D oral 
drugs. Finally, another commenter strongly endorsed the agency's 
proposal to include all ESRD-related drugs and concurred with CMS's 
rationale and statutory interpretation set forth in the proposed rule. 
In particular, the commenter stated that the plain language of the 
statute with respect to clauses (iii) and (iv) gave CMS clear authority 
to include ESRD drugs, regardless of the route of administration, 
agreeing with the agency's interpretation of the reference to the word 
``title'', and also noting that the phrase ``other drugs and 
biologicals'' included no qualifier that would limit clause (iii) to 
only separately reimbursable injectable drugs.
    Response: We appreciate the comments on our proposal to bundle 
oral-only drugs, which support our interpretation of the statute.
    Comment: One commenter suggested that CMS implement an expeditious 
appeals process for physicians to challenge payment for drugs that may 
be excluded from dialysis companies' formularies.
    Response: ESRD facility formularies are beyond the scope of this 
final rule. However, we expect ESRD facilities to provide the 
appropriate medications, at the appropriate dosage, based upon 
individual patient needs. We expect the patient's nephrologist and the 
interdisciplinary team to identify medication needs in accordance with 
the individual patient's plan of care.
    Comment: Many comments indicated that CMS's decision to include 
oral drugs with no injectable equivalent (``oral-only'' drugs) within 
the statutory definition of ``renal dialysis services'' represents a 
misreading of statutory intent and violates principles of statutory 
construction. One commenter asserted that CMS's inclusion of oral-only 
drugs in the ESRD PPS appeared to hinge entirely on the reference to 
the words ``this title'' under section 1881(b)(14)(B)(iii) of the Act. 
The commenter stated that this interpretation represented too narrow a 
reading of the statute, and was inconsistent with the intended meaning 
of ``this title'' set forth elsewhere in section 1881 of the Act. Other 
commenters stated that CMS's reasoning that the use of ``this title'' 
in section 1881(b)(14)(B)(iii) of the Act means that all ESRD drugs 
payable under title XVIII of the Act must be included in the payment 
bundle, including drugs payable under Part D, represents a selective 
reading of the statute, and that the more appropriate approach is to 
read the language as a whole. The commenters asserted that the entirety 
of section 1881(b) of the Act focuses on payments to ESRD facilities, 
and that the four categories of renal dialysis services specified in 
section 1881(b)(14)(B) of the Act only pertain to services furnished 
for which payment is made to ESRD facilities.
    A few commenters compared references to ``this title'' in other 
subparagraphs of section 1881(b) of the Act and argued that our prior 
implementation of payment to dialysis facilities did not include oral-
only drugs when the same reference to ``this title'' was used, stating 
that the reference has been interpreted previously to mean separately 
billable Part B drugs (with separate payment to dialysis facilities). 
Consequently, commenters claimed that such oral-only products do not 
fall within clause (iii) because they are not separately billable Part 
B drugs (which are limited to those products that cannot be self-
administered by a patient and must be furnished in the facility by 
staff), and are not oral equivalents of separately billable drugs. 
Commenters claimed that because the oral-only drugs (calcimemetics and 
phosphate binders) proposed for inclusion in the ESRD PPS payment 
bundle are currently dispensed by a pharmacy for home use, are not 
furnished by ESRD facilities, and are not the oral equivalent of an 
injectable drug under clause (iii), such drugs must be excluded from 
the bundle. Therefore, these commenters maintained that inclusion of 
such oral-only drugs in the expanded bundle under the proposed ESRD PPS 
is inappropriate. Although most commenters opposed the inclusion of 
former Part D drugs, several stated that there appeared to be 
sufficient statutory support for including them.
    Response: We agree that section 1881(b) of the Act addresses 
payments to dialysis facilities for dialysis services furnished 
Medicare ESRD beneficiaries, either directly by the facility, by a 
supplier (for example, DMEPOS supplier), or under arrangement (for 
example, clinical laboratory). However, in our view, the intent of 
section 1881(b)(14)(B) of the Act was not to limit the renal dialysis 
services included in the ESRD PPS payment bundle to services for which 
only ESRD

[[Page 49039]]

facilities are currently paid. Clause (iii) of that section specifies 
that drugs and biologicals for which separate payment is made, and 
their oral equivalents, must be included in the bundle as renal 
dialysis services. We have interpreted clause (iii) as encompassing not 
only injectable drugs and biologicals (other than ESAs, which are 
included under clause (ii)) used for the treatment of ESRD, but also 
all non-injectable drugs furnished under Title XVIII. Under this 
interpretation, the ``any oral equivalent form of such drug or 
biological'' language pertains to the oral versions of injectable drugs 
other than ESAs. All other ESRD-related drugs and biologicals, 
regardless of the route of administration, are addressed by the ``other 
drugs * * * under this title'' portion of clause (iii). We disagree 
with the commenters' argument that we have incorrectly expanded the 
scope of clause (iii) to include drugs and biologicals based on an 
inconsistent interpretation of ``this title'' as used elsewhere in the 
Act. Accordingly, we continue to believe that the entirety of clause 
(iii) gives us sufficient statutory authority to include all ESRD-
related drugs and biologicals, regardless of whether they are furnished 
by a dialysis facility, under the ESRD PPS payment bundle.
    Another issue is whether the ``other items and services'' language 
in clause (iv) of section 1881(b)(14)(B) of the Act encompasses oral-
only drugs furnished for the treatment of ESRD. Commenters argue that 
oral-only drugs would not be excluded from the definition of renal 
dialysis services under the reasoning that the scope of the bundle was 
intended to cover only services for which ESRD facilities currently are 
being paid, as payments for the oral equivalents of injectables are not 
made to ESRD facilities.
    We do not believe that construing the ``other items and services'' 
language in clause (iv) as applying to oral-only drugs violates a 
principle of statutory construction, by making clauses (ii) and (iii) 
otherwise redundant. The language in clause (iv) does not mean all 
drugs currently available to Medicare beneficiaries for the treatment 
of ESRD as the commenters suggest. Rather, we believe that it can be 
interpreted as a residual or catch all category for drugs which do not 
fall under the scope of those specified renal dialysis services 
identified in clauses (ii) and (iii). Medicare regulation under Sec.  
400.202 defines ``services'' as follows in pertinent part:

    Services means medical care or services and items, such as 
medical diagnosis and treatment, drugs and biologicals, * * *

    Thus, we are interpreting the use of the word services in clause 
(iv) consistent with how we interpret and define services under 
Medicare which supports including other oral-only drugs not specified 
in the preceding clauses in the bundle, not the exclusion of those 
drugs from the payment bundle. We believe that this interpretation of 
clause (iv) neither represents a selective reading of the statute, nor 
an overly expansive definition of the scope of the renal dialysis 
services intended to be included in the payment bundle.
    Comment: Another commenter stated that the reference to ``separate 
payment'' under section 1881(b)(14)(B)(iii) of the Act would exclude 
Part D drugs because under Part D, Medicare is not making separate 
payment for drugs. The commenter reasoned that the Medicare program 
makes per beneficiary payments to plans, and plans use such payments to 
reimburse pharmacies that fill prescriptions for covered Part D drugs. 
The commenter argued that the focus of section 1881(b) of the Act is on 
payments to dialysis facilities for services furnished to 
beneficiaries. Therefore, the first part of clause (iii) pertains to 
Medicare payments separately made to dialysis facilities for separately 
payable Part B drugs and biologicals, and does not include Part D 
products.
    Response: We disagree with the commenter with regard to the meaning 
of the language in clause (iii) of the statutory definition for renal 
dialysis services under section 1881(b)(14)(B) of the Act. We believe 
that such language was intended to be broadly interpreted given that 
all drugs are reimbursable under Medicare by virtue of being authorized 
for payment under Title XVIII. Therefore, drugs covered under Part B 
and formerly covered under Part D would be included regardless of 
whether payment was made directly by us or by a plan.
    Comment: Several commenters agreed with CMS that clause (iv) of 
section 1881(b)(14)(B) of the Act is a catch all provision that permits 
inclusion of any additional products and services, including oral drugs 
furnished to treat individuals with ESRD, and agreed with the agency's 
interpretation and rationale that the inclusion of oral-only drugs in 
the bundle is supported by clause (iv). One commenter noted that the 
term ``services'' is used in clause (iv) of the definition for renal 
dialysis services, and that for purposes of Medicare such term is 
defined under Sec.  400.202 as ``medical care or other services and 
items, such as medical diagnosis and treatment, drugs and biologicals, 
supplies, appliances, and equipment, medical social services, and the 
use of hospital, CAH, or SNF facilities [emphasis added].'' The 
commenter noted that services and items encompass drugs and 
biologicals. The commenter further stated that a plain reading of 
clause (iv) leads to the conclusion that clause (iv) is inclusive of 
all other drugs and biologicals not reimbursed under the ESRD composite 
rate as of December 31, 2010, that are furnished to individuals for the 
treatment of ESRD.
    Other commenters disagreed with our interpretation, stating that 
clause (iv) should not apply to oral-only drugs, as it would render the 
other clauses of the definition unnecessary. Those commenters claimed 
that an interpretation of clause (iv) that includes all drugs and 
biologicals fails to consider the entire context of the statute, and 
that this reading would negate clauses (ii) and (iii) of the statutory 
definition for renal dialysis services. Commenters stated that under 
rules of statutory construction, a statute should be construed to give 
meaning to all aspects of it, such that ``other items and services'' 
cannot be read to include drugs that are currently used for treatment 
of chronic renal failure, but are excluded from clauses (ii) and (iii).
    Response: We believe that clause (iv) of the definition for renal 
dialysis services under section 1881(b)(14)(B) of the Act could include 
certain other items and services such as ``oral-only'' drugs. We agree 
with the commenter that the definition should be viewed as a whole when 
considering each of the four clauses, and particularly, clause (iv). 
With regard to the concerns of statutory interpretation that commenters 
have identified, we believe we have followed them when interpreting the 
statute. We note, however, that such rules must be taken into context 
based on the underlying statutory language at issue. In particular, we 
note that the definition for renal dialysis services has overlapping 
categories of services, and that certain clauses included arguably are 
unnecessary. For example, given that several clauses of the definition 
contain similar types (or categories) of items and services, we find 
unconvincing the commenter's suggestion that clause (iv) cannot include 
drugs or biologicals. We note that drugs and biologicals are not 
limited to clauses (ii) and (iii) of the definition. In particular, 
clause (i) covers the composite rate, which contains some drugs.

[[Page 49040]]

    We also agree with the commenter who pointed to the Medicare 
definition for ``services'' that such term includes drugs and 
biologicals. Given that clause (iv) addresses laboratory tests and 
other items and services not described in clause (i) (that is, non-
composite rate labs, items, services, etc.), we believe that a 
reasonable interpretation of clause (iv) is that certain non-composite 
drugs and biologicals are included. We agree with commenters, however, 
that to ensure that meaning is attached to the other clauses, such 
drugs and biologicals included in clause (iv) would not be the same as 
those included in clauses (ii) and (iii). Accordingly, if oral-only 
drugs are not considered to fall within clause (iii) of the statutory 
definition (or clause (ii) for that matter), we believe that such drugs 
would appropriately fall under clause (iv), and would constitute other 
items and services used for the treatment of ESRD that are not 
described in clause (i).
    In addition, as we noted, several of the clauses of the definition 
could be viewed as superfluous. Therefore, we believe the definition as 
a whole must be considered when determining whether an item or service 
constitutes a ``renal dialysis service.'' In particular, we note that 
clause (iii) would have been broad enough to include the erythropoiesis 
stimulating agents (ESAs) identified in clause (ii), given that such 
agents would constitute ``drugs and biologicals that are furnished for 
the treatment of ESRD and for which payment was made (before the ESRD 
PPS) separately under this title, and any oral equivalent of such drug 
or biological.'' Hence, clause (ii) arguably is unnecessary. Congress 
decided, however, to nevertheless specifically identify these agents as 
a separate category under the definition. Given the structure of the 
definition, we do not believe Congress' identification of certain 
``other drugs and biologicals'' in clause (iii), limits the definition 
such that it excludes other types of drugs or biologicals from clause 
(iv) of the definition, if such drugs otherwise meet that prong (and 
are not included in clause (iii) or clause (ii)).
    Moreover, we believe that when the definition is viewed as a whole, 
it suggests a comprehensive definition that wraps in all items and 
services related to outpatient renal dialysis that are furnished to 
individuals for the treatment of ESRD. Although the definition is 
perhaps overlapping or redundant, we find clause (iv) to be a catchall 
category, and one that provides sufficient authority for bundling oral-
only drugs (if such drugs do not fall under clause (iii)). For a 
discussion of the other items and services under clause (iv), please 
see the next section below.
    Comment: One commenter pointed to recent legislative proposals and 
an analysis by the Congressional Budget Office as support that oral-
only drugs are not included in the statutory definition for renal 
dialysis services. Another commenter pointed to legislative history by 
citing floor statements as evidence of Congressional intent behind the 
creation of a broad payment bundle, including all oral dialysis-related 
drugs, such as calcimimetics and phosphate binders.
    Response: We are not persuaded by recent legislative proposals. We 
continue to interpret section 1881(b)(14)(B) of the Act as including in 
the ESRD PPS, all drugs and biologicals furnished for the treatment of 
ESRD, and we believe this interpretation reflects the intent of the 
statute. With regard to recent legislation, we note that the ESRD PPS 
proposed rule, in which we set forth our interpretation of the statute 
and our proposal for the scope of the bundle, was specifically noted 
and acknowledged by Congress in section 10336 of the Affordable Care 
Act passed on March 23, 2010 (Pub. L. 111-148), which requires a study 
by the GAO on the impact on Medicare beneficiaries of including oral-
only drugs in the bundled ESRD PPS. Significantly, this new legislation 
imposes no restrictions or additional requirements with regard to our 
proposal to bundle such products.
    Comment: Some commenters stated that the exclusion of oral-only 
drugs from the payment bundle would not make the bundle of services 
less comprehensive, nor would it defeat the purpose of the new payment 
system as CMS suggests. These commenters claim that the comprehensive 
bundle of renal dialysis services the Congress envisioned is a bundle 
of services furnished by ESRD facilities. Therefore, some commenters 
believed that since calcimimetics and phosphate binders are not 
furnished by ESRD facilities, their exclusion would not make the bundle 
less comprehensive than Congress intended. Commenters also stated that 
no cost shifting would occur between Part B and Part D, because these 
oral-only drugs have no Part B equivalent.
    Response: We do not agree with the commenters' assertion that the 
intent of the payment bundle under the ESRD PPS was to include only 
those services furnished by dialysis facilities. For example, inclusion 
of diagnostic laboratory tests (which may be performed by laboratories 
under arrangements with dialysis facilities, for those facilities that 
do not have their own laboratories), and oral equivalent forms of 
injectable drugs, which are currently furnished by pharmacies under 
Part D, belie this interpretation. Therefore, we believe the exclusion 
of an item or service from the payment bundle solely because it is not 
furnished (or traditionally furnished) by ESRD facilities is 
inappropriate. We also disagree with the argument that excluding drugs 
from the bundle for which there currently is no injectable equivalent 
is acceptable because there is no issue of cost-shifting between Part B 
and Part D. Notwithstanding that there may not be injectable 
equivalents of certain drugs widely used for the treatment of ESRD 
currently that may not be the case in the future as new drugs and 
treatments are developed.
    We also point out that apart from the goal of avoiding cost-
shifting, we believe the purpose of a bundled payment system is to 
ensure that patient care is not skewed by financial incentives. We 
believe that access to and compliance with recommended care can be 
negatively impacted if certain drugs remain outside of the payment 
bundle. Although many Medicare beneficiaries may have oral-only drug 
coverage under Medicare Part D, others have private sources, and some 
lack reliable sources of coverage altogether. We do not wish to 
continue an uneven payment policy that favors certain types of drugs by 
permitting them to remain separately payable outside of the payment 
bundle.
    Comment: Commenters indicated that several of the oral-only drugs 
which CMS proposes to include in the payment bundle are relatively 
expensive, and that the associated payment amount per treatment ($12.48 
as calculated from Table 8 at 74 FR 49940) for these drugs was 
inadequate. Commenters stated that this will result in unintended 
clinical consequences for patients as ESRD facilities seek to maximize 
profits by resorting to cheaper but less effective alternatives.
    Response: We believe that by including all drugs widely used for 
the treatment of ESRD in the payment bundle, we will be providing a 
level playing field that will benefit patient care. The purpose of a 
bundled payment system is to make available all treatment options under 
the same payment system. When drugs remain outside of the payment 
bundle, financial issues can influence both facility and patient 
behavior, as the over-utilization of EPO to the detriment of patient 
care in the past has demonstrated. We acknowledge

[[Page 49041]]

that the contrary effect can occur whereby drugs included in the 
payment bundle could also influence behaviors with potential 
underutilization. However, we expect ESRD facilities and monthly 
capitation payment (MCP) physicians will evaluate the potential use of 
less expensive equally effective alternatives for the treatment of 
conditions associated with ESRD, where those alternatives are available 
and not contraindicated by the patient's clinical status. 
Notwithstanding the availability of less expensive alternatives, we 
expect that patient care regimens will always be selected solely based 
on patient needs as identified in the patient's plan of care. We 
believe that we have developed the bundle, with the inclusion of all 
oral drugs, to account for the costs that ESRD facilities will incur in 
furnishing these drugs to patients.
    Comment: Several commenters expressed concern that the inclusion of 
oral-only drugs in the ESRD PPS payment bundle could adversely impact 
beneficiaries through increased co-payments. Because the cost of these 
oral-drugs would be included in the payment for all of the renal 
dialysis services included in the bundle, commenters noted that the 
beneficiary would be responsible for 20 percent of the total bundled 
payment amount, and that this has the potential to increase the co-
payment amount owed by the beneficiary. In addition, commenters stated 
that patients, who currently have Part D coverage and qualify for the 
low income subsidy, would be required to pay coinsurance on these drugs 
for the first time, as Part D coverage limits their financial 
responsibility at very low dollar amounts. The commenters believe that 
this will pose a financial hardship for these low income patients who 
will be unable to meet their new coinsurance obligation, caused by 
including these drugs under Part B. In addition, commenters stated that 
patients who are dually eligible for both Medicare and Medicaid would 
also see an increase in their coinsurance liability, as minimal 
prescription drug copayment amounts are replaced with a 20 percent 
coinsurance requirement under the ESRD PPS.
    Response: It is inherent with the implementation of any PPS that 
patients who incur costs greater than the amount covered by the average 
PPS payment will benefit from the ESRD, because their coinsurance 
liability will be based on that lower average payment amount compared 
to the actual costs for resources consumed. Patients whose actual costs 
for services furnished are less than the PPS payment amount will see an 
increase in their coinsurance liability, because the actual payment 
exceeds the actual utilization of resources. Table 2 shows total Part D 
expenditures for drugs for CYs 2007, 2008, and the first nine months of 
2009 currently available. The table reveals that the portion of these 
expenditures for ESRD drugs borne by the beneficiary, or otherwise paid 
on behalf of the beneficiary, ranges from 38 to 41 percent.
[GRAPHIC] [TIFF OMITTED] TR12AU10.009

    These amounts compare to the 20 percent coinsurance liability under 
Part B. We believe that this difference in coinsurance liability 
between Part B drugs and Part D drugs is largely caused by the 
beneficiary obligation incurred under the Part D ``donut hole'', and by 
various coinsurance amounts imposed by the drug plans because of 
formulary differences. Based on this comparison, some beneficiaries 
will be better off with a 20 percent coinsurance obligation under Part 
B compared to the range of 37.9 to 41.0 percent liability under Part D, 
particularly if their utilization of Part D drugs is high, and they 
have no low income subsidy. While there is no equivalent low income

[[Page 49042]]

subsidy under Part B for those patients who currently receive this 
benefit under Part D, we believe our interpretation of the statute is 
consistent with the statutory intent to bundle all renal dialysis 
services under Part B.
    In addition, ESRD beneficiaries who currently have private market 
coverage of the ESRD drugs that would be included in the ESRD PPS and 
minimal copayments will see an increase in their copayments because of 
the classification of these drugs under Part B as renal dialysis 
services, for which the 20 percent coinsurance obligation applies. We 
would expect that the shift in coverage for oral drugs formerly Part D 
to Part B will result in drug plans and insurers modifying the scope of 
their drug coverage, formularies, premiums, and benefits to reflect 
this shift in coverage, in a competitive environment to maintain and 
attract beneficiaries. With respect to patients dually eligible for 
Medicare and Medicaid with minimal prescription drug copayment amounts 
under Part D, we expect that the 20 percent coinsurance for renal 
dialysis services included in the payment bundle under the ESRD PPS 
will be covered by the beneficiary's Medicaid benefit, just like other 
Part B coinsurance obligations. We will conduct outreach efforts to the 
States to ensure that States understand the changes due to the ESRD 
PPS, and their responsibility to process Medicare claims and determine 
their financial obligations under the new payment system.
    Comment: One commenter proposed that oral equivalents of injectable 
drugs be included in the ESRD PPS effective January 1, 2011, and that 
CMS clearly indicate that the only currently available oral drugs with 
an injectable version are oral iron and oral vitamin D. The commenter 
suggested that if oral drugs without an injectable version are included 
in the payment bundle, their inclusion should not occur until the 
transition period expires in 2014, or later. The commenter proposed 
that the payment rate for oral drugs included in the bundle be set at 
the price which a small dialysis organization would need to pay to 
obtain the drug from a pharmacy under arrangements.
    Response: Consistent with section 1881(b)(14)(B)(iii) of the Act, 
we are including the oral equivalents of ESRD injectable drugs in the 
payment bundle effective January 1, 2011. These drugs include the oral 
Vitamin D analogues (calcitriol, doxercalciferol, and paracalcitol) and 
levocarnitine. Oral iron is generally available over the counter and 
not covered under Parts B or D. Therefore, it is not included in the 
payment bundle. There are currently no oral versions of ESAs for 
inclusion in the ESRD PPS. For reasons set forth in greater detail 
response to the comment below, we have adopted the commenter's 
suggestion that the inclusion of oral-only drugs be delayed until after 
the end of the transition period, or until January 1, 2014.
    Comment: Several commenters expressed concern that the inclusion of 
certain oral-only drugs and laboratory tests unrelated to dialysis in 
the payment bundle represented an inappropriate shifting of costs to 
dialysis facilities for services unrelated to the dialysis treatment.
    Response: Oral-only drugs will not be implemented under the ESRD 
PPS until January 1, 2014 for reasons set forth in greater detail 
below. Neither will laboratory tests unrelated to the treatment of ESRD 
be included in the payment bundle. Laboratory tests ordered by a 
dialysis patient's MCP, nephrologist, or other practitioner for reasons 
unrelated to ESRD will be excluded from the ESRD PPS and will continue 
to be reimbursed separately.
    Comment: One commenter urged CMS to implement its proposed policy 
to bundle all drugs January 1, 2011, as mandated by Congress, stating 
that statutory authority, sound public policy, and patient clinical 
needs support inclusion of such drugs in the bundle. The commenter 
stated that any delay would potentially create unintended financial 
incentives, leading to adverse clinical outcomes.
    Other commenters stated that CMS lacks pricing data from all payers 
to accurately determine the payments for the inclusion of oral drugs in 
the bundle, and recommended that CMS should exercise its authority to 
delay the inclusion of oral drugs. Some commenters argued that 
expanding the bundle to include oral-only drugs when it had 
insufficient data and support would have the potential to hamper future 
bundling efforts. Many commenters cited various policy and operational 
reasons in support of a decision to delay the inclusion of oral drugs 
in the ESRD PPS bundle. In particular, several commenters asserted that 
if CMS determines that it has sufficient legal authority to include 
oral-only Part D drugs in the payment bundle, it should nonetheless 
delay the inclusion of these drugs to a subsequent year in order to 
permit an orderly implementation of the ESRD PPS. Commenters claimed 
that a delay would also give CMS the necessary time to ensure that its 
billing systems and software are appropriately developed and tested to 
make sure that the conversion of payment for Part D ESRD drugs to renal 
dialysis services under Part B goes smoothly for beneficiaries, 
facilities, and pharmacies.
    Several commenters stated that CMS has the discretion to defer the 
inclusion of Part D oral drugs in the payment bundle and asserted 
various statutory bases. In particular, commenters stated that the 
requirement to implement the ESRD PPS on or after January 1, 2011, does 
not specifically state that CMS must include all drugs for which 
payment is made under Title XVIII prior to implementation of the ESRD 
PPS. Commenters pointed out that section 1881(b)(14)(B) of the Act does 
not time limit CMS's discretion to define renal dialysis services for 
the ESRD PPS, and argued that the definition of ``renal dialysis 
services'' under section 1881(b)(14)(B)(iv) provides discretion to the 
agency about what items and services to include in the ESRD PPS and 
when to include them, claiming that Congress likely would not have 
enacted a provision that did not allow new items and services to be 
added. Some commenters argued that the ``breadth of the language in 
subparagraph (iv)'' of the statutory definition suggested broad 
discretion to the agency in making this determination, such that we may 
define renal dialysis services to exclude oral drugs in 2011, while 
maintaining authority to define renal dialysis services as including 
oral drugs in a subsequent year.
    Other commenters cited the 4-year phase-in (section 1881(b)(14)(E) 
of the Act) as permitting full implementation of that portion of the 
single payment at any time before January 1, 2014, provided the 
implementation occurs in equal increments. Commenters argued that 
implicit in our interpretation of section 1881(b)(14)(E) of the Act is 
our authority to delay inclusion of oral drugs in the new bundled 
payment system. Commenters maintained the position that the phase-in 
over equal increments relates to coverage and payment, and that if CMS 
interpreted the provision to include oral drugs entirely at the 
beginning, CMS could implement the inclusion of oral drugs in the ESRD 
PPS in the fourth year of the transition period and still comply with 
the statute, including the requirement to implement the payment system 
in ``equal increments''.
    Finally, some commenters argued that CMS has a statutory obligation 
to defer inclusion of oral drugs in the bundle, claiming that there is 
an obligation to delay under section 1881(b)(14)(ii) of the Act, 
because it requires CMS to determine the total amount of payments for 
renal dialysis services. If the agency

[[Page 49043]]

cannot do so because of a lack of data, it would be improper to include 
those items and services in the definition until it is able to do so.
    Response: As we stated above and in the proposed rule, we continue 
to believe that section 1881(b)(14)(B) of the Act supports our 
interpretation that ESRD drugs and biologicals, including oral-only 
ESRD drugs, used for the treatment of ESRD, meet the definition of 
``renal dialysis services'' under section 1881(b)(14)(B) of the Act, 
and should be included under the ESRD PPS (74 FR 49928 through 49929). 
For this reason, we have specified that oral ESRD drugs, including 
oral-only ESRD drugs, are included in the ESRD PPS.
    However, we disagree with commenter's claims that this statutory 
definition is not ``time-limited'' such that we could delay including 
under this definition certain items or services that are currently in 
existence. We believe that the statutory definition dictates what 
services constitute ``renal dialysis services'' and does not afford us 
discretion to postpone such a determination for purposes of 
implementing the ESRD PPS. This is not to say, as some commenters have 
suggested, that the definition is static with regard to new items and 
services. To the extent new renal dialysis items or services come onto 
the market in the future and meet the definition, such services would 
be considered ``renal dialysis services'' and bundled under the ESRD 
PPS. For example, as we pointed out in the proposed rule, if other 
types of injectable ESAs or new oral forms of ESAs become available 
subsequent to the implementation of the ESRD PPS on January 1, 2011, 
such agents would be considered renal dialysis services and be subject 
to the ESRD PPS (74 FR 49928). Accordingly, for the reasons we set 
forth above and in the proposed rule, and after careful consideration 
of the public comments, we are finalizing the proposed policy decision 
that ESRD drugs and biologicals, including oral drugs, be identified as 
renal dialysis services under section 1881(b)(14)(B) of the Act.
    With regard to the issue of inadequate data to price for payment 
oral drugs and biologicals, including oral-only drugs used for the 
treatment of ESRD, we agree with the commenters in part. We have 
included the Part B injectable drugs and biologicals used for the 
treatment of ESRD in the calculation of the base rate. Total payments 
for these drugs and biologicals were divided by the total number of 
hemodialysis (HD) equivalent treatments to obtain the amount of the 
payment per treatment for these drugs and biologicals reflected in the 
base rate. Injectable drugs are priced at ASP + 6 percent. Oral drugs 
with an injectable version were included in the payment bundle by 
taking total payments for these drugs based on Part D claims, and 
dividing that total by the total number of HD-equivalent treatment for 
Medicare ESRD beneficiaries enrolled in Part D. As explained in section 
II.K. of this final rule, prices for these drugs will be based on the 
national average drug prices developed from the Medicare Prescription 
Drug Plan Finder. These prices reflect pharmacy dispensing and 
administration fees and will be applied to only a limited number of 
drugs (three vitamin D analogues and levocarnitine).
    While this pricing mechanism is also available for oral-only ESRD 
drugs, we believe that before we consider its adoption in connection 
with pricing these drugs for payment, we should evaluate its potential 
impact on dialysis facilities, particularly small dialysis facilities 
who may not be able to obtain drugs and biologicals at prices similar 
to those of the larger chains with greater purchasing power. Because 
payments for oral ESRD drugs with an injectable version in 2007 was 
about $10.7 million, while total payments for all oral ESRD drugs was 
about $455.7 million, we believe a careful assessment of the use of the 
Medicare Prescription Drug Plan Finder as a basis for pricing oral-
equivalent ESRD drugs is appropriate before extending its application 
to oral-only drugs. Accordingly, we are delaying the implementation of 
oral drugs with no injectable equivalent or other form of 
administration (oral-only drugs), pending this evaluation.
    As we discuss in more detail below and in the section II.K.2. of 
this final rule, we also agree that commenters' concerns about 
operational and safety issues with regard to furnishing oral-only 
agents should be further examined. We believe a delay would allow time 
to examine such issues and address as appropriate. For example, we 
agree with the commenters that a delay in implementing the inclusion of 
oral-only drugs under the ESRD PPS would provide sufficient time for 
ESRD facilities to establish a pharmacy in accordance with state 
licensure requirements, or establish arrangements with pharmacies to 
provide oral-only drugs to their patients and ensure a smoother 
transition to the dispensing of these drugs under Part B.
    We disagree with the commenters who have suggested that the 4-year 
phase-in under section 1881(b)(14)(E)(i) of the Act provides authority 
to delay inclusion of certain types of renal dialysis services such as 
oral-only drugs beyond January 1, 2014. We believe that section 
1881(b)(14)(E)(i) of the Act requires a phase-in of payments under the 
new system for facilities that do not opt to go all-in under the new 
ESRD PPS, allows for a blended payment under the old and new payment 
systems in equal increments over a 4-year period to allow facilities 
opportunity to transition to the new payment under the ESRD PPS. It 
does not, however, authorize a phase-in of renal dialysis services.
    We also do not agree that the requirement under section 
1881(b)(14)(A)(i) of the Act that the ESRD PPS be implemented by 
January 1, 2011, affords the agency discretion to delay identification 
of renal dialysis services to be included in the ESRD PPS. Section 
1881(b)(14)(A)(i) of the Act requires implementation of a payment 
system in which a single payment is made for home dialysis and renal 
dialysis services which, as we discussed above, represent a specific 
set of services currently in existence that must be identified as renal 
dialysis services for the payment bundle.
    We agree, however, with commenters with regard to our obligations 
under section 1881(b)(14)(A)(ii) of the Act, which requires that we 
make certain estimates about total payments for renal dialysis services 
based on certain data (that is, per patient utilization data). We agree 
that we must perform an assessment of the use of the Medicare 
Prescription Drug Plan Finder as a basis for the pricing of oral 
equivalent ESRD drugs before that pricing mechanism is potentially 
extended to oral-only ESRD drugs in order to develop payment rates for 
those drugs. Therefore, it would not be appropriate to implement oral-
only ESRD drugs in the ESRD PPS at this time.
    We believe that there are several advantages to delaying the 
implementation of oral-only drugs. A delay would--
     Provide additional time to determine the propriety of the 
Medicare Prescription Drug Plan Finder for the pricing of oral-
equivalent ESRD drugs, before we consider extending that pricing 
mechanism to include all oral ESRD drugs and biologicals. CY 2007 data 
reveal that expenditures for the oral equivalents of injectable ESRD 
drugs totaled $10,700,083 for Medicare ESRD beneficiaries enrolled in 
Part D. See Table 9. Subtracting this amount from the total figure of 
$455,683,740, the total payments for all ESRD Part D drugs identified 
in Table 8 of the proposed rule (74 FR 49940), reveals that the 
comparable figure for oral-only ESRD drugs was $444,983,657. Given the

[[Page 49044]]

potential impact on the oral drug component of the payment bundle, 
evaluating the Medicare Prescription Drug Plan Finder and other 
potential alternative data sources for the pricing of oral ESRD drugs 
is essential.
     Allow ESRD facilities additional time to develop the 
arrangements or infrastructure necessary to provide oral-only drugs and 
negotiate prices with drug companies.
     Provide additional time for CMS to thoroughly educate 
beneficiaries, ESRD facilities, and pharmacies on those aspects of the 
bundled ESRD PPS involving the furnishing of non-injectable drugs to 
ensure as smooth a transition as possible.
     Given that oral drugs with an injectable version are 
included in the payment bundle as of January 1, 2011, provide CMS an 
opportunity to assess potential problems which may arise in connection 
with the provision of oral drugs prior to the system's expansion to 
include oral-only ESRD drugs beginning January 1, 2014.
     Allow time for additional analysis regarding the ability 
of ESRD facilities to provide oral-only ESRD drugs.
     Provide additional time to evaluate the need for 
additional clinical indicators applicable to the monitoring of certain 
patient conditions treated with oral-only drugs, such as bone loss and 
mineral metabolism associated with the provision of calcimimetics and 
phosphate binders. This could assist in determining the impact of the 
fully bundled ESRD PPS, and any unintentional consequences that might 
ensue, on quality of care.
     Allow Part D plans sufficient time to prepare bids for 
2014 that excludes those oral-only drugs identified as ``ESRD 
related''. CMS will specify the oral-only drugs that are for the 
treatment of ESRD in connection with a proposed rule Beneficiaries will 
have access to more accurate premium quotes to assist them in making 
decisions about their Part D coverage.
     Allow Part D plans and pharmacies additional time to 
establish, test, and modify the infrastructure necessary to identify 
ESRD patients, as the oral equivalents of injectable drugs are bundled 
beginning January 1, 2011. Part D sponsors will gain several years of 
experience in identifying ESRD patients within CMS systems in order to 
ensure that Part D payments are not made for ESRD related drugs.
    Beginning January 1, 2011, 18 oral drugs (as discussed below), will 
be included in the ESRD PPS base rate. Specifically, facilities will 
furnish such oral drugs beginning January 1, 2011. Until comprehensive 
beneficiary protections can be developed in anticipation of the 
inclusion of all ESRD-related oral-only drugs in the payment bundle 
under the ESRD PPS beginning January 1, 2014, patients will have access 
to these drugs under Part D. After considering the public comments and 
for the reasons we discussed above, we are retaining the definition of 
renal dialysis services as proposed in Sec.  413.171, including with 
respect to the inclusion of oral-only drugs and biologicals. However, 
we are revising the implementation date for oral-only ESRD drugs and 
biologicals to be January 1, 2014 in Sec.  413.174(f)(2). We believe 
that the transition period will give us sufficient time to address the 
data/pricing issues identified above, and to evaluate and correct any 
potential concerns that may emerge as a result of the inclusion of the 
oral drugs and biologicals with other forms of administration in the 
payment bundle effective January 1, 2011.
    b. Other Drugs and Biologicals
    Below we discuss comments regarding drugs and biologicals other 
than oral-only drugs and biologicals (for example, injectable drugs, 
oral drugs with some other form of administration, etc.). Oral-only 
drugs are separately addressed above.
    Comment: Most commenters who expressed opposition to our proposed 
inclusion of oral-only Part D drugs in the ESRD PPS payment bundle were 
careful to distinguish these drugs from oral equivalents of injectable 
drugs, for which they conceded statutory authority existed for their 
inclusion under section 1881(b)(14)(B) of the Act. Although the 
commenters maintained that the inclusion of any oral drugs in the 
payment bundle would pose administrative burdens on dialysis 
facilities, they generally did not challenge our authority to include 
in the payment bundle the oral equivalents of injectable drugs used to 
treat ESRD in order to prevent the shifting of costs from Medicare Part 
B to Part D. The commenters, however, stated that if such drugs and 
biologicals were included in the payment bundle, their inclusion should 
be adequately funded.
    Response: We agree with the commenters that section 1881(b)(14)(B) 
of the Act specifically requires that oral equivalents of injectable 
drugs used in the treatment of ESRD must be considered renal dialysis 
services for inclusion in the payment bundle. Accordingly, we have 
included those drugs, as described later in this section of this final 
rule. We have also revised the methodology for calculating the average 
amount per treatment for these drugs and biologicals included in the 
base rate, as described elsewhere in this final rule.
    Comment: One commenter pointed out that dialysis patients take 
numerous oral medications, many of which are not related to ESRD. The 
commenter stated that the inclusion of oral equivalent drugs with an 
injectable version in the payment bundle could result in the patient 
receiving these drugs from a pharmacy with which the dialysis facility 
has established a relationship for the dispensing of these drugs to its 
patients, while the other medications are received from a different 
pharmacy of the patient's choice. Because multiple pharmacies would be 
involved, this could result in less attention paid to potential adverse 
consequences resulting from drug interactions and less coordination of 
care.
    Response: We agree that under the circumstances which the commenter 
has described, multiple pharmacies could be involved in the dispensing 
of drugs to dialysis patients. However, the prescriptions for these 
drugs are prepared by the patient's nephrologist, primary care 
physician, or specialist, each of whom should be aware of the patient's 
medications for potential adverse interactions. The dialysis facility 
should also be aware of the patient's oral medications as an additional 
safeguard and therefore, we expect dialysis facilities to collect 
comprehensive information on patients' oral medications to identify any 
potential drug interactions that might otherwise occur. Finally, 
patients can always advise their pharmacist of the oral drugs they take 
when filling a prescription, and inquire about potential drug 
interactions as well. Therefore, we believe that there are sufficient 
safeguards to ensure that the use of several pharmacies to obtain oral 
drugs does not result in adverse consequences for dialysis patients.
    Comment: Many commenters expressed concern about what they believed 
would occur if drugs were included in the ESRD PPS. Some commenters 
were opposed to including oral drugs in the bundled payment, 
particularly vitamin D used for bone and mineral metabolism. Commenters 
cited negative effects on patients' health because ESRD facilities may 
consider cost saving measures such as purchasing less costly and less 
effective drugs (for example, over-the-counter calcium binders or 
vitamin D); limiting the use of the more expensive drugs; using oral 
drugs which they believe are not as effective as intravenous drugs; 
switching to generic drugs or to drugs used in the past, which the 
commenters believed are not as effective; and using

[[Page 49045]]

lower cost oral drugs instead of intravenous drugs resulting in various 
complications as vascular calcification, anemia, blood transfusions, 
and hospitalizations. Some commenters predicted an increase in the 
number of parathyroidectomies due to poor control of 
hyperparathyroidism. One commenter expressed concern that cost cutting 
changes in medication practices at his ESRD facility have already begun 
to occur in preparation for the implementation of the ESRD PPS.
    Some commenters indicated that certain patients would be negatively 
affected by the inclusion of drugs in the ESRD PPS bundled base rate. 
The commenters believed that older patients would be discriminated 
against by being given less expensive and less effective medications. 
Others believed patients needing more medications than others would be 
unable to receive the appropriate dose of their medications. One 
commenter believed that patients receiving dialysis twice weekly or 
those who miss treatments will be considered financially undesirable 
because ESRD facilities will be responsible for the entire month for 
their medications while receiving payment for the dialysis treatments 
only.
    Response: We are concerned by the issues raised by commenters who 
believe ESRD facilities would intentionally and knowingly deny 
medications or provide less effective drugs because of the inclusion of 
drugs in the ESRD PPS bundle. We do not agree that the inclusion of 
drugs in the ESRD PPS would result in facilities denying drugs to 
patients or necessarily using less effective drugs. In particular, we 
do not agree that the use of alternative less costly drugs necessarily 
constitutes the use of less effective drugs. We expect that ESRD 
facilities will continue to provide necessary care to patients with 
ESRD, and we will be monitoring the implementation of the ESRD PPS very 
closely.
    As with any prospective payment system, there are patients whose 
medical treatment results in more costly care as well as those with 
less costly care. As we have discussed in other sections of this final 
rule, the ESRD PPS bundled base rate reflects Medicare payment for the 
average ESRD patient. We have incorporated payments under the current 
composite rate payment system as well as payments for separately 
billable items and services into the ESRD PPS base rate. As a result, 
we believe the ESRD PPS payments are sufficient and reflect the average 
cost of providing care to the average patient with ESRD and therefore, 
we expect that, on average, high cost patients would be offset by low 
cost patients. We have provided for higher acuity patients with patient 
case-mix adjusters as discussed in section II.F. and with outlier 
payments for high cost patients as discussed in section II.H. of this 
final rule.
    Section 494.80(a)(5)of the regulations requires an ESRD patient's 
comprehensive assessment include an ``[e]valuation of factors 
associated with renal bone disease.'' Section 494.80 outlines other 
requirements for assessing and reassessing patients, as well as 
creating and implementing an individual patient plan of care as 
described in Sec.  494.90. Section 494.90(a)(3) requires all ESRD 
facilities to ``* * * provide the necessary care to manage mineral 
metabolism and prevent or treat renal bone disease.'' Patient rights, 
including the mechanisms for filing grievances, are established at 
Sec.  494.70. This means that ESRD facilities are required to provide 
care necessary to treat patients. We are confident that ESRD facilities 
will act responsibly to provide appropriate care under the ESRD PPS and 
oversight activities will identify any ESRD facility that may not do 
so. Therefore, we plan to monitor utilization of renal dialysis items 
and services to ensure that quality care is being provided. We will 
discuss monitoring in the implementation section II.K. of this final 
rule and in the future.
    Comment: One commenter believed that separating the dispensing of 
oral renal drugs from oral drugs used for non-renal conditions will 
cause confusion for patients, their families, and other providers that 
provide care to ESRD patients.
    Response: We believe the commenter is referring to ESRD-related 
drugs and biologicals included in the ESRD PPS base rate. We do not 
agree that the bundling of ESRD-related drugs or biologicals will 
result in confusion. Currently patients may receive medications or 
prescriptions from multiple sources especially if they require medical 
specialists for non-ESRD conditions. We do not see any difference in 
this process under the ESRD PPS.
    Comment: Some commenters believe patients will be involuntary 
discharged from ESRD facilities if the patients are noncompliant and 
drugs are included in the ESRD bundle.
    Response: As discussed earlier in this section of the final rule, 
the statute requires that renal dialysis services included in the ESRD 
PPS include specified ESRD-related services including injectable and 
oral drugs and biologicals. Because ESRD-related drugs and biologicals 
are in the ESRD PPS bundle, ESRD facilities will be responsible for 
furnishing ESRD-related drugs and biologicals that their patients 
require. We appreciate the commenter's concern that patients may be 
involuntarily discharged. However, Sec.  494.180 of the ESRD Conditions 
for Coverage explicitly addresses the discharge procedure, the 
acceptable circumstances for an involuntary discharge or transfer, the 
required actions that must be completed by the ESRD facility prior to 
ceasing treatment, as well as the requirement to inform patients of 
their rights and protections.
    Comment: One commenter stated that because of the ESRD PPS, 
patients with vascular access dysfunction, who are currently treated in 
the ESRD facility, would instead be referred to the emergency 
department in order to be able to receive separate payment for drugs 
used to maintain vascular access. Other commenters indicated that 
patients would be referred to other health care settings such as 
infusion centers or other health care providers to administer 
medications such as antibiotics and thrombolytic agents, for the 
purpose of being reimbursed for medications.
    Response: We believe that the commenter is implying that as a 
result of including anti-thrombolytic drugs and antibiotics in the 
bundled ESRD PPS base rate, ESRD facilities would refer patients with 
any difficulties with vascular access to the emergency department or to 
other settings rather than ensuring that vascular access patency is 
addressed in the ESRD facility at the time of dialysis (as is currently 
being done). We believe that maintaining vascular access is a renal 
dialysis service and therefore, would be included in the ESRD PPS and 
ESRD facilities would continue to be responsible for furnishing the 
service. In other words, as ESRD facilities have been maintaining 
vascular access sites under the current basic case-mix adjusted 
composite rate system and receiving separate payment for anti-
thrombolytic drugs, we will expect that they would continue to maintain 
vascular access under the ESRD PPS, with payment for anti-thrombolytic 
agents included in the ESRD PPS base rate. Accordingly, we expect that 
ESRD facilities would not refer patients to another health care setting 
for the purpose of maintaining vascular access. We note, we would 
expect patients to be referred to another setting if medically 
necessary and we are not implying that ESRD facilities are expected to 
address any and all vascular access complications, if doing so would be

[[Page 49046]]

unsafe for the patient. We merely are indicating that we expect ESRD 
facilities to perform the same procedures to maintain vascular access 
that they currently perform, and not refer patients to other settings 
for the purpose of obtaining additional payment. We will monitor ESRD 
facilities to determine whether they are continuing to perform the same 
procedures to maintain vascular access that they currently perform.
    Comment: Some commenters cited patient non-compliance for their 
opposition to including oral drugs in the bundle. The commenters 
believed that dialysis facilities could control intravenous drugs and 
dosing but could not determine patient compliance with pill taking; 
that inclusion of oral drugs would require patients to take 
responsibility for their own care; and that patient compliance in inner 
cities is already poor. Others stated that reverting to oral 
medications in place of their intravenous forms, would result in an 
increase in the number of pills patients with ESRD, who are already 
required to take multiple pills with limited daily fluid allowance, 
would be required to take. Other commenters were concerned that 
patients might not receive their medications if they forget to obtain 
them during their dialysis treatment. Several commenters claimed 
patient non-compliance would increase due to the bundling of oral 
drugs. The commenters believed there would be higher spending on 
hospitalizations and outpatient care because of decreased control of 
patient's anemia and bone disease.
    Response: We appreciate the concerns about patient compliance and 
pill burden. We do not understand the commenter's statement indicating 
that inner city compliance is already poor and therefore, we regret 
that we are unable to respond to the comment.
    We do not agree that including oral drugs in the bundle will result 
in increased patient compliance difficulties, increased pill burden or 
poor control of anemia and bone disease because under the ESRD PPS 
there is no requirement that drugs must be administered in any 
particular form or by any particular route. It is the responsibility of 
the ESRD facility, the patient's physician, and the ESRD 
interdisciplinary team to develop a plan of care that is appropriate 
and meets each patient's needs. That includes determining the most 
appropriate route of administration of a drug. Although we believe we 
are required by statute to include oral drugs and biologicals in the 
payment bundle, the use of oral equivalents remains a medical decision. 
Section 494.90 of the ESRD Conditions for Coverage requires the 
development of an individualized patient plan of care to address the 
patient's needs. Therefore, we believe ESRD facilities should make 
medical decisions based on patient needs and not solely on a financial 
basis.
    As we discussed in several responses above, we believe that ESRD 
facilities will act responsibly to provide appropriate care under the 
ESRD PPS and that continued monitoring may serve to help identify the 
ESRD providers who do not. Therefore, we plan to monitor utilization of 
renal dialysis items and services to ensure the quality care continues 
to be provided. We will discuss monitoring in the implementation 
section II.K. of this final rule and in the future.
    Comment: Commenters were divided in expressing their support or 
opposition to the inclusion of intravenous drugs and their oral 
equivalents in the ESRD PPS base rate. Some commenters expressed 
concern that bundling drugs will restrict nephrologists' ability to 
prescribe necessary medications. One commenter suggested removing all 
oral drugs from the bundle to allow nephrologists to decide what is in 
the best clinical interest of the patient without reimbursement 
concerns. Others expressed concern that physicians would not prescribe 
drugs that could put a facility at financial disadvantage or would be 
forced to use the ``cheapest available therapy which might be harmful 
to patients and further increase their cardiovascular mortality.'' 
Another commenter believed that disparities in care will occur when 
physicians will need to determine which patients are ``most deserving 
or have the greatest need for certain medications'' placing physicians 
in an adversarial position with ESRD facilities. Several commenters 
believed physicians should have autonomy to prescribe the most 
appropriate drugs within classes of medications.
    Some commenters supported inclusion of all drugs and biologicals 
used to treat ESRD regardless of the route of administration noting 
that oral and injectable drugs are routinely given during the course of 
dialysis treatment. Other commenters indicated that inclusion of all 
drugs, regardless of route of administration in the bundle was `` * * * 
critical to achieving optimal patient care.'' These commenters believed 
that allowing certain drugs and biologicals to be unbundled while 
others are bundled would establish incentives to select treatment 
options contrary to patient's clinical needs and results in medications 
from different sources jeopardizing adherence to care regimens and 
undermining quality of care.
    Response: We thank the commenters for their views of the impact of 
including ESRD-related drugs and biologicals in the bundle. The general 
premise of the ESRD PPS is that the ESRD payments reflect the average 
cost of furnishing renal dialysis items and services to patients. In 
situations where costs for treating patients exceed an established 
threshold under the ESRD PPS, the outlier policy would apply. The 
outlier policy is discussed in detail in section II.H. of this final 
rule.
    We continue to believe that the responsibility for determining the 
appropriateness of medical care resides with the ESRD facility, 
physicians, and the interdisciplinary team as stipulated by the ESRD 
Conditions for Coverage. We also believe that physicians, the 
interdisciplinary team, and ESRD facilities should make medical 
decisions based on patient needs and not solely on a financial basis. 
We plan to monitor utilization of renal dialysis items and services to 
ensure the quality care continues to be provided. We will discuss 
monitoring in the implementation section II.K. of this final rule and 
in the future.
    We note that we do not have the discretion to exclude services from 
the ESRD payment system that meet the statutory definition of a renal 
dialysis service. We discuss the definition of renal dialysis services 
earlier in this section and in section II.D. of this final rule. We 
also discuss the delay in implementation of oral-only drugs earlier in 
this section.
    Comment: Several commenters expressed concern that there are no 
quality measures for calcium, phosphorus, and parathyroid control. 
Others recommended tracking changes in transfusion utilization. One 
commenter urged that necessary steps be taken to ensure access to drugs 
appropriate for patients and not the ``least costly alternative.'' 
Another commenter suggested that MedPAC and other entities track drug 
utilization to avoid unintended consequences.
    Response: We agree with the commenters that there needs to be 
overall monitoring, tracking measures to monitor utilization and 
measure outcomes, and specifically to eventually track and report 
patient levels of calcium, phosphorus and parathyroidism prior to 
implementing the oral-only drugs in the ESRD PPS in 2014. We are 
currently working to develop measures for the initial year of the QIP 
and beyond. We note that, as set

[[Page 49047]]

forth in section 1881(h)(2)(A) of the Act, additional measures are 
being considered and developed such as patient satisfaction, iron 
management, bone mineral metabolism, and vascular access.
    We are currently developing a comprehensive monitoring plan which 
includes tracking drug utilization. We will discuss monitoring in the 
implementation section II.K. of this final rule and in the future. We 
also plan to ensure that patients are educated about the ESRD PPS 
including the mechanisms they can use to report grievances. We believe 
that other entities such as MedPAC, the GAO, and the OIG will be 
looking into the effects of the ESRD PPS. We note that quality measures 
are discussed in section II.M. of this final rule. Additionally, we 
will include a discussion of future QIP measures forecasting in the 
ESRD QIP proposed rule.
    Comment: One commenter believed that if the concern is cost 
shifting from injectable vitamin D to the oral vitamin D analogs, it 
would be better to address that issue directly.
    Response: We do not understand what the commenter is suggesting 
with the statement about addressing the issue of injectable versus the 
oral version of vitamin D directly. However, we believe that the ESRD 
PPS provides an opportunity for ESRD facilities to make financially 
sound decisions while providing necessary care recognizing that some 
patients may utilize less renal dialysis items and services while 
others may use more. In addition, under the QIP, we are working towards 
developing quality measures for bone and mineral metabolism. Further 
discussion on quality measures are found in section II.M. of this final 
rule.
    Comment: One commenter stated that certain injectable drugs used to 
treat ESRD may not have oral equivalents. Therefore, the patient would 
not be able to afford obtaining these drugs outside of the payment 
bundle, resulting in a lower quality of care.
    Response: We are not clear about the point the commenter was 
attempting to make, as ESRD-related injectable drugs without oral 
equivalents would be furnished by the dialysis facility. In addition, 
all injectable drugs used to treat ESRD are included in the payment 
bundle as Part B renal dialysis services, regardless of whether they 
have an oral equivalent.
    Comment: Many commenters indicated that they did not know which 
drugs were in the bundled base rate. Some commenters questioned whether 
non-dialysis-related drugs are included, such as those drugs used to 
treat diabetes, high blood pressure, cardiac drugs, or renal vitamins.
    Response: We thank the commenters for their suggestions on which 
drugs should be included in the ESRD PPS. We also agree that in the 
proposed rule, we did not explicitly indicate which drugs would be in 
the proposed ESRD PPS base rate.
    We proposed that payments for all drugs and biologicals furnished 
to ESRD patients and separately billable prior to January 1, 2011, 
would be included in the ESRD PPS payment bundle as renal dialysis 
services (74 FR 49929). Therefore, in the proposed rule, we included 
all drugs and biologicals on ESRD claims for 2007 for which separate 
payment was made in computing the proposed ESRD PPS base rate because 
the presumption was that all drugs and biologicals on ESRD claims were 
ESRD-related. We explained in the proposed rule (74 FR 49940 through 
49941), our methodology of using CY 2007 claims data for determining 
the Medicare Allowable Amounts (MAPs) for the Part B and former Part D 
ESRD-related drugs and biologicals components of the ESRD PPS bundle, 
including the use of NDC codes for purposes of identifying by oral 
drugs covered under Part D by class.
    With regard to the drugs and biologicals we proposed to bundle in 
the ESRD PPS, we identified in the proposed rule the top 11 Part B 
drugs and biologicals that accounted for 99.7 percent of total spending 
for Part B ESRD drugs and biologicals and identified the classes of 
oral ESRD-related drugs and biologicals currently covered under Part D 
that would be bundled. When listing the amount of spending for ESRD-
related drugs and biologicals, we combined the products that accounted 
for the remaining 0.3 percent of total spending for Part B ESRD drugs 
and biologicals in a general category (``Other injectables'' Part B 
drugs and biologicals) included in the proposed base rate (74 FR 49940 
through 49941).
    With regard to commenters' concerns about the inclusion of certain 
drugs, including non-ESRD related drugs, in the proposed bundle, in 
developing the proposed rule, we presumed that all separately billable 
items were drugs and biologicals on the ESRD claims were ESRD-related 
and therefore, all separately billable items on ESRD claims were 
included in the proposed ESRD PPS bundled base rate.
    As a result of comments, for this final rule, we performed an 
extensive analysis of Medicare payments for
    Part B drugs and biologicals billed on ESRD claims in 2007, 2008, 
and 2009 to identify drugs or biologicals that are ESRD-related and 
therefore meet the definition of renal dialysis services under section 
1881(b)(14)(B) of the Act, and would be included in the ESRD bundled 
base rate. Drugs and biologicals that are generally not ESRD-related 
(for example drugs and biologicals used to treat diabetes, cardiac 
conditions and hypertension), would not be renal dialysis services and 
would be excluded from the ESRD bundled base rate.
    We believe that categorizing drugs and biologicals on the basis of 
drug action would allow us to determine which categories (and 
therefore, the drugs and biologicals within the categories) would be 
ESRD-related. We evaluated each drug and biological to identify its 
category by indication or mode of action. We then analyzed the 
categories to determine those that would be expected to be utilized for 
ESRD-related conditions in a dialysis unit (and therefore would be a 
renal dialysis service).
    We note that the current ESRD claims form does not differentiate 
between drugs and biologicals administered for an ESRD condition from 
drugs and biologicals administered during dialysis for non-ESRD related 
conditions. During this extensive analysis, we discovered that our 
presumption that all drugs and biologicals on the ESRD claims were 
ESRD-related was incorrect. In fact, there were categories of drugs and 
biologicals (and therefore specific drugs on ESRD claims for which 
separate payment had been made) that were not ESRD-related. These non-
ESRD-related drugs and biologicals are discussed in detail below. Later 
in this section, we also discuss in detail the method used to identify 
ESRD-related drug and biological categories and drugs and biologicals 
included in the final ESRD PPS base rate below. Table C in the Appendix 
provides a listing of the specific drugs which were included in the 
proposed ESRD PPS base rate and how those drugs were treated in the 
final ESRD PPS base rate.
    Specifically, we identified drugs and biologicals on the ESRD 
claims which are classified as chemotherapeutic drugs, 
immunosuppressant drugs, and vaccines. These drugs and biologicals, 
with the exception of hepatitis B and flu vaccines, had been included 
in the proposed ESRD PPS base rate. As these are not ESRD-related drugs 
and biologicals because they are not used for ESRD-related conditions 
and therefore, are not renal dialysis services, we excluded them from 
the final ESRD bundled base rate. As a result, we excluded the payments 
from the 2007 ESRD facility claims for these drugs and

[[Page 49048]]

biologicals in computing the final ESRD PPS base rate.
    In performing our analysis of the ESRD claims for this final rule, 
we also identified drugs and biologicals that are included in the 
current composite payment rate but for which ESRD facilities received 
separate payment in addition to the composite rate payment. Because 
these composite rate drugs and biologicals were listed separately on 
the ESRD claims, separate payment was inadvertently made and we 
included these payments in the proposed ESRD PPS base rate. However, 
for this final rule, we excluded those inadvertently made payments from 
the final ESRD PPS base rate calculation.
    We note that the Medicare Benefit Policy Manual, Pub. 100-02, 
chapter 11, section 30.4.1 lists the drugs and fluids included under 
the current composite payment system as heparin, antiarrythmics, 
protamine, local anesthetics, apresoline, dopamine, insulin, lidocaine, 
mannitol, saline, pressors, heparin antidotes, benadryl, hydralazine, 
lanoxin, solu-cortef, glucose, antihypertensives, antihistamines, 
dextrose, inderal, levophed, verapamil and antibiotics used at home by 
patients being treated for catheter site infection or peritonitis 
associated with peritoneal dialysis. The Medicare Benefit Policy 
Manual, Pub. 100-02, chapter 11, section 30.4.1 also explicitly states, 
``* * * drugs used in the dialysis procedure are covered under the 
facility's composite rate and may not be billed separately. Drugs that 
are used as a substitute for any of these items, or are used to 
accomplish the same effect, are also covered under the composite 
rate.'' The manual further provides that ``Administration of these 
items (both staff time and supplies) is covered under the current 
composite rate and may not be billed separately.''
    Also, in our analysis of drugs and biologicals for this final rule, 
we identified ESRD claims that included payments for drugs and 
biologicals, but did not include any dialysis treatments. Because ESRD 
facilities receive a payment under the current basic case-mix adjusted 
composite payment system which is treatment based (that is, based on 
the provision of a dialysis treatment) and separate payment is made for 
any items or services provided that are not considered part of the 
composite rate, payment for claims without treatments should not be 
paid. Therefore, for this final rule, payments for drugs and 
biologicals listed separately on the ESRD claim where there was no 
dialysis treatment included on the claim were excluded from the 
computation of the base rate.
    In the analysis conducted for this final rule, we also identified 
drugs and biologicals on ESRD claims that were not identifiable because 
they were billed using unspecified or unclassified HCPCS codes. These 
codes are used when a HCPCS code has not yet been assigned. As a 
result, we were unable to determine the name of the drug or biological 
or if they were ESRD-related or administered for non-ESRD-related 
conditions. Because ESRD-related drugs and biologicals have HCPCS 
codes, we considered any drug or biological billed using an 
unclassified or unspecified HCPCS code as being non-ESRD-related. 
Therefore, any payments attributed to these unspecified codes were not 
included in computing the final ESRD base rate. We note that ESRD 
facilities should be using valid HCPCS codes for the drugs that they 
administer and should only use the unclassified codes for those drugs 
that do not have codes.
    During our analysis for this final rule, we also identified drugs 
and biologicals as well as procedures which would not be considered 
renal dialysis services. For example, low molecular weight contrast 
administered for radiological purposes; pharmacy and administrative 
pharmacy code for administration of oral anti-emetics for cancer 
treatment; chemotherapy; and chest x-rays were reported on the ESRD 
claims. Because these procedures are not renal dialysis services (that 
is, they are not procedures that are used for the treatment of ESRD), 
we excluded the payments associated with these procedures from the 
final ESRD PPS base rate.
    We also identified drugs, biologicals and procedures reported on 
ESRD claims which are unlikely to be performed or provided in an ESRD 
facility. For example, there were claims that included paralytic agents 
used to intubate patients. Because we do not believe that these drugs 
would be used to treat ESRD-related conditions, they would not be 
considered to be renal dialysis services. As a result, we excluded the 
payments made for these drugs in computing the final ESRD PPS bundled 
base rate.
    We list the categories of drugs and biologicals that we would not 
consider ESRD-related and therefore would not be renal dialysis 
services included in the ESRD PPS base rate in Table 3 below. We note 
that the drugs, biologicals, and procedures that were excluded from the 
final ESRD PPS base rate represent a very small dollar amount 
accounting for less than one cent per dialysis treatment and represent 
less than 0.2 percent of payments made for separately billable drugs 
and biologicals. Table C in the Appendix identifies the Part B 
injectable drugs that were included in the proposed base rate and in 
the final base rate.
BILLING CODE P

[[Page 49049]]

[GRAPHIC] [TIFF OMITTED] TR12AU10.010

BILLING CODE C
    Comment: Commenters noted that CMS needs to clearly delineate what 
is covered in the bundle. One commenter suggested differentiating 
between medications used for acute rather than chronic complications. 
One commenter recommended that a list of specific ESRD-only related 
drugs for inclusion in the bundle and that these be periodically 
updated to account for new technology and innovation. Some commenters 
suggested that we include only intravenous ESAs, iron, and vitamin D. 
One commenter stated that ESRD facilities separately bill and are 
reimbursed for ESAs, iron, vitamin D, alteplase and antibiotics for the 
treatment of access-related infections and peritonitis. Other 
commenters suggested that we include only intravenous ESAs, iron and 
vitamin D. One commenter believed that ESRD-related drugs used in the 
treatment of anemia, bone disease and iron deficiency should be 
included in the bundle. Some commenters suggested that only oral drugs 
that have ``equivalent injectables'' or other ``equivalent non-oral 
forms'' should be in the bundle. One commenter suggested that only ESRD 
intravenous drugs and their oral equivalents that are well known and 
most manageable be included.
    Response: As we discussed in the previous response, we identified 
categories of drugs and biologicals which were not ESRD-related and

[[Page 49050]]

therefore, we excluded the payments for drugs in those categories from 
the final ESRD PPS base rate. We agree with the commenters that drug 
categories used for the treatment of anemia and iron deficiency (which 
includes ESAs and intravenous iron), access management (which includes 
alteplase), and bone and mineral metabolism (which includes vitamin D) 
would be renal dialysis services under the ESRD PPS. We also agree that 
antibiotics used for the treatment of venous access infections and 
peritonitis (specifically, vancomycin and daptomycin) and cellular 
management (specifically, levocarnitine) are renal dialysis services 
under the ESRD PPS. Therefore, payments for drugs in these categories 
in injectable forms (covered under Part B) and oral or other forms of 
administration (covered under Part D), were included in computing the 
final ESRD PPS base rate. We note one exception. We understand that the 
oral versions of vancomycin are not used for ESRD-related conditions 
and therefore, would not be a renal dialysis service. It is also our 
understanding that daptomycin does not have an oral equivalent. The 
categories and drugs which are renal dialysis services under the ESRD 
PPS are shown in Table 4 below.
[GRAPHIC] [TIFF OMITTED] TR12AU10.011

    With regard to the suggestion that there be a differentiation 
between acute and chronic complications, we do not believe that such a 
differentiation is required as the definition of renal dialysis 
services does not distinguish between renal dialysis services provided 
for acute or for chronic conditions. For example, anemia management is 
a chronic condition and access management is more acute and the drugs 
and biologicals used for both are considered renal dialysis services.
    With regard to the commenter's request to provide a list of 
specific ESRD-only drugs, we recognize that drugs and biologicals used 
for ESRD-related conditions may change over time based upon many 
factors including new developments, evidence-based medicine, and 
patient outcomes. By categorizing drugs and biologicals based on 
mechanism of action, we will account for other drugs and biologicals 
that may be used for those actions in the future under the ESRD PPS. In 
other words, while we have included drugs and biologicals used in 2007 
in the final ESRD base rate, we recognize that these may change. 
Because there are many drugs and biologicals that have many uses and 
because new drugs and biologicals are being developed, we do not 
believe that a drug-specific list of drugs would be beneficial. We have 
provided a list of the specific drugs that were included in the ESRD 
PPS base rate in Table C in the Appendix. However, any drug or 
biological furnished for the purpose of access management, anemia 
management, vascular access or peritonitis, cellular management and 
bone and mineral metabolism will be considered renal dialysis services 
under the ESRD PPS.
    We note that any ESRD drugs developed in the future that are 
administered by a route of administration other than injection or oral 
would be considered renal dialysis services and would be in the ESRD 
bundled base rate. Any drug or biological used as a substitute for a 
drug or biological that was included in the ESRD PPS bundled base rate 
would also be a renal dialysis service and would not be eligible for 
separate payment.
    We believe that categories of drugs and biological used for access 
management, anemia management, bone and mineral metabolism, and 
cellular management would always be considered ESRD-related when 
furnished to an ESRD patient unless the ESRD facility indicates a drug 
or biological is non-ESRD-related through the use of a modifier. 
However, because anti-infectives are routinely furnished for ESRD-
related reasons related to access infections and peritonitis, we 
included vancomycin and daptomycin and all other antibiotics on the 
2007 ESRD claims in computing the final ESRD PPS base rate. Therefore, 
if any other anti-infective (including oral or other forms used as a 
substitute for an injectable anti-infective) is used for vascular 
access infections or peritonitis, the drug would be a renal dialysis 
service and separate payment would not be made.
    Under this approach, we are presuming these drugs and biologicals 
are renal dialysis services because they were included on the ESRD 
facility claims and furnished in conjunction with a dialysis treatment. 
In addition, these drugs represent 99.8 percent of payments for 
separately billable drugs and biologicals furnished to ESRD patients.
    In our analysis for this final rule of the drugs and biologicals on 
the ESRD facility claims, we analyzed the remain 0.2 percent of 
payments for separately billable drugs and identified drug categories 
that we believe could be ESRD-related, but are commonly used for non-
ESRD-related conditions (for example, antiemetics and pain 
medications). These are shown in Table 5. Because these drug and 
biological categories could be ESRD-related, we included the payments 
made under Part B for these drugs and biologicals in 2007 in the final 
ESRD bundled base rate. In other words, for the purpose of the ESRD 
bundle, as of January 1, 2011, these drugs are presumed to be renal 
dialysis services unless the ESRD facility indicates on the claim (by 
using

[[Page 49051]]

a modifier) that a drug or biological in these categories is not ESRD-
related and, separate payment would be made. (We discuss the use of the 
modifier in section II.K. of this final rule.)
    Where these drugs are furnished and billed by ESRD facilities in 
conjunction with dialysis treatments, we presume these drugs and 
biologicals in whatever form they are furnished, to be renal dialysis 
services. As a result, we identified the drugs and biologicals for 
these categories and included the payments made under Part B for these 
drugs in computing the final ESRD PPS base rate. As ESRD facilities are 
required to report all drugs and biologicals they furnish and will be 
able to designate drugs and biologicals as being ESRD-related or non-
ESRD-related through the use of a modifier, we will be able to monitor 
the drugs and biologicals to identify those that are being used for 
ESRD-related conditions and those that are not.
    However, as the oral (or other form of administration) substitutes 
for the drugs and biological described above were not furnished or 
billed by ESRD facilities nor furnished in conjunction with dialysis 
treatments, we presume that these drugs and biologicals currently paid 
under Part D were prescribed for non-ESRD-related conditions and are 
not renal dialysis services. Therefore, we did not include payment for 
these oral drugs and biologicals with other forms of administration in 
the ESRD PPS base rate. However, if these drugs and biologicals 
currently paid under Part D are furnished by an ESRD facility for ESRD-
related purposes, they would be considered renal dialysis services.
    We will monitor the use of drugs and biologicals in these 
categories for the treatment of ESRD and may add categories of drugs 
and biologicals that constitute renal dialysis services (or if 
applicable, eliminate categories of drugs and biologicals that no 
longer constitute renal dialysis services) in the future.
[GRAPHIC] [TIFF OMITTED] TR12AU10.012

    Comment: One commenter questioned whether midodrine used to 
maintain blood pressure on dialysis was included in the bundle and 
would the bundle be expanded to include all blood pressure medications. 
Another commenter noted that the average patient is on 3 to 5 different 
anti-hypertensive drugs and suggested that if anti-hypertensive drugs 
were in the bundle, that more focus on optimal fluid management should 
occur.
    Response: As we discussed above, the separately billable Part B 
payments made for cardiac drugs (including anti-hypertensive drugs) 
were not included in the final ESRD PPS base rate because cardiac drugs 
are included under the current basic case-mix adjusted composite 
payment rate. In addition, we note that we did not see midodrine 
reported in the 2007 ESRD claims data. However, to the extent that that 
any cardiac drug or biological (including anti-hypertensive drugs and 
biologicals) are furnished by an ESRD facility for ESRD-related 
conditions, the drug or biological would be considered a renal dialysis 
service and separate payment will not be made.
    Comment: Some commenters indicated that in cooperation with other 
physicians and transplant centers and in the patients' interest, they 
administer medications that are not part of dialysis care, such as 
immunosuppressants and antibiotics. One commenter indicated that 
providers will have to undertake an expensive appeals process that 
could impair access if there is no recognition of non-ESRD-related 
drugs. The commenter further stated if the ESRD PPS does not consider 
that non-ESRD-related drugs and biologicals are furnished by ESRD 
facilities, nephrologists will only be permitted to order medications 
that are included in the final ESRD PPS base rate, and directly related 
to dialysis. This outcome would make it impossible for nephrologists to 
serve as primary care physicians and would force patients to see 
internists and family practice physicians incurring additional costs to 
insurers and patients. The commenter believed that this will result in 
repetition of unnecessary and expensive procedures resulting in higher 
costs, morbidity, and mortality.
    Response: We are aware that drugs and biologicals may be 
administered for reasons unrelated to the treatment of ESRD or dialysis 
and would not be renal dialysis services covered under the ESRD PPS. As 
discussed above, because the 2007 ESRD claims do not distinguish 
between ESRD-related and non-ESRD-related drugs and biologicals, we 
were unable to exclude payments for those drugs and biologicals from 
the base rate with certainty. To the extent that we were able to 
presume a drug or biological was not ESRD-related, we excluded the 
payments. We identify the drugs and biologicals that were included in 
the base rate in Table C in the Appendix. We have developed a mechanism 
to be used by ESRD

[[Page 49052]]

facilities to identify and be paid separately for non-ESRD-related 
drugs and biological which is discussed in section II.K. of this final 
rule.
    Comment: One commenter recommended that we develop a list of 
specific ESRD-only related drugs for inclusion in the bundle and that 
the list be periodically updated to account for new technology and 
innovation.
    Response: As discussed above, rather than specifying the specific 
ESRD-related drugs and biologicals, we identified categories based on 
the mechanism of action of these drugs and biologicals. We did not 
specify all of the drugs and biologicals within these categories 
because, as we noted above, we did not want to inadvertently exclude 
drugs that may be substitutes for drugs we identified and we wanted the 
ability to reflect new drugs and biologicals developed or changes in 
standards of practice. Therefore, we are not restricting or limiting 
the tables to specific drugs or biologicals. However, the categories of 
drugs and biologicals which we identified as renal dialysis services 
were included in the final ESRD PPS base rate and are shown in Table 5. 
We will monitor the use of drugs and biologicals for the treatment of 
ESRD and may add categories of drugs and biologicals that constitute 
renal dialysis services (or if applicable, eliminate categories of 
drugs and biologicals that no longer constitute renal dialysis 
services) in the future.
    Comment: Some commenters suggested that we include levocarnitine in 
the ESRD bundle.
    Response: We agree that levocarnitine is used in the treatment of 
ESRD and meets the definition of a renal dialysis service. 
Levocarnitine is included in the drug categories shown in Table 4.
    Comment: Some commenters indicated that the top 11 ESRD drugs and 
biologicals account for 99.7 percent of Part B payments for intravenous 
drugs and biologicals furnished to ESRD patients in 2007. The 
commenters believed that the Congress intended that only these drugs 
and their equivalents be included in the bundled rate, as these drugs 
normally are administered during the course of dialysis treatment.
    Response: We do not agree with the commenters that only the top 11 
drugs and biologicals should be included in the ESRD base rate. As we 
discussed above, the top 11 drugs, which in the analysis conducted for 
this final rule account for 99.8 percent of ESRD Part B separately 
billable drug payments, are included in the ESRD bundled base rate.
    However, there are drugs and biologicals (and therefore, categories 
of drugs and biologicals) that were not among the top 11 ESRD drugs and 
biologicals, but were determined to be renal dialysis services. We 
discuss these categories of drugs and biologicals (for example, the 
pain management category), in the discussion above concerning 
categories of drugs that are ESRD-related but could be used for non-
ESRD conditions.
    Comment: A few pediatric dialysis facilities noted that drugs 
administered to children usually include antibiotics for peritonitis; 
peritoneal dialysis or hemodialysis central venous catheter infections; 
hemodialysis catheter related septicemia; alteplase for hemodialysis 
catheter de-clotting; anti-seizure medications; ESAs; and vitamin D 
analogs. The commenters indicated that antibiotic and alteplase use was 
more prevalent in younger children as well as higher ESA dosing per 
kilogram of body weight. Some of these commenters provided a list of 
the pediatric drugs and their costs.
    Response: As we discussed above, we concur that drugs and 
biologicals that are used for anemia management (ESAs), bone and 
mineral management (vitamin D), access infections and peritonitis 
(vancomycin and daptomycin), and access management (alteplase) are 
renal dialysis services and payments for the drugs in these categories 
have been included in the ESRD PPS base rate. However, we did not 
include anti-seizure medications in the ESRD PPS base rate because we 
believed that anti-seizure drugs and biologicals were used for many 
conditions and were not likely to be renal dialysis services. We are 
not clear if the commenter was indicating that anti-seizure medications 
were administered to pediatric patients because of ESRD-related 
conditions or for other non-ESRD-related conditions.
    However, we will monitor the use of anti-seizure drugs and 
biologicals for the treatment of ESRD and may add this category of 
drugs and biologicals that constitute renal dialysis services in the 
future. We expect that ESRD facilities that treat ESRD patients under 
the age of 18 will report the ESRD-related seizure medications on the 
ESRD claims. Where an anti-seizure drug or biological is furnished by 
the ESRD facility and reported without a modifier, separate payment 
would not be made. Further discussions on pediatric ESRD patients are 
in section II.G. of this final rule.
    Comment: Many commenters opposed the inclusion of antibiotics in 
the bundled payment indicating that antibiotics are often administered 
during dialysis for non-renal reasons such as pneumonia or wound 
infection and, therefore, should remain separately billable. Others 
explained that antibiotics are administered when an infection is 
suspected in patients receiving dialysis treatment, noting that 
administration of antibiotics decreases hospitalizations, emergency 
room visits, shortens hospital days, and decreases mortality. These 
commenters believed that if antibiotics are included in the bundle, it 
would serve as a disincentive for early infection intervention. Others 
explained that antibiotics are often not prescribed by nephrologists 
and, therefore, would not be renal dialysis services. Still others 
noted that administering antibiotics during dialysis is less expensive 
to administer because there is vascular access readily available.
    Another commenter indicated that antibiotics are administered to 
severely ill patients prior to transfer to the emergency department. 
Several commenters explained that dialysis ``clears many antibiotics'' 
and indicated that if patients do not receive antibiotics during or at 
the end of dialysis, there is a likelihood that their blood levels 
would be subtherapeutic, increasing the risk of recurrent infection and 
hospitalization. One commenter provided a case example. Some commenters 
predict that providers will decline to administer medications not 
directly related to kidney failure, such as antibiotics for infected 
foot ulcers, or will use less proven oral regimens to complete 
treatment.
    Response: We acknowledge that antibiotics may be administered in an 
ESRD facility for purposes other than dialysis or ESRD-related 
conditions as well as for treatment of vascular access infections. 
Included in the top 11 drugs and biological are vancomycin and 
daptomycin. We believe that there are other antibiotics that may be 
administered for vascular access related infections and peritonitis. 
Therefore, we included all antibiotics, with the exception of 
antivirals, that were on the 2007 ESRD claims, into the ESRD bundled 
base rate. ESRD facilities will be able to identify on the ESRD claims 
any antibiotic administered for non-ESRD related reasons, and receive 
payment for those non-ESRD related antibiotics. We note, if an anti-
infective (including anti-bacterials and anti-fungals) are administered 
for the purpose of a vascular access infection or peritonitis, the drug 
would be considered a renal dialysis service and not eligible for 
separate payment. This also applies to any drugs or biologicals that 
may be developed in the future.
    Comment: In general, commenters supported the agency's reading of 
the

[[Page 49053]]

statute with regard to oral drugs with injectable equivalents (or some 
other form of administration). In particular, several commenters fully 
supported inclusion of oral drugs that are equivalent, full replacement 
products for injectable Part B drugs in the ESRD PPS.
    Response: We appreciate these comments and agree that such oral 
drugs are required to be included in the ESRD PPS because such drugs 
meet the definition of ``renal dialysis services'' under section 
1881(b)(14)(B) of the Act.
    Comment: One commenter suggested that the bundle include oral drugs 
with intravenous equivalents, phosphate binders, and calcimimetics 
essential for bone health and mineral metabolism. A few commenters 
provided a list of drugs and cost amounts. One commenter believed 
bundling of intravenous drugs is straightforward with bundling of oral 
equivalents being less logical. Some commenters believed that oral 
drugs such as cinacalcet HCL, lanthanum carbonate, calcium acetate, 
sevelamar HCL, and sevelemar carbonate commonly taken by patients on 
dialysis and non-dialysis days, should not be in the bundle. One 
commenter acknowledged that zemplar and other vitamin D products belong 
in the bundle as they are oral equivalents of intravenous vitamin D. 
Another commenter believed that vitamin D and oral iron were the only 
currently available oral drugs with intravenous equivalents and 
therefore the only oral drugs in the bundle. One commenter stated that 
oral drugs with injectable equivalents are primarily prescribed for 
peritoneal dialysis and home hemodialysis patients. Other commenters 
supported the need to revisit the issue and ensure that the only drugs 
in the bundle are those that are separately billable by dialysis 
facilities and have an intravenous equivalent.
    Response: As explained in section II.A.3. of this final rule, oral-
only ESRD-related drugs and biologicals currently paid under Part D 
meet the definition of a renal dialysis service, but implementation of 
these drugs under the ESRD PPS is delayed until January 1, 2014. We do 
not agree with the comment that bundling of oral equivalents is less 
logical than bundling injectable drugs. As we have discussed above, 
section 1881(b)(14)(B)(iii) of the Act specifies that other drugs and 
biologicals that were furnished to individuals for the treatment of 
ESRD, and for which payment was made separately under this title, prior 
to the implementation of the ESRD PPS, and their oral equivalent forms, 
must be included in the ESRD PPS payment bundle.
    Based upon our determination of the categories of drugs and 
biologicals that are renal dialysis services, at this time there are 
oral or other forms of injectable drugs only for the bone and mineral 
metabolism and cellular management categories. As discussed earlier in 
this section, we did not include the non-injectable form of vancomycin 
because we believe that the oral or other forms of these anti-
infectives are not used for ESRD-related access infections. In 
addition, we were not able to identify any oral or other form of 
administration for iron prescriptions. Therefore, payments related to 
the oral or other forms of these injectable drugs were not included in 
the ESRD PPS base rate. As a result, for purposes of calculating the 
ESRD PPS base rate, we included the payments under Part D for oral 
vitamin D (calcitrol, doxercalcitrol and paracalcitrol) and oral 
levocarnitine. To the extent an ESRD facility furnishes an injectable, 
oral or other form of a drug or biological that is ESRD-related, the 
facility should report the drug or biological on the ESRD claim without 
a modifier and no separate payment would be made.
    Therefore, we are finalizing the definition of renal dialysis 
services under Sec.  413.171 as proposed.
4. Diagnostic Laboratory Tests and Other Items and Services
    Section 1881(b)(14)(B)(iv) of the Act requires that diagnostic 
laboratory tests not included under the composite payment rate (that 
is, currently separately billable laboratory tests) must be included as 
part of the ESRD PPS payment bundle. We proposed to define such 
laboratory tests as laboratory tests that are separately billed by ESRD 
facilities as of December 31, 2010, and laboratory tests ordered by a 
physician who receives monthly capitation payments (MCPs) for treating 
ESRD patients that are separately billed by independent laboratories 
(74 FR 49929). We proposed that payments for these laboratory services 
would be included in the development of the proposed patient-specific 
case-mix adjusters and in the proposed ESRD base rate to which the 
adjusters would be applied.
    Section 1881(b)(14)(B)(iv) of the Act also requires that the ESRD 
PPS payment bundle include ``other items and services not described in 
clause (i).'' In the proposed rule, we noted that this language can be 
reasonably interpreted to include other separately billable items and 
services used in the treatment of ESRD, such as supplies and other 
self-dialysis services (74 FR 49929). We noted that examples of such 
items and services would include, but would not be limited to, items 
such as syringes, specialized tubing, as well as blood and blood 
products, which facilities may furnish during the dialysis treatment. 
We also stated that we believe that the statutory language can be 
interpreted to include the cost of other self-dialysis training 
services in the ESRD PPS (for further detail on self-dialysis training 
(74 FR 49930)). We proposed that such items and services be included in 
the ESRD PPS bundle and that the inclusion of diagnostic laboratory 
tests and other items and services as renal dialysis services in the 
ESRD PPS payment bundle is set forth in proposed Sec.  413.171.
    The comments we received on this proposal and our responses are set 
forth below.
    Comment: We received many comments addressing our methodology for 
the inclusion of diagnostic laboratory tests in the ESRD PPS payment 
bundle. Commenters noted that the inclusion of such tests in the 
bundled ESRD PPS will subject Medicare beneficiaries for the first time 
to a 20 percent coinsurance payment obligation. The commenters reasoned 
that our proposal that Medicare pay for 80 percent of diagnostic 
laboratory tests through their inclusion in the payment bundle violates 
the statutory requirement that the Secretary ensure that the estimated 
amount of total payments under title XVIII for renal dialysis services 
in 2011 equal 98 percent of the amount of payments that would have been 
made, but for the PPS. Some commenters stated that section 
1833(a)(2)(D)(ii) of the Act specifies that for clinical laboratory 
tests paid under Medicare Part B on the basis of negotiated rates, the 
payment amount must equal 100 percent of the negotiated rate 
(incidentally, we note that a few commenters cited to section 
1883(a)(2)(D)(ii) of the Act, but we presume those commenters intended 
to instead reference section 1833(a)(2)(D)(ii) of the Act). 
Accordingly, the commenters requested that we revise the payment amount 
for laboratory tests included in the bundle to reflect 100 percent of 
the allowable amount.
    Response: Cost sharing with respect to laboratory services is 
addressed in section 1833(a)(2)(D) of the Act. We note that nothing 
changes in terms of the cost-sharing structure for non-ESRD-related 
laboratory tests. Under the definition of renal dialysis services under 
section 1881(b)(14)(B)(iv) of the Act, ESRD-related laboratory tests

[[Page 49054]]

would be considered to be renal dialysis services under the new ESRD 
PPS, subject to the usual coinsurance applied to such Part B services. 
A few commenters appeared to be under the impression that only 80 
percent of payments for laboratory tests were included in the 
calculation of the base rate. This is incorrect. We included 100 
percent of payments for laboratory services in the ESRD PPS base rate. 
As with all other renal dialysis services included in the payment 
bundle, these laboratory services will be part of the ESRD PPS payment 
rate and would be subject to the customary 20 percent Part B 
coinsurance amount.
    Comment: Many commenters took issue with our proposal to include 
laboratory tests ordered by MCP physicians for treating ESRD 
beneficiaries, and that are billed separately by independent 
laboratories, and our proposal to include all these tests billed by 
independent laboratories for ESRD patients in the payment bundle. 
Numerous commenters pointed out that in many instances the MCP 
physician is the primary care physician for the ESRD patient and often 
has laboratory tests performed for conditions unrelated to ESRD. The 
commenters asserted that requiring ESRD facilities to pay for such 
tests would result in a potentially vast number of tests unrelated to 
the treatment of ESRD being inappropriately included in the ESRD 
payment bundle.
    Response: Section 1881(b)(14)(B)(iv) of the Act specifies that the 
ESRD PPS must include ``diagnostic laboratory tests * * * that are 
furnished to individuals for the treatment of end-stage renal 
disease.'' We interpreted this language to include laboratory tests 
ordered by MCP physicians for treating ESRD beneficiaries and that are 
currently billed separately by independent laboratories. We recognize 
that there is a small subset of laboratory tests that are typically 
performed in connection with a patient's ESRD, and that are 
appropriately considered renal dialysis services because they are 
furnished for the treatment of ESRD, but that can also be done for non-
ESRD reasons. For example, a complete blood count (CBC) could be 
ordered for an ESRD patient in connection with routine testing for 
hemoglobin or hematocrit to ensure appropriate management of anemia, an 
ESRD-related purposes. However, a CBC could also be ordered for an ESRD 
beneficiary to measure the amount of blood loss in response to a 
suspected lower gastrointestinal bleed, or to measure infection (for 
example, white blood cell count for a suspected pneumonia), non-ESRD 
purposes.
    The 2007 ESRD facility claims do not distinguish between ESRD-
related and non-ESRD-related laboratory services. We included payments 
for all tests billed by independent laboratories for ESRD patients in 
calculating the final base rate in order to appropriately account for 
such tests as renal dialysis services. We presumed that MCP physicians, 
for the most part, order laboratory tests for ESRD beneficiaries for 
ESRD-related purposes. However, as we recognize that certain non-ESRD 
laboratory tests may be ordered in conjunction with ESRD-related 
laboratory tests, we have developed billing modifiers to provide for 
separate payment where the testing is not ESRD-related (section II.K.2. 
of this final rule).
    Comment: Several commenters recommended that we include in the ESRD 
PPS payment bundle, only those laboratory tests that are generally 
furnished for the treatment of ESRD, and included lists of 
approximately 50 tests which they believe account for about 95 percent 
of the laboratory tests ordered by ESRD facilities for ESRD patients. 
The commenters pointed out that such specificity would leave no doubt 
as to whether a particular laboratory test would be included or 
excluded from the payment bundle, would not create billing rules other 
than the list of 50 to 60 current procedural technology (CPT) codes 
that would not be separately billable, and would not result in the 
attachment of testing frequencies to the included tests. The commenters 
also stated that there is precedent for their recommendation, pointing 
out that CMS excluded ESRD-related clinical laboratory tests from the 
skilled nursing facility consolidated payment, and published a list of 
those ESRD-related tests, which closely resemble the tests which the 
commenters submitted for consideration as ESRD-related for inclusion in 
the ESRD PPS. Other commenters submitted their recommended list of 
ESRD-related laboratory tests.
    Response: We agree with the commenters that limiting the laboratory 
tests for payment under the ESRD PPS payment bundle to specific tests 
that are customarily performed in connection with the treatment of ESRD 
comports with section 1881(b)(14)(B)(iv) of the Act and would be a 
straight forward method of capturing only ESRD-related laboratory 
testing. In addition, we needed to develop a list of ESRD-related 
laboratory tests for consolidating billing edits to ensure that payment 
is not made to independent laboratories for ESRD-related laboratory 
tests. However, based on a review of the lists of ESRD-related 
laboratory tests in the Medicare Claims Processing Manual and received 
in public comments, it appears there is currently not consensus among 
the various stakeholders about the laboratory testing commonly 
furnished to ESRD patients.
    Therefore, in order to develop a list of ESRD-related laboratory 
tests, we identified those laboratory tests that were most frequently 
identified on the lists we reviewed. Then, we received input from 
physicians working with UM-KECC. Lastly, CMS physicians and other 
clinical staff finalized the list which is contained in Table F of the 
Appendix. As discussed in more detail in section II.K.2. of this final 
rule, we will be implementing consolidated billing edits to prevent 
payment to independent laboratories for tests on the list of ESRD-
related laboratory tests unless a modifier is reported indicating the 
test is not ESRD-related.
    ESRD facilities should report on their claims all laboratory tests 
ordered by the MCP physician. We will establish a modifier so that ESRD 
facilities may continue to be paid separately for non-ESRD-related 
laboratory tests. We plan to review the ESRD-related laboratory tests 
reported by ESRD facilities to ensure that the laboratory list 
continues to reflect common ESRD-related laboratory testing.
    Comment: Commenters noted that we proposed to include in the ESRD 
PPS blood and blood products to the extent these items were furnished 
by ESRD facilities and reported on the type ESRD claims. One commenter 
pointed out that patients are transfused infrequently in ESRD 
facilities, and that most transfusions occur in hospital outpatient 
settings. The commenter stated that if ESRD facilities are to be held 
responsible for blood transfusions administered to dialysis patients, 
then the costs from other outpatient settings need to be captured and 
added to the payments developed from dialysis facility claims to 
compute the ESRD PPS base rate.
    Another commenter opposed the inclusion of blood and blood products 
in the payment bundle. This commenter stated that blood transfusions 
for outpatient dialysis patients do not represent the current first 
line standard-of-care intervention for the treatment of ESRD, having 
largely been replaced by anemia management drugs. Because their 
administration in dialysis facilities is relatively infrequent, the 
commenter requested that to the extent dialysis facilities furnish 
blood or blood products ordered by an MCP physician, these costs should 
be excluded from the

[[Page 49055]]

ESRD PPS payment bundle and remain separately billable.
    Response: We agree with the commenter that the furnishing of blood 
and blood products by ESRD facilities to ESRD beneficiaries is a 
relatively infrequent and unusual occurrence, and we believe that it 
does not represent standard clinical practice for the management of 
anemia in connection with the treatment of ESRD. ESRD facilities may 
also furnish blood and blood products for non-ESRD reasons ordered by 
an MCP physician for the convenience of the patient undergoing 
dialysis. We also agree that the administration of blood and blood 
products is usually performed in a hospital outpatient setting, 
generally for non-ESRD reasons.
    For these reasons, we do not consider the furnishing of blood and 
blood products to be renal dialysis services under the statute and, 
therefore, these services would be excluded from the ESRD PPS payment 
bundle. The furnishing of blood, blood products, and blood supplies in 
connection with transfusions will remain separately billable when they 
are administered in an ESRD facility. The total payments for blood and 
blood products to ESRD facilities as reported on available ESRD claims 
in CY 2007 was $1,504,831. We have excluded this amount from the 
computation of the final ESRD PPS base rate, consistent with our 
determination that blood and blood products are not renal dialysis 
services.
    We note that the incentives under the ESRD PPS may lead to under 
treatment of anemia, a critical clinical indicator for ESRD patients, 
necessitating blood transfusions for patients whose hemoglobin levels 
drop too low. We plan to monitor the extent to which dialysis patients 
receive transfusions after implementation of the ESRD PPS. If practice 
patterns change such that the administration of transfusions and 
furnishing of blood and blood products substantially increase, we may 
subsequently reexamine whether these services should be considered 
renal dialysis services used for the treatment of ESRD and included in 
the ESRD PPS payment bundle.
    With respect to the laboratory tests included in developing the 
ESRD PPS base rate, we are finalizing our proposal to include payments 
for outpatient laboratory tests billed on ESRD facility claims, as well 
as payments for laboratory tests ordered by physicians receiving MCP 
amounts and billed on carrier claims. We used the list of CY 2007 MCP 
physicians for this purpose. The ESRD related laboratory tests that 
will be subject to the ESRD PPS are identified in Appendix Table F of 
this final rule.
5. Physicians' Services
    Section 1881(b)(14)(A)(i), as added by MIPPA, states as follows in 
pertinent part:

    * * * the Secretary shall implement a payment system under which 
a single payment is made under this title to a provider of services 
or a renal dialysis facility for renal dialysis services (as defined 
in subparagraph (B)) in lieu of any other payment * * * and for such 
services and items furnished pursuant to [section 1881(b)(4)].

    As we indicated in the proposed rule, we believe this provision 
generally governs payment to ESRD facilities (74 FR 49931). With regard 
to physicians' services related to renal dialysis, such services are 
addressed separately in section 1881(b)(3) of the Act. In the ESRD PPS 
proposed rule, we indicated that we did not intend to significantly 
modify payment for physicians' services, and stated that any changes 
with regard to the payment for physicians' services related to renal 
dialysis would be addressed in future rulemaking (74 FR 49931).
    Comment: Numerous commenters supported our decision in the proposed 
rule to exclude physician services from the ESRD PPS payment bundle. We 
received no comments endorsing the inclusion of these services in the 
bundle.
    Response: We appreciate the views of the commenters. As we 
indicated in the proposed rule, we are limiting the scope of this 
rulemaking to payment for home dialysis and renal dialysis services 
furnished by ESRD facilities. Therefore, we do not, at this time, 
intend to modify payment for physicians' services. Any changes in 
payment for physicians' services related to renal dialysis would be 
addressed in future rulemaking.
6. Other Services
    The comments and our responses are set forth below.
    Comment: One commenter requested that we clarify that services that 
may be furnished to beneficiaries at the time of a dialysis session, 
but not furnished specifically for the treatment of ESRD, would be 
excluded from the proposed ESRD bundled payment system. The commenter 
cited apheresis treatment as an example. Because apheresis, like 
dialysis, filters a patient's blood, the commenter was concerned that 
this treatment regimen may be incorrectly viewed as a treatment for 
ESRD. The commenter further explained that although both dialysis and 
apheresis filter the patient's blood, the procedures accomplish 
different objectives. The commenter stated that in dialysis the purpose 
is to clear wastes from the blood, restore electrolyte balance, and 
eliminate excess bodily fluid, whereas the purpose of apheresis is to 
remove from the blood certain blood components such as abnormal 
proteins implicated in a disease.
    The commenter recommended that Medicare policy take no steps that 
would financially incentivize fracturing dialysis and apheresis into 
separate patient visits, but encouraged service alignments.
    Response: As described in greater detail in section II.A. of this 
final rule, items and services included within the ESRD PPS are home 
dialysis and those items and services that meet the definition of 
``renal dialysis services'' and are furnished to individuals for the 
treatment of ESRD. Moreover, such services are considered essential for 
the delivery of outpatient maintenance dialysis. Therefore, the fact 
that an unrelated, non-ESRD item or service is furnished at the time of 
a maintenance dialysis treatment would not mean that the particular 
item or service would be bundled into the ESRD PPS.
    Because at this time, we do not consider apheresis to be a renal 
dialyisis service that is furnished to individuals for the treatment of 
ESRD, or to be essential for the delivery of maintenance dialysis, we 
have not included apheresis services in the ESRD PPS. As a result, we 
would expect that the delivery of apheresis in the ESRD facility 
setting would occur infrequently. However, we note that to the extent 
that the coverage provisions for apheresis are met, as set forth in the 
National Coverage Determination (NCD) Manual, apheresis services may be 
payable outside the scope of ESRD facility payment, and in accordance 
with hospital or nonhospital setting payment policies (for example, 
hospital inpatient prospective payment system (IPPS), outpatient 
prospective payment system (OPPS), or the physicians' fee schedule).
    Medicare coverage provisions for apheresis procedures for certain 
indications are set forth in the CMS Internet Only Manual (Pub. L. 100-
03; Chapter 1, Part 2, section 110.14), available online at: http://www.cms.hhs.gov/Manuals/IOM/list.asp?listpage=1. Please note that 
indications not specifically addressed in section 110.14 of the NCD 
Manual are left to local contractor discretion.
    Comment: One commenter pointed out that occasionally a hospital or 
ambulatory surgical center (ASC) may furnish services to an ESRD 
patient. The commenter expressed concern that the

[[Page 49056]]

``other items and services'' language in section 1881(b)(14)(B)(iv) of 
the Act could be interpreted as including such services in the ESRD PPS 
payment bundle. The commenter requested that CMS clarify that the 
definition of ``renal dialysis services'' excludes inpatient services, 
emergency hospital services (including dialysis furnished to ESRD 
patients), and hospital or ASC services relating to the creation or 
maintenance of a patient's vascular access.
    Response: None of the services which the commenter described were 
included in developing the ESRD PPS base rate, and none of them are 
considered renal dialysis services for inclusion in the PPS payment 
bundle. Moreover, these services are reimbursed under other Medicare 
payment systems. Hospital inpatient services, emergency services 
(including emergency dialysis) furnished to ESRD patients, and certain 
outpatient procedures necessary to maintain vascular access (that is, 
those which cannot be addressed by the ESRD facilities using procedures 
that are considered part of routine vascular access), are excluded from 
the definition of renal dialysis services and are not included in the 
ESRD PPS payment bundle. We note that currently ESRD facilities utilize 
medications to maintain vascular access. We would consider the 
administration of medications that are currently performed by ESRD 
facilities to fall within the definition of renal dialysis services and 
paid for under the ESRD PPS.
    Comment: Several commenters requested confirmation that nutritional 
supplements such as intradialytic parenteral nutrition (IDPN) and 
intraperitoneal parenteral nutrition (IPN) are not included in the ESRD 
PPS payment bundle.
    Response: We do not consider nutritional therapies, even though (as 
in the case of IDPN) they are often administered during a patient's 
dialysis treatment, to be related to the treatment of ESRD. Nutritional 
supplements have never been considered part of the ESRD benefit, 
because they have not been considered integral to the furnishing of 
outpatient maintenance dialysis, and are not included in the ESRD PPS 
as Part B renal dialysis services.
    Comment: One commenter stated that when adding up the numbers in 
Table 8 of the proposed rule (74 FR 49940), the total expenditures for 
composite rate and separately billable services included in payment 
bundle was $9,876,466,063, more than $636 million higher than the total 
shown of $9,239,987,362. The commenter inquired as to the reason for 
the discrepancy.
    Response: There is no discrepancy. The totals shown in Table 8 of 
the proposed rule for vitamin D ($402,447,416) and injectable iron 
($234,031,283) are each subdivided to show the payment amounts for each 
of the drugs which comprise these categories. The commenter has 
inadvertently added the component amounts for each of these payment 
categories along with the totals for the two categories, resulting in 
an overstatement of ESRD expenditures of $636,478,699.
7. Home Dialysis Patients (Method I and II) and Self Dialysis Training
    Section 1881(b)(4) of the Act authorizes the Secretary to make 
payment to providers of services and renal dialysis facilities, and to 
suppliers of home dialysis supplies and equipment, for the cost of home 
dialysis supplies and equipment and self-care home dialysis support 
services furnished to patients for self-care home dialysis under the 
supervision of such provider or facility. Currently, hemodialysis, 
continuous cycling peritoneal dialysis (CCPD), intermittent peritoneal 
dialysis (IPD) and continuous ambulatory peritoneal dialysis (CAPD) 
treatment modalities may be performed at home by appropriately trained 
patients. Medicare beneficiaries dialyzing at home must complete a 
Medicare Beneficiary Form (CMS-382) selecting between two methods of 
payment (Method I or Method II) as described in detail in the ESRD PPS 
proposed rule (74 FR 49929).
a. Payment for Home Dialysis (Method I and Method II)
    As a result of the enactment of section 153(b) of MIPPA, we 
proposed that payment for home dialysis services (excluding physician 
services) furnished to both Method I and Method II home dialysis 
patients under the current basic case-mix adjusted composite payment 
system would be included in the bundled payment to the ESRD facility 
under the ESRD PPS (74 FR 49929 through 49930). We also proposed that 
the costs of home dialysis training be included in the composite rate 
portion of the two-equation regression model for determining payment 
adjustments under the ESRD PPS (74 FR 49930 through 49931).
    Below we address the general comments we received on home dialysis, 
but in subsequent subsections we address more specific comments on the 
proposals on Method I and Method II and self-dialysis training.
    Comment: A commenter noted that section 1881(b)(14)(D)(iv) of the 
Act gives the Secretary the discretionary authority to include payment 
adjustments to the ESRD PPS as the Secretary determines appropriate. 
The commenter requested that CMS provide a separate adjustment that 
would account for the unique cost associated with providing home 
dialysis that would include: (1) Training for home dialysis; (2) 
support services; and (3) emergency home dialysis supplies, so that 
dialysis facilities do not neglect their responsibility to the care of 
ESRD home dialysis patients for financial reasons. The commenter stated 
that in the proposed rule, the training reimbursement for home dialysis 
services was fashioned to apply to all patients regardless of whether 
training services were actually provided to them. The commenter stated 
that the current system fosters a financial disincentive for home 
dialysis by encouraging providers to minimize the number of home 
dialysis patients they accept. To eliminate this financial 
disincentive, the commenter recommended that CMS remove home dialysis 
costs from the bundled rate and include this reimbursement in a 
separate adjustment.
    Response: Section 1881(b)(14)(A)(i) of the Act requires the 
Secretary to implement a payment system under which a single payment is 
made under this title to an ESRD facility for renal dialysis services 
for such services and items furnished pursuant to section 1881(b)(4) of 
the Act. Therefore, we are required to include payment for home 
dialysis training, equipment and supplies, and support services in 
computing the single bundled payment base rate.
    As we explained in the ESRD PPS proposed rule (74 FR 59930), when 
ESRD facilities furnish home dialysis training, Medicare pays the ESRD 
facility its case-mix adjusted composite rate plus a training add-on of 
$12 for peritoneal dialysis and $20 for hemodialysis and CCPD to 
account for the staff time, supplies, and equipment associated with 
training treatments. We believe the ESRD PPS base rate adequately 
accounts for the costs associated with equipment and supplies. However, 
we agree with the commenter, that the base rate does not capture the 
unique staffing costs associated with home dialysis training. Section 
494.100(a) of the ESRD Conditions for Coverage requires that training 
be conducted by a registered nurse. Thus, as training involves one-on-
one training sessions with a nurse, we believe a separate adjustment to 
reflect those costs are warranted.
    We discuss the training payment adjustment we are finalizing in

[[Page 49057]]

subsection (b) of this section of the final rule.
    Comment: A commenter suggested that CMS evaluate the cost of care 
for nursing home hemodialysis patients and create an adjustment for 
these patients under the ESRD PPS. The commenter stated that nursing 
home hemodialysis patients incur unique costs that pertain to one-
machine per patient, administrative burdens, co-morbidities, higher 
turn-over rates, and require nursing caregiver assistance for dialysis 
administration. The commenter asserted that despite certain co-
morbidities not being included in the ESRD PPS for case-mix 
adjustments, a nursing caregiver staff assistant is still required for 
dialysis administration. The commenter further stated that CMS failed 
to explain how the inclusion of home dialysis costs in the ESRD PPS 
bundled payment system creates an incentive to provide home dialysis in 
cases where the costs to treat patients is greater than the 
reimbursement CMS proposed. The commenter suggested that a special 
adjustment be afforded to cover these unique costs.
    Response: Nursing home patients are regarded as home dialysis 
patients because they are considered residents of the nursing home and 
receive dialysis treatments at the nursing homes and not at dialysis 
facilities. We disagree with this commenter's assertions because the 
unique costs they described are no different from any other home 
dialysis patient where there is one-machine per patient, co-
morbidities, and patient turn-over occurs due to kidney 
transplantation. We, therefore, do not believe that a separate 
adjustment for nursing home ESRD patients is warranted.
    The other unique costs identified by this commenter pertained to 
nursing-related caregiver services. The commenter stated that all 
nursing home dialysis patients must have a trained caregiver in order 
to dialyze at a nursing home and that these caregiver services are not 
covered under the ESRD benefit. The commenter is correct that caregiver 
services are not covered under the ESRD benefit, including caregiver 
services furnished to nursing home dialysis patients. Thus, caregiver 
services are not considered to be renal dialysis services and are not 
reflected in the ESRD PPS base rate nor in the payment adjustments.
    Comment: Some commenters suggested that CMS allow for self-
administration of injectable ESRD-related drugs at home by home 
dialysis patients. The commenters indicated that home dialysis patients 
would prefer to self-administer all injectable ESRD-related drugs at 
home to include EPO, rather than traveling to the dialysis facility to 
receive the injectable drugs. The commenters reasoned that since 
injectable drugs such as EPO, Vitamin D, and IV iron are included in 
the ESRD PPS bundle, patients should have the option to self-administer 
these drugs at home.
    Response: Under section 1861(s)(2)(O) of the Act, self-
administration of erythropoietin (EPO) is permitted for dialysis 
patients who are competent to use such drug without medical or other 
supervision with regard to the administration of such drug. If a 
dialysis patient meets this requirement, then he or she can self-
administer erythropoietin at home. Payment for erythropoietin and 
supplies needed to self-administer the drug would be included in the 
ESRD PPS payment.
    The ESRD PPS does not fundamentally alter how other injectable 
drugs are administered under Part B. Thus, under the ESRD PPS, home 
dialysis patients would continue to go to the dialysis facility for the 
administration of other injectable drugs.
    Comment: Some commenters expressed concern that CMS did not fully 
account for supplies in estimating the cost of home dialysis programs. 
They indicated that there is a one-time cost associated with certain 
supplies and equipment (scales, thermometer, blood pressure equipment, 
etc.) and continuing costs for daily treatment including disposable 
supplies for peritoneal dialysis (dialysate, syringes, needles, masks, 
latex gloves, etc.).
    The commenters were also concerned that since supplies are 
delivered monthly, the facility pays up front for those supplies. 
Commenters claimed that should a patient discontinue treatment, change 
modalities, or for other reasons stop using the delivered supplies, the 
dialysis facility cannot move supplies from one patient to another 
because of infection control issues. Commenters stated that the cost of 
these supplies is borne by the facility. The commenter stated that 
these cost are not recognized in the proposed ESRD PPS, and facilities 
will no longer be able to bill separately for supplies without a 
treatment.
    Response: In accordance with Sec.  410.52 and Sec.  414.330, 
Medicare Part B pays for all medically necessary home equipment and 
supplies for the effective performance of a patient's dialysis in the 
ESRD patients home. Medicare currently pays for home dialysis equipment 
and supplies under the basic case-mix adjusted composite rate (Method 
I) and for claims submitted by the DME supplier of home dialysis 
equipment and supplies (Method II). We proposed that the costs of home 
dialysis services furnished under Method I and Method II, regardless of 
home treatment modality, would be included in the proposed ESRD PPS (74 
FR 49929).
    As explained in great detail in the data section of the proposed 
rule (74 FR 49934 through 49935), we obtained cost information from 
4,573 CY 2006 cost reports, for both hospital-based and independent 
ESRD facilities. Cost data obtained from these cost reports included 
all costs necessary to furnish home dialysis treatments including 
staff, equipment and supplies. Even though a dialysis facility could 
incur some up-front costs for supplies for home dialysis patients, 
these costs are reported as supply costs on the provider's cost report 
and were included in the composite rate part of the model. Therefore, 
by including home dialysis costs in the composite rate portion of the 
two-equation ESRD PPS model (described in section II.D. of this final 
rule), we believe we have appropriately accounted for the cost of home 
dialysis services and supplies.
    Comment: A number of commenters indicated that CMS should actively 
monitor home dialysis utilization after the ESRD PPS is implemented via 
a formal plan consistent with the GAO's recommendation, which CMS has 
publically supported.
    Another commenter recommended that CMS monitor the effect of the 
new payment system on use of training services and home dialysis. Also, 
commenters suggested that more specific coding would facilitate such an 
effort by enabling CMS and researchers to better analyze trends in the 
use of these services. For example, commenters indicated that specific 
codes on facility claims could identify particular types of training 
services, home dialysis services, and in-facility dialysis services. 
Commenters also believe that a strengthened monitoring plan should help 
CMS assess the use of dialysis services, identify lapses in care, give 
providers an incentive to furnish all clinically necessary care, and 
lead to quality improvement.
    Response: We agree with the commenters that increased monitoring 
will be needed to monitor the effects of the new ESRD PPS. We concurred 
with the GAO's recommendation in its May 2009 report and we intend to 
assess the effect of the expanded bundled payment on home dialysis 
utilization rates. We also agreed with GAO on the need to establish a 
monitoring plan under the new bundled ESRD PPS that includes an 
examination of home dialysis utilization. We expect to establish such

[[Page 49058]]

a plan after we promulgate this final ESRD PPS. With regard to 
establishing more specific code for home dialysis equipment, supplies, 
and services, we will take these comments into consideration as we make 
changes to the cost report to reflect the ESRD PPS. Changes in coding 
will be established through administrative issuances.
i. Method I--The Composite Rate
    In accordance with Sec.  414.330(a), under the basic case-mix 
adjusted composite payment system, the ESRD facility receives the same 
Medicare payment rate for a home dialysis treatment as it would receive 
for an in-facility treatment. Under Method I, the ESRD facility bills 
the fiscal intermediary Medicare administration contractor (FI/MAC) for 
needed supplies, equipment, and drugs, and the beneficiary is 
responsible for paying the Medicare Part B deductible and the 20 
percent coinsurance on the total Medicare payment made to the facility. 
Although we proposed that the costs for home dialysis services 
furnished under Method I would be included in the single payment rate 
under the proposed ESRD PPS, we did not propose any changes to Method I 
as this approach could continue to be used under the ESRD PPS (74 FR 
49930).
    The comments we received on this proposal and our responses are set 
forth below.
    Comment: Several commenters expressed support for continuing to 
provide the same payment for home dialysis and in-facility treatments, 
which commenters believe will support CMS's goal of increasing the 
number of patients that elect the various home dialysis therapies. The 
commenters applauded CMS's move to a bundled payment system and our 
interest in encouraging patient access to home dialysis services.
    Response: We appreciate the commenters' support of our move to a 
bundled payment system that we believe will encourage patient access to 
home dialysis and recognize the importance of various home dialysis 
therapies.
    Comment: Commenters from individual home dialysis patients thanked 
CMS for including all home dialysis options in the ESRD PPS and 
recognizing the importance of home dialysis. Many of the patients 
stated that they have access to more frequent dialysis that decrease 
hospitalizations and medications and increase their quality of life, 
which allows them to work or go to school and contribute to society.
    Another commenter generally pointed out that there are no 
transportation costs incurred for home hemodialysis patients. 
Commenters stated that decreased hospitalizations are typical of home 
dialysis patients, which further reduced the costs within the system. 
Additionally, commenters pointed out that early discharge from acute 
and sub-acute care facilities to either the patient's home or a nursing 
home has allowed patients to receive care in less expensive and more 
appropriate settings.
    Response: We appreciate the comments from individual home dialysis 
patients who support our recognition of the importance of home dialysis 
which we believe results in a better quality of life for the patient.
    We did not receive any public comments objecting to our proposal 
for payment under the ESRD PPS of home dialysis services furnished 
under Method I payment. As we described above, numerous commenters 
supported payment under the bundle for Method I home dialysis patients 
stating it would increase beneficiary access to home dialysis services, 
which would increase their quality of life. Therefore, consistent with 
section 1881(b)(14)(A)(i) of the Act, we are finalizing our proposal to 
bundle home dialysis furnished under Method I and pay the bundled ESRD 
PPS rate for such home dialysis services, as set forth in Sec.  
413.210, Sec.  413.217, and Sec.  414.330, respectively.
ii. Method II--Dealing Directly With Suppliers
    Currently, in accordance with regulations at Sec.  414.330(a)(2), a 
Medicare ESRD beneficiary can elect to obtain home dialysis equipment 
and supplies from a supplier, that is not a Medicare approved dialysis 
facility (Method II). If a beneficiary elects Method II, the 
beneficiary deals directly with a single Medicare Durable Medical 
Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) supplier to 
secure the necessary supplies and equipment to dialyze at home. The 
selected DMEPOS supplier must accept assignment and bills the Durable 
Medical Equipment Medicare Administrative Contractor (DME MAC). The 
beneficiary is financially responsible to the supplier for any unmet 
Medicare Part B deductible and for the 20 percent Medicare Part B 
coinsurance requirement. Currently, the amount of Medicare payment 
under Method II for home dialysis equipment and supplies may not exceed 
$1,974.25 per month for CCPD and $1,490.85 per month for all other 
modalities of home dialysis (see 57 FR 54186, published on November 17, 
1992).
    For each beneficiary it serves, the supplier is required to 
maintain a written agreement with an approved ESRD facility to provide 
backup and support services. An ESRD facility that has a written 
agreement to supply backup and support services bills the FI/MAC for 
services provided under the agreement. Under Method II, an ESRD 
facility may be paid up to $121.15 per month for home dialysis support 
services, such as arranging for the provision of all ESRD-related 
laboratory tests and billing for the laboratory tests that are included 
in the composite payment rate (see 57 FR 54186, published on November 
17, 1992). An ESRD facility may not be paid for home dialysis equipment 
or supplies under Method II.
    As we indicated previously, section 1881(b)(14)(A)(i) of the Act 
requires that a single payment for renal dialysis services and items 
and services under section 1881(b)(4) be made to an ESRD facility. As a 
result, we proposed: (1) That payment for all home dialysis services 
excluding physicians' services would be included in the bundled payment 
to the ESRD facility; (2) that all payments made for home dialysis 
services furnished under Method I and Method II, regardless of home 
treatment modality, would be included in computing the proposed ESRD 
PPS base rate; and (3) that the Method II home dialysis approach in its 
present form would no longer exist when the ESRD PPS is implemented 
January 1, 2011. We proposed to revise Sec.  414.330 to reflect that 
the ESRD PPS payment as established in section 1881(b)(14) of the Act 
will be the basis of payment for home dialysis supplies, equipment, and 
home support services and that payment limits applicable for such 
services would no longer apply (74 FR 49930). We noted that effective 
January 1, 2011, a supplier could only furnish, home dialysis equipment 
and supplies to a Medicare home dialysis beneficiary under an 
arrangement with the ESRD facility, and that the supplier would need to 
look to the ESRD facility for payment.
    We received several comments from various ESRD organizations and 
individuals who rely on the Method II home dialysis payment approach 
who oppose our proposed elimination of Method II. These and other 
comments we received on our proposals, including our responses, are set 
forth below.
    Comment: One commenter stated that working with Method II supply 
companies is vital to their home dialysis program because the supply 
companies

[[Page 49059]]

take on the costs and responsibility of furnishing home dialysis 
supplies and equipment.
    Response: Under the ESRD PPS, the supplier could still furnish, 
under arrangement with the dialysis facility, home dialysis equipment 
and supplies to a Medicare home dialysis beneficiary. However, 
effective January 1, 2011, the supplier would be required to look to 
the ESRD facility for payment since the ESRD PPS payment would be made 
to the facility. As such, under the ESRD PPS, DME MACs would no longer 
make payment to suppliers of home dialysis equipment and supplies. All 
payments previously paid to DME MACs for home dialysis supplies and 
equipment has been built into the ESRD PPS base rate so that ESRD 
facilities can pay for the supply and equipment costs for their home 
dialysis patients.
    Comment: A commenter stated that the elimination of Method II is a 
complete contradiction of the CMS goals for promoting better outcomes 
and increased utilization of more cost effective home dialysis 
treatment modalities.
    Response: We do not agree that the elimination of Method II will 
undermine our goals for increased use of home modalities and better 
outcomes. We will continue to support home dialysis as indicated in our 
decision to pay the same under the ESRD PPS for home and in-center 
treatments even though home dialysis is less costly for ESRD facilities 
and our decisions regarding payment for home dialysis training 
discussed later in this section.
    Comment: Some commenters stated that the loss of the Method II 
payment system will result in higher administrative costs and 
logistical burdens that will greatly increase the cost of providing 
treatment to home dialysis patients and create a disincentive for ESRD 
facilities to provide home modalities.
    Response: We do not believe that the elimination of Method II will 
result in significant increased burdens to ESRD facilities such that it 
would create disincentives for ESRD facilities to provide home 
treatment modalities. Most ESRD facilities currently have arrangements 
with DME suppliers to furnish dialysis equipment and supplies for their 
in-facility dialysis patients and home dialysis patients. Under the 
ESRD PPS, in order to minimize the impact on patients of the 
requirement that DME suppliers now must look to the ESRD facility for 
payment, home patients could continue with these same arrangements. We 
believe that ESRD facilities will have a financial incentive to provide 
home treatment modalities since we will pay the same base rate for less 
expensive home modalities than we pay for in-facility treatments.
    Comment: Commenters from pediatric facilities that use Method II 
suppliers expressed concern that the specialty products they use are 
not available through the major manufacturers of dialysis products and 
that pediatric products are more expensive to purchase due to the 
limited demand and negotiating power of pediatric facilities.
    Response: We do not believe that the elimination of Method II 
option under the ESRD PPS will have a negative effect on pediatric 
dialysis facilities. The pediatric facilities have indicated that their 
home dialysis patients are mostly peritoneal dialysis (PD) patients. As 
discussed in the proposed rule, we described a comparison of composite 
rate costs by modality for CYs 2004 through 2006 which showed that PD 
is a substantially less costly mode of dialysis compared to in-facility 
hemodialysis (74 FR 49967 through 49968). Data from the Medicare cost 
report and Medicare claims data showed a significant difference in 
resource utilization, with PD patients incurring significantly lower 
composite rate and separately billable expenses. Since payment under 
the ESRD PPS for home dialysis patients will be based on Method I, we 
believe that paying the same amount for all types of dialysis 
modalities will not disadvantage pediatric facilities. We believe that 
pediatric facilities will still be able to make arrangements with their 
current DME suppliers to furnish the special supplies and equipment 
that are needed for small children and infants. The only difference is 
that the DME supplier must look to the pediatric ESRD facility for 
payment. Also, we note that pediatric facilities could form a group 
purchasing arrangement to enhance their negotiating power when 
purchasing supplies and equipment for their home patients.
    Comment: Commenters claim that the elimination of Method II under 
the ESRD PPS would require children's hospitals to become a ``flow-
through'' for supplies and equipment that previously would have been 
obtained by patients directly from Method II suppliers.
    Response: We agree with this ``flow-through'' description made by 
the commenter because under the ESRD PPS, the payments for the 
equipment and for supplies will be made to the ESRD facility which then 
buys the equipment and supplies from a DME supplier.
    Comment: Commenters from pediatric facilities requested that CMS 
perform further analysis to determine whether the elimination of Method 
II billing under the ESRD PPS will have a negative effect on pediatric 
dialysis facilities.
    Response: Since publication of the proposed rule, we have continued 
to examine the ESRD data in order to refine the model. The cumulative 
effect of the changes we have made to the ESRD PPS is projected to 
beneficially impact pediatric facilities. See section IV. of this final 
rule for specific impacts.
    Comment: Some commenters had concerns with the elimination of 
Method II and the resulting change in incentives for dialysis 
facilities. The commenters suggested that CMS needs to understand the 
adverse effects that eliminating Method II would have on the dialysis 
facilities' ability to furnish home treatment modalities.
    Response: Effective January 1, 2011, Medicare will pay the ESRD PPS 
base rate to ESRD facilities for home dialysis services furnished to 
home dialysis patients under Method I . Under Method I, the incentives 
will be different because we will only pay the ESRD facility the ESRD 
PPS base rate which includes the costs of all dialysis services such as 
staff time, equipment, and supplies. Despite the elimination of Method 
II under the ESRD PPS on January 1, 2011, the Method I payment includes 
the following provisions were supported by many other commenters.
    First, Medicare will continue to pay on a per treatment unit of 
payment. Second, Medicare will pay the same base rate for both in-
facility and home dialysis. Third, the same base rate will also be paid 
for all dialysis treatment modalities furnished by a dialysis facility 
(hemodialysis and the various forms of peritoneal dialysis). Since home 
dialysis treatment modalities cost less than in-facility dialysis 
(especially home PD, which is the primary home dialysis treatment 
modality for pediatric home patients) ESRD facilities that have home 
dialysis programs should continue to benefit by providing home dialysis 
under ESRD PPS Method I payments.
    We believe there are also some administrative benefits for dialysis 
facilities with the elimination of the Method II home dialysis. 
Dialysis facilities and home patients will have less burden because 
they will no longer need to complete or file the CMS Form-382 which is 
the form currently used to determine whether the dialysis patient has 
selected Method I or Method II home dialysis. Under the ESRD PPS, 
dialysis facilities will no longer be required to submit separate bills 
for home support services and suppliers no longer need to bill Medicare 
for home

[[Page 49060]]

dialysis equipment and supplies furnished to Method II home dialysis 
patients. The costs of home dialysis services for all home dialysis 
treatment modalities have been included in the composite rate part of 
the bundled ESRD PPS payment.
    Comment: Commenters expressed concerns that the elimination of 
Method II payment system will affect the ability of ESRD facilities to 
establish and grow their home dialysis program. Commenters stated that 
using the Method II approach allows the dialysis facility to remove the 
supply and equipment costs associated with a home program from their 
total costs, making the utilization of home modalities more 
economically feasible and available to their patient population. 
Another commenter stated that CMS created financial disincentives for 
the provision of home hemodialysis because the cost of treating 
hemodialysis patients is generally higher than the cost of treating 
facility-based patients.
    Response: We disagree with this commenter. We do not believe that 
financial disincentives have been created because, based on our cost 
report data, the cost for home hemodialysis is less costly than in-
facility. As we noted in the proposed rule, the reliance on separately 
billable services as a source of revenue growth for ESRD facilities has 
potentially impeded the greater use of less costly PD (which typically 
uses fewer separately billable drugs and less provider and facility 
overhead expense) (74 FR 49931). We also noted that others have argued 
that constraining payment based on number of treatments may reduce the 
use of alternative treatment regimens such as increased frequency 
nocturnal dialysis, home HD using compact portable dialysis machines, 
and shorter but more frequent dialysis sessions (for example, 1.5 to 2 
hours, five or six days per week).
    We do not agree that a financial disincentive has been created for 
the provision of home hemodialysis. Under the ESRD PPS, payment for all 
home dialysis services (excluding physician services) would be included 
in the bundled payment to the ESRD facility and would not be subject to 
the current composite payment limits on what Medicare would pay for 
home dialysis supplies, equipment, and home support services as 
described in Sec.  413.330(c). We disagree with the commenter that the 
elimination of the Method II payment system will affect the ability of 
ESRD facilities to establish and grow their home dialysis program, 
because the ESRD PPS takes into account the supplies and equipments 
costs associated with a home program. The intent is to continue to 
preserve the utilization of home modalities under Method I of the ESRD 
PPS, and to make home dialysis economically feasible and available to 
the ESRD patient population.
    Comment: A commenter expressed concern that the elimination of 
Method II would deprive beneficiaries of access to specialty products, 
recent technologies, and cost effective home modalities.
    Response: Although Method II would be eliminated under the ESRD 
PPS, we note that the suppliers would still be able to play a role 
under the new ESRD PPS. The supplier could still furnish, under 
arrangement with the support dialysis facility, home dialysis equipment 
and supplies to a Medicare home dialysis beneficiary under the ESRD 
PPS. However, the supplier would have to look to the ESRD facility for 
payment since the ESRD PPS payment would be made to the ESRD facility 
and DME MACs would no longer make payment for ESRD-related supplies to 
suppliers. As such, we disagree that because of the ESRD PPS, 
beneficiaries would be deprived of enjoying specialty products, recent 
technologies and cost effective home modalities. Dialysis facilities 
are encouraged to ensure that ESRD patients continue to receive all 
necessary supplies and equipment under the ESRD PPS. Additionally, 
under the ESRD PPS, lower cost patients offset the higher cost for 
patients who utilize specialty products and new technology.
    Comment: A commenter stated that the current Method II payment 
system allowed a ``level-playing field'' in which small and medium-
sized dialysis organizations have the financial flexibility to offer 
their patients home modality options. With the elimination of Method II 
under the ESRD PPS, the commenter claimed that he is now at a 
disadvantage because the risks are now borne by the facilities.
    Response: We believe that the final base rate which is addressed in 
section II.E. of this final rule and the revised payment for home 
dialysis training add-on adjustment which is addressed later in this 
section, are sufficient. The goals of creating a bundled prospective 
payment system were to create a single comprehensive payment for all 
renal dialysis services. The elimination of Method II under the ESRD 
PPS serves to further this goal by eliminating separate payments to 
suppliers so that a single payment is made to ESRD facilities for all 
renal dialysis services. We disagree that the elimination of Method II 
creates a disadvantage as the commenter states as all payments for 
renal dialysis services, including those paid to Method II suppliers, 
have been included in the ESRD PPS base rate. It is our belief that 
such a payment system serves to allow a ``level-playing field'' in 
which all dialysis organizations regardless of size, have a single 
payment method.
    Comment: A few commenters currently using Method II claimed that 
the ESRD PPS does not provide for the unique equipment and supply 
services costs for providing dialysis to home patients. The commenters 
claimed that supply companies install and maintain dialysis equipment 
and deliver both equipment and supplies to one patient at a time, and 
further noted that reimbursement is based upon a one machine per 
patient model. As a result, suppliers cannot achieve the economies of 
scale enjoyed by ESRD facilities.
    Response: We note that having to install and maintain dialysis 
equipment and deliver both equipment and supplies to individual 
patients is not unique to Method II home dialysis patients. Currently 
all home dialysis patients, whether under Method I or Method II are 
impacted by ``economies of scale'' described by the commenter in a one 
patient-one machine application. Under the ESRD PPS, while home 
dialysis suppliers may not achieve the same economies of scale as 
dialysis facilities, suppliers remain able to provide equipment and 
supplies to multiple dialysis facilities and can negotiate competitive 
prices with the ESRD equipment and supply manufacturers. We note that 
all payments related to Method II suppliers and amounts paid by ESRD 
facilities to Method I suppliers have been included in the ESRD PPS 
base rate which we believe is sufficient to account for the equipment 
and supply costs of home dialysis patients.
    Comment: Several commenters expressed concern that the ESRD PPS 
payment and elimination of Method II will make them less able to offer 
nursing caregiver staff-assisted dialysis to patients in nursing homes. 
The commenters indicated that Method II enables beneficiaries with 
secondary private insurance that includes nursing caregiver dialysis 
staff-assistance coverage, the opportunity to dialyze in their homes or 
in a nursing home and have the cost of a nurse caregiver dialysis 
assistant covered under their secondary insurance. Some of the 
commenters suggested that CMS create an adjustment or exception to the 
bundled payment rate for home hemodialysis patients receiving nursing 
caregiver staff-assisted care in their homes or in a nursing home 
setting.

[[Page 49061]]

Other commenters suggested that CMS offer an alternative that meets the 
equivalent of the current Method II mechanism that would serve to deny 
coverage of nursing home caregiver dialysis assistance or offer an 
additional Method I option at a reduced PPS rate. Because Medicare does 
not cover payment for nursing caregiver staff-assistance to dialysis 
patients, an Explanation of Benefits (EOB) denial is automatically 
generated by the FI/MAC. The EOB denial would allow suppliers to 
continue to bill for nurse caregiver staff-assistance to home 
hemodialysis patients paid by private insurers secondary to Medicare.
    Response: Once the ESRD PPS takes effect January 1, 2011, DME 
suppliers will no longer be able to bill Medicare for ESRD equipment, 
supplies, and nurse caregiver staff-assistance. We will consider the 
commenter's suggestion to create a Medicare denial of these services as 
we develop billing instructions later this year.
    Comment: One commenter urged that we retain Method II and indicated 
that the costs to Medicare are lower for nursing staff-assisted 
dialysis for home dialysis patients than in-facility dialysis patients. 
The commenter believed that Method II supply companies dedicated to 
dialysis supplies and services have saved the Medicare Program 
significant amounts of money because the DME supplier is paid 80 
percent of the amount paid for supplies, which is less than $1,200 each 
month. The remainder is paid by the secondary insurance, as a secondary 
for the supplies and, in some cases, as a primary for the nursing 
services.
    Response: Section 1881(b)(14)(A)(i) of the Act specifies that the 
Secretary must implement a payment system under which a single payment 
is made to a provider of services or a renal dialysis facility for 
renal dialysis services in lieu of any other payment, and for such 
services and items furnished for home dialysis and self-care home 
dialysis support services. The Method II home dialysis option where the 
supplier of dialysis equipment and supplies bills the DME MAC is no 
longer authorized under the Act after January 1, 2011.
    Comment: A few commenters encouraged CMS to clarify that only DME 
supplies and equipment related to the provision of renal dialysis 
services are included in the ESRD PPS payment. The commenters further 
stated that there are many DME supplies and equipment utilized by ESRD 
beneficiaries that are unrelated to their dialysis and should not be 
included in the ESRD PPS such as wheelchairs, diabetic testing 
supplies, oxygen, wound care, ostomy and urological supplies and 
equipment.
    Response: We agree with the commenters and have clarified in 
section II.A.4. of this final rule that renal dialysis services include 
only DME supplies and equipment, necessary for the delivery of home 
dialysis services under the ESRD PPS. Although we did not provide a 
specific listing of the supplies and equipment, they were in fact 
considered and included. The Medicare Claims Processing Manual Chapter 
8, Section 90.3.2, identifies the home dialysis supplies and equipment 
that are (currently) separately billable by DME suppliers.
    Comment: Some commenters were concerned that under the ESRD PPS, 
the ESRD facility would become responsible for the billing of a variety 
of items and services that patients now receive directly from other 
suppliers. The commenter stated that the new ESRD PPS may create 
confusion for ESRD facilities, Method II suppliers, and patients. For 
example, DME suppliers submit their claims to DME MACs for 
reimbursement and the DME MACs are guided by their local coverage 
determinations and other aspects of DME billing and payment. The 
commenter questioned what would apply under the new ESRD PPS during the 
transition period.
    Response: Under the current Method II home dialysis payment system, 
for each beneficiary it serves, the supplier is required to accept 
assignment by the beneficiary, and bill the DME MAC. Suppliers are also 
required to maintain a written agreement with a support dialysis 
facility to provide backup and support services. A dialysis facility, 
in turn, is required to maintain a written agreement to supply backup 
and support services and bill the FI/MAC for services it provides under 
the agreement.
    As explained in the proposal (74 FR 49929), section 153(b) of 
MIPPA, section 1881 (b)(14)(A)(1) of the Act requires the Secretary to 
implement a payment system under which a single payment is made to an 
ESRD facility under this title for renal dialysis services and items 
furnished pursuant to section 1881 (b)(4) of the Act.
    All costs associated with home dialysis services (both Method I and 
Method II) are included in the composite portion of the two equation 
model. Effective January 1, 2011, all home ESRD patients will be 
considered Method I home patients and all Medicare payments for home 
dialysis services will be made to the ESRD facility. Medicare payment 
for home dialysis services will be made to the ESRD facility whether 
the facility elects to participate in the transition period or elects 
to be paid under the ESRD PPS. DME suppliers will no longer submit 
claims to DME/MACs for home dialysis supplies and equipment effective 
January 1, 2011. Since FI/MACs will be processing ESRD facility claims 
for Method I home dialysis patients, the reasonable charge DME payment 
rules are no longer applicable. After January 1, 2011, a supplier could 
only furnish, under an arrangement with the ESRD facility, home 
dialysis equipment and supplies to a Medicare home dialysis 
beneficiary, and then the supplier would need to look to the ESRD 
facility for payment. Payment to the DME supplier from the ESRD 
facility will be based upon the payment arrangements agreed to between 
the two parties for furnishing home dialysis equipment and supplies to 
the home dialysis patient.
    Comment: Commenters expressed concern that Method II suppliers 
would no longer be permitted to bill Medicare directly for ESRD-related 
supplies furnished to ESRD beneficiaries. The commenters believed that 
suppliers, ESRD facilities, and patients would be confused about the 
changes made under the ESRD PPS and urged CMS to ensure that all 
interested parties receive adequate provider education regarding the 
changes it implements under the ESRD PPS.
    Response: We agree that interested parties should receive adequate 
provider education and once the final rule is published, we intend to 
provide multiple opportunities for training and education to patients 
and ESRD facilities. We also intend to provide information at our 
sponsored open-door forums for other groups such as DME suppliers and 
laboratory providers.
    Comment: Two commenters affiliated with US Military Services 
commented that they serve many ESRD patients who are retirees or 
dependents of active duty military personnel. In order to maintain war-
time readiness, the commenters stated that they keep their physician 
and nursing staff trained by performing dialysis on a small population 
of ESRD dialysis patients. The commenter explained that Method II has 
been the means of providing seamless home care for their patients while 
allowing them to follow these patients and provide their ancillary 
care. Absent a Method II reimbursement equivalent, they would not be 
able to maintain a nephrology fellowship program which would impact the 
training of military physicians. However, another commenter affiliated 
with another branch of the military stated that utilization of Method 
II reimbursement

[[Page 49062]]

for home PD should have no direct effect on the quality of their 
nephrology fellowship training program as these patients are still 
required to be evaluated monthly.
    Response: While both commenters raise points that relate to the 
ESRD PPS, the impacts they describe (military readiness training and 
ongoing education needs) are not germane to the intent of the 
legislation and not within the scope of this rulemaking.
    Comment: One commenter described a study in a recent clinical 
journal which claimed that CMS could save more than a billion dollars 
in five years if the utilization of PD increased from its current 8 
percent to 15 percent. The commenter questioned why Method II was to be 
eliminated under the ESRD PPS. He described that this was tantamount to 
``eliminating one of the very tools that help dialysis providers 
establish and expand home PD programs.''
    Response: Although the statute no longer provides discretion to 
retain Method II, we believe there remain very good reasons to develop 
and expand home PD programs. For example, PD treatment costs 
considerably less than comparable in-facility treatments.
    Comment: The commenters claimed that as the new ESRD PPS will 
require billing changes and create other challenges, CMS should 
consider deferring the application of the consolidated billing edits 
regarding DME services until the full implementation of the ESRD PPS.
    Response: Although we acknowledge that the ESRD PPS will require 
some billing changes, we do not have the authority to continue to pay 
DME suppliers directly for ESRD-related items furnished to ESRD 
patients.
b. Self-Dialysis Training
    Currently, Medicare makes a separate payment per treatment for home 
hemodialysis training and two forms of PD training programs. Home 
dialysis and self-dialysis can only be performed after an ESRD patient 
has completed an appropriate course of training. The scope of training 
services that a certified facility provides to ESRD patients is 
described in Sec.  494.100(a).
    We proposed that ESRD facilities would no longer receive an add-on 
of $12 for CAPD and $20 for hemodialysis and CCPD to the otherwise 
applicable payment amount per treatment for the costs of training. We 
also proposed that the ESRD facility training expenses would be 
included in the ESRD PPS base rate to which the payment multipliers in 
the proposed payment model are applied (74 FR 49930).
    Also, we proposed that training costs be included in the regression 
analysis to compute the composite rate payment adjusters. We noted that 
total composite rate costs included in the per treatment calculation 
included costs incurred for training expenses, as well as all home 
dialysis costs (74 FR 49947). We proposed to use the ESRD facility's 
cost reports to identify provider costs for training and include these 
costs in the composite rate portion of the two-equation ESRD PPS model 
described in the proposed ESRD PPS (74 FR 49947.) We proposed to 
include training and home dialysis costs, as set forth in Sec.  
413.217. We specifically invited public comments on our proposal to 
include home dialysis training services in the proposed ESRD PPS base 
rate.
    The comments we received on these proposals and our responses are 
set forth below.
    Comment: Numerous commenters expressed strong opposition to our 
proposal to include payments for the training of patients for home 
dialysis in the ESRD PPS base rate. The commenters pointed out that 
treatment of training payments as any other overhead expense would have 
the effect of giving every dialysis facility a small payment for home 
dialysis training regardless of whether it offered a home training 
program. These commenters indicated that our proposal fails to target 
training payments to facilities actually furnishing training 
treatments, and reduces the magnitude of the training payment by 
averaging the amount over all hemodialysis equivalent treatments. The 
commenters believe that the training proposal would have a devastating 
impact on training programs and discourage the growth of home dialysis.
    Commenters also disagreed with our statements that most training 
treatments were likely to occur within the first four months after the 
onset of dialysis and that the proposed 47.3 percent adjustment (new 
onset adjustment) to the otherwise applicable case-mix adjusted payment 
for treatments occurring within this period would cover the costs of 
furnishing home dialysis training programs. These commenters pointed 
out that a high proportion of training treatments do not occur within 
the first four months after the start of dialysis.
    Several commenters pointed out that the ESRD Conditions for 
Coverage result in higher training expenses, costs which commenters 
believe should be reimbursed through a separate training adjustment. 
Other commenters reasoned that failure to provide a separate training 
adjustment will result in disparities in care, as facilities would find 
it too expensive to train the elderly, patients with language 
difficulties, or patients with complex medical conditions.
    Most of the commenters recommended that we develop a separate 
payment for training treatments outside of the payment bundle. However, 
one commenter opposed the implementation of a separate payment for 
training services. The commenter maintained that the proposed ESRD PPS 
provides an adequate incentive for PD training, while acknowledging the 
higher expenses for home HD training.
    Response: Although we are continuing to include training payments 
in computing the ESRD PPS base rate, we agree with the commenters that 
we should treat training as an adjustment under the ESRD PPS. We 
believe the ESRD PPS base rate alone does not account for the staffing 
costs associated with one-on-one focused home dialysis training 
treatments furnished by a registered nurse. Because the patient-focused 
training requires greater nursing resources than provided for non-
training treatments, we feel that a separate training add-on adjustment 
is warranted.
    We explored whether we could develop a regression-based adjustments 
as we have conducted for the rest of the ESRD PPS payment adjustments. 
However, in analyzing training information in ESRD facility cost 
reports and comparing those costs to training claims submitted by ESRD 
facilities, we found that some training costs were under-reported by 
some facilities and over-reported by others. Therefore, we were unable 
to develop a regression-based adjustment due to a lack of cost report 
data for many ESRD facilities.
    For purposes of developing a training adjustment under the ESRD 
PPS, we have decided to use a dollar add-on adjustment similar to the 
existing training add-on payments under the current basic case-mix 
adjustment payment system. We also explored various options for 
updating the training current add-on payment amounts under the current 
basic case-mix adjusted composite payment system because the training 
add-on amounts have not been updated since they were established in the 
1970s and do not believe such amounts reflect the cost of the training 
nurse. We believe the training add-on amounts when first implemented, 
represented staff time, supplies and equipment. Thus, under the ESRD 
PPS, we considered various options to update the training add-on 
adjustment to reflect 1-hour of nursing time because home and self-
dialysis training must be

[[Page 49063]]

conducted by a registered nurse in accordance with the ESRD Conditions 
for Coverage requirements at Sec.  494.100(a).
    The updated training add-on adjustment will be computed by using 
the national average hourly wage for nurses from Bureau of Labor 
Statistics data updated to 2011. The amount for the training add-on 
adjustment we are finalizing under the ESRD PPS will be $33.44 per 
treatment. This amount would be added to the ESRD PPS payment amount or 
ESRD PPS portion of the blended payment amount for those ESRD 
facilities in the ESRD PPS transition. Specifically, this amount will 
be added to the ESRD PPS payment rate or ESRD PPS portion of the 
blended payment amount for those ESRD facilities in the ESRD PPS 
transition, each time a training treatment is provided by the Medicare 
certified training ESRD facility.
    As the training add-on adjustment is directly related to nursing 
salaries and nursing salaries differ greatly based on geographic 
location, we will adjust the $33.44 training add-on by the geographic 
area wage index applicable to the ESRD facility so that the training 
add-on adjustment reflects local nursing wages. Using the proposed wage 
index values issued in the CY 2011 PFS proposed rule, the training add-
on amounts after application of the wage index would range from $20.03 
to $45.84. The wage index is further described in section II.G.3.a. of 
this final rule.
    The training add-on adjustment will only apply to training 
treatments furnished to dialysis patients by Medicare-certified 
dialysis training facilities. This amount represents one hour of 
nursing time to conduct one-on-one training with a patient for either 
hemodialysis or PD for training treatments furnished by a Medicare-
certified training facility. We believe that this approach would 
eliminate the differential paid for hemodialysis training that accounts 
for supplies and equipment.
    Given that payments for equipment and supplies, as required under 
the statute, have been captured in the base rate and training 
facilities would also receive the ESRD PPS base rate and all applicable 
adjustments, we no longer need to pay these costs as part of a training 
adjustment. We believe this provides for an adequate increase in the 
current training adjustment, and that it is appropriate to eliminate 
the differential paid for HD training.
    For those ESRD training facilities that opt to go through the ESRD 
PPS transition, Medicare will continue to pay $20.00 per training 
treatment for hemodialysis and CCPD and $12.00 for PD for the basic 
case-mix adjusted composite rate portion of the ESRD PPS blended 
payment. These training rates will not be wage adjusted and will 
continue to be paid based on the maximum number of training treatments 
explained below.
    The payment adjustments for the onset of dialysis adjustment, as 
well as all other adjusters we are finalizing under the ESRD PPS, are 
the result of the regression models for composite rate and separately 
billable services. The regression analysis for this final rule which 
used cost reports and Medicare claims for 2006-2008, indicated higher 
composite rate costs associated with the first four months of dialysis. 
As home dialysis training costs represents one-on-one staff time to 
train a patient for home dialysis, we believe we have captured staffing 
costs for training in the 4-month onset of dialysis adjustment. Since 
we have already accounted for training salary costs in the 4-month 
onset of dialysis adjustment, we believe that applying the training 
add-on adjustment in addition to the 4-month onset of dialysis 
adjustment would have the effect of compounding the composite rate 
costs and result in an overpayment of nursing staffing costs associated 
with training dialysis patients for home dialysis. Therefore, ESRD 
facilities will not receive the training add-on adjustment for patients 
who are receiving the first 4-month onset of dialysis adjustment 
(section II.F.3. of this final rule for more detailed explanation of 
the 4-month onset of dialysis adjustment).
    The training add-on adjustment is not a multiplicative adjustment 
like the other final adjustments under the ESRD PPS. Rather, the 
training adjustment is added to the product of the ESRD PPS base rate 
or blended base rate and applicable adjustments. For further 
explanation, please refer to the Comprehensive Payment Model examples 
provided in section II.I. of this final rule.
    Comment: Some commenters requested that CMS continue to make 
payment for retraining treatments furnished to home dialysis patients. 
The commenters pointed out that under some circumstances a home patient 
may change from one mode of dialysis to another (for example, from home 
hemodialysis to CAPD) or there are changes to the hemodialysis 
equipment which requires the home patient to be retained to continue as 
a self-dialysis patient.
    Response: Under the ESRD PPS, we will continue to pay for self-
dialysis training after a patient has completed the initial training 
course. The conditions under which we make payment for retraining 
treatments follow the same coverage rules for training under the ESRD 
PPS. Criteria for retraining are unchanged and explained in greater 
detail in the Medicare Claims Processing Manual, Chapter 8, Section 
50.8 Training and Retraining. In addition, the patient must continue to 
be an appropriate patient for self-dialysis.
    Comment: Commenters varied in their suggestions for how the 
training payments should be applied. For example, one commenter 
recommended a ``hold back'' in which a portion of the training payments 
would be withheld from the ESRD facility pending demonstration of the 
patient's successful transition to home dialysis. Other commenters 
recommended that we establish a monitoring system to determine the 
degree to which any separate adjustment for the provision of home 
training treatments results in more patients successfully transitioning 
to home dialysis.
    Response: We will continue to require that ESRD facilities are a 
Medicare certified training facility in order to receive the training 
add-on adjustment each time a training treatment is provided. In an 
effort to promote more training for home dialysis, we are not limiting 
payment for training through a hold-back mechanism. We fully intend to 
monitor how the updated training add-on adjustment relates to changes 
in the proportion of ESRD patients on home dialysis modalities and may 
propose limits in the future.
    Comment: We received numerous comments requesting that CMS retain 
the existing policy that limits coverage of the total number of 
training treatments at the current level of 15 for peritoneal dialysis 
(CAPD and CCPD) and 25 for hemodialysis.
    Response: We agree with the commenters. Under the ESRD PPS, we will 
continue the current cap on training treatments at 15 for peritoneal 
dialysis (CAPD and CCPD) and 25 for hemodialysis training because most 
commenters indicated that they can complete training within these 
training treatment parameters.
    In summary, we are finalizing a training add-on adjustment under 
the ESRD PPS in the amount of $33.38 per training treatment, adjusted 
based on the geographic wage index for nursing salaries to account for 
the hourly nursing time for dialysis training treatments. This 
adjustment would apply to HD and PD modalities. This training add-on 
adjustment is applied

[[Page 49064]]

after all other adjustments under the ESRD PPS have been made. We have 
added paragraph (c) to Sec.  413.235 and revised the description of the 
per treatment payment amount in Sec.  413.230 to reflect the training 
add-on adjustment.

B. Unit of Payment

    Under section 1881(b)(14)(C) of the Act, as added by section 153(b) 
of MIPPA, the ESRD PPS may provide for payment on the basis of renal 
dialysis services furnished during a week, or month, or such other 
appropriate unit of payment as the Secretary specifies. We proposed to 
establish an ESRD PPS which relies on a per treatment unit of payment 
(74 FR 49931). We proposed to continue the present per treatment basis 
of payment in which ESRD facilities would be paid for up to three 
treatments per week, unless there is medical justification for more 
than three weekly treatments (74 FR 49931). ESRD facilities treating 
patients on PD or home HD would also receive payments for up to three 
treatments for each week of dialysis, unless there is medical 
justification for the furnishing of additional treatments. In the 
proposed rule, we discussed in detail the factors and data we 
considered in developing our proposal (74 FR 49931 through 49934). The 
comments we received with regard to our proposals for the unit of 
payment and our responses are discussed below:
    Comment: Numerous commenters supported our selection of a per 
treatment unit of payment for the bundled payment system. The 
commenters noted that a per treatment unit of payment preserved access 
for patients who travel, and would minimize operational difficulties 
and administrative complexity for the approximately 19 percent of 
patients who incur an interruption of service or receive treatment at 
more than one dialysis facility. Generally, commenters noted that a 
larger unit of payment, such as a monthly payment, would complicate the 
phase-in of the payment system. MedPAC noted that a larger unit of 
payment would be consistent with several aspects of dialysis care, 
pointing out that a weekly unit of payment corresponds to the typical 
weekly interval for PD. MedPAC also noted that Medicare pays 
nephrologists a monthly capitated payment for caring for dialysis 
beneficiaries. MedPAC recommended that we reconsider the unit of 
payment, once a strengthened dialysis quality monitoring system is 
implemented, to assure that quality of care does not decline.
    Response: We agree with the commenters that maintaining a per 
treatment unit of payment is the best method to achieve the effect of 
the bundled payment system without adversely impacting beneficiary 
access to home dialysis services. As we explained in the proposed rule 
(74 FR 49931), we considered other units of payment such as a monthly 
ESRD PPS, which would provide ESRD facilities more flexibility in 
alternative treatment requirements, such as increased frequency 
nocturnal dialysis, home HD using compact portable dialysis machines 
and shorter but more frequent dialysis services. However, given the 
difficulties of implementing a monthly ESRD PPS during the transition 
period in which a per treatment methodology applies, we proposed to 
continue the current per treatment payment methodology in connection 
with the proposed ESRD PPS as set forth in Sec.  413.215.
    In this final rule, we are adopting the per treatment unit of 
payment for the ESRD PPS for the reasons set forth above. As we 
indicated in the proposed rule, we may reconsider this decision after 
the transition period has ended (74 FR 49934). At that time, we may 
evaluate whether the ESRD PPS has resulted in improved clinical 
outcomes, the degree to which home dialysis has increased, and whether 
interested stakeholders would favor an alternative to the per treatment 
approach we are finalizing in this final rule.
    Comment: Several commenters recommended that we change the 
definition for reporting the volume of treatments to eliminate the use 
of hemodialysis equivalents. The commenters stated that the use of HD 
equivalents for the home dialysis modalities distorts the real costs 
associated with that modality, pointing out that home HD patients may 
be receiving 5-7 treatments per week, with some commercial payers 
paying for more than three treatments per week.
    Response: The practice of converting PD treatments to HD equivalent 
treatments arose in the context of developing an appropriate unit of 
analysis for the PD modalities in which multiple exchanges of dialysate 
occur during the course of a day. These exchanges are not discrete 
treatments in the same sense that an HD session represents a treatment. 
In order to encourage home dialysis, the policy decision not to develop 
separate bundled payment rates for the in-facility and home dialysis 
modalities required that the base rate also be applied to home 
dialysis. Therefore, we believed that conversion of each week of home 
dialysis to three equivalent HD treatments was the most feasible 
approach. The alternative would have been to develop a separate bundled 
payment rate for each week of home dialysis. We rejected this approach 
in order to use a per treatment payment for all ESRD treatments, 
including home treatments.
    To the extent that patients on home HD receive more than three 
treatments per week, we point out that use of the additional treatments 
to develop the base rate would have decreased that rate. Particularly 
for PD, we believe that use of three HD equivalent treatments for each 
week of PD represents a reasonable basis for establishing payment rates 
per treatment that can be applied to both in center and home dialysis 
modalities.
    In summary, we are finalizing Sec.  413.215(a) which established 
the dialysis treatment as the unit of payment under the ESRD PPS.

C. Data Sources

    Section 1881(b)(14)(B) of the Act, as added by section 153(b) of 
MIPPA, defines the renal dialysis services that must be included in the 
ESRD PPS. In the proposed rule, we identified the components used to 
construct the payment bundle (74 FR 49934) based on the following 
Medicare cost and payment information:
     Composite rate services as measured using composite rate 
costs calculated from the Medicare cost reports;
     Drugs and biologicals (for example, injectables) that are 
separately billed by ESRD facilities on Medicare outpatient 
institutional claims;
     Drugs and biologicals (for example, oral) used to treat 
ESRD patients obtained from claims submitted by Part D stand alone 
prescription drug plans;
     Laboratory tests that are separately billed by ESRD 
facilities on Medicare outpatient institutional claims;
     Laboratory tests ordered by a physician who receives MCPs 
for treating ESRD patients, which are separately billed by independent 
laboratories;
     Other items and services separately billed by ESRD 
facilities that are used in conjunction with injectable medications or 
laboratory tests, such as blood products, syringes, and other dialysis 
supplies that are billed on Medicare outpatient institutional claims.
    The cost report and claims data sources used to construct the 
bundled payment system, as set forth in this final rule, remain the 
same as described in the proposed rule, with the exception that CY 
2006, 2007, and 2008 records

[[Page 49065]]

have been used for this final rule instead of CY 2004 through 2006 data 
that were used in the proposed rule. This is consistent with our 
statement in the proposed rule that we planned to use the latest 
available cost report and claims information to develop the final rule, 
given the lead time necessary to prepare the final rule (see 74 FR 
49934 through 49935).
    Section 1881(b)(14)(A)(ii) of the Act requires that the estimated 
total amount of payments for 2011 be equal to 98 percent of the 
estimated total amount of payments for renal dialysis services that 
would have been made in 2011 if the ESRD PPS had not been implemented. 
That section requires that we use per patient utilization data from 
2007, 2008, or 2009, whichever has the lowest per patient utilization. 
To comply with this provision, we evaluated payment data from 2007, 
2008, and the first 9 months of 2009, the latest available given the 
lead time required to prepare this final rule, as described later in 
this section.
    In the proposed rule, we cited the application of a statistical 
methodology referenced in UM-KECC's February 2008 report for removing 
composite rate costs with extreme values from the cost report database 
used to develop the composite rate portion of the ESRD PPS payment 
model (74 FR 49947). That methodology employed a standard outer fence 
definition. The outer fence is a threshold for identifying extreme 
outliers. The upper outer fence, which is the threshold that was used 
to identify outliers with extremely high costs, is defined as the 75th 
percentile plus three times the interquartile range (IQR). This is the 
75th percentile minus the 25th percentile. The lower outer fence, which 
is the threshold that was used to identify outliers with extremely low 
costs, is the 25th percentile minus three times the IQR.
    The outer fence values for average cost per treatment were 
calculated on the log scale, since a log transformation was used to 
estimate the models. When retransformed to dollars, the lower outer 
fence for composite rate costs was $68.81 per treatment, and the upper 
outer fence was $470.70 per treatment. However, a test model that 
applied these exclusion criteria yielded especially large prediction 
errors for facilities with reported composite rate costs below $100.00 
per treatment. Accordingly, we applied a separate methodology to 
identify additional outliers that could affect the analysis and reduce 
the accuracy of the case-mix adjusters resulting from the model 
estimates.
    This method was also used to develop the set of composite rate cost 
per treatment values analyzed in connection with the proposed rule (74 
FR 49947). The method involved an analysis of studentized residuals, 
which are residuals divided by an estimate of their standard deviation. 
Approximately 95 percent of the facilities with average costs between 
$68.81 and $100.00 per treatment had studentized residuals less than -
2, and approximately 32 percent had studentized residuals less than -4. 
Based on this analysis of studentized residuals, a slightly more 
restrictive lower limit of $100.00 was applied.
    Together, these methodologies for identifying outlier values for 
composite rate costs resulted in the exclusion of 460 facility year 
records (approximately 3 percent) from the analysis of 2006-2008 data 
that was used to develop the composite rate portion of the ESRD PPS 
payment model described in this final rule.
    While cost information for composite rate services is available 
from the Medicare cost reports, the cost report does not contain 
information on the costs of the separately billable categories of 
services noted above. The ESRD PPS described in this final rule 
incorporates payment for separately billable services based on 
separately billable payment information from Medicare claims.
    The descriptive statistics, case-mix model, and other analyses 
presented in this final rule were based on CMS claims files for 
Medicare ESRD patients, and the Medicare cost reports for hospital-
based ESRD outpatient dialysis providers and independent ESRD 
facilities. Resource utilization for separately billable services was 
based on patient-level Medicare outpatient claims for CYs 2006 through 
2008 (the latest available claims), in order to be able to prepare this 
final rule. Since composite rate cost information is available only at 
the facility level, resource utilization for composite rate services 
was measured using the Medicare cost reports for CYs 2006 through 2008 
for each outpatient dialysis provider and facility (that is, hospital-
based and independent facilities). These years represented the latest 
and most complete data available for the preparation of this final 
rule.
    As we did in the proposed rule (74 FR 49935), we also used several 
data sources for evaluating the patient and facility characteristics 
that were used with the case-mix analyses. Patient demographic 
information was obtained from the Renal Management Information System 
(REMIS)/Consolidated Renal Operations in a Web-Enabled Network (CROWN), 
and the ESRD Standard Information Management System (SIMS). These data 
sources include the Medical Evidence Report Form (Form 2728), which is 
completed at the onset of renal replacement therapy (RRT), which is 
either dialysis or transplantation to sustain life at the onset of 
kidney failure. Patient body size measures were developed from the 
height and weight values reported on the Form 2728. Beginning April 1, 
2005, these values were obtained from the patient claims for outpatient 
dialysis. Although we have revised the proposed set of patient co-
morbidities used as case-mix adjusters in the development of this final 
rule for reasons explained in section II.F.3. of this final rule, the 
cost report and paid claims data used to develop the case-mix adjusters 
based on co-morbidities described in the proposed rule (74 FR 49935) 
remain the same.
    We measured dialysis facility characteristics using a combination 
of SIMS (ownership type and geographic location), the Medicare cost 
reports (facility size), the Online State Certification and Reporting 
System (OSCAR) (hospital affiliation for satellite units), and other 
available information (for example, identifying facilities with 
composite payment rate exceptions).
1. Patient Claims Data
    The outpatient facility paid claims file is the primary source of 
information for payments that ESRD facilities receive for the treatment 
of ESRD patients. The ``type 72X'' claims (ESRD claims) provided the 
detailed data for dialysis payments. As we did in the proposed rule, 
the claims files used for the analyses in this final rule were based on 
patients with at least one claims record for dialysis. We used carrier 
claims and durable medical equipment (DME) claims to track dialysis-
related payments to other providers such as independent laboratories.
    The case-mix models were based on claims from CYs 2006, 2007, and 
2008. These were the most complete CY records available for use with 
the Medicare cost reports from the same periods to develop the payment 
methodology, given the time necessary for the preparation of this final 
rule. As with the composite rate costs obtained from the Medicare cost 
reports and patient claims used to develop the proposed ESRD PPS (74 FR 
49936), we similarly used the statistical outer fence methodology 
described previously to exclude unusually high separately billed values 
(statistical outliers) obtained from the claims used to develop the 
system as set forth in this final rule. Based on the statistical outer 
fence methodology, claims with total

[[Page 49066]]

separately billed amounts greater than $2,545.65 were excluded from the 
analysis of 2006 through 2008 data used to develop the separately 
billed portion of the ESRD PPS payment model. Application of this 
methodology for the analysis that was used to develop the separately 
billed portion of the ESRD PPS payment model for pediatric patients 
resulted in no exclusions. The number of Medicare claims, patients, 
dialysis sessions, and ESRD facilities represented in the source claims 
data are shown in Table 6. We have also provided the same information 
for CY 2005 for comparison purposes.
[GRAPHIC] [TIFF OMITTED] TR12AU10.013

    We did not receive any public comments objecting to our intention 
to use the latest available Medicare cost report and claims data to 
develop the final rule. Therefore, we are finalizing Sec.  
413.220(a)(1) and (2) as proposed.
2. Medicare Cost Reports
    We obtained facility-level cost and treatment data from the CMS 
Medicare Hospital Cost Report (Form CMS 2552-96) and the CMS Medicare 
Independent Renal Dialysis Facility Cost Report (Form CMS 265-94). The 
number of available cost reports for CYs 2006 through 2008, which 
contained necessary cost and treatment data for purposes of the 
composite rate cost analyses, are shown in Table 7. For most ESRD 
facilities, a single cost report encompassed the entire calendar year. 
For FY cost reports that spanned two CYs, we used a weighted average 
based on the proportion falling in each CY.
[GRAPHIC] [TIFF OMITTED] TR12AU10.014

3. Patient Claim and Cost Report Summary Data 2006-2008
    The case-mix models were based on data sets that linked claims and 
cost report records for each year from CY 2006 through CY 2008. The 
claims data for patients treated in hospital satellite facilities were 
matched to the parent hospital using OSCAR, since cost reports are only 
submitted by the parent facility. Table 8 shows the resulting analysis 
files that included both claims and cost report data for measuring 
separately billable and composite rate resource utilization.

[[Page 49067]]

[GRAPHIC] [TIFF OMITTED] TR12AU10.015

    In the proposed rule, we explained that we trimmed claims data to 
exclude statistically aberrant or clinically implausible values (74 FR 
49947 through 49948). We received the following comments regarding 
excluded claims data.
    Comment: Several commenters expressed concern that we 
inappropriately excluded claims from the computation of the 2007 base 
rate using arbitrary exclusion criteria. For example, one commenter 
noted that the use of 30,000 units of epoetin alfa (EPO) per treatment 
as a clinically implausible threshold did not comport with CMS's own 
EPO Claims Monitoring Policy in which 400,000 units per month is the 
established threshold. Another commenter stated that the capping of 
patient months in which more than 20 treatments were furnished at 20 
treatments was an inappropriate exclusion. The commenter stated that 
their attempted replication of the 2007 base rate computation resulted 
in 1.3 and 1.45 percent more paid treatments than were included in the 
MAP calculation. Other commenters stated that nowhere in the proposed 
rule did CMS state exactly how many facilities and payments were 
excluded from its calculations. These commenters stated that all paid 
Medicare claims should be included in the computation of the MAP so as 
not to yield an understatement of the base rate.
    Response: In response to the concerns raised by the commenters, we 
have reevaluated our basis for excluding certain claims from the 
calculation of the CY 2007 base year amount. All payments made on 
behalf of Medicare ESRD beneficiaries as reported on type 72X claims 
have now been included, but with the following modifications and 
exclusions:

     Payments for EPO in excess of 500,000 units per month in 
2007, and 400,000 units per month in 2008 and 2009 (that is, the 
medically unbelievable thresholds), were capped at 500,000 units and 
400,000 units, respectively, consistent with CMS's ESA monitoring 
policy. A similar cap was applied to claims for ARANESP[supreg], in 
which the caps based on the medically unbelievable thresholds were 1500 
mcg. per month in 2007, and 1200 mcg. per month in 2008 and 2009. We 
believe that the portion of the base rate that reflects ESA utilization 
should comport with the ESA dosing guidelines under CMS's ESA Claims 
Monitoring Policy in effect at the time.
     Claims in which the number of dialysis treatments exceeded 
the number of days in the month were capped so that the number of 
dialysis treatments equaled the number of days in the month. No 
adjustments were made to the paid amounts associated with these claims. 
Payments to dialysis facilities in connection with claims with no 
dialysis treatments reported were excluded. On these claims, the 
payments to facilities were for services other than dialysis. 
Accordingly, they would not be considered renal dialysis services.
     Payments for blood and blood products. ESRD facilities 
rarely furnish blood as part of a patient's ESRD-related anemia 
management. As we discuss in section II.a.4. of this final rule, we 
have determined that blood and blood products do not meet the 
definition of renal dialysis services. Therefore, payments for blood 
and blood products were excluded. Blood and blood products are not 
included in the ESRD PPS payment bundle.
     Payments for vaccines and vaccine administration were 
excluded. Section 1881(b)(14)(B) of the Act specifically excludes 
vaccines from the ESRD PPS payment bundle.
     Immunosuppressive drug payments were excluded because 
immunosuppressive drugs are paid under a separate Medicare benefit.
     Payments for unclassified drugs (HCPCS J3490) and unknown 
drugs

[[Page 49068]]

were excluded because we do not know whether these drugs are ESRD-
related. As their status is unknown, we did not consider them renal 
dialysis services.
     Payments for non-ESRD-related drugs, as identified in 
Table C in the Appendix were excluded because such drugs would not 
constitute renal dialysis services.
     Payments for pharmacy supplies, procedures not considered 
ESRD-related, and other non-ESRD miscellaneous services were also 
excluded.
    We believe that these revised exclusion criteria permit the 
inclusion of statistically aberrant but plausible payments in the 
calculation of the base year amounts, while ensuring that amounts paid 
incorrectly are excluded.
BILLING CODE P
[GRAPHIC] [TIFF OMITTED] TR12AU10.016


[[Page 49069]]


[GRAPHIC] [TIFF OMITTED] TR12AU10.017

BILLING CODE C
    Table 9 shows the total MAP amounts for CY 2007, 2008, and the 
first 9 months of 2009. The MAP amount for the first nine months of 
2009 is shown because of the requirement in section 1881(b)(14)(A)(ii) 
of the Act that the budget neutrality per patient utilization 
comparison include data from 2009.
    Table 9 shows the MAP amounts for each period on a per treatment 
basis, after adjustment for price inflation to 2009, in accordance with 
the inflation factors described below.
    Table 9 reveals that the MAP for CY 2007, the year with the lowest 
per patient utilization of renal dialysis services as described in 
section II.C.5. of this final rule, was $243.65 per treatment.
    Comment: One commenter noted that we eliminated claims from our 
analysis

[[Page 49070]]

with a missing date of birth which is necessary in order to assign 
patients accurately to the correct age group category for purposes of 
determining the impact of age on composite rate costs and separately 
billable payments under the two-equation model. The commenter stated 
that in the Standard Analytical Files (SAF), an age range is assigned 
to patients, and the SAF denominator file similarly assigns an age to 
patients. The commenter said that because their data includes an age 
designation for all patients, no patients were eliminated from the 
commenter's calculations of treatments or payments.
    Response: Our elimination of patients with no valid date of birth 
is only relevant in connection with the development of the payment 
adjusters for the age variable in the two-equation model and not for 
purposes of the computation of the base rate. This was done in order to 
prevent any distortion in the age adjusters. We point out that the 
number of claims eliminated was extremely small. No claims were 
eliminated due to the lack of a valid date of birth in the calculation 
of the base rate because age is not a classification variable in 
computing that rate. We are unaware of the assignment of an age range 
in the SAF claims files. Rather than relying on a methodology which 
assigns an age to patients, which may be incorrect, we believe that the 
exclusion of claims where a correct determination of age is necessary 
for the development of payment adjusters is appropriate.
4. Data for the Case-Mix Analyses, 2006-2008
    The case-mix analyses required data for several patient and 
facility characteristics, such as age, co-morbidities, facility size, 
etc. After the exclusion of statistical outliers or otherwise unusable 
records (such as patients with no valid date of birth), the data shown 
in Table 8 was refined to yield the data set used in the primary 
analyses for both composite rate and separately billable services.
    Table 10 summarizes these records.
    [GRAPHIC] [TIFF OMITTED] TR12AU10.018
    
    The primary case-mix analyses relied on pooled data from CY 2006 
through CY 2008, which included a total of 8,620,926 Medicare ESRD 
patient months. The case-mix analyses included 97.4 percent of patients 
with Medicare outpatient dialysis claims during CYs 2006 through 2008. 
Over the 3-year period, the case-mix analyses included data for 475,491 
Medicare ESRD patients treated in ESRD facilities.
5. Prescription Drug Event Data, CY 2007, CY 2008, Jan-Sept 2009
    We obtained the total payments for Medicare Part D drugs from Part 
D claims submitted by prescription drug plans (drugs formerly covered 
under Part D prior to the ESRD PPS). The claims were restricted to Part 
D claims for oral drugs with an injectable form used to treat ESRD 
submitted on behalf of Medicare ESRD beneficiaries with valid ESRD 
claims in CY 2007, CY 2008, and for the first 9 months of 2009 (the 
latest available in time for the preparation of this final rule). As 
discussed in section II.A.3. of this final rule, payment of oral-only 
drugs under the ESRD PPS is being delayed until 2014. Therefore, 
payments for such drugs were excluded from the calculations. As a 
result, we are finalizing Sec.  413.220, but revising paragraph (b) to 
reflect the exclusion of oral-only drugs from the computation of the 
final base rate.
    The drugs included in the ESRD bundle are the three vitamin D 
analogues (calcitriol, doxercalciferol, and paricalcitol), and 
levocarnitine. The National Drug Coes (NDCs) used to identify these 
drugs in the Part D claims are shown in Table D of the Appendix.
    Table 11 below shows the number of Medicare ESRD beneficiaries for 
which valid ESRD claims were filed in CY 2007, CY 2008, and the first 
nine months of 2009; number of ESRD beneficiaries with Part D drug 
coverage from the stand alone Part D plans; and number of beneficiaries 
with Part D claims for the above oral drugs.

[[Page 49071]]

[GRAPHIC] [TIFF OMITTED] TR12AU10.019

D. Analytical Approach

    In the proposed rule, we presented a case-mix model that UM-KECC 
developed, using standard techniques of multivariate regression. In the 
proposed rule, we described in detail two approaches for developing the 
case-mix models using multivariate regression (74 FR 49938). The case 
mix model we proposed in the development of the proposed ESRD PPS rule 
was the two-equation model.
    We noted that, for those interested, a more extensive and detailed 
mathematical explanation of the two-equation model used to develop the 
case-mix adjusters is contained in UM-KECC's February 2008 report, End 
Stage Renal Disease Payment System: Results of Research on Case-Mix 
Adjustment for an Expanded Bundle (see pp. 38-44 and Technical 
Appendix).
    We did not receive any public comments in connection with our use 
of the two-equation model to develop the case-mix adjusters.

E. Development of ESRD PPS Base Rate

    The patient-specific case-mix adjustments developed from the two-
equation model for composite rate and separately billable services are 
applied to a base payment rate per treatment (``base rate''). We 
proposed that the ESRD base rate would be adjusted to reflect ESRD 
facility differences in area wage levels using a proposed wage index 
(74 FR 49947).
    In this section, we describe the calculation of the ESRD base rate, 
as set forth in Sec.  413.220, and the computation of the reduction 
factors used to adjust the ESRD base rate for projected outlier 
payments and budget neutrality in accordance with sections 
1881(b)(14)(D)(ii) and 1881(b)(14)(A)(ii) of the Act. We define the 
ESRD base rate at Sec.  413.171. The proposed ESRD base rate, which 
represents the average Medicare allowable payment (MAP) for composite 
rate and separately billable services, was developed from CY 2007 
claims data.
    We used claims data from CY 2007 in connection with the preparation 
of the proposed rule because such data were the latest available. In 
the proposed rule, we stated that we expected to have claims data for 
CY 2008 and partial claims information for CY 2009 in connection with 
our preparation of the final rule (74 FR 49939). We also stated that in 
order to comply with the statute's requirement to use per patient 
utilization data from 2007, 2008, or 2009 (whichever year had the 
lowest per patient utilization), we planned to use available claims for 
Medicare ESRD beneficiaries from those years, to determine which year 
resulted in the lowest average payment amount per treatment (74 FR 
49934).
    We received several comments in connection with our proposed 
methodology for determining the year with the lowest per patient 
utilization of renal dialysis services, as required under section 
1881(b)(14)(A)(ii) of the

[[Page 49072]]

Act. The comments received, and our responses to them, are set forth 
below.
    Comment: Several commenters pointed out that section 
1881(b)(14)(A)(ii) of the Act directs the Secretary to use ``per 
patient utilization data from 2007, 2008, or 2009'' in estimating the 
total amount of payments that would have been made under title XVIII in 
2011 for renal dialysis services. The year selected in making that 
estimation must be the year which has the lowest per patient 
utilization. The commenters explained that CMS's proposed methodology 
for determining the unadjusted base rate per treatment, in which the 
total expenditures for the specified renal dialysis services included 
in the payment bundle is divided by the total annual number of 
hemodialysis (HD)-equivalent treatments (74 FR 49940 through 49942), 
represents an inaccurate approach for complying with the law. The 
commenters maintained that the effect on the Part D drugs component of 
the payment bundle was to inflate the denominator (that is, total HD-
equivalent treatments) to include all eligible Medicare ESRD 
beneficiaries, regardless of Part D participation, while the numerator 
with respect to Part D drugs only included ESRD drug payments for 
Medicare Part D enrollees. The commenters stated that this resulted in 
a gross understatement of the Part D drugs component of the payment 
bundle. The commenters asserted that in order to calculate per patient 
utilization accurately, the pool of patients in the numerator and 
denominator of the base rate per treatment computation must be 
congruent.
    Response: We believe that the commenters are correct in concluding 
that our proposed methodology for calculating the base rate yielded an 
inappropriately low payment amount for the Part D component of the ESRD 
PPS payment bundle. This occurred because the total payments for the 
Part D drugs we proposed to include in the bundle reflected payments 
for those drugs for those Medicare ESRD beneficiaries enrolled in Part 
D, while the denominator reflected the total number of HD-equivalent 
treatments for all Medicare ESRD beneficiaries, regardless of their 
enrollment in Part D. For this final rule, we have revised the 
denominator in the calculation described above to reflect the total 
number of treatments for those ESRD beneficiaries enrolled in Part D.
    In addition, given the commenters' concerns regarding our proposal 
for determining the lowest per patient utilization year and the 
calculation of the per treatment base year amount, we reevaluated our 
proposed methodology and adopted a revised approach. We believe our 
revised methodology more closely comports with the language set forth 
in section 1881(b)(14)(A)(ii) of the Act, requiring the determination 
of the year with the lowest per patient utilization of renal dialysis 
services by Medicare ESRD beneficiaries. The methodology is similar to 
the calculation used for the composite rate drug add-on, in that the 
effects of price and enrollment are removed from total expenditures to 
obtain per patient utilization. The method used is described in detail 
below. We have also revised our computation of the base rate with 
respect to the Part D drug component to yield an amount which we 
believe is no longer understated.
    Section 1881(b)(14)(A)(ii) of the Act requires that we compare data 
from 2007, 2008, and 2009 to select the year with the lowest per 
patient utilization of renal dialysis services. Although we have 
complete data for 2007 and 2008, we only have partial year data for 
2009. To control for the effects of potential seasonal variation in the 
utilization of dialysis services, we first compared renal dialysis 
expenditures for the first nine months of each year. We felt this 
approach was preferable to completing the 2009 data, in order for it to 
represent a full year's value, as this could introduce bias in the 
estimation.
    We eliminated the effects of price inflation by adjusting 
expenditures for 2007 and 2008 to reflect 2009 price levels using the 
actual annual rates of inflation for the various components of the 
bundle. Payments for composite rate services were inflated to the 2009 
base rate of $133.81 per treatment and drug add-on percentage of 15.2 
percent. The inflators for Part B drugs and biologicals were based on 
actual ASP+6 percent prices, because that is what they were paid (see 
Table 12 below for the full year prices).
    Payments for laboratory tests were inflated 4.5 percent from 2007 
to 2009 and from 2008 to 2009. The inflators for laboratory services 
are based on updates to the laboratory fee schedule. The laboratory fee 
schedule is required to be updated using the CPI-U and any statutory 
adjustments to the CPI-U update factor. As the price update for 
laboratory services from 2007 to 2008 was statutorily set to be 0 
percent, no inflator was applied for that year.
    Because DME supplies and equipment, and self dialysis support 
services for Method II patients are subject to a monthly capitation 
payment that has not increased, we did not use an inflation adjustment. 
In addition, because supplies and other services are primarily composed 
of the $0.50 administration fee for separately billable Part B drugs, 
and this has not increased, we did not inflate this category.
    Part D drugs were inflated 6.0 percent from 2007 to 2009, and 3.4 
percent from 2008 to 2009, using the growth rates for overall 
prescription drug prices that were used in the National Health 
Expenditure Projections.
    Table 13 shows payments per Medicare ESRD beneficiary for the first 
nine months of each year, for the renal dialysis services which 
comprise the payment bundle, excluding former Part D oral drugs, with 
prices inflated to 2009 levels. Table 14 shows payments for Medicare 
ESRD beneficiaries enrolled in Part D, for the oral drugs with an 
injectable equivalent based on Medicare Part D claims, similarly 
adjusted for price inflation to 2009.
    By looking at these components separately, we are able to calculate 
the per capita spending based on the number of beneficiaries that are 
eligible for the service. By calculating the spending on a per capita 
basis, we are eliminating the effects of enrollment. The sum of the two 
values yielded the average expenditures per Medicare ESRD beneficiary 
for the renal dialysis services included in the payment bundle. These 
values are shown in Table 15. The indicated per capita spending amounts 
represent the per patient price and utilization of renal dialysis 
services. Because we are controlling for the effects of price inflation 
for the comparable 9 month periods in 2007, 2008, and 2009, the 
variability in per capita amounts is due to utilization. We believe 
that this methodology is responsive to the commenters' concerns in that 
the Part D spending amount is divided by the number of beneficiaries 
enrolled in Part D, and there is no understatement of this component.
    Table 15 reveals that for the 9-month periods, 2007 was the year 
with the lowest per patient utilization, with per capita expenditures 
of $21,568. We performed the same computations using the full year of 
data for 2007 and 2008, as a check for the results obtained. (Tables 
16, 17, and 18). We did not use the 2009 data in this comparison, as it 
is incomplete. The results revealed that per capita spending for 
Medicare ESRD beneficiaries was again lower in 2007, with total 
expenditures per beneficiary of $27,232.
    Accordingly, we have determined that 2007 is the year representing 
the lowest per patient utilization of the renal dialysis services which 
comprise the ESRD payment bundle, and have used

[[Page 49073]]

that year to develop the base rate set forth in this final rule. For 
the reasons described above, we are finalizing 413.220(b)(1). However, 
we have revised the title to reflect per patient utilization in CY 
2007, 2008 or 2009 and revised the content to clarify that we remove 
the effects of enrollment and price growth from total expenditures for 
2007, 2008 or 2009 to determine the year with the lowest per patient 
utilization. In addition, we have revised Sec.  413.220(a)(3) to 
clarify that 2007 is the year with the lowest per patient utilization.
[GRAPHIC] [TIFF OMITTED] TR12AU10.020


[[Page 49074]]


[GRAPHIC] [TIFF OMITTED] TR12AU10.021

1. Calculation of the CY 2007 Unadjusted Rate Per Treatment
    Sections 1881(b)(14)(A)(i) and 1881(b)(14)(B) of the Act, as added 
by MIPPA, specify the renal dialysis services, and other items and 
services, which must be included in the payment bundle of the ESRD PPS. 
We proposed to include payments for the various components (see Table 8 
at 74 FR 49940), which comprise the renal dialysis services in the 
development of the proposed base rate. A detailed description of each 
of the components of the ESRD PPS payment bundle included in the CY 
2007 unadjusted rate per treatment was discussed in the ESRD PPS 
proposed rule (74 FR 49941). We also described the adjustments used to 
calculate the ESRD PPS base rate from the CY 2007 unadjusted rate per 
treatment (74 FR 49942). Table 19 shows the various components of the 
ESRD PPS payment bundle based on CY 2007 claims, after adjustment for 
price inflation to 2009.
BILLING CODE P

[[Page 49075]]

[GRAPHIC] [TIFF OMITTED] TR12AU10.022


[[Page 49076]]


[GRAPHIC] [TIFF OMITTED] TR12AU10.023

BILLING CODE C
    As we explained above, we determined that CY 2007 was the year with 
the lowest per patient utilization of renal dialysis services. The 
categories which comprise the ESRD PPS payment bundle remain the same 
as set forth in the proposed rule (Table 8 at 74 FR 49940). The payment 
amounts associated with each component are presented in Table 19, and 
reflect the modifications and exclusions previously described (for 
example, the Part D drug component excludes oral-only drugs and 
biologiclas, payments for blood and blood products are excluded, 
payments for separately billed drugs which should be considered 
composite rate drugs were excluded, etc.).
a. Composite Rate Services
    The first MAP component of the ESRD PPS payment bundle shown in 
Table 19 is ``Composite rate services''. This line item refers to total 
CY 2007 payments for composite rate services as obtained from ESRD 
facility claims (bill type 72X claims), inflated to 2009. This total 
includes all composite rate payments to ESRD facilities, including 
exception payments made in accordance with Sec.  413.182 through Sec.  
413.186.
b. Part B Drugs and Biologicals
    The next 11 line items in Table 19 reflect the categories of 
injectable drugs. In the proposed rule, we noted that the top 11 Part B 
drugs and biologicals accounted for 99.7 percent of total separately 
billable Part B drug payments (74 FR 49943). For this final rule, we 
found that total payments in 2007 for the top 11 Part B drugs and 
biologicals reported on ESRD claims, and used to calculate the base 
rate, accounted for 99.8 percent of total spending for Part B drugs. 
Monthly payments for EPO and ARANESP[supreg] were capped in accordance 
with the applicable medically unbelievable edits, described previously 
in this section. For all other injectable Part B drugs, we have 
provided a separate line item. In section II.A.3. of this final rule, 
we discuss Part B drugs and biologicals in detail.
c. Laboratory Tests
    Another component of the ESRD PPS bundle shown in Table 19 is 
laboratory tests. Payments for laboratory tests represent the total 
amount paid to dialysis facilities for outpatient laboratory tests 
billed on ESRD claims, as well as payments for laboratory tests ordered 
by physicians receiving MCP amounts and billed on carrier claims. We 
identified laboratory tests ordered by physicians receiving MCP using 
the list of physicians for CY 2007, which was the latest list available 
in connection with the publication of the final rule. We discuss 
laboratory tests under the ESRD PPS in detail in section II.K.2. of 
this final rule.
d. Durable Medical Equipment (DME) and Supplies
    DME and supplies is another component of the ESRD PPS payment 
bundle. Payments for these items and services were obtained from the 
form CMS 1500 claims for Method II home patients.
e. Dialysis Support Services
    We computed a total amount for the next component of the ESRD PPS 
payment bundle shown in Table 19, ``Dialysis support services.'' This 
total represents total payments for support services furnished to 
Method II home dialysis patients, and reported under subcategory 5 of 
revenue codes 082X through 085X on ESRD claims.
f. Supplies and Other Services Billed by Dialysis Facilities
    This category of the ESRD PPS payment bundle primarily includes 
payments for syringes used in the administration of intravenous drugs 
during the provision of outpatient dialysis. These supplies and 
services were billed by the dialysis facilities on ESRD claims.
g. Former Part D Drugs
    This amount represents total payments made on behalf of the ESRD 
beneficiaries with Part D coverage in CY 2007 (inflated to 2009), for 
the oral equivalents of injectable drugs and biologicals which were 
furnished for the treatment of ESRD. These drugs and biologicals (three 
vitamin D analogues and levocarnitine) were obtained from Part D claims 
submitted on behalf of the Medicare ESRD beneficiaries with valid type 
72X claims in CY 2007 with Part D coverage. We received several 
comments concerning payment for Part D drugs.
    Comment: One commenter suggested that the payment amount for oral 
drugs included in the base rate use the Part D data for beneficiaries 
with the low income subsidy. The commenter stated that this amount 
would then be applied to all Medicare ESRD beneficiaries, regardless of 
their particular insurance arrangement (Part D coverage, retiree 
coverage, or out-of-pocket). The commenter believed that such an 
approach would likely produce a more robust estimate of the costs of 
the drugs for inclusion in the payment bundle.
    Response: In calculating the component of the base rate which 
reflects payments for former Part D drugs (excluding oral-only drugs), 
we used Part D claims for 2007 for all Medicare ESRD beneficiaries who 
were enrolled in Part D. This included payments not only made by the 
Part D drug plan, but also payments made by or on behalf of the 
beneficiary, for which the Part D beneficiary was responsible. Total 
Part D drug expenditures for the oral equivalents of ESRD injectables 
were divided by the number of treatments for Medicare ESRD Part D 
enrollees. This amount per treatment was added to the per treatment 
amount reflecting total 2007 ESRD expenditures for all Medicare ESRD 
beneficiaries, divided by the number of treatments for those 
beneficiaries. Because total payments for Part D drugs were divided by 
the number of HD-equivalent treatments furnished to Part D enrollees, 
we believe that this methodology does not result in an understatement 
of the oral drug component of the payment bundle. Comparison of the 
price adjusted amounts for 2007, 2008, and available data for 2009 
revealed that 2007 was the year with the lowest per patient utilization 
of renal dialysis services (see paragraph E. above). The NDC codes

[[Page 49077]]

used to identify these drugs are shown in Table D of the Appendix.
    Comment: Several commenters asserted that even if CMS has the 
statutory authority to include oral-only Part D drugs in the 
calculation of the base rate, the proposed computed amount of $12.48 
per treatment is inordinately low. The commenters believed the amount 
was too low because it reflected the amount of payments made for two-
thirds of all beneficiaries divided by the number of Medicare HD-
equivalent treatments provided to the entire universe of Medicare ESRD 
beneficiaries, including those not enrolled in Part D. One commenter 
stated that this represents the imposition of an unfunded mandate. 
After consideration of inflation, prescription rates, and patient 
compliance, the commenter presented an analysis suggesting that the 
proper per treatment amount in 2011 for oral Part D drugs should be 
about $45.00.
    Response: We have revised the base rate component of the bundled 
ESRD PPS for Part D drugs so that it excludes oral-only ESRD drugs (see 
section II.A.2. of this final rule for a discussion of our decision to 
delay payment of oral-only ESRD drugs under the ESRD PPS until January 
1, 2014). We have also revised the methodology for computing the 
portion of the base rate attributable to Part D drugs so that it 
represents the average Part D payment per treatment for each Part D 
enrollee. This revision responds to the commenter's concern that the 
payment amount included in the proposed rule was understated because it 
represented Part D payments for only two-thirds of all Medicare ESRD 
beneficiaries, divided by the number of HD-equivalent treatments for 
all Medicare ESRD beneficiaries. With respect to the suggestion that 
the Part D payment amount included in the base rate should also be 
adjusted to reflect increased inflation, prescription rates, and 
patient compliance, we decline to include these factors for the 
following reasons.
    The commenter asserted that the actual rate of price inflation in 
Part D drugs would be about 16 percent annually from 2007 through 2011 
based on historical data, but calculated a projection using a more 
conservative figure of 12.2 percent. We reject the magnitude of this 
projection as it differs significantly from forecasted rates of drug 
price inflation using the producer price index. Moreover, we believe 
that using projected increases in patient prescription rates and 
anticipated increases in patient compliance as a basis for calculating 
the Part D drug component of the base rate is highly speculative.
    We believe the data we used for the Part D drugs that we are 
including in the base rate at this time are appropriate and reflect an 
adequate payment amount for this component of the base rate. 
Accordingly, we decline to incorporate the commenter's suggested 
variables. We note that we will address data issues pertaining to oral-
only drugs and the base rate payment amount for such drugs in the 
future when we bundle oral-only drugs beginning January 1, 2014.
    With respect to the commenter's concern that the per treatment 
amount for the Part D drugs component of the bundle is inordinately low 
because the number of treatments used reflected all Medicare ESRD 
beneficiaries, not just those enrolled in Part D, we point out in a 
response to a previous comment that we have addressed this concern by 
revising the computation of the base rate, so that the Part D drugs 
component reflects Part D payments divided by HD-equivalent treatments 
for Part D enrollees. With respect to the adequacy of Part D drug 
payments, we have delayed the inclusion of oral-only drugs until 
January 1, 2014. We will address data issues pertaining to oral-only 
drugs, and the per treatment payment amount for these drugs, in the 
future when these drugs are included in the payment bundle. For the 
Part D drugs which we are including in the ESRD PPS beginning January 
1, 2011, the source data are the actual payments from the 2007 Part D 
claims for the oral drugs with an injectable version. We believe that 
these data are appropriate and adequate.
    Comment: Several commenters pointed out that our proposed 
methodology for calculating the base rate resulted in an understatement 
of the Part D drug component of the payment bundle (74 FR 49940). This 
occurred because, while total payments for renal dialysis services 
(excluding Part D drugs) were properly divided by the total number of 
HD-equivalent treatments for Medicare ESRD beneficiaries, the total 
payments for Part D drugs for Medicare ESRD beneficiaries enrolled in 
Part D, was similarly divided by the same number of HD-equivalent 
treatments. This yielded an understatement in the amount of the 
payments per treatment for Part D drugs included in the payment bundle, 
because the number of treatments for Part D enrollees was overstated, 
reflecting total treatments for all ESRD beneficiaries instead of 
treatments for Part D enrollees only.
    Response: The commenters are correct. In this final rule, for all 
components of the base rate excluding the portion for Part D drugs, we 
used the total number of CY 2007 Medicare HD-equivalent dialysis 
sessions (36,747,662) to calculate the portion of the base rate 
attributable to all composite rate and separately billable services. 
For the portion of the MAP attributable to oral Part D drugs with an 
injectable version, the number of CY 2007 HD-equivalent treatments used 
to compute the Part D drugs component was 24,737,326. This represents 
the number of treatments for Medicare ESRD beneficiaries enrolled in 
Part D.
    Comment: Several commenters stated that based on a plain reading of 
the statute, the Congress intended CMS to take into account all of the 
costs for Part D drugs, regardless of Medicare beneficiaries' source of 
prescription drug coverage. Therefore, some commenters asserted that an 
accurate estimate of total Part D drug costs should include a 
determination of the cost of oral drugs for Medicare ESRD beneficiaries 
who obtain their drug coverage from Medicare Part D or through another 
source. One commenter included a specially commissioned study which 
purported to quantify the utilization of oral ESRD drugs (using pill 
counts) among three payer groups: Medicare Part D, private coverage 
(including employer coverage), and other/unclassified coverage. Because 
the average pill counts for specific oral ESRD drugs varied among the 
payer groups, the commenter suggested that this difference in 
utilization would need to be considered to adjust the Part D component 
of the base rate. In addition, the commenter recommended that CMS 
adjust this component to reflect anticipated changes in oral drug use, 
expected improvements in beneficiary adherence to oral drug regimens, 
and an appropriate inflation adjustment.
    Response: For reasons expressed in the response to the preceding 
comment, we decline to adjust the Part D component of the base rate 
using expected increases in oral drug use, and increases in patient 
compliance. We also believe that we have appropriately inflated the 
base rate to 2011 to reflect price changes. Under the methodology for 
calculating the per treatment amount for the specified renal dialysis 
services included in the base rate, the sum of the composite rate and 
separately billable components is divided by the number of treatments 
for ESRD beneficiaries. Total payments for the oral equivalents of 
injectable drugs were divided by the number of treatments for Medicare 
ESRD Part D enrollees. These two

[[Page 49078]]

amounts were summed to obtain the unadjusted MAP per treatment. 
Therefore, the Part D component of the unadjusted base rate amount was 
calculated only using beneficiaries with Part D coverage.
    The commenter's cited study suggests that differences in oral drug 
utilization occur depending on the source of the payment. Although the 
commenter's study was limited to a sample using 12,706 Medicare ESRD 
beneficiaries and did not control for differences in dosage 
(utilization was based on pill counts regardless of the dosage amount), 
we believe that a finding that the utilization of Part D drugs among 
Medicare ESRD beneficiaries differs depending on payer source would 
have no impact on our calculation of the base rate. Section 
1881(b)(14)(A)(ii) of the Act refers to the total amount of payments 
``under this title,'' which we have interpreted as meaning under Title 
XVIII of the Social Security Act.
    Therefore, even if differences in the utilization of Part D drugs 
among Medicare ESRD patients were confirmed based on non-Medicare 
sources of payment for these drugs, we believe this information could 
not be used to develop weighting factors to adjust the Part D component 
of the base rate based on differences in utilization across payer 
groups. Non-Medicare sources of payment for these drugs, such as 
employer groups, unions, private insurance, etc., could not be 
considered because we interpret section 1881(b)(14)(A) of the Act as 
requiring that the ESRD PPS reflect payments under Title XVIII for 
renal dialysis services.
h. Total Medicare Hemodialysis (HD)-Equivalent Sessions
    In order to calculate the proposed ESRD PPS base rate per 
treatment, it was necessary to divide the total payments for each MAP 
amount described above by the number of corresponding Medicare HD-
equivalent sessions. The number of Medicare HD-equivalent sessions 
represents the total Medicare treatments for outpatient dialysis as 
reported on ESRD claims submitted by dialysis facilities. For PD 
patients, patient weeks were converted to HD-equivalent sessions. For 
this purpose, one week of PD was considered equivalent to three HD 
treatments. Accordingly, a patient on PD for 21 days would have (21/7) 
x 3 or 9 HD-equivalent sessions. In determining the total number of 
Medicare treatments, the number of HD-equivalent sessions was capped so 
as not to exceed the number of days in the month in which treatments 
were furnished.
i. Average MAP per Treatment
    We summed the total payments for the composite rate and separately 
billable portions of the bundle. The total of $8,936,542,191 (which 
excludes all Part D drugs) was divided by the number of HD-equivalent 
treatments (36,747,662), to yield an average MAP per treatment of 
$243.19. The MAP per treatment for Part D drugs (excluding oral-only 
drugs) was similarly computed by dividing the total payment for those 
drugs ($11,340,484) by the number of HD-equivalent treatments for 
Medicare ESRD Part D enrollees (24,737,326), to obtain a MAP per 
treatment of $0.46. The sum of the MAP amount for all renal dialysis 
services excluding Part D drugs ($243.19), plus the MAP amount for the 
Part D drugs component, which excludes oral-only drugs, ($0.46), 
yielded the total average MAP per treatment for the renal dialysis 
services included in the ESRD PPS payment bundle. This amount, $243.65, 
is the unadjusted base rate amount and reflects price inflation to 
2009. The renal dialysis services which comprise the base rate, both in 
terms of total payments for each component and the average payment per 
treatment, inflated to 2009, are shown in Table 19.
2. Determining the Update Factors for the Budget-Neutrality Calculation
    In order to estimate payments under the current payment system for 
each facility in CY 2011, the first year of the ESRD PPS, the 
components of the CY 2007 unadjusted per treatment rate were updated to 
reflect estimated 2011 prices, using the methodology as described in 
the proposed ESRD PPS rule (74 FR 49942). It is necessary to estimate 
2011 payments under the current ESRD payment system (including all 
separately billable items) for each facility in order to meet the 
statutory budget-neutrality requirement for the ESRD PPS.
    Section 1881(b)(14)(A)(ii) of the Act requires that the ESRD PPS 
payment system be 98 percent budget neutral in 2011. In other words, 
the estimated total amount of payments under the ESRD PPS in 2011, 
including any payment adjustments, must equal 98 percent of the 
estimated total amount of payments for renal dialysis services that 
would have been made with respect to services in 2011 if the ESRD PPS 
system had not been implemented. In the proposed ESRD PPS, we described 
the update factors used to estimate CY 2011 payments for each component 
(74 FR 49939).
a. Composite Rate Services
    In order to update the basic case-mix adjusted composite payments 
to 2011, we began with the CY 2009 base composite rate ($133.81) and 
the CY 2009 drug add-on percentage of 15.2 percent. At the time of the 
proposed rule (74 FR 49942), in accordance with section 1881(b)(12)(G) 
of the Act, as amended by section 153(a)(1) of MIPPA and in accordance 
with section 1881(b)(14) of the Act, we updated the composite rate by 
1.0 percent for CY 2010 and by the estimated ESRD bundled market basket 
percentage increase minus 1 percentage point (1.5 percent) for CY 2011, 
respectively, resulting in a proposed 2011 composite rate of $137.18.
    We proposed (74 FR 49942 through 49943) to use this base composite 
rate for CY 2011, which included the ESRD bundled market basket update 
minus 1 percentage point to update the CY 2010 composite rate, for 
purposes of establishing the ESRD PPS base rate, given that we 
interpreted section 1881(b)(14)(F)(ii) of the Act to require us to 
update the composite rate portion of the blend by the market basket 
update minus 1.0 percentage point in all years of the transition (which 
included CY 2011). We stated that using the market basket in this way 
would be a consistent approach (74 FR 49943). At the time of the 
proposed rule, we proposed an ESRD bundled market basket update of 2.5 
percent for CY 2011. Therefore, we proposed (74 FR 49942 through 49943) 
a 1.5 percent update to the composite rate for CY 2011, resulting in a 
proposed CY 2011 composite rate of $137.18 ($135.15 * 1.015).
    We noted that the drug add-on percentage was reduced from 15.2 
percent to 14.8 percent as a result of the increases to the composite 
rate in CYs 2010 and 2011. Since the drug add-on is calculated as a 
percentage of the base composite rate, the drug add-on percentage 
decreases with increases in the composite rate. The CY 2009 PFS final 
rule (73 FR 69755) explains why increases to the base composite rate 
require decreases to the drug add-on percentage to ensure that the 
total drug add-on dollar amount remains the same. We stated our intent 
to update the drug add-on, if necessary, for the ESRD PPS final rule 
(73 FR 69755).
    In the proposed rule, we used the applicable facility-level and 
patient-level basic case-mix adjustments from the CY 2007 claims to re-
compute payment using the applicable basic case-mix adjustments applied 
to a 100 percent CBSA wage-adjusted composite rate using the most 
recently available

[[Page 49079]]

ESRD wage index, which is the CY 2009 final rule ESRD wage index with a 
0.60 floor. We stated that we did this to use the most recent wage 
indexes available in estimating 2011 payments (74 FR 49943). We also 
noted that the other components of the bundle discussed in the proposed 
rule do not have payments which are computed with wage indexes (74 FR 
49943). In addition, we noted in the proposed rule that payment rates 
to facilities that have chosen to retain their exceptions under the 
basic case-mix composite payment system are not updated because, once 
approved, the exception amounts were fixed payment amounts, and hence 
the 2007 amounts represent the 2011 amounts (74 FR 49943).
    We did not receive any public comments regarding our proposal with 
regard to composite rate services. However, following the release of 
the ESRD PPS proposed rule, section 3401(h) of the Affordable Care Act 
of 2010 amended section 1881(b)(14)(F) of the Act, by revising the 
ESRDB market basket update for CY 2011 from a market basket update 
minus one percent to a full market basket update. Thus, a 2.5 percent 
update to the composite rate for CY 2011, results in a final CY 2011 
composite rate of $138.53 ($135.15 * 1.025). We note that $135.15 is 
the final CY 2010 composite rate, which was derived from the CY 2009 
composite rate of $133.81 increased by one percent as required by 
section 153(a)(1) of MIPPA ($133.81 * 1.01). We also note that, as 
discussed in the CY 2011 PFS proposed rule issued on June 25, 2010, we 
have used the proposed CY 2011 drug add-on percentage of 14.7 percent, 
and the CY 2011 proposed ESRD wage index values with a 0.60 floor for 
computing the ESRD PPS budget neutral base rate. In this way, we are 
using the most current data available for computing the final CY 2011 
ESRD PPS base rate. The final CY 2011 ESRD PPS base rate will not be 
adjusted to reflect final decisions regarding the drug add-on 
percentage and the wage index floor for CY 2011. However we note that 
we will use the final drug add-on and wage index floor values in 
computing the composite rate portion of the blended payments during the 
transition.
b. Self-Dialysis support services for Method II patients
    Currently, the allowance per month under Method II for home 
dialysis support services may not exceed $121.15 per month for all 
forms of dialysis. Since home dialysis support services for Method II 
patients are subject to a monthly capitation payment that is not 
increased, we proposed (74 FR 49943)that the CY 2007 amounts represent 
the CY 2011 amounts.
    We did not receive any public comments regarding our proposal. 
Since the monthly capitation payment has not increased, we are 
finalizing the approach that the CY 2007 amounts represent the CY 2011 
amounts.
c. Part B Drugs and Biologicals
    Under the current system, payments for ESRD drugs and biologicals 
under Part B are paid on average sales price plus 6 percent (ASP+6 
percent) methodology. For the proposed rule, we reviewed ASP prices for 
four quarters of 2006, 2007, 2008, and two quarters of 2009 for the top 
eleven separately billable drugs. We proposed to use the 2009 prices as 
a proxy for 2011 values (74 FR 49943). We indicated that we would 
revaluate our decision with updated quarterly ASP pricing data.
    For other ESRD-related Part B drugs, we used a proposed weighted 
average of the top eleven Part B drugs to update those drug prices to 
2011. As the top eleven drugs represented 99.7 percent of total 
separately billable Part B drug payments at the time of the proposed 
rule, we indicated that the overall weighted average was representative 
of the remaining 0.3 percent of drugs. (See Table 10 in the ESRD PPS 
proposed rule (74 FR 49943) for the price updates used.) We have 
refined our data and the top eleven drugs that now represent 99.8 
percent of total separately billable Part B drug payments.
    The comments we received on this proposal and our responses are set 
forth below.
    Comment: Commenters expressed concern about the lack of an update 
for ASP-priced drugs and biologicals and suggested that we use the 
Producer Price Index for Drugs (PPI) to inflate Part B drug prices.
    Response: We agree with the commenters about the need for an update 
in ASP prices for Part B drugs and to use the PPI for the update. For 
that reason, we took the latest available ASP pricing data, which 
represented the second quarter of 2010, and updated these prices using 
the PPI for drugs. This update resulted in a 3.9 percent increase to 
the top eleven separately billable Part B Drugs from 2010 to 2011. 
Similar to the proposed rule, since the top eleven drugs account for 
over 99 percent of total spending, for the final rule we used a 
weighted average growth of the top eleven drugs (4.6 percent) for the 
remaining Part B drugs. Table 20 below shows the price increases, from 
2007 to 2011, of the separately billable Part B drugs.

[[Page 49080]]

[GRAPHIC] [TIFF OMITTED] TR12AU10.024

d. Laboratory Tests
    We proposed to update payments for laboratory tests paid through 
the laboratory fee schedule to 2011 using projected CPI-U increases and 
any legislative adjustments that would be applied to this fee schedule 
(74 FR 49943). Using this approach, we proposed (74 FR 49943) a growth 
update of 5.1 percent from 2007 to 2011.
    We did not receive any public comments regarding our proposal. 
Since the CPI-U increase, with any legislative adjustments, is the 
statutory updated required for laboratory testing, we are finalizing 
this approach. However, we have updated the growth percentage using 
more recent forecasts of the CPI-U data. For this final rule, the 
growth from 2007 to 2011 is 3.9 percent.
e. DME Supplies and Equipment
    Since payments for supplies and equipments for Method II patients 
are subject to a monthly capitation payment that has not increased, we 
proposed that the CY 2007 amount represents the 2011 amounts (74 FR 
49943).
    We did not receive any public comments regarding our proposal. 
Therefore, for the reasons above, we are finalizing the proposed 
approach for updating the amount for DME supplies and equipment.
f. Supplies and Other Services
    This category primarily includes the $0.50 administration fee for 
separately billable Part B drugs. Since this fee has not increased, as 
there is no update for such fees, we proposed no price update (74 FR 
49943).
    We did not receive any public comments regarding our proposal. 
Given that the administration fee has not increased, we are finalizing 
the proposed approach for supplies and other services.
g. Former Part D Drugs
    We proposed that former Part D drugs would be updated by the growth 
rates for overall prescription drug prices that were used in the 
National Health Expenditure Projections and referred to the following 
link for further information on the National Health Expenditure 
Projections: http://www.cms.hhs.gov/NationalHealthExpendData/03_NationalHealthAccountsProjected.asp#TopOfPage. Using the National 
Health Expenditure Projections, we proposed a growth of 12.2 percent 
from 2007 to 2011 (74 FR 49943). We proposed this approach because we 
did not have enough data to establish a trend for Part D prices and we 
use this price growth in the overall Part D projections. Therefore, we 
believed it was an adequate proxy for updating prices for former Part D 
drugs.
    The comments we received on this proposal and our responses are set 
forth below.
    Comments: A few commenters suggested the use of the PPI to update 
the Part D drugs.
    Response: We continue to feel that the growth rates for overall 
prescription drug prices that are used in the National Health 
Expenditure Projections are the best proxy, as they are consistent with 
the price growth proxy used in Part D spending projections. However, 
due to new National Health Expenditure Projections, the final growth 
for Part D drugs is 12.9 percent. This growth factor would be applied 
to those Part D drugs that are to be included in the ESRD PPS bundle as 
of January 1, 2011. We note that oral-only Part D drugs will not be 
included until after the transition, as discussed in section II.A.3. of 
this final rule.
    Once we determined updated CY 2011 payments for each component of 
the items and services discussed above, we proposed to add the 
components together to determine each ESRD facility's total payments 
under the current payment system in CY 2011. These estimated total 2011 
MAPs divided by the total 2007 Medicare HD-equivalent sessions yielded 
the proposed unadjusted per treatment base rate for renal dialysis 
services in CY 2011 of $261.58 (74 FR 49944).
    The comments we received on this proposal and our responses are set 
forth below.
    Comments: We received comments that we should account for increases 
in enrollment and utilization in determining the base rate.
    Response: We do not typically make utilization increase assumptions 
in setting budget neutrality for PPS payment systems. In addition, the 
statute requires us to use the utilization for the lowest of 2007, 2008 
and 2009. Enrollment growth assumptions would not affect a per 
treatment rate calculation, as it would increase total spending and 
total treatments.
    However, due to changes in the components of the final ESRD PPS 
bundle described in section II.A. of this final rule, the final updated 
unadjusted per treatment base rate for renal dialysis services in CY 
2011 is $251.60. We note that the reduction is primarily due to the 
delay in implementing oral-only Part D drugs under the ESRD PPS, as we 
have removed these MAPs from the unadjusted base rate computation. 
Other changes related to the composition of

[[Page 49081]]

the final ESRD bundle and hence the reduction in the unadjusted per 
treatment base rate are discussed in section II.A. of this final rule.
    We are finalizing $251.60 as the starting point for further 
adjustments in determining the final ESRD PPS per treatment base rate. 
The 2011 unadjusted average payment per treatment of $251.60 was then 
used in the payment model to estimate final total payments under the 
ESRD PPS in CY 2011. These final CY 2011 ESRD PPS estimated payments 
are based on treatment data from the CY 2007 claims file.
3. Standardization Adjustment
    CY 2011 payments under the proposed ESRD PPS were initially 
estimated without a budget-neutrality adjustment, using the unadjusted 
CY 2011 average payment per treatment amount of $261.58 (74 FR 49944). 
We calculated the proposed PPS payments using treatment counts from the 
2007 claims file. The wage index and all applicable proposed patient-
level and facility-level adjustments were applied to the unadjusted CY 
2011 average payment per treatment to determine the estimated payment 
amount under the proposed ESRD PPS for each treatment and ESRD 
facility. We noted that to simulate payments, we used the latest 
available final CY 2009 ESRD wage indexes, with no floor (74 FR 49944) 
because it was the latest available wage index data at the time, and we 
had proposed to apply no floor to the PPS payments beginning January 1, 
2011. In the proposed rule, we discussed how we standardized payments 
(74 FR 49942) and calculated the standardization factor (74 FR 49944) 
for the ESRD PPS.
    Payments were standardized to account for the overall effects of 
the proposed ESRD PPS case-mix patient and facility adjustment factors 
and wage indexes. We must standardize payments in order to ensure that 
total projected PPS payments are equal to the payments under the 
current basic case-mix adjusted composite payment system. The proposed 
standardization factor was calculated to be 21.73 percent. As a result, 
the proposed CY 2011 unadjusted per treatment base rate of $261.58 was 
reduced by 21.73 percent to $204.74 (74 FR 49944).
    The comments we received on this proposal and our responses are set 
forth below.
    Comment: We received numerous comments disagreeing with the 
significant reduction in the per treatment base rate caused by 
standardization. The commenters indicated that the per treatment base 
rate is too low to account for their high staffing and medical costs. 
The commenters suggested fewer adjustments yielding a smaller 
standardization adjustment and a high per treatment base rate.
    Response: In an effort to respond to the concerns expressed about 
the amount of the base rate, as discussed in section II.F.3. of this 
final rule, we have removed a number of patient adjustments and co-
morbidity categories. Following the methodology from the proposed rule, 
we have recomputed the standardization adjustment using the final ESRD 
PPS adjustments. The final standardization factor was calculated by 
dividing total estimated payments in 2011 under the current payments 
system by estimated payments under the final ESRD PPS in 2011. We have 
used the same method as in the proposed rule and since we received no 
comments on the standardization calculation, we are finalizing this 
approach and Sec.  413.220(b)(3) as proposed. The final standardization 
adjustment is .9407 or a reduction of 5.93 percent from the unadjusted 
per treatment base rate. As a result, the CY 2011 standardized per 
treatment base rate is $236.68.
    Based upon our review of the public comments and for the reasons 
described above, we are finalizing Sec.  413.220(b)(3). However, we 
have corrected the cross reference to reflect the patient-level and 
facility-level adjustment sections (Sec.  413.231 through Sec.  
413.235).
4. Calculation of the Budget-Neutrality Adjustments
a. Outlier Adjustment
    Section 1881(b)(14)(D)(ii) of the Act provides that the ESRD PPS 
shall include a payment adjustment for high cost outliers due to 
unusual variations in the type or amount of medically necessary care, 
including variations in the amount of ESAs necessary for anemia 
management. We proposed that outlier payments be applied in a budget 
neutral manner, as doing so would ensure that estimated total payments 
under the proposed ESRD PPS equals 98 percent of the estimated total 
amount of payments for renal dialysis services that would have been 
made with respect to services in 2011 if the ESRD PPS system had not 
been implemented (74 FR 49944).
    To ensure that the proposed outlier policy (74 FR 49944) under the 
ESRD PPS is budget neutral, we proposed to reduce the base rate by the 
proposed outlier percentage, or 1.0 percent. Specifically, we proposed 
to reduce the base rate from $204.74 to $202.69. We did this to account 
for the 1.0 percent of aggregate ESRD PPS payments estimated to be made 
as outlier payments. We then re-estimated the prospective payment 
amounts with the new reduced base rate of $202.69, allowing 1.0 percent 
of payments to be outliers. The outlier amount was computed for all 
treatments and the total outlier payment amount across all treatments 
was added to the prospective payment amount for all treatments.
    We did not receive any public comments regarding our proposal to 
reduce the base rate to account for the outlier percentage and, 
therefore, we are finalizing 413.220(b)(4) as proposed. Specific 
comments about the outlier policy are discussed in section II.H. of 
this final rule. However, using the final standardized base rate of 
$236.68, we reduced this amount by 1.0 percent to account for outlier 
payments. This reduction resulted in a revised base rate of $234.31.
b. 98 Percent Budget-Neutrality Adjustment
    Section 1881(b)(14)(A)(ii) of the Act requires that the ESRD PPS 
payment system be 98 percent budget neutral. In other words, the 
estimated total amount of payments under the ESRD PPS in 2011, 
including any payment adjustments, must equal 98 percent of the 
estimated total amount of payments for renal dialysis services that 
would have been made with respect to services in 2011 if the ESRD PPS 
had not been implemented. Therefore, we proposed to reduce the 2011 
standardized base rate, which was already adjusted for 1.0 percent 
outlier payments, by an additional 2.0 percent, from $202.69, to yield 
a proposed base rate of $198.64 (74 FR 49944).
    The comments we received on this proposal and our responses are set 
forth below.
    Comment: We received numerous comments indicating that the proposed 
per treatment base rate of $198.64 is too low to account for the costs 
of dialysis.
    Response: As we indicated in the previous section, due to changes 
made to the final ESRD PPS payment model (specifically, the patient-
level and facility-level adjustment factors described in sections 
II.F.3. and II.F.4, respectively, of this final rule), the final 
standardization adjustment is considerably lower that the proposed 
adjustment. For this reason, the final standardized base rate used as 
the starting point for the budget-neutrality adjustments is over $31 
higher than the proposed amount.
    Comment: Several commenters requested that the outlier percentage 
be

[[Page 49082]]

withheld after the 98 percent budget-neutrality adjustment.
    Response: The budget-neutrality adjustments are multiplicative, and 
as a result, the order of the reductions has no effect on the final 
adjusted base rate. The adjustments for the outlier payments and the 98 
percent budget-neutrality requirement are needed to ensure that total 
payments under the PPS are equal to 98 percent of payments under the 
current basic case-mix adjusted composite payment system.
    In consideration of the comments received and for the reasons 
discussed above, we are finalizing Sec.  413.220(b)(5). However, we 
have deleted the cross-references to the ESRD PPS regulatory citations. 
Instead, we have revised the language to clarify that CMS adjusts the 
per treatment base rate so that the aggregate payments in 2011 are 
estimated to be 98 percent of the amount that would have been made 
under Title XVIII of the Act if the ESRD PPS described in section 
1881(b)(14) of the Act were not implemented. We made this change 
because we believe the revised language is more straightforward and 
clear.
    To summarize, the final base rate per treatment with an outlier 
adjustment and budget-neutrality is calculated to be $229.63. This 
amount includes a 5.93-percent reduction from $251.60 to account for 
standardization to the projected CY 2011 current system payment per 
treatment, a 1.0 percent reduction to account for outlier payments, and 
a 2.0 percent reduction for the required 98 percent budget-neutrality. 
We note that if the reader were to multiply the outlier adjusted base 
rate of $234.31 by .98 for the budget-neutrality requirement, they 
would calculate $229.62. However we did not round the figures in the 
calculation of each step and arrived at $229.63.
5. Calculation of the Transition Budget-Neutrality Adjustment
    Section 1881 (b)(14)(E)(i) of the Act requires the Secretary to 
provide ``a four-year phase-in'' of the payments under the ESRD PPS for 
renal dialysis services furnished on or after January 1, 2011, with 
payments under the ESRD PPS ``fully implemented for renal dialysis 
services furnished on or after January 1, 2014.'' Although the statute 
uses the term ``phase-in'', we are using the term ``transition'' to be 
consistent with other Medicare payment systems.
    Section 1881(b)(14)(E)(ii) of the Act permits ESRD facilities to 
make a one-time election to be excluded from the transition. An ESRD 
facility that elects to be excluded from the transition receives 
payments for renal dialysis services provided on or after January 1, 
2011 based on 100 percent of the payment rate under the ESRD PPS, 
rather than a blended payment based in part on the payment rate with 
regard to the current basic case-mix adjusted composite payment system 
and in part on the payment rate under the ESRD PPS. The proposed 
implementation of the transition is discussed in detail in the proposed 
rule (74 FR 50003). Section 1881(b)(14)(E)(iii) of the Act also 
requires that we make an adjustment to payments for renal dialysis 
services provided by ESRD facilities during the transition so that the 
estimated total amount of payments under the ESRD PPS, including 
payments under the transition, equals the estimated total amount of 
payments that would otherwise occur under the ESRD PPS without such a 
transition.
    In the proposed rule (74 FR 49944 through 49947), we discussed that 
the transition budget-neutrality adjustment would be comprised of two 
parts. First, we proposed to make a payment adjustment under the basic 
case-mix adjusted composite payment system portion of the blended rate 
during the transition to account for the per treatment costs of drugs 
that are currently paid under Part D. Second, we proposed to compute a 
factor that would make the estimated total amount of payments under the 
ESRD PPS, including payments under the transition equal the estimated 
total amount of payments that would otherwise occur without such a 
transition (3.0 percent reduction).
    In the proposed rule, we described in detail our rationale for the 
transition budget-neutrality adjustment and alternatives considered (74 
FR 49944). We invited comments on the calculation and application of 
the proposed two-part transition budget-neutrality adjustment factor. 
The comments we received on this proposal and our responses are set 
forth below.
    Comment: We received numerous comments about the proposed 
transition budget-neutrality adjustment. Many commenters focused on the 
transition budget-neutrality adjustment related to payment for Part D 
oral drugs. The commenters indicated that the proposed $14 adjustment 
is too low and does not reflect all of the ESRD patients covered under 
the ESRD PPS.
    Response: As discussed in section II.A.3. of this final rule, 
although oral-only Part D drugs meet the definition of renal dialysis 
services and are included in the ESRD PPS bundle, we are not 
implementing these drugs under the PPS until after the transition. That 
section also addresses our rationale for the Part D component of the 
base rate and the data used for that analysis. As a result, we removed 
the amounts for those drugs from the base rate. However, oral drugs or 
other forms of ESRD-related Part B injectable drugs are in the ESRD PPS 
bundle and will be implemented January 1, 2011.
    In addition, as discussed in section II.E. of this final rule, 
based on the comments, we reviewed our methodology to determine if 
there were ways to compute the Part D per treatment amount that would 
more accurately reflect payments for Part D ESRD-related drugs by ESRD 
beneficiaries. As a result of this review, for this final rule we 
revised the method of computing the Part D per treatment amount to 
divide by the number of Part D enrolled ESRD beneficiaries rather than 
total ESRD beneficiaries. As a result of these changes, the final 
transition budget-neutrality adjustment related to Part D drugs has 
been recomputed to be $.49. If we had not changed our methodology to 
divide by the number of Part D enrolled ESRD beneficiaries and had 
instead divided by the number of Part B enrolled ESRD beneficiaries, we 
would have calculated the Part D per treatment amount to be $.33. While 
we recognize the $.49 does not cover all the ESRD patients under the 
PPS, the statue limits us to payments made under Title XVIII of the 
Act.
    Comment: Numerous commenters questioned CMS's legal authority to 
impose a transition budget-neutrality adjustment. They expressed 
concern about the proposed 3.0 percent reduction going beyond the 98 
percent budget neutrality requirement in 2011. Commenters also 
expressed concern about the size of the transition budget-neutrality 
adjustment related to the cost of the transition. The commenters 
indicated that the adjustment was too high and may not reflect ESRD 
facility decisions regarding the transition, and expressed concern 
about our proposed method of determining which facilities would choose 
to opt out of the transition. Several commenters believed that the 3.0 
percent reduction during the years 2012 and 2013 will go beyond the 98 
percent budget-neutrality requirement. Commenters expressed concern 
that we should consider 2012 and 2013 payments in calculating this part 
of the transition budget-neutrality adjustment.
    Response: We believe section 1881(b)(14)E)(iii) of the Act requires 
us to implement the transition budget-neutrality adjustment. We do not 
believe the proposed 3.0 reduction goes

[[Page 49083]]

beyond the 98 percent budget neutrality requirement; as it is necessary 
to ensure that total payments under the PPS do not exceed the 98 
percent requirement. Since we assume that facilities will act in their 
best financial interest and opt to transition if it is beneficial, it 
is likely that total payments would exceed what is allowed. As we 
discussed in the proposed rule (74 FR 49946), we proposed to apply this 
adjustment to both the ESRD PPS and the blended payment so as not to 
affect provider decisions in opting out of the transition.
    We recognize that the transition budget-neutrality adjustment may 
not reflect actual choices made by ESRD facilities regarding opting out 
of the ESRD PPS transition. We are requiring that ESRD facilities 
notify their FI/MACs by November 1, 2010 of their decision to opt out 
of the ESRD PPS transition. We are unable to wait until then to 
establish the transition budget-neutrality adjustment which is 
necessary to meet statutory budget-neutrality requirement.
    As a result, we based the final transition budget-neutrality 
adjustment on our best projections of how ESRD facilities will fare 
under the ESRD PPS compared to the basic case-mix adjusted composite 
payment system. With regard to conducting the analysis using 2012 and 
2013 projections, we note that the transition budget-neutrality 
adjustment will be updated each year of the transition to reflect the 
appropriate blend of PPS and composite rate payments. We agree that it 
is not possible for us to predict accurately which facilities will opt 
out of the ESRD PPS transition. Given that the transition budget 
neutrality adjustment applies in each year of the transition, we are 
considering whether to prospectively correct for over or understatement 
of the number of facilities that choose to opt out of the transition 
when we update the adjustment for 2012. We would address this issue in 
rulemaking for the CY 2012 ESRD PPS.
    We conducted a preliminary analysis for the final rule, to simulate 
payments for 2012 and 2013 in order to assess whether considering these 
years in the calculation of the transition budget-neutrality adjustment 
is warranted due to the change in the blend of payments for those 
years. We determined that it makes very little difference in the 
adjustment calculation.
    In consideration of the public comments and for the reasons 
described above, we are finalizing Sec.  413.220(b)(6).
    In Sec.  413.239(d), we proposed to apply the transition budget 
neutrality adjustment during the first three years of the transition. 
As this characterization of the period during which the transition 
budget neutrality adjustment applies, we are revising proposed Sec.  
413.239(d) to clarify that there is a 4-year transition period.
    In summary, for the final rule, due to revised estimates of 
simulated payments under the current basic case-mix adjusted payment 
system and under the ESRD PPS payment system by facility, we estimate 
that 43 percent of ESRD facilities will choose to be excluded from the 
transition and that 57 percent of ESRD facilities will choose to be 
paid the blended rate during the transition. Consequently, we estimate 
that during the first year of the transition, total payments to all 
ESRD facilities would exceed the estimated payments under the ESRD PPS 
in the absence of the transition.
    Thus, in order to maintain the 98 percent budget-neutrality 
required by section 1881(b(14)(E)(iii) of the Act during the initial 
year of the transition period, we are finalizing the reduction of all 
payments to ESRD facilities in CY 2011 by a factor that is equal to 1 
minus the ratio of the estimated payments under the ESRD PPS were there 
no transition (that is, 98 percent of total estimated payments that 
would have been made under the current basic case-mix adjusted payment 
system) to the total estimated payments under the transition, or 3.1 
percent.
    For 2011, application of this factor would result in a 3.1 percent 
reduction in all payments to ESRD facilities, that is, we intend to 
apply this adjustment to both the blended payments made under the 
transition and payments made under the 100 percent ESRD PPS. We are 
finalizing this approach because, as we stated in the proposed rule (74 
FR 49946), we believe that it would evenly distribute the effect of the 
transition budget-neutrality adjustment and it would not affect ESRD 
facilities' incentives with respect to whether to opt out of the 
transition.

F. Regression Model Used To Develop Final Payment Adjustment Factors

1. Regression Analysis
    In the proposed rule, we described the two-equation methodology 
used to develop the proposed adjustment factors that would be applied 
to the base rate to calculate each patient's case-mix adjusted payment 
per treatment (74 FR 49947 through 49949). The two-equation approach 
used to develop the proposed ESRD PPS included a facility-based 
regression model for composite rate service, and a patient-level 
regression model for separately billable services. The composite rate 
and separately billable components of the model described in the 
proposed rule, used CY 2004-2006 Medicare cost report and claims data 
to develop the specific adjusters associated with the variables 
included in the payment model (74 FR 49947).
    For purposes of developing the payment adjusters included in this 
final rule, we have updated the proposed two-equation methodology using 
CY 2006-2008 Medicare cost report and claims data. These are the latest 
available cost reports and claims given the time necessary for the 
preparation of this final rule. We have also reduced the number of co-
morbidities and revised the definitions of co-morbidities for which 
payment adjusters apply; modified the separately billable regression 
model so that it reflects information for a patient-month rather than 
patient-year; added facility training status as a control variable; and 
eliminated sex and race as payment variables.
    The addition of facility training status as a control variable and 
modification to the separately billable regression so that it reflects 
information for a patient-month rather than patient-year are described 
below. The basis for the reduction in the number of co-morbidities used 
to develop the case-mix adjusters and elimination of sex and race as 
payment variables are discussed in section II.F.3. of this final rule. 
For this final rule, the measures of resource use, specified as the 
dependent variables for developing the payment model in each of the two 
equations, are also explained below.
a. Dependent Variables
i. Average Cost per Treatment for Composite Rate Services
    As described in the proposed rule (74 FR 49947) and for purposes of 
this final rule, we measured resource use for the maintenance dialysis 
services included in the current bundle of composite rate services, 
using ESRD facility data obtained from the Medicare cost reports for 
hospital-based ESRD providers and independent ESRD facilities. The 
average composite rate cost per treatment for each ESRD facility was 
calculated by dividing the total reported allowable costs for composite 
rate services for CYs 2006, 2007, and 2008 (Worksheet B, column 11, 
rows 7-16 on CMS 265-94; Worksheet I-2, column 11, rows 2-11 on CMS 
2552-96) by the total number of dialysis treatments and Worksheet C, 
column 1, rows 1-10 on CMS 265-94; Worksheet I-4, column 1, rows 1-10 
on CMS 2552-96). CAPD and CCPD patient weeks were multiplied by

[[Page 49084]]

3 to obtain the number of HD-equivalent treatments. We point out that 
our computation of the total composite rate costs included in this per 
treatment calculation includes costs incurred for training expenses, as 
well as all costs incurred by ESRD facilities for home dialysis 
patients.
    The resulting composite rate cost per treatment was adjusted to 
eliminate the effects of varying wage levels among the areas in which 
ESRD facilities are located using the proposed ESRD PPS CY 2011 wage 
index published July 13, 2010, in connection with the proposed CY 2011 
physician fee schedule (PFS)(75 FR 40673), and the estimated labor-
related share of costs from the composite rate market basket. This was 
done so that the relationship of the studied variables on dialysis 
facility costs would not be confounded by differences in wage levels. 
The description of that labor-related share was contained in the 
Secretary's 2008 Report to Congress, A Design for a Bundled End Stage 
Renal Disease Prospective Payment System.
    The proportion of composite rate costs determined to be labor-
related (53.711 percent of each ESRD facility's composite rate cost per 
treatment) was divided by the ESRD wage index to control for area wage 
differences. No floor or ceiling was imposed on the wage index values 
used to deflate the composite rate costs per treatment in order to give 
the full effect to the removal of actual differences in area wage 
levels from the data. We applied a natural log transformation to the 
wage-deflated composite rate costs per treatment to better satisfy the 
statistical assumptions of the regression model, and to be consistent 
with existing methods of adjusting for case-mix, in which a 
multiplicative payment adjuster is applied for each case-mix variable.
    As with other health care cost data, there was skewness in the cost 
distribution for composite rate services in which a relatively small 
fraction of observations account for a disproportionate fraction of 
costs. Cost per treatment values which were determined to be unusually 
high or low in accordance with predetermined statistical criteria, were 
excluded from further analysis. (For an explanation of the statistical 
outer fence methodology used to identify unusually high and low 
composite rate costs per treatment, see pages 45 through 48 of UM-
KECC's February 2008 report.)
ii. Average Medicare Allowable Payment (MAP) for Separately Billable 
Services
    For purposes of the final rule, resource use for separately 
billable ESRD-related services was measured at the patient level using 
the payment data on the Medicare claims for CYs 2006-2008. This time 
period corresponded to the most recent three years of Medicare cost 
report data that were available to measure resource use for composite 
rate services. Measures of resource use included the following 
separately billable services: injectable drugs billed by ESRD 
facilities, including ESAs; laboratory services provided to ESRD 
patients, billed by freestanding laboratory suppliers and ordered by 
physicians who receive monthly capitation payments for treating ESRD 
patients, or billed by ESRD facilities; other services billed by ESRD 
facilities, including support services for Method II home patients; 
medical equipment and supplies for Method II home patients billed by 
durable medical equipment suppliers.
    In the proposed rule, we stated that complete data for CYs 2006-
2008 for Part D claims were not available in sufficient time for the 
development of the proposed case-mix adjusters (74 FR 49947). Our 
decision not to implement oral-only drugs in the ESRD PPS until after 
the transition period ends January 1, 2014, as explained in section 
II.A.3. in this final rule, means that only oral drugs with an 
injectable version (that is, drugs other than oral-only drugs) would be 
relevant for inclusion in the separately billable regression model. 
Total payments for these drugs in 2007 and 2008 averaged about $12.8 
million each year, an amount which on a per treatment basis would have 
a minimal impact on the magnitude of the case-mix adjustments.
    In addition, there is a technical issue of how payments for 
prescription drugs taken at home over a period of time should be linked 
to specific patient HD-equivalent treatments, so that the regression 
results for patient utilization of separately billable services would 
not be distorted. Because of the time necessary to prepare for this 
final rule, we deferred resolution of this issue. Given that oral drugs 
and biologicals included in the payment bundle represent a very small 
proportion of the total annual total expenditures for the renal 
dialysis services included in the ESRD PPS ($8.8 billion in 2007), we 
believe that not including these drugs in the regression model used to 
develop the case-mix adjusters at this time is of little consequence.
    We will need to revisit this issue prior to the expansion of the 
ESRD PPS to include all oral ESRD-related drugs and biologicals 
beginning in January 2014, because expenditures for oral-only ESRD-
related drugs are significantly higher ($445 million in 2007), compared 
to those for the oral and other forms of injectable drugs. Including 
drug expenditures of this magnitude in the regressions used to develop 
the case-mix adjusters could impact the size of the adjustment factors 
in the ESRD PPS and will need to be evaluated. Accordingly, the 
regression model set forth in this final rule does not reflect the 
inclusion of oral or other forms of injectable ESRD-related drugs. 
Although these drugs have been excluded from the regression model, we 
point out that payments for these drugs have been included in the 
calculation of the ESRD base rate to which the case-mix adjusters will 
be applied.
    We obtained Medicare claims data for separately billable services 
for CYs 2006-2008 for patient-months in which outpatient dialysis was 
provided and Medicare was the primary payer. Measures of resource use 
were based on MAPs, which were calculated using the payment data on the 
claims.
    Medicare payments were inflated by a factor of 1.25 for services 
that have a 20 percent patient co-insurance (for example, ESRD-related 
injectable drugs), to yield the MAP. For laboratory tests that have no 
patient co-insurance obligation, the Medicare payment is identical to 
the MAP. The MAP amounts do not include the annual Part B payment 
deductible which may apply to separately billable services because we 
were unable to determine whether the deductible amount was incurred in 
connection with another Part B service. We point out that the Part B 
payment deductible can apply in connection with any Part B service, not 
just outpatient dialysis. As required under section 1881(b)(14)(B) of 
the Act, vaccines are excluded from the ESRD PPS and, therefore, were 
excluded from the computation of separately billable drugs.
    Comment: One commenter questioned why CMS repriced injectable 
drugs, but not other payments included in the analysis. The commenter 
noted that the repricing was done to the first quarter of 2008 and 
pointed out that the ASP value for EPO for this period was the lowest 
value for the drug in four years. The commenter stated that the effect 
of selecting this quarter was to reprice several injectable drugs 
downward, dampen variations in payments, and lower the value of the 
case-mix adjustments.

[[Page 49085]]

    Response: In the proposed rule, we repriced the payments for 
injectable drugs for CYs 2004-2006 to the first quarter of 2008. This 
was accomplished by using a ratio which was obtained by dividing the 
Medicare payment rate in the first quarter of 2008 by the Medicare rate 
in 2004, 2005, and 2006. The ratios used to adjust the MAPs for the 11 
specified injectable drugs were shown in Table 11 in the proposed rule 
(74 FR 49948). The basis for the repricing of the top 11 injectable 
drugs in the proposed rule was due to the shift in the drug pricing 
methodology in 2006, from Average Wholesale Price to ASP+6 percent. The 
first quarter of 2008 was selected as the end quarter for the repricing 
because it represented the latest available quarter for which we had 
pricing information, consistent with the lead time necessary for the 
preparation of the proposed rule.
    There was no attempt to select a quarter which would lead to 
reduced prices and reduced case-mix adjustments. For this final rule, 
we believe there is no need to reprice injectable drugs due to a change 
in the pricing methodology, because CY 2006, 2007, and 2008 drug prices 
consistently reflect the ASP+6 percent method.
    The adjusted MAP values were standardized to reflect the number of 
Medicare outpatient dialysis treatments reported on the claims. This 
approach is consistent with the unit of payment under the current 
composite payment system. For patients who received PD during the 
month, the number of PD days reported on the claims was multiplied by 
\3/7\ to obtain the number of HD-equivalent treatments. For example, 7 
PD days were converted to 3 treatments since hemodialysis is typically 
performed 3 times per week. Monthly treatments reported on the claims 
were capped so as not to exceed the number of days in the month 
treatments were furnished, as treatments in excess of this number were 
considered clinically implausible.
    Comment: Several commenters pointed out that our exclusion of 
claims in which the average utilization of EPO per treatment exceeded 
30,000 units based on clinical implausibility was inconsistent with 
CMS's ESA Claims Monitoring Policy.
    Response: We agree with the commenters and have revised the 
thresholds to conform with the medically unbelievable edit thresholds 
(MUE) for EPO and ARANESP[reg] applicable to each year. Payments for 
EPO and ARANESP[reg] in excess of the MUE thresholds of 500,000 units 
for EPO in 2006 and 2007, and 400,000 units in 2008 were excluded from 
the claims. Similarly, payments for ARANESP[supreg] in excess of the 
MUE thresholds of 1500 mcg in 2006 and 2007, and 1200 mcg in 2008 were 
also excluded from the claims. The ratio of the adjusted MAP values for 
separately billable services divided by the total number of treatments 
was used to calculate the average adjusted MAP per treatment.
    As with the analysis of composite rate services described in 
section II.D. of this final rule, we similarly used the statistical 
outer fence methodology to exclude unusually high separately billed 
values. Claims with total separately billed amounts greater than 
$2,545.65 were excluded from the analysis of 2006 through 2008 data, 
used to develop the separately billed portion of the ESRD PPS payment 
model for patients age 18 and older. For the analysis used to develop 
the separately billed portion of the ESRD PPS payment model for 
pediatric patients for purposes of the pediatric payment adjustment, 
the application of this methodology resulted in no exclusions.
b. Independent Variables
    In the proposed rule, we explained that two major types of 
independent or predictor variables were included in the composite rate 
and separately billable regression equations--case-mix payment 
variables and control variables (74 FR 49948 through 49949). Case-mix 
payment variables were included as factors that may be used to adjust 
payments in either the composite rate or in the separately billable 
equation. Control variables, which generally represent characteristics 
of ESRD facilities such as size, type of ownership, facility type 
(whether hospital-based or independent), etc., were specifically 
included to obtain more accurate estimates of the payment impact of the 
potential payment variables in each equation. Control variables were 
excluded from consideration as actual payment adjusters because they 
represent facility characteristics rather than patient characteristics. 
In the absence of using control variables in each regression equation, 
the relationship between the payment variables and measures of resource 
use may be biased.
i. Control Variables
    In the proposed rule, we described seven control variables that 
were included in the regression analysis (74 FR 49948). They were: (1) 
Renal dialysis facility type (hospital-based versus independent 
facility); (2) facility size (<3,000 for less than three years, 3,000-
5,000, 5,000-10,000, and > 10,000 dialysis treatments); (3) type of 
ownership (independent, large dialysis organization, regional chain, 
unknown); (4) whether the ESRD facility received a composite rate 
payment exception between November 1993 and July 2001; (5) adequacy of 
dialysis, based on the percentage of patients having a urea reduction 
ratio (URR) < 65 percent; (6) rural versus urban location; and (7) 
calendar year. For the proposed rule, calendar years 2004, 2005, and 
2006 were included as a control variable in analyses that pooled three 
years of data. In order to avoid excluding dialysis facilities that 
treated PD patients from the analysis with control variables, for these 
facilities, if no URR was available for any patients in the facility, 
we used the average percentage of patients with a URR greater than 65 
percent.
    For this final rule, we have added an eighth control variable, 
training treatments, in which the proportion of training treatments 
furnished by each dialysis facility is specified. This was done in 
order to remove any confounding cost effects of training on other 
independent variables included in the payment model, particularly the 
onset of dialysis within 4-months variable. In addition, for the 
calendar year control variable, we have used CYs 2006, 2007, and 2008 
in analyses that pooled 3 years of data.
ii. Case-Mix Adjustment Variables
    Section 1881(b)(14)(D)(i) of the Act requires that the ESRD PPS 
include a payment adjustment based on case-mix, but gives the Secretary 
broad discretion with regard to the selection of patient-specific 
measures which would comprise the case-mix adjusters. In the proposed 
rule, we stated that as part of our case-mix analysis, we identified 
the same patient demographic variables used in connection with the 
basic case-mix adjusters under the current composite payment system: 
age (five groups, excluding patients less than age 18), BSA, and low 
BMI (values less than 18.5 kg/m\2\) (74 FR 49949)). BSA was calculated 
as a function of height (H, in centimeters) and weight (W, in 
kilograms) using the following formula:

BSA = 0.007184 x H(0.725) x W(0.425)

    BMI values below 18.5 kg/m\2\ were used to identify patients who 
were underweight. BSA and low BMI are currently used as part of the 
basic case-mix adjustment for the composite payment system.
    The same set of independent variables was included in both the 
composite rate and separately billable regression equations. To define 
the independent

[[Page 49086]]

variables for each equation, however, it was necessary to link patient 
and facility-level data. For example, measures for patient 
characteristics (for example, female gender) were included as potential 
payment variables in the facility-level composite rate equation, while 
measures for facility characteristics (for example, hospital-based or 
independent facility) were included as control variables in the patient 
level separately billable equation. For the composite rate equation, we 
defined case-mix measures using data for all Medicare dialysis patients 
treated in each facility. Specifically, we determined the percentage of 
a facility's patients having each patient characteristic. For example, 
patient sex was measured as the percentage of patients that were 
female. For the equation of the separately billable MAPs, we defined 
measures for facility characteristics using data for all facilities 
that treated each Medicare dialysis patient.
    These patient and facility control variables were weighted to give 
greater emphasis to patient and facility observations that accounted 
for more of the care that was delivered, based on the number of 
dialysis treatments. For example, in defining facility-level case-mix 
measures, the characteristics of patients who were treated at the 
dialysis facility for twelve full months (for example, with 13 
treatments each month), were given twelve times as much weight as the 
characteristics of patients who were treated at the facility for only 1 
month (that is, with 13 treatments). Similarly, to define patient-level 
measures for the control variables, the characteristics of the facility 
that treated the patient for nine full months were given three times as 
much weight as the characteristics of the facility that treated the 
patient for the remaining three full months.
    The resulting case-mix variables were examined as potential payment 
variables in the composite rate equation (for example, percent female 
and average BSA among patients in each facility). This was the same 
approach used to define the basic case-mix measures under the composite 
payment system. The resulting facility variables were included as 
control variables in the separately billable equation (for example, 
percent of a patient's treatment furnished in a hospital-based 
facility).
    We have not departed from the use of facility control and patient-
specific variables as described above in developing the case-mix 
adjusters set forth in this final rule. In the sections that follow, in 
response to public comments and for the reasons outlined below, we 
describe how we reevaluated and revised the proposed independent 
variables for use as potential case-mix adjusters in the ESRD PPS to 
determine their relationship to composite rate costs and separately 
billable payments.
    Before we explain how the final set of case-mix adjustment 
variables was determined, we must first explain the difference between 
an annual model and a monthly model in connection with the separately 
billable regression equation component of the two equation model used 
to develop the case-mix adjustments. There are subtle but important 
differences in the interpretation of what variation in costs is being 
captured by the case-mix multipliers depending upon whether an annual 
model or monthly model is used. This has particular relevance in 
connection with the multipliers for co-morbidities.
2. Choosing Between a Separately Billable Model Based on Patient-Year 
or Patient-Month Data
    The composite rate cost component of the two-equation model is 
based on Medicare cost reports that are submitted annually. The 
separately billable payment portion of the two-equation model is based 
on claims submitted monthly by ESRD facilities. Accordingly, the 
composite rate model is based on data that are observed annually, while 
the separately billable model is based on data that are observed 
monthly. In order to create consistency between the two models, the 
various versions of the separately billed models which we have analyzed 
have been based on annualized data.
    For a chronic condition, the measurement of the co-morbidity at the 
annual or monthly level does not vary, because the patient either 
always has the condition or never has it. Aside from first time 
diagnoses, there is no distinction in how the co-morbidity is coded on 
an annual or monthly level, that is, patients will either have a zero 
or one for the variable. However, most patients with acute conditions 
(as will be shown later), are measured as present in the current month 
of treatment or previous 3 months, only have the condition for part of 
the year. Therefore, the coding of the co-morbidity variable for an 
acute condition will differ substantially on the annual versus monthly 
basis. On an annual basis, the value often lies between zero and one, 
representing the fraction of treatments in the year which occurred in 
months with the co-morbidity present (currently or within the three 
prior months). On a monthly basis, the value for the co-morbidity 
variable will be either zero or one, depending on whether the diagnosis 
is present in that month or the three preceding months.
    We believe this distinction is important. The values of the case-
mix adjustments for the acute co-morbidity variables in an annual model 
compared to a monthly model, create subtle but significant differences 
in the interpretation of what variation in costs the multipliers 
capture. Statistically, an omitted variable bias occurs when variables 
that predict the outcome (cost) are not included in the model, but are 
correlated with some of the variables that are included. As more 
variables predictive of costs are dropped from the model, the magnitude 
of the bias tends to increase. In this context, the proper 
interpretation of the multipliers is that they capture the costs 
directly associated with the co-morbidity being measured, plus part of 
the costs related to the omitted factors correlated with the condition.
    In a payment model, this could be seen as either a positive or a 
negative characteristic. On the positive side, the omitted variables 
bias allows the model to partially adjust for unmeasured factors that 
influence costs, but are not reflected in the payment system. However, 
this bias undercuts the face validity of the case-mix multipliers 
because part of what they are capturing is unknown. Further, the larger 
multipliers would increase the incentive to report relatively minor 
cases of the co-morbidity that may not even be associated with whatever 
unmeasured conditions the multiplier reflects.
    With respect to using an annual versus monthly unit of analysis in 
the separately billable model, the case-mix multipliers for acute co-
morbidities in the annual model are likely to be subject to a greater 
degree of omitted variables bias because of the longer time span. In 
the annual specification, the question being answered is ``Is a patient 
with this acute co-morbidity more costly to treat throughout the year? 
'' Those higher costs could be directly attributable to the co-
morbidity and occur in those months in which the co-morbidity was 
present. However, they could also represent costs directly attributable 
to the co-morbidity that occur outside the three month time interval in 
which the co-morbidity was coded as present (for example, if there is 
some impact on costs beyond three months), or costs attributable to any 
other correlated omitted conditions that occur at any time of the year.
    Therefore, for those patients with the acute conditions coded for 
only part of the year, the case-mix adjuster in an

[[Page 49087]]

annual model can reflect costs occurring outside the time frame during 
which the co-morbidity was actually present. In other words, having the 
acute condition present for part of the year might be a marker for 
having other costly conditions at any time of the year.
    In a monthly model, the case-mix multiplier can still reflect costs 
associated with correlated, omitted variables, but only if those costs 
occur in the same months the co-morbidity is coded as present. Any 
costs occurring outside the months in which the co-morbidity is coded 
as present, regardless of whether those costs are directly related to 
the co-morbidity, or arise from correlated, omitted conditions, will 
not be reflected in the multiplier because the co-morbidity is coded as 
zero in those months.
    We want to focus on specific conditions that are associated with 
more costly resource intensive dialysis, not other unspecified 
conditions that may be an indicator for more costly care at any time of 
the year. We also want to minimize omitted variables bias as much as 
possible, but particularly for omitted conditions that can occur at any 
time of the year. Accordingly, in connection with this final rule, we 
have adopted the patient-month separately billable model. The case-mix 
adjusters reflected in the proposed rule were based on the annual unit 
of analysis for separately billable services (Table 14 at 74 FR 49954).
    As shown in Table A of the Appendix in this final rule, the case-
mix adjusters for acute conditions are substantially smaller in the 
patient-month model in comparison to the annual model. This indicates 
that the multipliers in the annual model are capturing costs that occur 
outside the time window during which the condition was coded as 
present. As will be explained later in section II.F.3. of this final 
rule, on co-morbidities, we have dropped certain co-morbidities after 
considering comments received and for the reasons highlighted below, 
with more of an emphasis on acute as opposed to chronic conditions, and 
modified the definitions of others. As conditions are dropped from the 
model, the tendency is for omitted variables bias to become more 
pronounced in the patient-year model. In the patient-month model, the 
case-mix adjustments are less affected by the elimination of co-
morbidities as independent variables.
    In selecting a patient-month separately billable model, we believe 
that the case-mix adjustments more closely reflect costs associated 
with the specific co-morbidity being measured, and occurring in the 
specific months in which the co-morbidity was present. We believe that 
this approach will more closely align the costs of furnishing dialysis 
with patient-specific conditions requiring more resource intensive care 
in a timely manner. Because composite rate cost data are only available 
on an annual basis through the Medicare cost reports, the option of 
switching to a monthly model for the composite rate component of the 
two equation regression model used to develop the case-mix adjusters is 
not possible. Therefore, the case-mix adjustments set forth in this 
final rule were developed using an annual model for the composite rate 
portion of the regression model and a patient-month model for the 
separately billable portion.
3. Patient-Level Adjustments
    We proposed to include patient age, patient sex, body surface area 
(BSA), body mass index (BMI), onset of dialysis and certain co-
morbidities as patient-level adjusters (74 FR 49949). Over one hundred 
commenters representing patients, health care professions and their 
professional organizations, ESRD facilities and ESRD organizations, 
renal organizations, and pharmaceutical companies commented on the 
patient-level adjusters.
    The comments we received relating to the specific adjusters and our 
responses to those specific comments are discussed in their respective 
sections below.
    Comment: Some commenters indicated that weight, size and age have 
little impact on overall costs of providing dialysis. One commenter did 
not believe that our analysis of the proposed adjustments reflected 
actual payments that facilities would receive. Another commenter 
suggested that the proposed adjustments would increase patients' co-
payment obligations. Several commenters were concerned that the 
patient-level adjustments would lead to facilities ``cherry picking'' 
patients with better defined case-mix adjustments and turn away others 
whose reimbursement would not cover costs.
    Response: As discussed in the proposed rule, multiple regression 
analysis was used to develop the proposed payment adjustment factors. 
The results of the proposed two-equation model (composite rate and 
separately billable items) using the latest data that was available at 
that time, demonstrated that age, sex, BSA, BMI, co-morbidities and 
onset of dialysis were indicators of higher cost patients (74 FR 
49947). The discussion on the current analysis and findings is in 
section II.F.3. of this final rule. We appreciate the concerns raised 
about ESRD facilities ``cherry picking'' patients. We plan to monitor 
the effects of the payment system, which are discussed in section II.K. 
of this final rule and will be discussed in the future, and could make 
adjustments to the ESRD PPS in the future. We expect that ESRD 
facilities will not ``cherry pick'' patients under the ESRD PPS.
    We believe that the same incentives and concerns could exist under 
the current composite rate payment system, as well. In other words, if 
ESRD facilities will select more lucrative patients under the ESRD PPS, 
they could also do so currently under the basic case-mix adjusted 
composite payment system. We also believe that in the absence of such 
adjustments, high cost patients could be turned away, thereby ``cherry 
picking'' only the least costly patients. Providing patient-level 
adjustments to the ESRD PPS base rate should result in adequate payment 
for the higher resource utilization and therefore higher cost patients.
    Comment: Some commenters suggested that we decrease the number of 
case-mix adjustments to include only those affecting cost. Others 
stated that multiple adjustments will decrease the overall base payment 
rate taking funding away from the cost of providing care to the 
majority of patients. Some commenters suggested that money from the 
case-mix adjustments should be added to the base rate to provide the 
same reimbursement for all patients.
    Response: As discussed in the proposed rule (74 FR 49938), our 
analysis demonstrated that the proposed patient-level adjustments did 
affect cost and those that did not were rejected. However, we did 
consider the concerns and comments about the adjustments and have 
eliminated some of them. These adjustments are discussed in the 
respective sections below. We discuss the methodology for computing the 
ESRD base rate in section II.E. of this final rule.
    Comment: One commenter suggested that we provide all facilities 
with an electronic calculator to ensure consistency among providers. 
Several commenters believed that CROWNWeb would be used for 
documentation to be eligible for the patient-level adjustments. One 
commenter disputed our belief that nephrologists complete the Medical 
Evidence Form 2728 (Form 2728) indicating that the form is more likely 
completed by someone not medically trained. Therefore, this commenter 
believed the data on the form could be inaccurate, missing or 
incompletely filled out.

[[Page 49088]]

    This observation was reiterated by another commenter who suggested 
that a study be conducted prior to the ESRD PPS 2011 implementation to 
determine who should complete the Form 2728. The commenter suggested 
that the study also include the experience and training of personnel 
completing the Form 2728 as well as a random selection of Form 2728. 
The commenter further suggested that the Form 2728 be compared with 
patient/family interviews, physician interviews, and medical record 
review. One commenter suggested that we continue to study and research 
additional variables that demonstrate a good correlation between 
resource consumption and patient characteristics.
    Response: We appreciate the commenter's concerns regarding 
consistency among providers and agree that it is important. However, we 
do not believe that providing a tool such as an electronic calculator 
will ensure consistency as ESRD providers will be required to identify 
the appropriate patient-level adjustments for their individual 
patients. In addition, it is the responsibility of each ESRD facility 
to ensure that all information on patient claims submitted is accurate 
under any Medicare payment system. Contrary to the commenter's belief, 
CROWN is not the source for documenting eligibility for the patient-
level adjustments. For the purposes of payment, the requisite 
information would be obtained from the claim or from sources that are 
discussed in the specific patient-level adjustments below.
    We are concerned about the assertion made by the commenters about 
the completion of the Form 2728. We maintain that it is the ESRD 
facilities' responsibility to ensure that the information provided to 
Medicare is accurate. While there is no requirement that the 
nephrologist complete the form, instructions on the Form 2728 specify 
that the form ``[b]e signed by the physician supervising the patient's 
kidney treatment [sic].'' The instructions also specify that stamp 
signatures are not acceptable. In other words, the nephrologist may not 
complete the entire form but his or her signature serves to attest that 
the information is accurate. Therefore, we do not believe that 
performing a study to determine the qualifications of the person 
completing the form is warranted. However, we do believe that ESRD 
facilities are responsible for ensuring that appropriate staff who 
provide care, include documentation as appropriate. We agree with the 
commenter that we should continue to study and research the correlation 
between resource consumption and patient characteristics and we plan to 
do so.
    After considering these comments and other comments below, we are 
finalizing age, BSA, BMI, certain co-morbidities and onset of dialysis 
as the patient-level case-mix adjustments in this final rule. Our 
rationale for including these factors, as well as the reasons for 
excluding patient factors for patient sex and race or ethnicity, are 
discussed below. We are revising Sec.  413.235 to reflect the patient-
level, case-mix adjustments to be implemented effective January 1, 
2011.
a. Patient Age
    Section 1881(b)(14)(D)(i) of the Act requires that the ESRD PPS 
include a payment adjustment based on case-mix that may take into 
account a patient's age. In the proposed rule we pointed out that the 
basic case-mix adjusted composite payment system currently in effect 
includes payment adjustments for age based on five age groups (74 FR 
49949), based on analyses that showed a strong relationship between 
composite rate costs and patient age. Table 12 from the proposed rule 
(74 FR 49950) contained the payment multipliers for each of these 
groups, along with a special multiplier that applies to pediatric 
dialysis patients. The proposed ESRD PPS adjustment factors for age 
reflected the U-shaped relationship of age with the CY 2007 MAP per 
treatment, a relationship similar to that observed in developing the 
current basic case-mix adjusted composite payment system.
    The regression analyses performed in connection with the 
development of the ESRD PPS payment adjustments for this final rule 
indicate that age continues to be a strong predictor of variation in 
composite rate costs and separately billed payments, although the 
magnitude of the adjusters for the two oldest age categories has been 
attenuated as a result of other changes in the payment model (for 
example, elimination of sex and race/ethnicity as payment variables, 
revisions in the co-morbidities used for payment, modification of the 
low-volume threshold, etc.). Therefore, we are implementing payment 
adjustment factors for the same five age groups as proposed, calculated 
in accordance with the two equation regression methodology described 
elsewhere in this final rule. The final payment adjustment factors for 
age are shown in Table 21.
[GRAPHIC] [TIFF OMITTED] TR12AU10.025

    We received several comments on our proposed use of age as a 
payment variable in the proposed ESRD PPS.
    Comment: Several commenters stated that age is an objective and 
easily collected variable, demonstrably related to cost, and that 
continuing to collect age data would not be burdensome or require 
systems changes.

[[Page 49089]]

    Response: We agree with the commenters. The use of a payment 
variable that is objective, easily collected, and related to patient-
specific differences in the cost of dialysis strongly support its use 
as a case-mix adjuster in the ESRD PPS.
    Comment: Several commenters suggested that we combine age with 
gender and ethnicity. Another commenter recommended that we match age 
with an adjuster for home dialysis training.
    Response: The reason that age is included in the ESRD PPS is 
because analyses demonstrate that age is a significant independent 
predictor of variation in composite rate costs and separately billable 
payments. For reasons explained elsewhere later in this section, we 
have not adopted patient sex and race/ethnicity as payment adjusters in 
connection with the ESRD PPS set forth in this final. For information 
on our development of a special add-on to the otherwise applicable 
prospective payment rate for the costs of home dialysis training, see 
section II.A.7. of this final rule.
    Comment: Several commenters suggested that we use an age adjuster 
for patients of ``advanced age and/or frailty''. One commenter 
recommended age specification of pediatric patients, claiming that both 
groups require specialized care resulting in higher costs for ESRD 
facilities.
    Response: Both the proposed rule (74 FR 4995) and this final rule 
incorporate an age group for patients age 80+. Further disaggregation 
of the proposed age groups did not result in more statistically 
homogeneous age groups for the application of case-mix adjustments 
based on age. Therefore, we have not modified the proposed age 
classification categories. Nor have we identified a separate variable 
for patient frailty, as this would be very difficult to quantify 
objectively and measure with currently available sources of claims 
data. With respect to age classification groups for pediatric patients, 
we point out that we have adopted pediatric payment adjustments for two 
age groups (<13, and 13-17), and explain the basis for the selection of 
these two age categories in section II.G. of this final rule.
    Comment: Two commenters representing ESRD facilities opposed the 
use of age as a basis for case-mix adjustment, claiming that they did 
not see any merit in its use.
    Response: We strongly disagree with the commenters. The analyses in 
support of the payment adjustments for age used in connection with the 
basic case-mix adjusted composite payment system, the proposed ESRD PPS 
(74 FR 49949 through 49950), and the ESRD PPS described in this final 
rule, show that age is an important predictor of facility differences 
in ESRD composite rate costs, and patient-specific differences in 
separately billed payments. Therefore, we are incorporating age as a 
case-mix payment variable in the final ESRD PPS, and have specified the 
use of age as a patient-level adjustment in Sec.  413.235(a).
b. Patient Sex
    Section 1881(b)(14)(D)(i) of the Act requires that the ESRD PPS 
include a payment adjustment based on case-mix that may take into 
account a number of variables and may include ``other appropriate 
factors.'' Consequently, for the proposed rule (74 FR 49950), we 
analyzed patient sex as part of the regression analysis and found that 
patient sex was a strong predictor of variation in payments for ESRD 
patients. In addition, we indicated that we believed patient sex is an 
objective measure and that data on patient sex are readily available.
    Based on our analysis, we found that females were 13.2 percent more 
costly on a per treatment basis than males, primarily due to 
differences in use of ESAs. Therefore, we proposed an adjustment of 
13.2 percent for female patients (74 FR 49951). We solicited public 
comments on this proposed adjustment, in addition to raising the 
possibility of unintended consequences of providing a payment 
adjustment for female patients that may lead to admission practices 
favoring female patients.
    The comments we received on this proposal and our responses are set 
forth below.
    Comment: Most commenters supported adding patient sex as a case-mix 
adjustment. One commenter recommended that CMS monitor ESRD facility 
admission practices with regard to female patients. Two commenters 
indicated that they did not believe patient sex affects the cost of 
dialysis.
    Response: As discussed in the proposed rule, the regression 
analysis showed that patient sex (female) was a strong predictor of 
variation in ESRD payments and the cost of dialysis. However, we are 
not convinced that a patient sex adjustment is necessary to ensure 
beneficiary access to ESRD services. That is, we believe that there may 
be sex-neutral factors that have not been identified in the ESRD PPS 
modeling that would explain the increased cost associated with 
providing renal dialysis services to members of a certain sex.
    We intend to work to identify underlying patient-specific 
conditions that may result in increased treatment costs and also how a 
patient sex adjustment might be applied. To the extent that these 
factors are identified, they could be incorporated into the ESRD PPS 
model as patient-level adjustments. We will also continue to monitor 
and evaluate the impact of patient sex on cost to determine consistency 
in findings and identify other variables that may be responsible for 
producing cost variations.
    Comment: Many commenters were opposed to or expressed concerns 
about the inclusion of patient sex as a case-mix adjuster. Some 
commenters opposed patient sex as a variable outright, while others 
indicated that the addition of patient sex adjustment could result in 
limited access to care for male patients, if providers engaged in 
``cherry-picking'' behavior. Other commenters felt the impact would be 
debatable in view of a study that had been done 5 years ago indicating 
that men rather than women were the most costly beneficiaries in the 
dialysis setting and, therefore, would we see another shift in costs 
during the next 5 years.
    Response: Beneficiary access to ESRD services and medications was 
an important factor we considered with regard to using a patient sex 
adjustment. At this point, we are not convinced that a patient sex or 
gender adjustment is necessary to ensure beneficiary access to 
appropriate ESRD services and medications. As we discussed above, the 
issue of patient sex influencing the cost of ESRD drugs and services 
will continue to be monitored with the possibility of including an 
adjustment for patient sex at some future date.
    Therefore, in this final rule, we are not finalizing our proposal 
to include patient sex as a patient-level case-mix adjustment. We have 
revised Sec.  413.235(a) to reflect the exclusion of patient sex 
(female) as a patient-level adjustment.
c. Body Surface Area and Body Mass Index
    Section 1881(b)(14)(D)(i) of the Act requires that the bundled ESRD 
PPS must include a payment adjustment based on case-mix that may take 
into account patient weight, BMI, and other appropriate factors. 
Consequently, we evaluated height and weight because the combination of 
these two characteristics allows us to analyze two measures of body 
size: BSA and BMI. In the proposed rule, we analyzed both BSA and low 
BMI (< 18.5 kg/m\2\) as independent variables in the regression

[[Page 49090]]

analysis and found that both body size measures are strong predictors 
of variation in payments for ESRD patients. In addition, both BSA and 
BMI are objective measures and the necessary data, that is, height and 
weight, to compute them are readily available from patient claims. In 
the proposed rule, we discussed our rationale for developing the 
adjustment factors for BSA and BMI in detail (74 FR 49951).
    The comments we received on this proposal and our responses are set 
forth below.
    Comment: Some commenters agreed that CMS should continue to use 
only the existing case-mix adjustments which include age, BSA and BMI, 
because these adjustments are familiar to facilities and eligible 
patients can be identified using information that is currently 
available to ESRD facilities.
    Response: We disagree with the commenters that we should only use 
the existing case-mix adjustments. As we discussed in the proposed rule 
(74 FR 49947), the results of our analysis demonstrated that in 
addition to the existing case-mix adjustments, other variables such as 
co-morbidities, were predictive of patient differences in cost. In this 
final rule, our analysis continues to show that BMI and BSA are strong 
predictors of variation in costs and payments for ESRD patients. Their 
use as payment variables ensure that ESRD facilities receive 
appropriate compensation for the costs associated with their specific 
patient population.
    Comment: Two commenters believed that it was untrue that small-
sized patients require less medication and fewer laboratory tests than 
larger-sized patients. The commenters believed that the ``one size fits 
all'' approach for drugs and laboratory tests based on the size of the 
dialysis patient may lead to discrimination against smaller patients 
and those patients with fewer applicable case-mix adjustments may find 
it difficult to gain admission to a dialysis center or possibly be 
undertreated with medications. One commenter suggested that the 
proposed rule created the false impression that dialysis is prescribed 
in a dosing format like drugs with well known pharmacokinetics that 
must be prescribed on patients parameters of BSA and BMI.
    Response: As we discussed in the proposed rule, we individually 
analyzed both BSA and BMI (as two measures of body size) as part of the 
regression analysis, and found that both body size measures were 
significant predictors of variation in composite rate costs and 
separately billed payments for ESRD patients. Our analysis for this 
final rule demonstrates the same relationship. We do not believe that 
our analysis and findings imply a ``one size fits all'' approach. 
Because we recognized that there are other variables that explain the 
variation in costs for ESRD patients, we included other factors such as 
age, co-morbidity and onset of dialysis. We explain these variables in 
great detail in the proposed rule and later in this section. Because of 
these findings, we have included these variables as patient-level 
adjustments, as well as BSA and BMI.
    Comment: One commenter questioned the methodology used to address 
the BMI fluctuation between a post dialysis weight on the last 
treatment and the post dialysis weight on the prior treatment. The 
commenter wanted to know if there would be an adjusted payment 
reflecting the two differing post dialyses weights or would the 
physician prescribed dry weight (weight without the excess fluid that 
builds up between dialysis treatments) be applied as the qualifier for 
the case-mix adjustment, because the post dialysis weight may drift 
enough to trigger a cost-adjustment. The commenter expressed concern 
that by using the physician prescribed dry weight, the treatment 
facilities and physicians would be rewarded for adjusting dry weights 
to reflect more profitable case-mix adjustments.
    Response: As described in the Medicare Claims Processing Manual, 
Chapter 8, Section 50.3, facilities are required to report the weight 
of the patient after the last dialysis session of the month. However, 
the commenter raises an interesting point. We will need to consider the 
use of dry versus wet weight in future rulemaking.
    In this final rule, the case-mix patient-level adjustment for BSA 
(per 0.1m\2\) is 1.020 and for low BMI (BMI <18.5) is 1.025 effective 
for renal dialysis services provided on or after January 1, 2011. We 
are also finalizing the inclusion of the factors for BSA and BMI in 
Sec.  413.235(a).
d. Onset of Dialysis (New Patient Adjustment)
    Section 1881(b)(14)(D)(i) of the Act, as added by MIPPA, requires 
that the ESRD PPS include a payment adjustment based on case-mix that 
may take into account a patient's length of time on dialysis. 
Consequently, we analyzed the length of time beneficiaries have been 
receiving dialysis. We noted in the proposed rule (74 FR 49952), that 
the regression analysis demonstrated that patients who are in their 
first 4 months of dialysis have higher costs. We also looked at the 
amount of separately billable payments relative to the number of months 
the patients had been on dialysis. After reviewing the separately 
billable payment amounts for patients ranging from one month to twelve 
months since the onset of dialysis, we found that there was a drop in 
the separately billable payment amounts after the first 4 months of 
dialysis. Therefore, we proposed to define the onset of dialysis 
beginning with the starting date reported on Form 2728 through the 
first 4 months a patient is receiving dialysis (74 FR 49952).
    We also proposed that the onset of dialysis adjustment be applied 
to both in-facility and home dialysis patients. We acknowledged that 
there may be patients whose first 4 months of dialysis occur when they 
are not yet eligible for the Medicare ESRD benefit. In these 
circumstances, we proposed that no onset of dialysis adjustment would 
be made. In other words, the onset of dialysis adjustment would be made 
only in the first 4 months of dialysis where the individual is also 
eligible for the ESRD benefit (74 FR 49952).
    We received over 70 comments from nephrologists, ESRD facilities, 
nurses, ESRD organizations, health care professionals, patients, 
professional organizations, and hospitals. Most commenters supported 
the inclusion of an onset of dialysis patient-level adjustment factor. 
Some commenters were, however, opposed to the inclusion of home 
dialysis training as part of the onset of dialysis adjustment factor 
and recommended that the training be removed from the onset of dialysis 
adjustment. The commenters suggested that CMS create a separate 
training adjustment instead. Home training is discussed in detail in 
section II.A.7. of this final rule.
    Comment: A few commenters recommended that the onset of dialysis 
adjustment not be implemented because the commenters believed it would 
be duplicative of other adjusters such as hospitalization and race that 
the commenters believed more accurately predicted treatment costs. 
Another commenter recommended that CMS eliminate the onset of dialysis 
adjustment in favor of other adjustments which focused on the root 
causes of higher costs during the first 4 months of dialysis.
    Response: We do not agree with the commenters who stated that the 
onset of dialysis adjustment is duplicative of other adjustments in 
predicting treatment costs. The adjustment for the onset of dialysis 
reflects higher costs seen during the first 4 months a patient receives 
dialysis and is independent of the effects of other adjustment factors

[[Page 49091]]

(such as hospitalization), included in the regression analysis. There 
is however a risk that a hospitalization adjustment would create an 
inappropriate financial incentive for ESRD patients to be hospitalized 
for the purpose of receiving a payment adjustment. We discuss the issue 
of using race as an adjustment factor in section II.F.3. of this final 
rule.
    We agree with the commenters who noted that patients in the first 4 
months of receiving dialysis may be frail and unstable. We believe that 
the onset of dialysis case-mix adjustment recognizes the higher costs 
associated with newly diagnosed patients and reflects the care required 
to stabilize their conditions. As discussed above, in the proposed rule 
our analysis showed that patients who are in their first 4 months of 
receiving dialysis have higher costs. Subsequent to the proposed rule, 
we performed additional analyses.
    In our analysis for this final rule, our findings confirmed that 
higher costs were attributed to the first 4 months of dialysis in both 
the composite rate model and in the separately billable model. We 
believe that at the current time, the onset of dialysis adjustment is a 
good predictor of higher costs during the first 4 months of receiving 
dialysis and, therefore, in this final rule we are retaining the onset 
of dialysis payment adjustment.
    Comment: Several commenters strongly urged adoption of the onset of 
dialysis adjuster because of the effort required to obtain consents, 
waivers, and complete forms and all other compliance documents required 
under the Conditions for Coverage for new ESRD patients from nursing 
homes.
    Response: As discussed in the proposed rule, we believe that the 
higher costs associated with patients during the first 4 months of 
receiving dialysis may be due to: the need to stabilize patients' 
conditions; administrative and labor costs associated with patients new 
to dialysis; or initial costs to train patients (74 FR 49952). The 
analysis conducted for this final rule continues to indicate higher 
composite rate costs and separately billable payments associated with 
patients new to dialysis. As the commenter indicates, some of the 
increased administrative costs associated with providing dialysis in 
the first 4 months that a beneficiary begins dialysis treatment may be 
attributed to the costs associated with obtaining medical or other 
records from other providers and suppliers of services.
    Therefore, we are retaining the onset of dialysis adjustment under 
the final ESRD PPS. We note that the onset of dialysis adjustment is 
applicable only for those patients 18 years or older, during the first 
4 months of the onset of dialysis and would not apply to any patient 
who might receive renal dialysis services by an ESRD facility for 
subsequent treatments.
    Comment: One commenter claimed that there are higher costs due to 
the need to increase hemoglobin levels; hospitalizations in the first 
months of diagnosis for cardiovascular disease and catheter-induced 
infections; and staff time needed for patient assessment and care 
planning required by the new conditions for coverage. Other commenters 
also supported this assertion stating that it was ``well documented 
that staff and drug costs with new patients and the conditions of 
participation outline the intense responsibilities during this 
period.''
    Response: We thank the commenters for their support of the onset of 
dialysis adjustment. We acknowledge that our analysis in the proposed 
rule and this final rule showed higher composite costs and payment for 
separately billable items during the first 4 months of dialysis. As we 
noted in the proposed rule, the higher costs for new patients in the 
first 4 months of receiving dialysis, may be due to stabilization of a 
patient's condition; administrative and labor costs associated with the 
patient being new to dialysis; or initial costs of training patients 
and their caregivers to perform home dialysis (74 FR 49952). Therefore, 
the intent of the onset of dialysis adjustment was to account for the 
higher costs through the first 4 months a patient is receiving dialysis 
in response to the need for separately billable items such as ESAs.
    Due to our further analysis of onset of dialysis for this final 
rule, our findings confirm an increase in costs for the composite rate 
portion of the two-equation model for patients in their first 4 months 
of dialysis. The analysis also demonstrates an increase in measured 
costs based on the separately billable portion of the model, 
particularly for ESA utilization. Because of the absence of patient-
level data on resource use for composite rate services, and the 
relatively small number of individuals who historically received home 
dialysis training during the first 4 months of dialysis (which limits 
the potential of facility-level analysis to examine resource 
utilization for home training), we are unable at this time to determine 
the extent of overstatement of composite rate costs if we apply both 
the onset of dialysis adjustment and the training adjustment discussed 
in section II.A.7. of this final rule. In order to avoid potentially 
overstating payments to ESRD facilities under the ESRD PPS for costs 
related to new dialysis patients and training during the first 4 months 
of dialysis, the training add-on adjustment will not apply for patients 
receiving the onset of dialysis adjustment. We note that home dialysis 
training is not included in the onset of dialysis adjustment and is a 
separate payment adjustment which we discuss in section II.A.7. of this 
final rule.
    Comment: One commenter disagreed with the onset of dialysis 
adjuster indicating that there was little data proving that higher 
labor costs was associated with the onset of dialysis. The commenter 
stated that costs associated with the initial months of dialysis do not 
prevent access to dialysis care and, therefore, if the intent of case-
mix adjustments is to erase disincentives to treat costly patients, the 
adjustment is not necessary.
    Response: Contrary to the commenters' views, our analysis 
demonstrates that the first 4 months of receiving dialysis was a 
predictor of higher resource utilization. As discussed in previous 
responses, our subsequent analysis for this final rule confirmed our 
findings as discussed in the proposed rule (74 FR 49952). Our updated 
analysis for this final rule shows a drop in the amount of separately 
billable payments after 4 months on dialysis, which was the basis for 
our establishing a 4-month time period for the onset of dialysis 
adjustment.
    The intent of a case-mix adjustment is to provide payment that 
reflects the resources associated with patients, whose needs are 
greater than patients without certain characteristics or conditions. 
The onset of dialysis adjustment is intended to provide payment that 
reflects the higher composite rate costs and higher separately billable 
payments associated with patients during the first 4 months of 
dialysis.
    Comment: One commenter alleged that dialysis services are provided 
at great expense to the taxpayer with ``very little benefit to the 
individual'' and questioned if this adjustment was ``good policy.''
    Response: We do not agree with this commenter. We believe that the 
onset of dialysis adjustment reflects the average higher costs 
associated with patients during the first 4 months of dialysis. We 
believe that the ESRD PPS will support the care needed by Medicare 
beneficiaries receiving dialysis treatment while controlling costs.
    Comment: One commenter questioned whether the onset of dialysis 
adjuster was underestimated because of the 90-

[[Page 49092]]

day delay in Medicare entitlement for the ESRD benefit under Medicare 
and suggested that the period be 180 days. Other commenters suggested 
that the eligibility requirement be reduced to allow ESRD facilities to 
receive the adjustment for more than one month. One commenter suggested 
that the 90-day waiting period be reduced and the payment be increased. 
The commenter acknowledged that statutory change would be required to 
make these changes.
    Response: We do not agree that the onset of dialysis adjustment is 
underestimated. We analyzed ESRD facility claims beginning with the 
dialysis onset date on the Form 2728 and found an increase in 
separately billable payments in the first 4 months. We also found 
increased composite rate costs. We believe that our analysis adequately 
and accurately reflects the higher costs associated with the first 4 
months of dialysis among patients eligible for Medicare.
    We believe the commenters are referring to the need for legislative 
changes to reduce the 90-day waiting period for entitlement to benefits 
under Part A and eligibility to enroll under Part B required by section 
226A of the Act and an increase in payment to ESRD facilities. We agree 
that a legislative change would be required to change the 90-day 
waiting period, however, such changes are beyond the scope of this 
final rule.
    Comment: One commenter noted that new patients are costly to care 
for, but indicated that many of the patient ``problems'' are not ESRD-
related. The same commenter believed that the onset of dialysis 
adjustment will give ESRD facilities an incentive to care for new 
patients.
    Response: Our analysis demonstrated that patients in the first 4 
months of dialysis have higher composite rate costs and separately 
billable payments. To the extent that ESRD patients may have other non-
ESRD-related issues or conditions, we do not believe that our analysis 
would have captured this. Therefore, in this final rule, we do not 
believe that we captured non-ESRD-related costs.
    We agree with the commenter that the onset of dialysis adjustment 
will have a positive effect in access to care for patients during the 
first 4 months of receiving dialysis.
    Comment: Several commenters indicated that the proposed onset of 
dialysis adjustment was too high and that the duration for the 
eligibility requirement for ESRD facilities to receive payment was too 
long. A few commenters noted that the high onset of dialysis adjustment 
would result in beneficiaries assuming responsibility for large co-
payments. Some of these commenters provided recommendations on changing 
the time frame for the onset of dialysis, as well as the amount of the 
adjustment.
    Some commenters suggested the adjustment should be a 90-day initial 
adjustment with the difference re-allocated for a home dialysis 
adjustment. Another commenter noted that if the onset of dialysis 
adjuster is intended to protect small dialysis providers who cannot 
easily spread risk, than the weighting should be recalculated to ensure 
accuracy as the proposed weight of 1.47 appears quite high. Others 
believed the adjustment should be reduced to 15 or 30 percent using the 
remaining percentage for a home dialysis adjustment.
    Response: The multiplier amounts for the onset of dialysis 
adjustment, as well as all other adjustments, are the result of the 
regression models for composite rate and separately billable services. 
In the proposed rule, we analyzed Medicare claims for 2004-2006, which 
indicated greater resource utilization for separately billable items 
among patients treated during the first 4 months of dialysis. An 
analysis of cost reports for the same period indicated higher costs for 
composite rate services associated with the first 4 months of dialysis. 
Based on our subsequent analysis for this final rule, (which used cost 
reports and Medicare claims for the years 2006-2008), the onset of 
dialysis adjustment under the ESRD PPS for ESRD items and services 
provided on or after January 1, 2011 is 1.510.
    We note that our analyses also suggest there are effects of co-
morbidities on resource utilization for separately billable items that 
are independent of the onset of dialysis. We performed further analysis 
of the co-morbidity diagnostic categories for this final rule, in 
combination with the onset of dialysis. We found that while costs were 
higher on average for dialysis patients with co-morbidities during the 
first 4 months of dialysis, the effect of compounding a co-morbidity 
adjustment along with the onset of dialysis adjustment would, on 
average, result in overstatement for separately billable services. 
Therefore, ESRD facilities will not receive a co-morbidity adjustment 
for dialysis patients during the first 4 months of dialysis.
    We plan to continue to study the onset of dialysis adjustment 
because we believe that it is important for us to be cognizant of the 
impacts of additional adjustments made to ESRD facilities, the ESRD 
base rate, as well as effects on patient co-insurance liabilities.
    Comment: One commenter strongly opposed the onset of dialysis 
adjustment citing a number of reasons such as: (1) Most of the higher 
costs occurring in the first 4 months of dialysis are explained by 
hospitalization, race, and age; (2) most beneficiaries in the first 120 
days do not receive home training; (3) those under 65 are not covered 
by Medicare for the first 90 days unless they begin training for home 
dialysis.
    The commenter asserted that this would then have the effect of 
increasing the number of patients who become entitled to Medicare 
earlier. The commenter further stated that the characterization of the 
onset of dialysis adjustment as independent of the other ESRD patient-
level adjustments will overestimate the onset of dialysis adjustment's 
value. The commenter suggested that the onset of dialysis adjustment be 
examined in tandem with other parts of the proposed rule to formulate a 
fair and accurate facility payment. The commenter further suggested 
that if reliable data such as labor costs are elevated (as asserted by 
CMS) at the beginning of dialysis, are found to not exist, the onset of 
dialysis adjuster should not be included in the ESRD PPS. The commenter 
further noted that CMS's reliance on cost reports is misplaced because 
the cost reports are not limited to Medicare, thereby skewing the 
sample with non-Medicare patients. The commenter asserted that patients 
with commercial primary insurance are over-represented among new 
dialysis patients. Other commenters believed the onset of dialysis 
adjustment would lead to patients under 65 years of age, to begin home 
dialysis therapy in the first 90 days in order to trigger early 
Medicare entitlement for the purpose of higher payment.
    Response: In our analysis we found that there was an association of 
higher composite rate costs and separately billable costs even when 
controlling for race and age. The onset of dialysis adjustment reflects 
higher costs for patients eligible for Medicare during the first 4 
months of dialysis.
    With regard to concerns about the inclusion of patients not covered 
under the Medicare ESRD benefit, patients who were not entitled to the 
ESRD benefit under Medicare during this period were not used in our 
analysis for determining the onset of dialysis adjustment because they 
would not be eligible for the adjustment. As we discussed in a previous 
response, the onset of dialysis adjustment we are

[[Page 49093]]

finalizing under the ESRD PPS will not be applied in combination with 
either the co-morbidity adjustment or the home training payment add-on 
adjustment.
    We do not agree with the commenter who expressed concern that the 
onset of dialysis adjustment would trigger an earlier Medicare 
entitlement. We will be monitoring the onset of dialysis adjustment, 
specifically, to determine if there is an increase in the number of 
individuals who become entitled to Medicare prior to the 90-day waiting 
period as a result of receiving home dialysis training.
    We are aware of the prevalence of patients who receive home 
dialysis during the first 4 months of dialysis. As many commenters have 
noted, few patients receive home or self dialysis training during the 
first 4 months of dialysis. We would not expect to see more patients 
receiving home or self dialysis training in the first 4 months of 
dialysis in order for ESRD facilities to receive the onset of dialysis 
payment adjustment. We expect that ESRD facilities, nephrologists and 
other health care providers will provide care in accordance with the 
established plan of care and would not require home or self dialysis 
for the purpose of a payment adjustment.
    With regard to the comment concerning our misplaced reliance of 
cost reports, cost reports capture ESRD data and provide the only 
comprehensive national data source to measure ESRD resource use of 
composite rate services, and reflect costs for Medicare patients. 
Therefore, we believe cost reports provide the best available data.
    Comment: One commenter expressed concern that many facilities will 
no longer accept patients for no fees (free) for the first 90 days 
since overall payments will be decreased.
    Response: We do not understand the association between the onset of 
dialysis adjustment and the facility's decision to not accept patients 
for free. However, we believe the decision of an ESRD facility to 
accept or not accept patients without payment is beyond the scope of 
this final rule.
    Comment: One large dialysis organization noted that an adjuster 
``of this magnitude invites gaming or cherry picking.'' The commenter 
expressed concern that ESRD providers could or do routinely provide 
dialysis services for the first 4 months of dialysis, and then 
transferred the patient to another ESRD facility.
    Response: We are concerned about ESRD facilities ``cherry picking'' 
patients for the purpose of receiving the onset of dialysis adjustment. 
We believe that in the absence of any case-mix adjustments which 
provide for additional payments for patients with higher resource 
utilization and associated higher costs, ESRD facilities may refuse to 
provide dialysis services to higher cost patients over less costly 
patients.
    We are also concerned that ESRD patients may be inappropriately 
placed on home dialysis who either do not want home treatments or who 
require more frequent monitoring for medical, social and other reasons, 
in order to decrease the eligibility period for the purpose of 
receiving the onset of dialysis adjustment.
    The ESRD patient's plan of care must reflect the patient's needs. 
If a patient is unwilling or unable to self-dialyze at home, insisting 
that the patient go on home dialysis would be a violation of the 
patient plan of care as described in Sec.  494.90. An ESRD patient who 
cannot/would not comply with a home dialysis plan of care is likely to 
have poor clinical outcomes and may require additional care, both of 
which negate any cost benefits for ESRD facilities of home dialysis. 
The ESRD Conditions for Coverage can be found at 42 CFR Part 494. We 
expect that ESRD facilities will provide an appropriate plan of care 
and continued monitoring will identify ESRD facilities that do not.
    Comment: Several commenters believed the onset of dialysis adjuster 
should apply to all patients and not solely Medicare beneficiaries, as 
all dialysis patients receive more care at the beginning of dialysis. A 
few commenters complained that patients under 65 only have 30 days of 
increased payment as facilities would need to wait for these patients 
to be covered by Medicare before they can receive payment.
    Response: The onset of dialysis adjustment will only apply to ESRD 
patients who are entitled to receive the ESRD benefit under Medicare. 
As explained in a previous response, data for patients who were not 
eligible for Medicare during this period were not used in the analysis 
for determining the onset of dialysis adjustment. ESRD facilities would 
only receive the onset of dialysis adjustment for patients that are 
covered under the ESRD Medicare benefit. Therefore, the onset of 
dialysis adjustment would not apply to individuals receiving dialysis 
care paid for by other third party payers during the first 90 days. We 
note that ESRD facilities would receive the onset of dialysis 
adjustment for the 4-month adjustment period for its new patients who 
are already entitled to Medicare at the time of the onset of dialysis.
    Comment: A few commenters noted that the onset of dialysis adjuster 
had ``limited administrative complexity or burden'' and therefore, 
approved the onset of dialysis adjuster.
    Response: Information on the Form 2728 and stored in our systems 
will be used to determine if a patient is within the first 4 months of 
dialysis. Therefore, ESRD facilities will not have any additional 
reporting requirements or burden associated with the onset of dialysis 
adjustment.
    Comment: While one commenter was in favor of including home 
training in the onset of dialysis adjuster because the commenter 
believed it could help increase the number of patients on home 
dialysis, most commenters opposed inclusion of home dialysis training 
costs in the onset of dialysis adjustment. Many of the commenters were 
opposed to the inclusion of home dialysis training indicated that 
training ESRD patients for home dialysis does not occur in the first 4 
months of dialysis because individuals are more likely to receive the 
initial treatments in a facility. Other commenters believed that 
expecting newly diagnosed ESRD patients to assume responsibility for 
home dialysis while they are adjusting to an overwhelming diagnosis 
would be inappropriate. Commenters also stated that new patients are 
often medically unstable, psychologically compromised by anxiety and 
depression, and unable to make home dialysis decisions.
    Several commenters noted that training or retraining for home 
dialysis may be needed for modality changes after the initial 4 months 
of dialysis and therefore, the training portion of the onset adjustment 
should be removed. These commenters all recommended that training be 
adjusted separately regardless of when training begins.
    One commenter noted that ESRD facilities that do not provide home 
dialysis training would receive the same enhanced reimbursement as the 
facilities that do provide the home training. The same commenter 
further believed that inclusion of home training in the onset of 
dialysis adjustment would penalize facilities with active growing ESRD 
programs. One commenter noted that the increased payment from this 
adjustment ``defrayed some increased expenses with indigent patients 
and as most patients elect home dialysis after 120 days there is little 
incentive to initiate training.'' One commenter believed that even a 
significant increase in payment will not encourage home treatments.
    Response: The data analysis conducted for this final rule supports 
the commenters' views that most ESRD

[[Page 49094]]

patients are not trained for home dialysis in their first 4 months of 
dialysis. In our analysis, there were too few training patients in 
their first 4 months of dialysis to assess the composite rate costs 
associated with patients training for home dialysis compared to those 
related to the onset of dialysis.
    With regard to payment for both training and the onset of dialysis 
adjustments, as we discussed in a previous response, we believe that 
the costs associated with the onset of dialysis adjustment and the 
training add-on adjustment overlap (that is, costs for services could 
be accounted for in both adjustments). Therefore, to avoid duplicative 
payment, ESRD facilities will not receive the home dialysis training 
adjustment while they are receiving the onset of dialysis adjustment 
for a patient. We will continue to study the relationship between costs 
related to the onset of dialysis and home training for future 
refinement of the ESRD PPS.
    The payment multipliers are based on the regression analysis that 
compared costs and payments among Medicare ESRD patients. It would not 
be appropriate for Medicare to make duplicative payments to fund care 
for indigent or other patients.
    Therefore, after considering the public comments and for the 
reasons stated above, we are finalizing the onset of dialysis 
adjustment. ESRD facilities will receive the onset of dialysis 
adjustment for renal dialysis services provided on or after January 1, 
2011. We are finalizing an adjustment of 1.510 for in-facility and home 
dialysis patients eligible for the Medicare ESRD benefit for the first 
4 months of the initial onset of dialysis. We are finalizing the 
definition of the onset of dialysis as the date reported on the Form 
2728 that dialysis begins through the first 4 months a patient is 
receiving dialysis. The onset of dialysis adjustment will only apply 
for the period of time in the first 4 months of dialysis that occurs 
while the patient is covered under the ESRD benefit. In other words, 
the onset of dialysis adjustment will not apply after the initial 4 
months of dialysis. We are finalizing that ESRD facilities that are 
eligible for and receive the onset of dialysis adjustment for a patient 
may not receive a co-morbidity adjustment, nor will they receive the 
home training add-on adjustment for that patient during the first 4 
months of dialysis. We are finalizing Sec.  413.225(a) to include onset 
of dialysis (new patient) as a patient-level adjustment.
e. Co-morbidities
    Section 1881(b)(14)(D)(i) of the Act requires that the bundled ESRD 
PPS include a payment adjustment based on case-mix that may take into 
account patient co-morbidities. In the proposed rule, we analyzed co-
morbidities as part of the regression analysis and found that certain 
co-morbidities are predictors of variation in costs for ESRD patients 
(74 FR 49952). We noted that the potential co-morbidity adjustments are 
intended to recognize the increased costs by providing additional 
payments for certain conditions that occur concurrently with the need 
for dialysis. We explained that we used stepwise regression analysis 
for the current basic case-mix adjusted composite payment system to 
identify case-mix factors that explained statistically significant 
variation in ESRD facility costs. We summarized our findings as a 
result of our analysis (74 FR 49952).
    As discussed in the proposed rule, we retained UM-KECC to assist us 
in developing a case-mix adjustment for the ESRD PPS (74 FR 49947). One 
of the tasks was the identification of specific diagnoses within co-
morbidity categories. We explained the methodology we used to capture 
changes in patient conditions and patient co-morbidities. We explained 
that we began with a long list of patient characteristics based on 
diagnostic categories developed for the Medicare Advantage Program and 
categories developed for the co-morbidities on the Form 2728.
    We also explained that we used co-morbidity diagnoses reported in 
multiple types of Medicare claims (inpatient dialysis and other 
outpatient, skilled nursing facility, physician/supplier, hospice, and 
home health). We acknowledged that because some diagnoses reported on 
laboratory claims may represent a condition being excluded by the test, 
diagnoses reported on laboratory claims were not used. We solicited 
recommendations on the type of claims that reflect the co-morbidities 
for beneficiaries receiving renal dialysis services that could be used 
in future analyses (74 FR 49953).
    Comment: We received a few comments questioning our use of claims 
rather than relying on Form 2728 to identify co-morbidities of ESRD 
patients. Some commenters questioned the use of other sources such as 
emergency room claims to determine co-morbid conditions for ESRD 
patients.
    Response: We believe that the predominant use of hospital and 
physician claims, as well as other types of claims (such as skilled 
nursing facilities, home health and hospice claims) to identify co-
morbidities, provided for a more comprehensive picture of co-
morbidities that ESRD patients may have during the course of their 
dialysis. The Form 2728 accurately provides the co-morbid conditions at 
the time the ESRD diagnosis was made and, therefore, does not reflect 
any other medical condition(s) that may have come about subsequent to 
that time. We note that the level of co-morbidity reporting on the Form 
2728 is quite low. The ICD-9-CM diagnostic codes for patients' co-
morbid medical conditions should be reported in compliance with coding 
requirements on the ESRD 72x claim, as well as the official ICD-9-CM 
Coding guidelines, which can be found at: http://www.cdc.gov/nchs/icd.htm, regardless of whether a payment adjustment could be associated 
with the diagnosis. Entering complete and accurate codes enables CMS to 
better evaluate our payment systems and provide updates as necessary.
    In the proposed rule, we discussed how we would ensure that each 
proposed case-mix adjuster would have a statistically significant 
relationship to cost in order to ensure that the magnitude of the 
relationship is economically meaningful. We also explained that we 
evaluated a refined list of case-mix co-morbidities comprised of 1,022 
ICD-9-CM diagnosis codes for persistence of effect and cost. The co-
morbidity categories we proposed were: Cardiac arrest; pericarditis; 
substance abuse; positive HIV status and AIDS; gastrointestinal tract 
bleeding; cancer since 1999 (excludes non-melanoma skin cancer); 
septicemia/shock; opportunistic infections (pneumonias); aspiration and 
specified bacterial pneumonias; pneumococcal pneumonia, empyema, lung 
abscess; monoclonial gammopathy; myelodysplastic syndrome; leukemia; 
hereditary hemolytic anemias and sickle cell anemia; lymphoma; 
Hepatitis B; and multiple myeloma (74 FR 49953).
    We also discussed the use of the stepwise regression model in 
analyzing co-morbidity data for case-mix adjustments (74 FR 49953). We 
explained that the eleven proposed co-morbidity variables had 
statistically significant relationships to cost. However the magnitude 
of the co-morbidity effects varied substantially. We found that short-
term acute conditions (for example, infections, gastrointestinal 
bleeds, and pericarditis) would result in a temporary ESRD payment 
adjustment. We found that long-term chronic conditions would result in 
a permanent increase of an ESRD payment adjustment. We believe

[[Page 49095]]

the long-term chronic conditions may tend to have a more persistent 
effect on cost (74 FR 49953).
    We explained how we applied the composite rate and separately 
billable services using the modeling approach (74 FR 49952). We 
discussed the rationale for proposing to include cancer, for example, 
as a co-morbidity eligible for a patient-level adjustment if the cancer 
has a direct effect on the cost of ESRD treatment. We also explained 
why HIV/AIDS was included as our proposed co-morbidity case-mix 
adjustment although it has since been eliminated from the current basic 
case-mix adjusted composite payment system. We acknowledged that 
including HIV/AIDS as a co-morbid adjuster would have benefits that 
would need to be balanced with stringent confidentiality concerns (74 
FR 49954). In our proposed rule, we also solicited public comments on 
suggested conditions or diseases that CMS should consider for future 
refinements.
    We received comments from approximately one hundred commenters on 
the proposed inclusion of co-morbidities as a patient-level case-mix 
adjustment. In general, most commenters were opposed to the inclusion 
of co-morbidities, or specified co-morbidities that they would like to 
see included. Many commenters offered suggestions on certain diagnoses 
to include as an adjustment, as well as those that should be 
eliminated. A few commenters expressed support for the proposed co-
morbidities, stating that these adjusters would provide a more accurate 
payment for complex patients. Specific comments and responses are 
discussed below.
    Comment: A few commenters offered to work with CMS to identify co-
morbidities that: Influence the cost of dialysis care; are based on 
verifiable data; and can be implemented and administered in a practical 
manner. They also urged CMS to develop methods to enhance access to 
information for conditions that predict hospitalization.
    Response: We reviewed public comments on co-morbidities and 
considered each for this final rule. In general, we believe that the 
commenters were suggesting future collaborative efforts to identify co-
morbidities that influence the cost of dialysis care. We thank these 
commenters and we anticipate continuing to work with ESRD facilities, 
patients, physicians, organizations, and other stakeholders to refine 
the ESRD PPS.
    Comment: One commenter suggested that we use facility size as a co-
morbidity adjustment.
    Response: As we discussed in the proposed rule, a co-morbidity is a 
specific patient condition that is secondary to the patient's principal 
diagnosis that necessitates dialysis, yet has a direct effect on 
dialysis (74 FR 49952). Therefore, contrary to the commenter's 
suggestion, a facility's size does not meet the definition of a co-
morbidity.
    Comment: Some commenters asserted that CMS excluded the co-
morbidities that affect dialysis treatment, such as: Hyperglycemia; 
hypoglycemia; peripheral vascular disease (PVD) manifested as gangrene 
requiring wound care or special therapy; amputations and peripheral 
artery disease (which they believed were the major cause of morbidity, 
hospitalization, antibiotic expense and poor outcomes); recent re-entry 
of transplant patients with re-introduction, continuation, and tapering 
of transplant medication; hypertension; hypotension; angina with chest 
pain; post-operative affecting heparin dose; sepsis with antibiotics; 
routine Coumadin with diagnosis unrelated to ESRD; recurrent 
transfusions for hematologic problems and site access issues. A few 
commenters indicated that patients returning after hospitalizations 
incur extra cost and changes in outcome. One commenter alleged that 
ESRD facilities need to address nutritional and volume issues after 
hospitalizations that require extra time and attention.
    Response: We thank the commenters for their many suggestions. The 
inclusion or exclusion of a diagnostic category was based on the 
regression model. As we explained in the proposed rule, we found that 
certain co-morbidities are predictors of variation in costs for ESRD 
patients. We also explained that these co-morbidities have a direct 
effect on dialysis. We discussed the process used in identifying the 
universe of ICD-9-CM codes that were initially used in the analysis and 
how we derived the proposed eleven diagnostic categories.
    We do not agree with the commenters' conclusion that we had 
excluded co-morbidities that affect treatment because, in fact, we did 
analyze co-morbidities that affect ESRD patients and contribute to 
increased payments. In our proposed rule, we explained that to ensure 
that each potential case-mix adjuster had a relationship to cost that 
was statistically significant and to ensure that the magnitude of the 
relationship was economically meaningful, low magnitude association 
with cost, as well as co-morbidities with ambiguous definitions were 
excluded. Several patient co-morbidities were analyzed having 
statistical significance and low magnitude association with cost in the 
preliminary models. Also, co-morbidities with high prevalence such as 
diabetes and vascular disease were excluded from the proposed 
diagnostic categories (74 FR 49952).
    Based on various issues and concerns raised in public comments 
regarding the proposed co-morbidity categories recognized for a payment 
adjustment, we further evaluated the co-morbidity categories with 
regard to: (1) Inability to create accurate clinical definitions; (2) 
potential for adverse incentives regarding care; and (3) potential for 
ESRD facilities to directly influence the prevalence of the co-
morbidity either by altering dialysis care, diagnostic testing 
patterns, or liberalizing the diagnostic criteria. We utilize these 
criteria (referred to ``criteria'') in subsequent discussions below.
    We reiterate that it is important for ESRD facilities to report all 
patient co-morbidities accurately, regardless of whether or not these 
codes are or are not eligible for an ESRD PPS adjustment. The ICD-9-CM 
diagnosis codes should be reported in compliance with coding 
requirements on the ESRD 72x claim as well as the official ICD-9-CM 
Coding Guidelines.
    Comment: Several commenters cited the higher cost of treating 
patients with Hepatitis B because of facility costs associated with 
complying with the isolation requirements under the ESRD Conditions for 
Coverage. Commenters stated that facility costs include providing 
isolation rooms, protective garments such as gowns and gloves, and 
special cleaning protocols. Another commenter did not believe the 
Hepatitis B adjustment amount covered the actual costs for full 
isolation, special gowning, and the limitations on staff while also 
caring for additional patients. The same commenter recommended either 
eliminating the Hepatitis B adjuster or substantially increasing the 
amount.
    Response: Our model demonstrated that Hepatitis B is a stable 
predictor of separately billable costs. We also recognize that there 
are costs associated with the ESRD Conditions for Coverage 
requirements. We utilized the criteria as described above in evaluating 
the inclusion of Hepatitis B for a payment adjustment. We believe that 
while there are accurate definitions of Hepatitis B, in our analysis 
for the proposed and the final rule, we did not access whether a 
shorter term (acute) or a longer term (chronic) payment adjustment 
would be most appropriate. This information may depend on the 
conditions reported on the claims in our determination of whether 
Hepatitis B is classified as an

[[Page 49096]]

acute or chronic co-morbidity adjustment. Further research could also 
be helpful to determine if the cost of providing care to ESRD 
beneficiaries with Hepatitis B approximates or exceeds the costs 
associated with the coefficient. Because we recognize that we need 
additional research on Hepatitis B, we did not proceed with the 
remainder of the evaluation. Therefore, in this final rule, we are 
eliminating Hepatitis B as a co-morbidity diagnostic category 
adjustment to the ESRD PPS base rate.
    Comment: Some commenters opposed the inclusion of cardiac arrest as 
a patient-level adjustment. One questioned if someone with end-stage 
cardiac disease would be less complicated to care for in the absence of 
cardiac arrest. Another commenter asked how long a history of cardiac 
arrest could be valid in order to receive the cardiac arrest 
adjustment. Some commenters objected to the cardiac arrest adjustment, 
citing reasons such as: The nephrologist would need to know about the 
cardiac arrest and communicate this to staff; HIPPA (patient privacy) 
may restrict sharing of such information; cardiac arrest is more costly 
to hospitals but not to ESRD facilities; and difficulty in obtaining 
cardiac arrest information by the ESRD facility. One commenter 
recommended eliminating this adjustment because they believed a cardiac 
event did not significantly affect the amount of time required to 
provide care for an ESRD patient unless the cardiac arrest was very 
recent and the patient was unstable. Another commenter tentatively 
supported inclusion of cardiac arrest as a patient-level adjuster, 
pending clarification of the testing and documentation required to 
substantiate the initial and ongoing diagnosis.
    Response: We believe the commenters have expressed valid concerns. 
We applied the criteria as discussed above to cardiac arrest. We 
believe the first criterium is met because there is a potential for 
misclassifying a medical episode as a cardiac arrest (for example, 
considering a patient with transient unresponsiveness during dialysis 
to have had a cardiac arrest). Other medical episodes and situations 
can be mistakenly classified as a cardiac arrest, when in fact they are 
not an actual cardiac arrest. As a result, there is the potential for 
ESRD facilities to influence the prevalence of cardiac arrest as a co-
morbidity recognized for a payment adjustment (criteria number 3). 
Because we believe there is a lack of consistency in what constitutes a 
cardiac arrest diagnosis and because commenters generally did not 
support the inclusion of cardiac arrest as a co-morbidity adjustment, 
we are not finalizing cardiac arrest as a co-morbidity diagnostic 
category recognized for a co-morbidity payment adjustment under the 
ESRD PPS in this final rule.
    Comment: Several commenters were in favor of the payment adjustment 
for infections because commenters believed that treating infections 
adds cost and intensity of care. A few commenters suggested that an 
additional outlier payment should be given for each patient month in 
which a patient is treated for either infections or symptoms of 
infection to reflect the additional costs of laboratory work, greater 
use of antibiotics and higher ESA needs. The commenters believed that 
this met the legislative intent for outliers.
    Response: We assume the commenters believed that Congress intended 
outlier payments to address infections and therefore suggested that an 
outlier payment be made for each patient month in which symptoms of 
infection existed or an infection was treated. We do not agree with the 
commenters because we do not believe that Congress intended for any 
particular co-morbidity to be eligible for outlier payments. Rather, 
under the outlier policy described in section II.H. of this final rule, 
an outlier payment will be made to share the cost of renal dialysis 
services beyond a fixed dollar loss amount. To the extent that the use 
of outlier services (that is, drugs and laboratory tests) as a result 
of an infection exceeds the fixed dollar loss amount, Medicare will 
make an outlier payment.
    As we discussed in the proposed rule, we used a stepwise regression 
analysis model in analyzing co-morbidity data for case-mix adjustments. 
The relationship between patient characteristics was related to the 
reported facility costs. A patient-level model was used to identify 
potential payment adjusters for separately billable services. We 
identified co-morbidities that had statistically significant 
relationships to cost. Based on our analyses, we proposed adjustments 
for eleven co-morbidity categories. In other words, because our 
analyses found a correlation between the diagnostic categories 
(including infections) and higher costs, we proposed to provide a 
payment adjustment to be applied to the proposed ESRD PPS base rate. 
For co-morbidities found to be short term, we proposed that the 
condition must have existed within the past 3 months and affected 
treatment. In the proposed rule, infections were classified as a short-
term co-morbidity eligible for a payment adjustment to the ESRD 
proposed base rate (74 FR 49953 and 49954). However, we are not 
including all infections as co-morbidities recognized for separate 
payment in the final ESRD PPS as we discuss in greater detail below.
    Comment: Other commenters opposed the inclusion of infections 
citing the facilities' success in decreasing infections. Several 
commenters expressed concern that higher payment (such as the infection 
adjustment) may be provided for conditions such as bacteremia (related 
to dialysis catheter) or pneumonia (related to lower vaccination rate) 
that could be attributed to poor care.
    MedPAC expressed concern that paying more for septicemia, for 
example, could give ESRD facilities an incentive not to provide the 
necessary care to minimize infections, and could reverse the 
effectiveness of Medicare's quality improvement efforts for promoting 
arterio-venous fistulas. (Septicemia was included in the proposed 
infections co-morbidity category recognized for a proposed payment 
adjustment.) MedPAC further opined that suboptimal care should not be 
rewarded.
    A few commenters suggested that an adjuster for sepsis/septicemia 
should be excluded because the commenters believe that it is not a 
consistent factor in the cost of dialysis care and that paying for 
infections and hospitalizations serves as a disincentive for reducing 
catheter use. One commenter believed that if infections remain as an 
adjustment, peritonitis for patients on PD should be added.
    One commenter noted that in addition to the vague meaning of 
septicemia, the adjustment largely reflects high use of Epoetin[supreg] 
from the acute illness and inflammation. The commenter further stated 
that variation in Epoetin[supreg] dose accounted for almost all cost 
variation among dialysis patients, thereby driving the associations in 
the statistical models.
    Response: Our analysis for the proposed rule demonstrated that 
certain diagnostic categories showed effects on cost either long-term 
or short-term (74 FR 49953). Infections showed higher cost effects for 
3 months after the date of diagnosis. Our analysis for this final rule 
indicated the same findings. We are, however, convinced by the concerns 
expressed by commenters who opposed the inclusion of infections as a 
co-morbidity diagnostic category recognized for a payment adjustment to 
the ESRD PPS base rate.
    The intent of a case-mix adjustment is not to award higher payments 
to ESRD facilities for medical conditions that could be avoided through 
ESRD facility

[[Page 49097]]

practices. To do so, would have the effect of inadvertently rewarding 
poor quality care. We acknowledge that there may be a greater risk for 
certain types of infections that we proposed for payment adjustment, 
including septicemia known to result from vascular access infections.
    We evaluated pneumonia, septicemia, and other pneumonia/
opportunistic infections using the three criteria described earlier in 
this section. It is our understanding that vascular access infections 
are often the result of organisms that cause bacteremia/septicemia 
conditions in ESRD patients. Prevention of these infectious conditions 
is a fundamental tenet of dialysis care. Septicemia is a clinical 
syndrome consisting of a number of non-specific symptoms and signs. In 
the context of a suspected or known infection, the diagnosis of sepsis 
is considered when some or all of the defining signs and symptoms are 
present depending on the severity of those signs and symptoms. The 
inherent ambiguity of this definition makes the diagnosis subjective. 
Lack of an objective standard in the diagnosis of septicemia creates 
the opportunity for providers to increase their payments by changing 
the sensitivity of the diagnostic criteria for this condition.
    Furthermore, we are concerned the inclusion of septicemia as part 
of the infection co-morbidity category could create perverse financial 
incentives not to follow this fundamental tenet. This is an area where 
further research may inform us that subsequent modification of the 
case-mix adjustment is needed. As additional information becomes 
available for further analysis, it may be possible to develop an 
adjustment for septicemia while not negating facility efforts to 
minimize vascular access infections. Therefore, in this final rule, we 
are not finalizing septicemia as part of the infection co-morbidity 
diagnostic category.
    We also are not finalizing other pneumonias/opportunistic 
infections as part of the infection co-morbidity category. We believe 
that other pneumonias/opportunistic infections meet all of the 
criteria. Therefore, their inclusion as a co-morbidity payment 
adjustment category could, as commenters have noted, negate the 
positive gains made in controlling infections. In the analysis 
conducted for this final rule, we analyzed the pneumonias/opportunistic 
infections separately from other infections and did not find the same 
degree of association with higher costs associated with higher 
separately billable items and services, as was seen with bacterial 
pneumonia. For this reason, we do not believe these infection diagnoses 
warrant a co-morbidity adjustment.
    We note that the elimination of ``other pneumonias'' has a limited 
effect on the magnitude of the adjustment for patients with bacterial 
pneumonia and only slightly reduces the number of pneumonias that would 
be used to determine eligibility for the adjustment. Therefore, for 
this final rule, we excluded the diagnoses for primary plague 
pneumonia, unspecified pneumonia, primary coccidiodomycosis 
unspecified, and rare non-bacterial opportunistic infections.
    We believe that bacterial pneumonia does not meet the 3 criteria 
and, therefore, should be included as a co-morbidity adjustment. Once 
the other infections were removed, we reran the regression analysis. 
The regression analysis showed that bacterial pneumonia have a strong 
validity as a cause of ESA resistance and, therefore, increased ESA 
requirement for 4 months. Therefore, we are finalizing bacterial 
pneumonia as the infection co-morbidity diagnostic category eligible 
for a payment adjustment under the ESRD PPS. The list of bacterial 
pneumonia ICD-9-CM codes that will be recognized for a payment 
adjustment to the ESRD PPS base rate appears in Table E of the 
Appendix. We note that as discussed earlier in this section, an ESRD 
facility will not receive co-morbidity adjustments during the 4-month 
onset of dialysis time period.
    We will require a documented radiographic diagnosis in the 
patient's clinical or medical record, in order for an ESRD facility to 
be eligible for the co-morbidity payment adjustment for the bacterial 
pneumonia infection category. We will discuss the documentation 
requirements in future administrative issuances. After the 
implementation of the ESRD PPS, we will monitor the reporting of 
bacterial pneumonia on ESRD claims and compare the prevalence of 
bacterial pneumonia with their prevalence over the past several years.
    Comment: A few commenters believed that patients with 
gastrointestinal bleeding should be eligible for a fixed outlier 
payment due to ESA and transfusion expense, because this meets the 
legislative intent of high cost outliers.
    Response: We do not agree with the commenters who believed that 
there should be an additional outlier payment for patients with 
gastrointestinal bleeding due to ESA and transfusion expense because we 
believe that the co-morbidity adjustment is more appropriate than 
applying the outlier policy. We discuss the outlier policy in detail in 
section II.E.4. of this final rule.
    The regression analysis for this final rule demonstrated that 
certain diagnostic categories showed higher costs over either the long 
term or the short term. Gastrointestinal bleeding showed higher cost 
effects for three months after the date of diagnosis (that is, the 
month of the diagnosis and three months after). As we indicated above, 
based on various issues raised in public comments regarding the 
proposed co-morbidity payment adjustment categories, we further 
evaluated the proposed categories, including the gastrointestinal tract 
bleeding diagnostic category, based on three criteria. The 
gastrointestinal tract bleeding co-morbidity category met all of the 
three criteria, however, as we discussed above, we believe that by 
limiting gastrointestinal bleeding to gastrointestinal bleeding with 
hemorrhage, we have satisfied the established criteria by creating 
accurate clinical definitions and mitigating the potential for adverse 
incentives regarding care for ESRD facilities to influence the 
prevalence we are finalizing it as a co-morbidity diagnostic category 
because our analysis for this final rule also indicated significant 
validity of gastrointestinal tract bleeding as a cause for increased 
ESA utilization and, therefore, higher separately billable costs.
    However, because we are concerned that the gastrointestinal tract 
bleeding diagnostic category we proposed is overly broad (as determined 
by criteria number 1) and could be ``gamed'' (as noted by the 
commenter), we have limited in this final rule the diagnoses to 
gastrointestinal tract bleeding with hemorrhage and have limited the 
ICD-9-CM codes for luminal ulcers with associated hemorrhage which 
would be eligible for the payment adjustment. In addition, in order to 
receive a co-morbidity payment adjustment for this co-morbidity 
category there must be documentation of an associated hemorrhage with a 
gastrointestinal tract bleed. We will monitor ESRD claims after the 
implementation of the ESRD PPS is implemented to see if the prevalence 
has changed over the past several years.
    Comment: Most commenters opposed the inclusion of HIV/AIDS and 
alcohol or substance dependence as patient-level adjustments. Many 
cited State confidentiality laws protecting patients' privacy against 
discrimination, as well as difficulty in obtaining this information for 
the purposes of documenting the presence of HIV/AIDS and substance 
abuse.

[[Page 49098]]

    One commenter questioned how a substance abuse diagnosis would be 
made if not disclosed by the patient. The same commenter indicated that 
the inclusion of these codes would be inappropriate, as it would 
stigmatize patients and require facilities to violate State law in 
order to meet the requirements to be eligible for the payment 
adjustment. The commenters therefore believed that if they did not 
comply with the requirements, they would be inappropriately forced to 
forego payment. Several commenters stated that substance abuse is 
highly subjective diagnoses and prone to ``gaming'' and, therefore, 
should be eliminated as payment adjustments.
    A few commenters believed that a diagnosis of HIV should be a 
patient level adjuster due to the increased cost of care. However, the 
commenter questioned how the information would be obtained in order to 
qualify as an adjustment. Other commenters indicated that HIV/AIDS and 
substance abuse diagnoses could not be reported without the patient's 
permission. Other commenters stated that often the ESRD facilities 
would not be aware of the diagnoses. One commenter opined that 
providers do not alter their overall treatment practices because of 
HIV/AIDS suggesting that HIV/AIDS actually may be a surrogate for other 
costly patient characteristics such as being hypo-responsive to ESA, 
increased hospitalization, or race. The same commenter suggested that 
if HIV/AIDS remains a payment adjustment, it should be as a facility-
level adjuster.
    Response: We concur with the commenters that requiring ESRD 
facilities to place a diagnosis of HIV/AIDS or a diagnosis of alcohol/
drug dependence on the claim may be contradictory to State and other 
privacy requirements. We acknowledged in the proposed rule that we 
recognized the difficulties encountered by ESRD facilities that must 
comply with State privacy requirements (74 FR 49953 and 49954). As a 
result, the diagnostic categories may be misreported. We do not 
understand the commenter's suggestion that HIV/AIDS should be a 
facility adjustment rather than a patient-level adjustment.
    Because of the concerns expressed by commenters about State privacy 
requirements, we are not finalizing HIV/AIDS and Alcohol/Drug 
Dependence as co-morbidity diagnostic groups and, therefore, HIV/AIDS 
and Alcohol/Drug Dependence will not be recognized as co-morbidity 
diagnostic groups for purposes of the co-morbidity payment adjustment 
under the ESRD PPS.
    Comment: Several commenters expressed concerns about patients in 
nursing homes or long term care (LTC) facilities. One commenter 
believed the adjustment for alcohol and drug dependency was adequate to 
compensate for the effort required to determine dependency needs and 
that alcohol and drug dependency were frequent problems in nursing 
homes. One commenter indicated that many of the new admissions in 
nursing homes were for infection. The commenter did not indicate 
whether to include or exclude the infection adjustment as a payment 
adjustment until further clarification was provided by CMS regarding 
testing and documentation requirements. Another commenter claimed that 
the cost for treating nursing home dialysis patients is higher than 
community-dwelling patients, because nursing home dialysis patients had 
higher acuity due to the extent of their co-morbidities; the need for 
one-on-one caregiver assistance; and higher staffing costs.
    Some commenters complained that many of the co-morbidities seen in 
nursing homes, such as hypertension, diabetes, coronary artery disease, 
peripheral vascular disease, Alzheimer's, senile dementia, and other 
mental impairments and ventilator dependence were not considered as 
being eligible for a payment adjustment. One commenter indicated that 
the administrative burden for a provider with a disproportionate number 
of nursing home dialysis patients, because of the limited time they 
were under the care of the ESRD provider, as well as high turnover. The 
commenter also suggested that the request for medical records to obtain 
nursing home patient information should be added to the co-morbidity 
condition information being tracked on the Form 2728 to help determine 
patient acuity and cost to treat. Other commenters believed that 
functional limitations such as inability to walk should be factors 
included in determining payment adjustments.
    Response: The purpose of the co-morbidity adjustments is to provide 
added payment for those co-morbid diseases that result in higher 
dialysis costs. Therefore, to the extent that a patient residing in a 
nursing facility has one of the designated co-morbidity diagnostic 
categories, the ESRD facility would receive an adjustment to the ESRD 
PPS base rate.
    The only information on functional limitations available to us is 
from Form 2728 (inability to ambulate or transfer). Our analyses used 
in developing the proposed rule did explore functional variables, when 
they were reported, and found no statistically significant relationship 
to cost for such functional variables. We believe, however, that 
functional limitations are important measures and will consider these 
in the future if more complete data become available and show a 
significant relationship to costs.
    We disagree with the commenter requesting changes on Form 2728 to 
allow it to be used to determine changes in patients' acuity and the 
resulting cost to treat them. We do not believe that adjustments on a 
form which is used for the purpose of establishing the ESRD diagnosis 
should be the basis for determining on-going case-mix adjustments 
because the Form 2728 would not reflect changes in patient's 
conditions. In other words, the Form 2728 is a snapshot at the time of 
the onset of ESRD (capturing, for example, any co-morbidity that exists 
at the onset of dialysis) and not an ongoing reflection of that 
individual (capturing, for example, any co-morbidity that might occur 
during the span of dialysis).
    Comment: Some commenters stated that they often do not know about 
patient's temporary conditions, such as pneumonia, gastrointestinal 
(GI) bleeding, and pericarditis and, therefore, would not be able to 
indicate their presence on ESRD claims for the purpose of a payment 
adjustment.
    Response: We believe it is important for ESRD facilities to be 
aware of patients' conditions. For example, Sec.  494.80(a)(1) 
indicates that a patient's comprehensive assessment must include 
evaluation of current health status and medical condition, including 
co-morbid conditions. For the purpose of receiving a payment 
adjustment, the appropriate ICD-9-CM codes are required to be present 
on the claim, and documentation in the patients' medical record 
supporting the diagnosis is also required.
    We discussed in previous responses that bacterial pneumonias and 
gastrointestinal tract bleeding with hemorrhage as short-term, acute 
co-morbidity diagnostic categories that would be recognized for the co-
morbidity payment adjustment under the ESRD PPS. In addition, our 
analysis for this final rule supports the inclusion of pericarditis as 
a co-morbidity diagnostic category because ESRD patients with 
pericarditis have increased ESA utilization. Therefore, we believe 
pericarditis would be a predictor of higher costs in ESRD patients with 
this condition.
    We evaluated the pericarditis co-morbidity diagnostic category 
using the criteria discussed earlier. Because there are distinct 
clinical definitions for

[[Page 49099]]

pericarditis (and diagnostic criteria) and we do not believe that 
pericarditis has the potential for adverse incentives or the potential 
to be directly influenced by ESRD facilities (in that an ESRD facility 
could not influence the development or prevalence of pericarditis), we 
are finalizing pericarditis as a co-morbidity diagnostic category 
recognized for the co-morbidity payment adjustment under the ESRD PPS.
    We will require ESRD facilities to provide documentation in the 
patient's medical/clinical record to support any diagnosis recognized 
for a payment adjustment, utilizing specific criteria. We will address 
these documentation requirements in sub-regulatory guidance. As we have 
responded to previous comments, we will be monitoring the prevalence of 
any co-morbidity diagnoses recognized for the co-morbidity payment 
adjustment under the ESRD PPS as compared to the prevalence of these 
categories over the past several years. In this manner, we will be able 
to identify any changes in the prevalence of any of the co-morbidity 
diagnoses recognized for purposes of the co-morbidity payment 
adjustment as compared to previous trends.
    Comment: We received a wide variety of comments suggesting an array 
of co-morbidities that commenters believed should or should not be 
included as being eligible for the co-morbidity payment adjustment. 
Most commenters opposed the inclusion of the proposed co-morbidity 
categories, either in totality or in part.
    Of the commenters who supported the inclusion of the proposed co-
morbidity categories, most supported the chronic co-morbidity 
categories such as cancers,
    Hepatitis B, hereditary hemolytic anemias/sickle cell anemia, 
monoclonal gammopathy, and myelodysplastic syndrome. Some commenters 
offered suggestions regarding co-morbidities they believed should have 
been included in the ESRD PPS such as senility and Alzheimers; 
methylcyline resistance staphlococcus aureus (MRSA); staphylococcus 
septicemias; and diabetes. Other commenters opposed the inclusion of 
cardiac arrest, pericarditis, septicemia, bacterial pneumonia, 
gastrointestinal bleeding, sickle cell anemia, cancer, myelodysplastic 
syndrome and monoclonal gammopathy. Some commenters indicated that they 
were unaware of patients' prior medical histories, such as a history of 
cancer.
    Response: As we explained in the proposed rule, we found that 
certain co-morbidities are predictors of variation in resources for 
ESRD patients. We discussed the process we used to identify the ICD-9-
CM codes that we initially used in the analysis and how we derived the 
proposed eleven diagnostic categories. We also explained why certain 
conditions such as diabetes and vascular disease were excluded from the 
proposed diagnostic categories (74 FR 49952).
    With regard to the cancer co-morbidity diagnostic category, we 
recognize that a co-morbidity payment adjustment would be applied for 
patients that may differ greatly in the clinical severity of their 
cancer diagnosis.
    For example, we believe that for patients successfully treated in 
the past for their cancer, there may be few or no implications for the 
dialysis care currently being received in an ESRD facility. In 
contrast, we believe patients undergoing treatment for cancer may 
require a higher intensity of care (that is, higher use of separately 
billable services) and, therefore, have higher costs.
    We believe that the proposed payment adjustment for the cancer co-
morbidity category may have overstated costs for some patients whose 
dialysis treatment is no longer affected by their history of cancer and 
may have understated the costs of patients whose current cancer 
diagnosis and treatment affect their dialysis treatment because, at the 
current time, we are unable to differentiate the cost impact between 
the two groups. Therefore, we are not finalizing cancer as a co-
morbidity diagnostic category recognized for the co-morbidity payment 
adjustment under the ESRD PPS.
    Future research may identify the cost of providing dialysis care to 
patients receiving active cancer treatment and potentially could be 
used to determine a co-morbidity payment adjustment that would more 
accurately reflect the ESRD resources being used. We believe that 
differentiating a history of a cancer diagnosis from an active cancer 
diagnosis, could provide information on how the type of cancer or 
whether the cancer is being treated affects the cost of dialysis care.
    Using the three criteria referenced above, we evaluated the 
proposed co-morbidity diagnostic categories for chronic, long-term 
conditions of hereditary hemolytic anemia, myelodysplastic syndromes, 
and monoclonal gammopathy. Due to the consistent effect (that is, not 
limited to a short period of time) of the hereditary hemolytic anemias 
(including sickle cell anemia) on higher EPO useage and therefore, 
higher separately billable costs, we are finalizing this as a co-
morbidity diagnostic category eligible for a payment adjustment to the 
ESRD PPS. We also believe that myelodysplastic anemia and monoclonal 
gammopathy should be finalized as co-morbidity diagnostic categories 
because both of these co-morbidity diagnostic categories have shown an 
association with higher ESA usage and, therefore, higher separately 
billable costs. However, we have excluded multiple myeloma, a form of 
cancer included in the monoclonal gammopathy diagnostic co-morbidity 
category, because multiple myeloma is a form of cancer and, as we noted 
above, additional research is needed on the effect of cancer on 
dialysis costs.
    Accordingly, we are finalizing six co-morbidity diagnostic 
categories and the associated payment adjustment multipliers, which are 
as shown in Table 22, recognized for the co-morbidity payment 
adjustment under the ESRD PPS for renal dialysis services provided on 
or after January 1, 2011. We also are finalizing the diagnostic codes 
for each of the six diagnostic categories found in Table E in the 
Appendix. For the co-morbidity payment adjustment to apply, an ESRD 
facility must document in the patient's medical or clinical records the 
presence of one of the diagnosis codes eligible for the co-morbidity 
payment adjustment under the ESRD PPS. We will provide specific 
instructions for such documentation in the future.

[[Page 49100]]

[GRAPHIC] [TIFF OMITTED] TR12AU10.026

    The ICD-9-CM diagnostic codes should be reported in compliance with 
coding requirements on the ESRD 72x claim, as well as the official ICD-
9-CM Coding guidelines. Accurate reporting of co-morbid diagnoses will 
enable CMS to evaluate the need to update the co-morbidities that would 
be recognized for the co-morbidity payment adjustment under the ESRD 
PPS.
    Comment: One commenter believed that facilities should receive 
higher payments for certain ``problematic'' patients to balance losses 
on average patients with few adjustments.
    Response: We believe that the commenter is referring to financial 
losses that ESRD facilities may experience under the ESRD PPS treating 
patients with few characteristics that would be recognized for a 
payment adjustment. We do not agree with the commenter that ESRD 
facilities will experience losses on the average patient to whom few 
payment adjustments would apply and that this would be balanced by 
higher payments for certain ``problematic'' (that is, patients for whom 
the facility receives multiple payment adjustments) patients. The ESRD 
PPS base rate reflects the cost of the average patient.
    Our analysis has identified certain co-morbidity diagnostic 
categories that have shown higher use of separately billable renal 
dialysis items and services, which are recognized for a payment 
adjustment under the ESRD PPS. The co-morbidity payment adjustments are 
based on evidence from the regression model that the presence or 
absence of certain co-morbid conditions are related to costs. 
Therefore, the payment model should neither favor nor disfavor patients 
with co-morbidity adjustments relative to those who do not qualify for 
such adjustments; rather the payment adjustment should reflect the 
higher costs associated with providing renal dialysis services.
    As we discussed above, we will need to conduct further research to 
identify additional co-morbidity categories and diagnoses that could be 
recognized for the co-morbidity payment adjustment. For these reasons, 
for this final rule, we have reduced the number of co-morbidity 
diagnostic categories from eleven to six and among these categories, we 
are finalizing three acute, short-term diagnostic categories 
(pericarditis, pneumonia, and gastrointestinal bleeding) and three 
chronic diagnostic categories (hereditary hemolytic anemia, 
myelodysplastic syndrome, and monoclonal gammopathy).
    Under the final ESRD PPS, the three acute co-morbidity adjustments 
will be paid for the month the diagnosis is reported on ESRD facility 
claims and for the next three months. The chronic co-morbidity 
adjustments will continue to apply to all claims submitted.
    Comment: One commenter questioned how the Form 2728 would be 
updated once it has been completed. Another commenter expressed concern 
about the time period for applying the co-morbidity adjuster, 
particularly for gastrointestinal bleeding.
    Response: The purpose of the Form 2728 is to attest to the initial 
ESRD diagnosis. Included in that attestation are additional demographic 
and clinical information that are present at the time of the initial 
ESRD diagnosis. As we indicated earlier, the Form 2728 is a snapshot of 
the ESRD patient's status at the onset of dialysis. Therefore, we would 
not use information on the Form 2728 to determine the presence of a co-
morbid condition for payment adjustment under the ESRD PPS. Instead, 
co-morbidity payment adjustments under the ESRD PPS will be based upon 
the diagnosis codes reported by ESRD facilities on their Medicare 
claims. We plan to use those reported diagnoses for future refinements 
to the co-morbidity categories and diagnoses.
    Comment: Several commenters indicated that they were unable to 
replicate the proposed co-morbidity adjustments. One commenter claimed 
that we had overestimated the number of co-morbidities, resulting in an 
overestimation of reimbursement. Several commenters provided their own 
analyses (using data resources available to them, such as their own 
medical records, electronic medical records, hospital discharge 
summaries, paper charts, health care professional notes, and 
discussions with professional staff) and were unable to replicate our 
findings. The commenters indicated that in each of their analyses, 
their calculated adjustment was lower than the adjustments in the 
proposed rule. The commenters acknowledged that they do not have access 
to the vast data resources regarding patient conditions and, therefore, 
CMS can more accurately determine the adjustments. The commenters 
questioned CMS' projections of the financial consequences on ESRD 
facilities due to the proposed ``overstated'' adjustment factors.
    Response: We regret the inability of commenters to replicate our 
findings. As the commenters acknowledged, claims data are not available 
due to confidentiality requirements and, therefore, commenters are 
unable to replicate our findings. We believe that the inability of the 
commenters to replicate CMS' findings may contribute to the commenters' 
belief that we have over- or under estimated reimbursement amounts. 
Historically, there has not been a financial incentive for ESRD 
facilities to document the presence of co-morbidities. We believe that 
by including co-morbidity adjustments under the ESRD PPS, ESRD 
facilities

[[Page 49101]]

will implement more active processes for gathering diagnostic 
information, which will facilitate care planning. We appreciate that 
commenters were able to identify co-morbidities for their patients for 
their analyses as it confirms our belief that co-morbidity information 
is available to ESRD facilities.
    Comment: One commenter claimed that six of the proposed co-
morbidities were unstable. The commenter indicated that when comparing 
the co-morbidity adjusters in the proposed rule with the adjusters 
published by UM-KECC in 2008, six of the adjusters (HIV/AIDS, Hepatitis 
B, bacterial/other pneumonias/opportunistic infections, hereditary 
hemolytic/sickle cell anemias, cancer and monoclonal gammopathy) were 
highly ``unstable'' and not reliable predictors of cost and, therefore, 
they should be eliminated as payment adjustments.
    Response: Three of the six co-morbidities referred to by the 
commenter as unstable are not being used to adjust payments in this 
final rule (HIV/AIDS, Hepatitis B, and cancer). Their exclusion as co-
morbidity adjusters was based on other factors which are described 
above in the response to other comments.
    For the three remaining co-morbidities mentioned by the commenter 
(bacterial/other pneumonias/opportunistic infections, hereditary 
hemolytic/sickle cell anemias, and monoclonal gammopathy), similar 
measures are included as payment adjusters for the final rule. These 
measures, which have undergone several refinements since the proposed 
rule, are bacterial pneumonia, hereditary hemolytic/sickle cell 
anemias, and monoclonal gammopathy. In conjunction with the exclusion 
of cancer as a co-morbidity adjuster, the monoclonal gammopathy 
category has been narrowed by the exclusion of multiple myeloma (a 
malignancy). As with the bacterial pneumonia category being used for 
the final rule that excludes other pneumonias and opportunistic 
infections, making this category more homogeneous may also serve to 
enhance its stability. Similarly, sickle cell trait is no longer 
sufficient for the patient to be classified into the heredity hemolytic 
anemia/sickle cell anemia category, which should also serve to focus 
this classification on relatively severe cases most likely to impact 
dialysis facilities.
    For each of these co-morbidity measures, the adjustments in the 
final rule are for separately billable services only, where the 
estimated payment multipliers were found to be relatively stable both 
in the analyses for the final rule and in previous analyses of similar 
measures that were used for the proposed rule and for the 2008 UM-KECC 
report. It should be noted that for some co-morbidities, there has been 
less stability in the estimated payment multipliers based on facility 
level models for composite rate services. Partly for this reason, the 
co-morbidity adjusters in this final rule are based on separately 
billable services only, and are not based on composite rate services. 
Generally, the payment adjusters are those deemed to best satisfy 
multiple criteria for inclusion (for example, objective measurability, 
limited variability in severity, not likely to result from poor quality 
care, consistent relationship to costs in multiple years of data, and 
non-trivial impact on costs).
    Comment: One commenter asserted that the co-morbidities were not 
predictive of dialysis costs because they involved medical conditions 
that are not relevant to dialysis treatment, especially when 
significant time has elapsed between the condition and the onset of 
dialysis. Another commenter believed the purpose of case-mix adjusters 
was valid, but questioned how well the adjustments reflect resource 
consumption. Another commenter complained that the co-morbidity 
adjustments do not identify differences in patient utilization of drugs 
and other resources. One commenter believed the proposed co-morbidity 
categories did not align with actual resource utilization for dialysis 
treatment. The commenter believed that CMS was inconsistent in 
assigning co-morbidity adjustments used for the regression analysis 
which casts doubt on the predictive value of adjusters produced.
    Response: We do not agree with the commenter who believed the co-
morbidities were not predictive of dialysis costs because they involved 
medical conditions not relevant to dialysis treatment. We believe that 
the co-morbidity adjustments reflect resource consumption and 
utilization because they reflect higher separately billable payments 
made for ESRD-related drugs and biological and laboratory tests for 
patients with certain co-morbid diagnoses. Our analysis has 
demonstrated that the co-morbidity adjustments have predictive value as 
evidenced by the overall predictive power of the model. We articulated 
in the proposed rule how we determined co-morbidities. We began by 
discussing the process initiated in the CY 2005 PPS proposed rule, 
whereby we proposed a limited number of patient characteristics 
including a large number of specific co-morbidities. We explained the 
methodology we used in selecting the co-morbidities as well as why 
certain ones were excluded (74 FR 49952). We then explained the 
rationale used for the CY 2005 final rule (including why we did not 
include co-morbidities), which implemented the current case-mix 
adjusted composite payment system (74 FR 49953).
    In the proposed rule (74 FR 49953), we explained that the 
relationship between patient characteristics and cost for composite 
rate services was estimated using a facility level regression model. We 
stated that the average patient characteristics were related to the 
reported facility costs. We further stated that a patient level model 
was used to identify potential payment adjusters for separately 
billable services. While the modeling approach used separate equations 
for the composite rate and separately billable services to select 
patient characteristics as payment variables, we combined the estimated 
payment multipliers for composite rate and separately billable 
services. The payment multipliers were calculated as the weighted 
average of the composite rate and separately billable multipliers (74 
FR 49953), where the weights are the shares of total costs attributable 
to composite rate and separately billable services. As the cost reports 
are not patient specific, we believe that we addressed costs using the 
best methodology with the data available.
    The range used in the analysis in the proposed rule was based on 
the years during which our contractor began and continued analyzing 
ESRD data. For some categories, which we identified as acute, there was 
a clear break in the data at the 4-month interval, with the presence of 
the co-morbidity more than 3 months prior to the current month 
resulting in a substantially weaker relationship to current costs. For 
others, which we identified as chronic conditions, we could not 
identify a clear break. For this final rule, the analysis of the co-
morbidity diagnostic categories looked at 2006, 2007, and 2008 claims 
for acute conditions and claims since 2000 for a 6-year span for the 
chronic conditions. We used 2006, 2007, and 2008 claims for the 
separately billable analyses.
    While the proposed rule used a patient year separately billable 
model to create consistency between the composite rate and the 
separately billable models, for this final rule, we used a patient-
month level separately billable model for the acute short-term 
diagnostic category, as the coding of the variable will differ 
substantially on the annual versus monthly basis because patients only 
have the condition for part of the year. Measurement for a chronic

[[Page 49102]]

condition at the annual or monthly level generally does not vary 
because the patient either has the condition or does not. The change to 
the monthly observation tended to reduce the multipliers, especially 
the short-term acute co-morbidity diagnostic categories. Statistically, 
this reduction in multipliers for acute conditions is likely to have 
occurred because patients coded as having the acute condition for part 
of the year may also have had higher costs at other times of the year. 
Therefore, the multiplier in an annual model can reflect not just the 
costs during the months in which an acute condition was present. 
Because we wanted the short-term multipliers to reflect short-term 
increases in costs, we believe that changing to a monthly model is 
appropriate. The net effect in the changes to the separately billable 
model is smaller adjustments for the acute, short-term diagnostic 
categories. By using the patient-month separately billable model, the 
multipliers would more closely reflect costs associated with the 
specific co-morbidity being measured and occurring in the specific 
months in which the co-morbidity was present.
    The composite rate model continues to be based on data only 
observed annually. In the proposed rule, the only short-term co-
morbidity adjustment in the composite rate model was for bacterial 
pneumonias/other pneumonias and opportunistic infections. For the final 
rule, we dropped a measure of bacterial pneumonia from the composite 
rate model. The exclusion of this co-morbidity adjustment from the 
composite rate model involves the same reasoning that was used in 
changing the unit of analysis for the separately billable model from 
the patient year to the patient-month. We found, for example, that the 
bacterial pneumonia multiplier in the composite rate model was 
relatively sensitive to the presence of other co-morbidities in the 
model, including those that were used in the composite rate model for 
the proposed rule. As a result, a relatively large portion of this 
adjustment is likely to capture the effects of other unmeasured factors 
that increase facility costs. Unlike the separately billable model, 
however, the same option is not available to change the unit of 
analysis for modeling composite rate costs, because the cost data are 
only available at the facility level.
    Another concern with applying the bacterial pneumonia adjustment 
from the composite rate model was that the magnitude of the effect was 
relatively unstable from year to year in the analysis for the final 
rule. Therefore, in this final rule, the composite rate model was not 
applied.
    Comment: One commenter suggested that we calculate co-morbidity 
adjustments not from data from other settings, but on data readily 
available to ESRD facilities. Other commenters claimed that use of 
hospital and emergency department records to determine co-morbidities 
overstated adjusters because these claims include acute illnesses. 
Commenters suggested that CMS delineate chronic outpatient co-
morbidities, resulting in higher reimbursement, and discount the 
unadjusted mean bundled payment.
    Response: We presume that the commenter is referring to sources, 
such as hospital and physician claims, that were used in conjunction 
with the ESRD claims. In the proposed rule, we explained our rationale 
for using the Form 2728, the ESRD cost reports, and claims from various 
health care providers (74 FR 49952 through 49954). We indicated that we 
had encouraged ESRD facilities in the past to report co-morbidities on 
the ESRD claims (74 FR 49953) for purposes of establishing future 
payment refinements. However, as sufficient co-morbidity diagnoses were 
not reported on ESRD facility claims, we used other sources of data for 
the regression analyses.
    We believe that given the co-morbidity adjustments under the ESRD 
PPS, ESRD facilities will take a more active role in gathering 
information in order to receive a payment adjustment. If so, it may be 
possible to use diagnostic information reported on claims for future 
refinements to the ESRD PPS.
    With regard to the comment concerning chronic co-morbidities, we 
believe that the commenter is alleging that chronic co-morbidities 
rather than acute co-morbidities should be considered for payment 
adjustment. We do not share this view. As we explained in detail above, 
we believe the methodology used in determining acute and chronic co-
morbidities recognized for the co-morbidity payment adjustment captures 
those conditions that require more composite rate and separately 
billable services.
    Comment: One commenter expressed concern that many of the proposed 
co-morbidity adjusters were neither reliable nor robust and, therefore, 
the commenter recommended the exclusion of the proposed 11 co-morbidity 
categories. The commenter claimed that the regression methodology that 
CMS proposed results in overestimation of the adjuster values. The 
commenter further stated that unless clinical evidence exists to 
support the independence of the variables in the model, as they pertain 
to ESRD services furnished and such services' cost distribution, the 
co-morbidities should be excluded.
    One commenter stated that it was not clear how the co-morbidities 
were identified in the regression analysis or in assigning patients. 
The commenter also stated there was no reference, analysis, or 
statistical evaluation of the period of time in the past, for which the 
co-morbidity condition is relevant. The commenter concluded that 
flagging patients for each adjuster could be different if co-morbidity 
codes were searched on claims at different time periods. The same 
commenter stated that in the proposed rule, we did not provide an 
explanation about how we determined that an ``old'' diagnosis no longer 
affected treatment and, therefore, did not qualify as an adjuster, nor 
did we discuss how we had historically evaluated which co-morbidity 
condition was relevant.
    Response: As we discussed in the proposed rule (74 FR 49952), we 
proposed case-mix adjusters in the CY 2005 PFS proposed rule. We 
explained in the proposed rule that for some diagnoses, such as cancer, 
we looked at any occurrence since 1999. We also explained that in the 
proposed rule we used 2007 claims (74 FR 49954). For this final rule, 
co-morbidities referred to as ``acute'' were identified in the current 
month of the analysis or previous 3 months of claims. Co-morbidities 
referred to as ``chronic'' were identified in claims since 2000.
    For some categories, which we identified as acute, there was a 
clear break in the data at the four-month interval, with presence of 
the co-morbidity more than three-months prior to the current month 
resulting in a substantially weaker relationship to current costs. For 
others, which we identified as chronic conditions, we could not 
identify a clear break.
    For this final rule, the analysis of the co-morbidity diagnostic 
categories involved 2006, 2007, and 2008 claims for acute conditions 
and claims since 2000 for a six-year span for the chronic conditions, 
although the actual Medicare history will vary based on when a patient 
became entitled under Medicare. Because some patients have shorter 
Medicare histories, the claims may miss some diagnoses that were 
actually present, resulting in an underestimate of their clinical 
prevalence.
    We used 2006, 2007, and 2008 claims for the separately billable 
analyses. Estimating the regression models year by year (rather than 
for the full 3-year

[[Page 49103]]

period) showed that the same co-morbidities tended to predict costs in 
each year, which suggested the adjusters were reliable and robust. In 
our analysis for this final rule, we once again identified a clear 
break in the higher utilization of separately billable items and 
services after 4 months for the acute conditions and no break for the 
chronic conditions.
    In the proposed rule, we used a patient year separately billable 
model to create consistency between the composite rate and the 
separately billable models. For this final rule, we used a patient-
month level separately billable model for the acute short-term 
diagnostic category. The coding of the variable will differ 
substantially on the annual versus monthly basis because patients only 
have the condition for part of the year. Measurement for a chronic 
condition at the annual or monthly level generally does not vary, 
because the patient either has the condition or does not. The change to 
the monthly observation tended to reduce the multipliers, especially 
the short-term acute co-morbidity diagnostic categories.
    Statistically, this reduction in multipliers for acute conditions 
is likely to have occurred because patients coded as having the acute 
condition for part of the year, may also have had higher costs at other 
times of the year. Therefore, the multiplier in an annual model can 
reflect not just costs during the months in which an acute condition 
was present. Because we wanted the short-term multipliers to reflect 
short-term increases in costs, we believe that changing to a monthly 
model is appropriate. The net effect in the changes to the separately 
billable model is smaller adjustments for the acute, short-term 
diagnostic categories. The composite rate model remains as data only 
observed annually because the cost reports which are used are completed 
on an annual basis. By using the patient-month separately billable 
model, we believe that the multipliers would more closely reflect costs 
associated with the specific co-morbidity being measured and occur in 
the specific months in which the co-morbidity was present.
    As for the assertion by commenters that there was a lack of 
independence of predictors, we found that there were no strong 
correlations between the presence of different co-morbidities. 
Regression analysis identifies the independent contribution of 
different variables on the outcome of interest. If multiple variables 
were highly correlated, the regression analysis would be unlikely to 
show that each of the variables had a statistically significant, 
independent effect on the outcome.
    Comment: One commenter opposed the inclusion of the proposed co-
morbidities out of the belief that ESRD facilities' lack access to 
reliable data, which would prevent facilities from tracking and 
reporting co-morbidities in a manner that is adequate to support 
reimbursement. The commenter argued that the disparity in the findings 
using data available to ESRD facilities was not surprising and 
referenced an article published in the Journal of the American Society 
of Nephrology. The commenter alleged that in the article, the CMS 
contractor, UM-KECC, had conceded that additional data not currently 
available to CMS is required to improve the predictive power of its 
case-mix model. The commenter further alleged that what data exists is 
incomplete or inaccurate with respect to occurrence, frequency, and 
severity. The commenter also stated that in the article, UM-KECC 
acknowledged that some co-morbidities were difficult to collect and the 
prevalence varies with the ``look-back'' period. The commenter further 
noted that in the article, UM-KECC stated that reporting on the claims 
would create a new administrative burden and that adjusting payments 
for co-morbidities could create inappropriate incentives.
    Response: Although UM-KECC acknowledged that the article does refer 
to limitations that exist in the available data, they believe that the 
available data are sufficient to estimate some of the important 
predictors of costs. UM-KECC has indicated that it does not doubt that 
additional data would improve the predictive power of the models, but 
acknowledges that such data are not available. UM-KECC noted the 
prevalence varied most with look-back period for those co-morbidities 
that were used as acute conditions. For those conditions, older 
diagnoses had substantially weaker relationships to costs and 
therefore, were not proposed as case mix adjusters.
    Given the low level of reporting of co-morbid conditions on current 
ESRD claims, UM-KECC agrees that obtaining and reporting the 
information could create some new burden, but hopes that encouraging 
facilities to increase awareness of co-morbid conditions will 
facilitate improvements in the care planning process. Given that in-
center dialysis patients typically are in the facility three times 
weekly and see a nephrologist about four times per month, we believe 
the additional burden will be relatively minor.
    Comment: Some commenters claimed that we overstated the prevalence 
of the co-morbidity diagnoses because their findings did not 
demonstrate the same prevalence for the adjusters we identified. One 
commenter noted their findings about prevalence were lower than the 
prevalence that we reported in the proposed rule, with the magnitude of 
the difference very large for hepatitis B, septicemia, cancer HIV/AIDS, 
hemolytic or sickle cell anemia, monoclonal gammopathy, myelodysplastic 
syndrome, and pericarditis. One commenter reported a higher prevalence 
for cardiac arrest, pneumonia/other opportunistic infections, alcohol-
drug dependence, and gastrointestinal bleeding, but noted that in each 
case the difference was less than 2 percent.
    One commenter stated they were only able to replicate the 
prevalence rate for cardiac conditions. The commenters acknowledged 
that they used their own data sources, which they recognize are not as 
comprehensive as the data available to CMS.
    Response: We appreciate that commenters were able to identify co-
morbidities for their patients for their analyses, as it confirms our 
belief that co-morbidity information is available to ESRD facilities.
    As we discussed above in response to commenters' inability to 
replicate our findings, historically there has not been a financial 
incentive for ESRD facilities to document the presence of co-
morbidities because there was no payment associated with a co-
morbidity. We believe that given the co-morbidity adjustments under the 
ESRD PPS, ESRD facilities will take a more active role in gathering and 
reporting co-morbid diagnostic information.
    However, frequencies of co-morbidities found in the Medicare claims 
files may still differ from those found in the historical records of 
ESRD facilities, because each ESRD facility may not have the same 
number or percentage of patients with the same co-morbidities as other 
ESRD facilities or they may differ from the national average. The 
reported diagnosis information provided by ESRD facilities will serve 
as the basis for subsequent revisions to and improvements in the case-
mix adjustments.
    Comment: One commenter believed that without access to all the 
claims data that was used to ascertain the adjusters, ESRD facilities 
will under-report them, resulting in systematic underpayment.
    Response: We believe that the commenter means that if ESRD 
facilities do not have access to other claim sources (such as hospital 
claims), they may under-report co-morbidities. We acknowledge that ESRD 
facilities will

[[Page 49104]]

need to be proactive in obtaining co-morbidity information from other 
health care providers.
    We will require ESRD facilities to report the appropriate ICD-9-CM 
code for the co-morbid condition recognized for purposes of the co-
morbidity payment adjustment under the ESRD PPS, if the ESRD facility 
wishes to receive the adjustment. However, as we discussed and 
explained above, we are finalizing a smaller number of co-morbidity 
diagnostic categories in this final rule. The number of co-morbidity 
diagnostic categories we are finalizing for purposes of the co-
morbidity payment adjustment has been reduced from eleven to six.
    We also are providing in Table E in the Appendix, the list of ICD-
9-CM codes that would be recognized for purposes of the co-morbidity 
payment adjustment. The number of specific diagnostic ICD-9-CM codes 
eligible for the co-morbidity payment adjustment has been reduced from 
hundreds to eighty-eight. We believe these reductions will mitigate 
many of the concerns expressed by commenters.
    As we discussed in a previous response, Sec.  494.80 in the ESRD 
Conditions for Coverage, specifies that a patient's comprehensive 
assessment must include an evaluation of current health status and 
medical condition, including co-morbidities. We acknowledge that the 
Conditions for Coverage do not require that co-morbidities be 
documented on the ESRD claim using ICD-9-CM codes. However, for the 
purpose of receiving a co-morbidity payment adjustment for an eligible 
co-morbidity, ESRD facilities will be required to document the ICD-9-CM 
code on the ESRD claim with documentation to support the ICD-9-CM code 
maintained in the patient's medical or clinical chart. We will discuss 
the documentation requirements further in the future in administrative 
issuances.
    Comment: One commenter expressed concern that our reliance on cost 
reports is misplaced and claimed that there is nothing to support a 
presumption that facility cost report data can be linked with patient-
level variance in the cost of care. The same commenter claimed that 
company practices, such as staffing practices, volume discounting, and 
group purchasing, may have a greater impact on facility costs than a 
transitory combination of patient characteristics and conditions that 
may not be tied to the cost reporting period.
    Response: We do not share the commenter's view that the use of cost 
reports is misplaced. We acknowledge that ESRD facility cost reports 
cannot be linked with individual patient level variance in the cost of 
care. In the proposed rule, we indicated that the relationship between 
patient characteristics and cost for composite rate services was 
estimated using a facility-level regression model to relate the average 
patient characteristics to the reported facility costs. We further 
stated that a patient level model was used to identify potential 
payment adjusters for separately billable services. While the modeling 
approach used separate equations for the composite rate and separately 
billable services to select patient characteristics as payment 
variables, we combined the estimated payment multipliers for composite 
rate and separately billable services. The payment multipliers were 
calculated as the weighted average of the composite rate and separately 
billable multipliers (74 FR 49953).
    To assess the relationship between patient characteristics and 
costs for composite rate services, we are currently limited by the 
absence of patient-level cost data. Instead, this analysis must be done 
by relating differences in patient characteristics across facilities 
with differences in average facility costs for composite rate services, 
using cost report data. For example, if each 10 percent increase in the 
prevalence of a co-morbidity within an ESRD facility's population is 
associated with one percent higher cost per treatment (across all 
treatments the ESRD facility provides), that characteristic would have 
a multiplier of 1.10. This is the same approach that was used to 
develop the basic case-mix adjustment for the composite rate.
    We recognize there are limitations to this approach for co-
morbidities that are relatively uncommon, where estimates of the 
increment in cost for a particular condition are generally based on 
very small differences in the prevalence of the condition across 
facilities. Therefore, unlike the payment model in the proposed rule, 
the current payment model does not reflect co-morbidity adjustments for 
composite rate costs.
    Most cost reports cover a calendar year. In cases where the cost 
report does not coincide with the calendar year, weighted averages of 
success cost reports were calculated to link the cost reporting period 
more closely to the period over which patient characteristics were 
measured. For example, if a facility's reporting period is October 1 
through September 30, its 2006 costs would be a weighted average of its 
report covering October 1, 2005 through September 30, 2006 and its 
report covering October 2006 through September 30, 2007, with three 
quarters of the weight placed on the earliest report (which included 
three quarters of the 2006 calendar year).
    Comment: One commenter indicated that we did not take into account 
certain diseases that require more care and costs. The commenter 
believed we failed to take into account the variations in caring for 
individual patients, and were penalizing facilities that provide more 
comprehensive care (thus eliminating patients' need to spend non-
dialysis days in other health care settings). Examples that the 
commenter cited were diabetes management, hypertension management, 
anti-coagulant monitoring, and pre-transplant testing.
    Response: We do not believe that we are penalizing ESRD facilities 
that provide comprehensive care to patients. For example, as discussed 
in section II.E.1. of this final rule, commenters indicated that ESRD 
facilities administer drugs and biological for purposes other than for 
renal dialysis-related conditions. Consequently, we provided for these 
services to continue to be paid as separately billable items. In 
section II.K. of this final rule, we discuss how we will provide for 
laboratory tests that are performed for non-ESRD-related conditions, to 
be paid as separately billable items.
    With regard to the comment that we have not accounted for other 
conditions that require more care or costs, in the proposed and in this 
final rule, we have addressed the methodology of how we identified 
payment adjustments that capture higher resource utilization and, 
therefore, higher costs. We believe that the patient-level adjustments, 
the home training add-on adjustment and the outlier payment all address 
patients who require higher resource utilization. We will continue to 
analyze ESRD claims and costs after the implementation of the ESRD PPS 
and will discuss any refinements that may be needed in future 
rulemaking.
    Comment: Most commenters cited administrative reasons for wanting 
to exclude the co-morbidity categories as patient-level adjusters, such 
as difficulties in obtaining hospital data; difficulties in determining 
beginning and end dates of co-morbidities such as gastrointestinal 
bleeding; the financial burden on the facilities due to the cost of 
training and hiring coders to document conditions properly with cost 
possibly exceeding payment increases; changes in systems to collect and 
update data continuously to capture adjusters and codify them on claims 
requiring additional staff; limited number of diagnoses that facilities 
use to justify dialysis treatment; complexity

[[Page 49105]]

overwhelming facilities; risk of reducing staff time from patient care 
to allow them to code diagnoses; incurring fees from other providers 
for copying medical records; difficulty in tracking co-morbidities; the 
need to create new documentation processes to capture necessary medical 
information and accurately code, entailing efforts by medical records 
personnel, clinical personnel, nurses, and physicians; and the need to 
add complex administrative resource intensive systems.
    Several commenters claimed the co-morbidity adjustments would cause 
administrative burdens to small dialysis organizations. The same 
commenters indicated that the information would be hard to collect and 
assure accuracy except for hepatitis B. Others cited lack of reporting 
of co-morbidities due to patients' and caregivers with poor memories or 
cognitive abilities; multiple hospitalizations in multiple hospitals; 
and the need to obtain information from nephrologists.
    One commenter believed the adjustments were too high and that there 
would be a financial risk to providers who will require increased 
resources to code correctly. One commenter claimed that the facilities 
facing severe financial losses would reduce costs and shift from the 
goal of seeking the best or highest standards of patient care towards 
those that are merely acceptable or adequate. Some commenters claimed 
that the co-morbidities have not historically been collected and should 
be eliminated because it is difficult, unreasonable, unrealistic and 
almost impossible to obtain the information that may affect the ability 
to provide care. Another commenter stated that the administrative and 
information technology burden for tracking co-morbidities outweighed 
the benefit.
    A few commenters opined that the new payment system should revert 
back to the system prior to 2005, whereby all facilities received a 
lump sum payment for every dialysis treatment provided to all patients. 
Several commenters believed the system is too complex for patients and 
families to follow the calculations to determine their responsibility. 
Several commenters indicated that most providers accurately code all 
chronic ESRD problems and rely on hospital certified coders to code 
problems in the discharge summary. The same commenters were concerned 
that they will need to capture all new co-morbidities in the month that 
they occur with incomplete data thereby delaying claims processing 
resulting in lost reimbursement. A few commenters suggested that the 
adjusters be limited to those at the time of initiation of dialysis, 
because they claim there is no mechanism to update information when co-
morbidities change. Others cited the lack of access to hospital and 
other records.
    Response: We thank the commenters for sharing their concerns. We 
understand that the implementation of the ESRD PPS, including the 
requirement to document co-morbidity diagnostic categories to be 
eligible for adjustment to the ESRD PPS, will be new to some ESRD 
facilities. However, since the ESRD Conditions for Coverage were issued 
in 2008, ESRD facilities have been aware of their responsibility to 
assess and record co-morbid medical conditions in the medical records.
    We believe that ESRD facilities will obtain diagnostic information 
through increased communication with their patients, their patients' 
nephrologists and their patients' families. When an ESRD patient misses 
a treatment, the ESRD facility should determine whether the patient has 
been hospitalized and, if so, what was the condition treated. To the 
extent the patient is unable to provide the information the ESRD 
facility would consult with the patient's nephrologists or family to 
seek additional information.
    The reduction of the number of co-morbidity diagnostic categories 
should reduce the burden on ESRD facilities to identify co-morbidity 
diagnostic categories that would need to be entered on ESRD claims to 
be recognized for a payment adjustment. Given that we have reduced the 
number of co-morbidity adjustments and that in-center dialysis patients 
typically are in the ESRD facility three times per week, and that ESRD 
patients typically see a nephrologist about four times per month, we 
believe the burden of tracking co-morbidities will not be as onerous as 
the commenters fear.
    Comment: Some commenters suggested that co-morbidity adjusters 
should only be those that are chronic in nature and do not change each 
month, and that we should consider operating costs in deciding which 
adjusters to use.
    Response: The determination of which co-morbidity diagnostic 
category would be recognized for purposes of the co-morbidity payment 
adjustment is based on results of the analyses we described above. We 
identified and are finalizing three chronic and three acute co-
morbidity diagnostic categories that would be recognized for the co-
morbidity payment adjustment under the ESRD PPS.
    Comment: Several commenters suggested that CMS be responsible for 
assessing when adjusters are necessary. The commenters noted that 
because CMS has access to all claims, CMS should incorporate the co-
morbidities that it identifies into payment determinations without 
burdening providers. The commenters further suggested that if CMS 
assumed responsibility for determining which diagnosis were eligible 
for a payment adjustment, adjustments would not be subject to fraud and 
abuse.
    Response: We believe that ESRD facilities should be aware of 
patients' co-morbidities and we assume are in the best position to 
determine such information and, therefore, should be responsible for 
identifying all co-morbidities on the ESRD claim whether or not they 
are eligible for a payment adjustment. Accordingly, we do not believe 
that we should be assuming responsibility for identifying patient co-
morbidities for ESRD facilities. We do not believe that our assuming 
responsibility for identifying payment adjustments would, in itself, 
serve to eliminate fraud and abuse, because other health care providers 
would be documenting co-morbidities on their respective claims and we 
would be obtaining the co-morbidities from those claims. It is 
incumbent on all providers to put correct information on claims, 
whether or not there are payments associated with the information.
    As we noted above, in order to receive a payment adjustment to the 
ESRD PPS base rate, ESRD facilities will be required to document on 
ESRD claims the co-morbidity using the appropriate ICD-9-CM code in 
accordance with ICD-9-CM coding guidelines.
    Comment: One commenter expressed concern that ESRD organizations 
will determine which combination of co-morbidities would generate large 
payments. One commenter suggested that we consider the compound effect 
of multiple adjusters that may have a singular association, but may not 
warrant compounding when used for a single patient and treatment. Other 
commenters believe that the adjusters will result in facilities only 
treating the sickest patients with the most co-morbidities in order to 
increase revenue. Some commenters expressed their concerns about 
adjusters being manipulated resulting in up-coding in order to seek 
higher payment. Another commenter indicated that facilities would be 
motivated to have patients with as many adjustments as possible 
regardless of whether there were appropriate numbers and quality of 
trained staff or the ability to care for more complex patients.
    Several commenters predicted that the fallout of including co-
morbidities

[[Page 49106]]

as adjusters would result in ``cherry picking'' leading to a crisis in 
dialysis care. One commenter expressed concern that extra care may be 
the same for a patient with a single co-morbidity, as a patient with 
multiple ones. Another commenter indicated adjusters are based on past 
history and subject to interpretation and abuse. The commenter 
questioned whether ESRD facilities will try to maximize revenues by 
qualifying patients for greater reimbursement due to previous medical 
histories that have no impact on patients and do not add costs to their 
current treatment regimen.
    Some commenters expressed concern that sicker patients with 
multiple co-morbidities may not find an ESRD facility to provide care. 
A few commenters believed patients with few or no co-morbid conditions 
may be unable to transfer to another facility because facilities will 
fill open slots with patients who have enough co-morbid conditions to 
cover the cost of providing dialysis to them. Other commenters 
acknowledged the potential of errors and manipulation with the co-
morbidities, citing alcohol dependency as an example. One commenter 
suggested eliminating the adjusters, if ESRD facilities would be 
responsible for tracking them.
    Response: We appreciate the concerns raised by commenters. We do 
not agree that the inclusion of co-morbidities as payment adjustments 
will lead to ``cherry picking'' of patients, because in the absence of 
case-mix adjustments reflecting patient cost, ``cherry picking'' the 
healthiest patients may well be a more serious problem. We believe that 
ESRD facilities will provide appropriate care under the ESRD PPS and we 
believe that our continued monitoring will identify the few ESRD 
facilities that do not.
    We acknowledge that the number of co-morbidities that an individual 
has does not necessarily determine the need for additional care. As 
commenters have noted, there may be other factors, such as functional 
limitations, that result in the need for additional care. However, at 
this time, with the data available to us, we have identified six co-
morbidity diagnostic categories which have shown higher costs due to 
higher separately billable costs. These co-morbidity diagnostic 
categories will be recognized for the co-morbidity payment adjustment 
under the ESRD PPS base. We will continue to look at other factors and 
other co-morbidities as ESRD facilities begin to enter co-morbidities 
on ESRD claims.
    With regard to the commenters expressing concerns about dialysis 
organizations determining which combination of co-morbidities would 
generate large payments and ``cherry picking'' these patients, we 
performed further analysis of the co-morbidity diagnostic categories 
for this final rule. We found that although costs were somewhat higher 
for patients with multiple co-morbidities, the effect of compounding 
two or more co-morbidity adjustments would on average result in a 
higher payment adjustment than is warranted. However, because we are 
unable to determine the extent of this higher cost, we do not believe 
that providing an adjustment for more than one co-morbidity, is 
warranted at this time. In addition, the costs the co-morbidity 
adjustments are capturing are mostly related to separately billable 
services, primarily the use of EPO. We believe that providing multiple 
co-morbidity adjustments would overstate EPO utilization, especially in 
light of the medically unbelievable edits applied under the EPO Claims 
Monitoring Policy.
    In order to avoid overly-high payments for co-morbidities, under 
the final ESRD PPS an ESRD facility may receive only one co-morbidity 
case-mix adjustment per co-morbidity category per claim, regardless of 
whether the patient has co-morbid conditions from different co-
morbidity diagnostic categories. In the event that there is more than 
one co-morbidity diagnosis category that is applicable, we will apply 
the highest payment adjustment in order to reflect the slightly higher 
costs associated with patients with multiple co-morbidities.
    In addition, our analysis has shown that it is very rare for an 
ESRD patient to have more than one of the final diagnostic categories 
recognized for a payment adjustment. Using the same comprehensive data 
sources we used to identify co-morbidity categories (including claims 
from hospital inpatient stays, outpatient encounters, physician, 
skilled nursing facilities, etc.), we determined that approximately 92 
percent of patient-months have no co-morbidities reported; 
approximately 7.4 percent of patient-months had only one reported co-
morbidity. Less than 0.45 percent of patient-months had two co-
morbidities reported.
    Therefore, in the rare event that a patient has more than one co-
morbidity diagnostic category, the adjustment for the category with the 
highest adjustment factor would be applied. Where there are two chronic 
categories reported, a payment adjustment would be applied using only 
the chronic co-morbidity category with the highest adjustment. Since 
the acute co-morbidity categories all have higher values than the 
highest chronic co-morbidity category, in the event a patient with a 
chronic condition that is eligible for a payment adjustment acquires an 
acute condition that is also eligible for a payment adjustment, the 
payment adjustment would only apply for the acute condition. In the 
event that a patient has 2 or more acute co-morbidities eligible for a 
payment adjustment, the adjustment would only apply to the acute co-
morbidity with the highest adjustment.
    We wish to ensure that patients continue to have access to high 
quality dialysis care. It will be an important focus of our monitoring 
efforts to review multiple data sources on co-morbidities and determine 
if these trends change as a result of the ESRD PPS and the co-morbidity 
adjustments so that we can ensure continued access for patients. We 
will track data on co-morbidities to detect changes in prevalence or 
type of conditions coded. To the extent that an ESRD patient has higher 
resource needs, as a result of multiple co-morbid conditions, or some 
other complication, we expect that the outlier adjustment and blended 
transition payments, as set forth in this rule, would provide 
sufficient protection against extraordinarily high costs, particularly 
in the first year of the transition. We will consider future refinement 
of our co-morbidity adjustment policy based on data from ESRD claims 
and other sources from the period after implementation of the new 
payment system to ensure that patients continue to have access to high 
quality care.
    As we noted in the onset of dialysis discussion earlier in this 
section of this final rule, our analysis for this final rule indicates 
an increase in costs for the composite rate portion of the two-equation 
model, which may reflect an increase in the level of resource 
utilization required to stabilize individuals who are new to dialysis. 
The analysis also demonstrates an increase in measured costs for the 
separately billable portion of the model, particularly for ESA 
utilization. While we found that costs were higher, on average, for 
dialysis patients with a co-morbidity during the first 4 months 
following the onset of dialysis, the effect of compounding a co-
morbidity adjustment with the onset of dialysis adjustment would, on 
average, result in higher payment adjustment than is warranted for 
separately billable services. Therefore, the co-morbidity payment 
adjusters will not apply for facilities receiving the onset of dialysis 
payment adjustment.
    With regard to the comment that adjusters are based on past 
history, we

[[Page 49107]]

are finalizing three chronic co-morbidity categories which are based on 
the patient's medical history and, which would be recognized for a 
continuous payment adjustment (except when there is an acute co-
morbidity as described above); and, three acute co-morbidities that are 
based on the co-morbidity's presence in the current claim month and for 
three subsequent months.
    With regard to commenters' concern about errors and manipulation of 
the reporting of co-morbidities, specific documentation of co-morbid 
conditions in patient medical/clinical records using specific 
guidelines will be required for this payment adjustment and we will 
address such details in future administrative issuances. We anticipate 
monitoring the use of co-morbidities. We will continue to assess the 
current as well as future co-morbidity diagnostic categories to ensure 
that all Medicare beneficiaries with ESRD have access to appropriate 
renal dialysis services.
    Comment: One commenter cautioned that the number of co-morbidities 
would go up, stating the analogy of increased Epogen[supreg] use by the 
LDOs due to financial gains. The same commenter suggested that 
providers will encourage physicians to admit high-cost patients to 
other facilities and order expensive medications and tests at these 
facilities. One commenter expressed concern that the current claims 
processing system does not accommodate the potential number of 
adjustments needed.
    Response: The current claims are able to accommodate the reporting 
of nine co-morbidities as secondary diagnoses. We will explain billing 
issues relating to co-morbidity adjustments in sub-regulatory guidance 
in the future.
    As we indicated above, we expect ESRD facilities to furnish 
appropriate care to their patients under the ESRD PPS, but we will 
monitor the ESRD PPS to identify the ESRD facilities that may not. We 
believe the concerns raised by the commenters could also exist under 
the current basic case-mix adjusted composite payment system.
    Comment: Some commenters explained that many adjustments do not 
have significant impact on the delivery of care. One commenter believed 
that the case-mix adjusters are for the purpose of protecting small 
providers against financial consequences of high-risk patients.
    Response: We recognize that the presence of a co-morbidity does not 
always result in high costs. As explained in the discussion of the 
regression model in this final rule, adjustments to the ESRD PPS base 
rate are based on average costs. In other words, on average, patients 
with diagnoses in the co-morbidity diagnostic categories will have 
higher separately billable costs. The payment adjustment reflects this 
average. There may be patients with the co-morbidity who have less-
than-average separately billable costs and others with higher costs. 
Because of this variability, some patient costs will be lower than the 
adjusted payment rate while others will be higher. In the absence of 
co-morbidity payment adjustments, differences between patient costs and 
payment are greater. The purpose of adjusting for co-morbidities and 
other patient characteristics is to reduce the average difference 
between actual patient cost and payment.
    Comment: Several commenters expressed concern that the adjustments 
decrease the base rate. These commenters recommended a higher base rate 
with fewer adjustments. Some commenters stated that in order to 
recapture the payment lost to the base rate, ESRD facilities would have 
to ensure that some of their patients have the co-morbidities 
recognized for a payment adjustment to the ESRD PPS base rate. Several 
commenters suggested eliminating all adjustments and providing the same 
payment for all.
    Response: The commenters are correct that the base rate has been 
reduced as a result of the co-morbidity diagnostic categories in order 
to maintain budget neutrality as discussed in section II.E.3. of this 
final rule. Failure to adjust for patient characteristics related to 
cost could result in reduced access to care for patients with 
characteristics generally known to be associated with cost.
    Eliminating all adjusters and providing the same payment for all 
facilities is not an option, as section 1881(b)(14)(D)(i) of the Act 
specifies that the Secretary shall include a payment adjustment based 
on case-mix that may take into account patient weight, body mass index, 
co-morbidities, length of time on dialysis, age, race, ethnicity, and 
other appropriate factors. We believe that providing for the case-mix 
and other adjustments we are including in this final rule to account 
for the higher costs for certain patients meets the intent of the 
statute.
    Comment: One commenter believed that bundling oral drugs would 
impact management of common co-morbidities such as anemia, secondary 
hyperparathyroidism and metabolic bone disease.
    Response: We discuss the oral drugs in section II.A.3. of this 
final rule. With regard to the co-morbidities that the commenter 
identified (anemia, secondary hyperparathyroidism, and metabolic bone 
disease), we are not finalizing these three diagnoses for purposes of 
the co-morbidity payment adjustment under the ESRD PPS. We explained in 
detail in the proposed rule and in this final the methodology that was 
utilized in identifying co-morbidities that would be recognized for a 
payment adjustment. Furthermore, anemia, secondary parathyroidism and 
metabolic disease are complications that occur in ESRD patients (that 
is, they are ESRD-related). If we apply the criteria that we discussed 
above, these conditions would meet two of the three criteria. That is, 
because these conditions are ESRD-related, there is a potential for 
adverse incentives regarding care (criteria number 2) and there is a 
potential for ESRD facilities to directly influence the prevalence of 
the co-morbidity either by altering dialysis care, diagnostic patterns, 
or liberalizing the diagnostic criteria. Therefore, they would not be 
considered as co-morbidities recognized for a payment adjustment.
    Comment: One commenter expressed concern that facilities obtaining 
multiple co-morbid adjustments would result in patients paying more co-
insurance and those lacking supplemental coverage facing financial 
hardship or even involuntary discharge for non-payment. One commenter 
suggested adding money for units that provide care to higher-acuity 
patients.
    Response: As discussed in section II.K.l. of this final rule, 
beneficiary co-insurance liability is based upon the total payments 
made to an ESRD facility on behalf of the beneficiary. As we discussed 
earlier, ESRD facilities will only receive a payment adjustment for one 
co-morbidity and, therefore, beneficiaries will not be held financially 
accountable for a co-insurance based upon multiple co-morbidities.
    With regard to the commenter who suggested adding money for units 
that provide care to higher acuity patients, we note that the patient-
level adjustments are intended to provide additional payment for higher 
cost patients.
f. ICD-9-CM Coding
    We proposed that in order to receive a co-morbidity payment 
adjustment, the appropriate ICD-9-CM code, using the official ICD-9-CM 
Coding Guidelines, would need to be entered on the claims (74 FR 
49954). This includes codes from both the individual body system 
chapters (codes 001.0-999.2), as well as appropriate codes from the 
supplementary classification of factors

[[Page 49108]]

influencing health status and contact with health services chapter 
(VO1.0-V89.09). We acknowledge that many of these codes, such as those 
for a history of a disease would not be eligible for a co-morbidity 
adjustment. We noted that we would issue through sub-regulatory 
guidance, any changes in codes eligible for a co-morbidity payment 
adjustment in the event of any changes in coding in the future (74 FR 
49954). For example, ICD-10-CM will be implemented for services 
occurring on or after October 1, 2013. (See 74 FR 3328-2238-3362 for 
information on the Implementation of ICD-10-CM). We are finalizing our 
determination that in order to receive a co-morbidity payment 
adjustment, the appropriate ICD-9-CM code, using the official ICD-9-CM 
Coding Guidelines, would need to be entered on the claims.
    In the proposed rule (74 FR 50027), we explained the analyses that 
we performed to determine the extent that specific diagnoses within the 
eleven co-morbidity categories are on ESRD claims. We also explained 
our analysis of the ICD-9-CM diagnosis codes, as identified by UM-KECC, 
and we provided a complete list of the codes identified by UM-KECC. We 
also provided a list of codes associated with diseases/conditions that 
we proposed would be recognized for the purposes of an ESRD co-
morbidity payment adjustment (74 FR 50069).
    We also explained that we eliminated specific ICD-9-CM codes 
associated with specific diseases/conditions that we proposed would not 
be recognized for purposes of a co-morbidity payment adjustment, and we 
provided a listing of these ineligible codes (74 FR 49955).
    Comment: Some commenters expressed concern that facilities will 
face a huge administrative burden to ensure accuracy of data in order 
to be eligible for the patient-level adjusters, which ``could and 
likely will result in cutting corners in care delivery.'' Others 
expressed concern about the need to change systems or lack of data to 
support eligibility for adjusters. A few commenters suggested including 
only adjustments that do not require administrative time, have a real 
impact on care, and do not need to be changed or documented. Other 
commenters stated that they have access neither to ICD-9-CM codes nor 
to claims from other health care providers who do document ICD-9-CM 
codes. Some commenters lamented that the co-morbidity adjustments did 
not offset the cost to change systems, obtain staff, and document codes 
correctly. One commenter believes that the difficulty of documenting 
ICD-9-CM codes would indicate that the co-morbidities should be 
eliminated.
    Response: We do not believe that changes in a payment structure 
that represent appropriately case-mix adjusted payments should be 
eliminated because of administrative changes that result. We also do 
not agree that patient-level adjusters should be comprised of only 
those that do not require staff to ensure accuracy or are easier to 
manage administratively. We agree with the comment that adjustments 
with ``real impact on patient care and care planning should be 
principle factors for which information should be reported,'' as we 
believe that our analysis on correlating payment with the adjustments 
does support patient care and planning principles.
    Comment: We received two comments indicating that the elimination 
of the heading for myelodysplastic syndrome resulted in no codes for 
this condition that would be eligible for the co-morbid payment 
adjustment.
    Response: We thank the commenter for bringing this to our attention 
and for providing a list of codes that can be used. We acknowledge that 
we inadvertently omitted the specific ICD-9-CM codes for 
myelodysplastic syndrome in the proposed rule. We have indicated the 
specific ICD-9-CM codes for myelopdysplastic syndromes in Table E of 
the Appendix.
    In the proposed rule (74 FR 49955 through 49962), we proposed a 
number of tables identifying specific ICD-9-CM codes which would not be 
recognized for purposes of the co-morbidity payment adjustment. We 
solicited comments on the ICD-9-CM codes which we proposed to not 
recognize. We did not receive any comments pertaining to the ICD-9-CM 
codes we proposed not to recognize for purposes of the co-morbidity 
adjustments. Therefore, in this final rule, we are eliminating the 
tables with ICD-9-CM codes for co-morbidities not affecting costs in 
outpatient ESRD facilities; NEC/NOS/Unspecified codes; benign tumors; 
and category headings.
    In this final rule, we are finalizing in Table E of the Appendix, 
the ICD-9-CM codes for the six co-morbidity diagnostic categories which 
would be recognized for an adjustment to the ESRD PPS base rate. As we 
have reduced the final co-morbidity diagnostic categories to six and 
made changes to the diagnoses we are finalizing in this final rule, we 
have updated Table E to contain only the ICD-9-CM codes which will be 
recognized purpose of the co-morbidity payment adjustment under the 
ESRD PPS. We note that we have included the list of ICD-9-CM codes that 
were used by UM-KECC in the analysis of the co-morbidity diagnostic 
categories for this final rule. This list is in Table E in the Appendix 
of this final rule. We are also finalizing the inclusion of co-
morbidities as patient-level adjustments in Sec.  413.235(a).
    As we discussed earlier, documentation supporting the eligible co-
morbidity diagnosis on the ESRD claim will be required in the patient's 
medical record. We will be providing specific instructions about such 
documentation requirements in the future.

g. Race/Ethnicity

    Section 1881(b)(14)(D)(i) of the Act requires that the ESRD PPS 
include a payment adjustment based on case-mix that may take into 
account a patient's race and ethnicity (as well as other patient 
characteristics such as patient weight, body mass index, etc.). In the 
proposed rule, we presented analyses of potential case-mix adjustments 
based on race and ethnicity (74 FR 49962). We indicated that while the 
inclusion of race and ethnicity factors may improve the predictive 
value of the proposed ESRD PPS, we had concerns about whether the data 
were of sufficient quality upon which to base payment adjustments (74 
FR 49966). The regression analysis we conducted for purposes of the 
proposed rule relied on two separate data sources for race and 
ethnicity status to assess the extent to which race and ethnicity would 
account for cost factors that are otherwise unexplained in the model. 
The first analysis was based on race and ethnicity data retrieved from 
the Renal Management Information System (REMIS) and the second analysis 
was based on data retrieved from the Medicare Enrollment Database 
(EDB). We note that in the proposed rule we inadvertently indicated 
that race and ethnicity data that were collected on the Form 2728 were 
retrieved from REMIS for purposes of conducting the analysis. We wish 
to clarify that these data were retrieved from the Standard Information 
Management System (SIMS). From this point forward we refer to data that 
were collected from the Form 2728 as SIMS data.
    In the proposed rule, we presented a comparison between SIMS and 
EDB data of the potential for race and ethnicity to predict differences 
in composite rate costs among ESRD facilities, as well as differences 
in MAP for separately billable services at the patient level (74 FR 
49962 through 499650). We identified several concerns with the quality 
of the SIMS and the

[[Page 49109]]

EDB data (74 FR 49966). With respect to the SIMS data, we noted that 
for data analysis purposes, it was necessary to default beneficiaries 
into the category of ``Other'' making it more difficult to assess the 
effect of race and ethnicity on costs and payments (74 FR 49966). With 
respect to the EDB data, we noted that race and ethnicity data was 
either unavailable or defaulted into the ``Unknown'' category (74 FR 
49966). We also indicated that in accordance with MIPPA, we planned to 
explore opportunities for improving Medicare program data on race and 
ethnicity for purposes of addressing health care disparities (74 FR 
49966).
    Although we did not propose case-mix adjustments for race and 
ethnicity, we requested comments on the data issues presented, other 
potential data sources for race and ethnicity that we could consider, 
and specifically, the need for adjustments for race and ethnicity in 
the final ESRD PPS. The comments that we received on whether race or 
ethnicity adjustments may be warranted under the ESRD PPS and our 
responses are set forth below.
    Comment: We received three types of comments--some in support, some 
in opposition and some that requested that CMS delay the inclusion of 
race and ethnicity as payment adjusters until the accuracy of Medicare 
race and ethnicity data could be improved. Commenters presented a 
variety of views. Some commenters believed that we should implement 
race and ethnicity adjustments in the final rule as a mechanism of 
preserving access to care for patients in the high cost racial 
categories. Many commenters believed that an adjustment for race has 
the potential to improve payment accuracy and to meet clinical needs of 
African Americans and other minority dialysis patients. Some commenters 
asserted that the exclusion of an adjustment for race would produce 
significant social and racial inequalities. Commenters cited 
fundamental concerns with the implementation of race or ethnicity 
adjustments indicating that such policy would not be appropriate. The 
commenters expressed concerns pertaining to individual rights, 
equality, and stereotyping. Commenters also opposed the implementation 
of adjustment factors that were not clinically or biologically based. 
Several commenters expressed concern about basing payment on racial or 
ethnic status indicating that race or ethnicity adjustments may 
infringe on individual rights. Some commenters believed that we should 
not implement race or ethnicity payment adjustments, suggesting that 
such a policy could be viewed as discriminatory. One commenter believed 
that implementation of race or ethnicity adjustments would open CMS up 
to risk of claims of racial bias and legal challenge.
    Finally, other commenters believed that we should continue to work 
to improve the accuracy of the data, study the extent to which race or 
ethnicity discrimination was occurring, and consider implementing race 
or ethnicity adjustments at a future date.
    Response: To maximize Medicare payment accuracy, we considered 
targeting higher payments to facilities on behalf of patients of 
certain racial or ethnic groups that, as demonstrated in the regression 
analysis, have been shown to have higher resource needs. We note the 
regression analysis is discussed further in section II.F. of this final 
rule. However, given the concerns we noted in the proposed rule, we do 
not believe it is appropriate to provide a patient-level payment 
adjustment based on race or ethnicity at this time.
    In particular, we are not convinced that race or ethnicity 
adjustments are necessary to ensure beneficiary access to ESRD 
services. That is, we believe that there may be race-neutral biological 
factors that have not yet been identified in the ESRD PPS modeling that 
could explain the increased cost associated with providing renal 
dialysis services to members of certain racial or ethnic groups. We 
intend to work to identify underlying patient-specific conditions that 
may result in increased treatment costs and also how a race/ethnicity 
adjuster might be applied. To the extent that these factors are 
identified, they could be incorporated into the ESRD PPS model as 
patient-level adjustments. We anticipate presenting our further 
analyses in future rulemaking.
    Comment: Several commenters believed that a race adjustment may 
shift payment for a large portion of the population on behalf of one 
racial group, African Americans. Another commenter noted that some 
groups, such as African Americans, would ``gain'' with the adjuster, 
while other groups such as Asians and Hispanics would ``lose''.
    Response: We believe the commenter is referring to the financial 
implications of a race adjuster. While a case-mix adjustment may result 
in higher payments to ESRD facilities that treat patients with the 
specified characteristic, the adjustment is intended to offset a 
demonstrated increased cost associated with treating patients with that 
characteristic. As described further in section II.E.3. of this final 
rule, all adjustment factors are accounted for in reductions to the 
base rate. As a result, all facilities will be impacted by the reduced 
base rate whereas only those facilities that treat patients who qualify 
for the adjustment factors would receive the higher payments associated 
with those factors. We intend to continue to study this issue and will 
present our findings in future rulemaking.
    Comment: Some commenters opposed adjustments based on race or 
ethnicity, including patients who would be included as part of the 
class/group to which the adjustment would apply. One commenter who 
opposed implementation of race or ethnicity adjustments, raised 
concerns about being labeled or stereotyped based on race, especially 
when the label may adversely affect that individual's care. Other 
commenters argued that it would be wrong to reimburse dialysis based on 
a patient's identification with a particular ethnic group. The 
commenters believed that all dialysis patients, without regard to 
racial or ethnic status, deserve the best care that is provided equally 
to all.
    One commenter who supported the inclusion of an ethnicity 
adjustment suggested that in clinical practice certain patient ethnic 
groups are more or less compliant as patients. The commenter further 
indicated that non-compliant patients require greater effort in 
counseling, monitoring and communication with physicians.
    Response: ESRD facilities are required to provide care that is 
based on individual patient need without regard to race or ethnicity. 
It is not our intent for ESRD facilities to rely on collective identity 
whereby the characteristics of a group are attributed to every member 
of that group, rather than basing treatment decisions on individual 
patient characteristics. We believe that patients should be assessed 
and treated according to their individual need, not according to the 
stereotypical traits ascribed to or manifested by (many or most but not 
all members of) their group.
    Comment: Several commenters opposed the implementation of race and 
ethnicity adjustments stating that these factors would not be 
clinically verifiable. Commenters expressed concern about whether race 
has been shown to be a clinically-driven, independent variable that 
predicts the cost of providing ESRD services. One commenter stated that 
race is not a biological concept, but rather, it is a social concept. 
The commenter asserted that basing public policy on the social concepts 
of race or ethnicity has been judged by the Supreme Court to deserve

[[Page 49110]]

condemnation. The commenter further asserted that there would need to 
be a biological basis for racial and ethnic classifications upon which 
payment adjustments would be made. The commenter stated that there is 
no biological basis for racial categories noting that a person's 
classification is commonly based on self-reported information.
    Other commenters who supported race or ethnicity adjustments 
asserted that scientific literature supports the validity of self-
reported data. In addition, a commenter stated that major 
epidemiological entities in the U.S. government such as the U.S. 
Census, CDC, NIH and OMB use self-reported race and self-reported race 
is used to make national policy decisions.
    Response: We agree with the commenter that race and ethnicity are 
not biological factors. According to the OMB, racial and ethnic 
categories should not be interpreted as being biological or genetic in 
reference. Rather, the race and ethnicity variables are based purely on 
categorization. By definition, race and ethnicity are based on social 
and cultural characteristics and ancestry.
    OMB considers self-reported race and ethnicity classification to be 
the most appropriate mechanism for establishing an individual's race or 
ethnicity. As OMB further indicated in its Provisional Guidance on the 
Implementation of the 1997 Standards for Federal Data on Race and 
Ethnicity, self-identification means that the race and ethnicity 
responses are based on self-perception and therefore, are subjective, 
but by definition, the responses are accurate (December 15, 2000, 
http://www.whitehouse.gov/omb/assets/information_and_regulatory_affairs/re_guidance2000update.pdf).
    While race and ethnicity are not biologically based, as described 
above, we intend to perform additional studies to determine whether 
there are underlying clinical or biological factors contributing to the 
increased cost of providing renal dialysis services to certain racial 
or ethnic groups. For this reason, we are not implementing a case-mix 
adjustment for race or ethnicity in this final rule. We intend to 
continue analyses that may identify the race-neutral factors that 
explain the higher costs concentrated in certain racial or ethnic 
groups. If associations between race or ethnicity and cost are present 
after addressing race-neutral factors that may be associated with 
increased treatment cost, we will consider development and 
implementation of race or ethnicity adjustments in future rulemaking. 
In the interim, we will continue to monitor for evidence of decreased 
access to renal dialysis services by racial or ethnic groups, following 
implementation of the ESRD PPS.
    Comment: Several commenters expressed concern over decreasing the 
base rate and adjustment amounts for case-mix variables that are 
objective and clinically verifiable, to account for the factors of race 
and ethnicity, which are not objective and clinically verifiable. The 
commenters indicated that it would be better to provide a sufficient 
base rate to support better treatment delivery.
    Response: As described above, we are not implementing in this final 
rule, case-mix adjustments under the ESRD PPS for race or ethnicity. As 
a result, there will be a lower standardization factor resulting in a 
higher base rate as described further in section II.E.3. of this final 
rule.
    Comment: A patient asserted that if CMS were to consider a 
patient's perception of their racial or ethnic status as a basis for an 
adjustment, then CMS should also consider accounting for the patient's 
perception of their dialysis provider's performance based on how they 
feel, whether they are informed about the dialysis process, etc.
    Response: We appreciate the commenter's suggestion to consider an 
adjustment based on patient's satisfaction with care received at the 
ESRD facility. We intend to take this suggestion under consideration in 
future rulemaking, as we develop QIP measures.
    Comment: Many commenters cited studies demonstrating differences in 
cost and utilization of renal dialysis services, primarily medications, 
among racial and ethnic groups. These commenters asserted that research 
demonstrates that race is a predictor of health care cost and believe 
that race may explain cost variability in patients more effectively 
than other adjusters. These commenters stated that African American 
patients require more ESAs, vitamin D therapies, and calcimimetics for 
bone and mineral metabolism disorders than other racial and ethnic 
groups. Commenters also stated that African Americans have higher rates 
of venous catheter use than other groups. Several commenters cited 
studies illustrating differences in disease severity and clinical 
management for secondary hyperparathyroidism between African Americans 
and other races.
    Several commenters provided alternative suggestions for race 
adjustments including a patient-level ``black vs. non-black'' 
adjustment or a facility-level race adjustment.
    Response: We thank the commenters for their analysis of studies on 
race and we will take them into consideration.
    Comment: Several commenters noted that case-mix adjusters help 
ensure equal access to care, especially for those with higher costs of 
care. Several not-for-profit small dialysis organizations (SDOs) did 
not believe that facilities would discriminate against African American 
patients in the absence of race or ethnicity adjustments by withholding 
adequate doses of ESAs.
    Response: We agree with the commenters and intend to monitor access 
to care under the ESRD PPS and stand poised to take necessary measures 
to ensure equal access to care for all ESRD patients regardless of 
cost.
    Comment: Commenters believed that the payment policy should not 
hinder access to care for minority populations. Many commenters 
provided their analyses of regional impacts, and compared them to CMS' 
impact analysis in the proposed rule.
    Commenters were concerned that in instances where higher costs are 
associated with a racial group, such as costs for ESAs associated with 
hypo-responsive patients, and given that these costs would be bundled 
into the ESRD PPS and no longer separately paid, facilities with 
patients who are mostly in the high cost racial group will be 
negatively impacted.
    Many commenters referred to CMS' impact files showing that 
facilities serving the African American population have the most 
significant reduction in payments. We received divergent comments with 
respect to where the most severe impact of not implementing race or 
ethnicity adjustments would be realized including those facilities in 
various regions of the country according to facility-type, urban and 
rural status.
    Response: We expect facilities to treat ESRD patient regardless of 
their race or ethnicity. To a certain extent, variations in resource 
intensity and the associated cost of providing renal dialysis services 
to individual patients, are reflected in the patient-level adjustments 
within the ESRD PPS model. However, to protect ESRD facilities from 
unusually high costs attributed to individuals, we have finalized an 
outlier policy described in section II.H. of this final rule. In 
instances where costs of providing ESRD services exceed the projected 
amount plus a fixed dollar loss amount, we will pay a percentage of the 
difference.
    Comment: One commenter asserted that scientific studies provide 
evidence that for-profit ESRD facilities engaged in gaming behavior 
that resulted in higher

[[Page 49111]]

cost to the Medicare ESRD program and compromised patient safety. 
Commenters claim that these studies illustrated that ``* * * patients 
in for-profit facilities were EPO ``sensitive'' during the period of 
time that payments were being made per administration and they became 
EPO ``resistent'' when the reimbursement system changed.'' These 
commenters believed that a large portion of increased pharmaceutical 
costs related to African Americans are based on past over-utilization 
of anti-anemia drugs and that factoring out the overuse identified in 
scientific studies may result in a smaller cost difference among racial 
or ethnic groups.
    One commenter asserted that for-profit providers will rely on race 
and ethnicity adjustments to circumvent the elimination of incentives 
currently in place related to drugs such as Epogen[supreg].
    Response: We thank the commenter for identifying these scientific 
studies. We plan to consider such information for further analysis of 
race or ethnicity adjustments in the future.
    Comment: Several commenters questioned whether other factors in the 
model may be correlated with the increased cost associated with 
treating African American patients. One commenter stated that race and 
weight or BMI, may be correlated and points to a study that found a 
correlation between African Americans and higher than average weight 
and BMI. A commenter also noted that the manufacturer of EPO includes 
dosing instructions calling for an increase in dose as the patient's 
BMI increases. The commenter believes that one may infer that treating 
African American patients may be more costly simply based on their 
higher than average BMI and associated greater use of EPO.
    Another commenter questioned whether adjusting for co-morbidities 
would address the variability between patients of different races. The 
commenter stated that there is not enough scientific evidence for CMS 
to account for every underlying cause of utilization differences among 
races. A commenter who conducted an independent analysis of the 
proposed rule asserted that based on their analysis, race is a better 
predictor of cost than the co-morbidities and onset of dialysis that 
were specified in the proposed rule.
    Many commenters supported the concept of patient level adjustments 
that are based on a demonstrated variation in resource utilization. 
MedPAC reiterated this point in referring to our analysis in the 
proposed rule that demonstrated associations between race and ethnicity 
and composite rate costs and separately billable payments (74 FR 
49966). MedPAC stated that if race and ethnicity predict providers' 
resource needs, then these factors should be included as adjusters. 
Alternatively, MedPAC suggested that we include clinical factors that 
are correlated with race and ethnicity that would make moot the effect 
of race and ethnicity on predictors' resource needs.
    Response: We believe that a portion, but not all, of the 
incrementally higher dialysis costs among African American patients are 
accounted for by other patient characteristics in the model, such as 
body size and co-morbidities. Despite the remaining effect that race 
has on the model, we have decided not to implement race or ethnicity as 
case-mix adjustments in this final rule. As described above, we believe 
that there are specific underlying factors that contribute to higher 
costs among certain racial groups and intend to study this further. We 
will continue to assess payments made on behalf of patients under the 
ESRD PPS during the transition. The results of this additional study 
potentially could be incorporated into future refinements of the ESRD 
PPS.
    Comment: Several commenters indicated that according to their own 
analyses, when the basic case-mix adjusters were implemented under the 
basic case-mix adjusted composite payment system, reimbursement for 
Chinese, Japanese and other Asians with smaller body size dropped. 
These commenters were concerned that a case-mix adjuster for race or 
ethnicity would extend this reimbursement inequality to laboratory 
tests and medications under the expanded bundle of services in the ESRD 
PPS, resulting in lower reimbursement for laboratory tests and 
medications on behalf of average Asian patients, than average White or 
African American patients. Commenters believed that the basic case-mix 
variables have little impact on providers' overall cost of care.
    One commenter indicated that Asian patients do not have shorter 
dialysis times nor the associated decrease in the ESRD facility's 
staffing and salaries. This commenter asserted that Asian patients have 
the same needs regarding assessment, dietary education and monitoring, 
psychosocial issues, medications and laboratory tests. The commenter 
asserted that race and ethnicity adjustments would create a bias 
against patients of Asian descent and further decrease reimbursement 
for dialysis care that is already below the national average and create 
inequalities in reimbursement.
    Response: Many of the services described by the commenter have been 
taken into account in developing the base rate amount. As described 
above, we are not implementing a case-mix adjustment for race or 
ethnicity under the ESRD PPS in this final rule. We intend to continue 
studying the underlying clinical conditions behind the increased cost 
that is linked to certain racial groups. We note that, as described in 
section II.F.3. of this final rule, we are finalizing our proposal to 
retain the adjusters for body size, BSA and low BMI, that are currently 
in place under the basic case-mix adjusted composite payment system in 
the final ESRD PPS.
    Comment: One commenter was concerned about a decrease in 
reimbursement for medications noting that beneficiaries of certain 
races may be perceived as potentially costly, which could result in 
these patients being denied access to care. Another commenter believed 
that individuals who require the most resources may be at increased 
risk of not receiving adequate care for conditions such as anemia and 
bone and mineral disorders under the ESRD PPS.
    Response: We are also concerned about beneficiaries being denied 
access to care based on racial or ethnic status and are concerned about 
any potential for a provider to make choices to provide treatment 
solely based on that provider's perception of an individual's racial or 
ethnic status. For this reason, and as discussed previously, we have 
decided to continue to study this issue and therefore, we will not 
implement race or ethnicity case-mix adjustments under the ESRD PPS at 
this time. We have been and will continue to monitor inappropriate care 
based upon race and ethnicity.
    Comment: Several commenters believe that the inclusion of 
calcimimetics and phosphate binders in the ESRD PPS is likely to result 
in negative consequences disproportionately for African Americans.
    Response: As discussed previously in section II.A.3. of this final 
rule, the implementation of the oral-only medications, including 
calcimimetics and phosphate binders, into the ESRD PPS will be delayed 
until January 1, 2014. Potential impacts of including these drugs under 
the ESRD PPS, including those on racial and ethnic groups, will be 
addressed through future rulemaking.
    Comment: Several commenters asserted that considering each 
patient's differing makeup, there may be a built-in disparity in 
patient co-insurance

[[Page 49112]]

amounts for relatively the same care plan. Another commenter indicated 
that a race case-mix adjuster would increase individuals' co-insurance 
obligations regardless of whether the individual required increased 
amounts of medications such as ESAs.
    Similarly, MedPAC indicated that including payment adjusters for 
beneficiaries' demographic and clinical characteristics would result in 
some beneficiaries having higher copayments than others. MedPAC intends 
to study this issue in the future.
    Response: For the various reasons we have discussed above, we have 
decided to exclude the race and ethnicity case-mix adjustments from the 
ESRD PPS. Similarly, as described in section II.F.3. of this final 
rule, we have narrowed the list of patient co-morbidity case-mix 
adjusters which will decrease beneficiary co-insurance obligations. In 
doing so, we believe that co-insurance payment obligations will be more 
uniform among beneficiaries. We are targeting higher payments and the 
associated higher beneficiary co-insurance obligations to facilities 
that treat patients with verifiable conditions known to be associated 
with an increased treatment cost.
    Comment: Several commenters indicated that they were unable to 
replicate UM-KECC's regression analysis that supported the proposed 
case-mix adjustments in the proposed rule. Commenters further noted 
that higher costs are not distributed evenly or randomly across the 
population but are concentrated in areas where demographics are 
dominated by one group. These commenters also found increased payment 
by racial group, primarily for medications for African Americans. In 
addition the commenters' analyses revealed that whites have higher 
costs compared to Native American, Hispanic and Asian patients.
    Another commenter indicated that its analysis differed from the 
regression analysis set forth in the proposed rule. The commenter's 
findings suggested that the case-mix adjustment for African Americans 
would be approximately 11 percent and 3 percent for Whites.
    Response: The results of the regression based case-mix adjustments 
for the race and ethnicity categories are summarized in the proposed 
rule (74 FR 49965). We believe that the reason for the differing 
results between our proposed rule analysis and that of the commenter 
relates to the data that was used. Specifically, we believe that the 
commenter's data was more limited in scope to the facility or chain 
with which the commenter was associated. As indicated above, we have 
decided to study this further and are not implementing race and 
ethnicity case-mix adjustments in this final rule.
    Comment: One commenter indicated that minorities are 
disproportionately affected by chronic kidney disease (CKD) and 
believes that the solution lies in addressing the root cause of this 
problem by providing stage 4 CKD education, pre-dialysis anemia and 
access care and other means rather than race and ethnicity case-mix 
adjusters within the ESRD PPS.
    Response: We appreciate the commenter's view on this matter and 
note that kidney disease patient education provisions authorized under 
section 152(b) of the MIPPA were implemented in the CY 2010 Medicare 
PFS final rule (74 FR 61894). We intend to evaluate the extent to which 
patient participation in the new kidney disease patient education 
benefit impacts the cost of dialysis and whether these patient outcomes 
would be relevant to the adoption of race or ethnicity adjustments.
    Comment: Several commenters believed that the data sources 
identified in the proposed rule provided a significant amount of data 
to inform decisions regarding race and CMS currently has the means to 
implement a case-mix adjuster based on race. Commenters referred to 
CMS' efforts that have improved the quality of race data including 
beneficiary surveys, annual file updates from NUMIDENT, and work with 
the Indian Health Service that helps to identify American Indians and 
Alaska Natives. Other commenters were skeptical about the 
implementation of race or ethnicity adjustments and suggested that we 
conduct further analysis.
    Response: As described in the proposed rule, we considered two 
distinct sources of race and ethnicity data upon which the race or 
ethnicity adjustments could be modeled. We believe this commenter is 
referring to the EDB data source. We agree that the accuracy of the EDB 
data has improved as a result of our supplementary data file matching 
procedures over the last 15 years such as the annual updates, surveys 
and coordination with the Indian Health Service (74 FR 49963). Despite 
these efforts, the core race and ethnicity data for the Medicare 
population that are sent to us by the Social Security Administration 
(SSA) on a daily basis from the master beneficiary record (MBR) are not 
currently collected in a format that is compliant with OMB standards 
for the collection of this data.
    To summarize, OMB requires race and ethnicity data to be collected 
using a two-question format, with the ethnicity question preceding the 
race question. In addition, OMB also requires the following minimum set 
of race categories: (1) White, (2) Black or African American, (3) 
American Indian or Alaska Native, (4) Asian, and (5) Native Hawaiian or 
Other Pacific Islander. However, as described in the proposed rule, the 
SSA's collection instrument includes the following categories: (1) 
Asian, Asian-American or Pacific Islander; (2) Hispanic; (3) Black (Not 
Hispanic); (4) North American Indian or Alaska Native; or (5) White 
(Not Hispanic). Conversely, the SSA's collection instrument groups race 
and ethnicity into one question with instructions to ``check one 
only.'' We are obligated to follow OMB standards.
    We note that OMB's standards were last updated in the October 30, 
1997 Federal Register Notice: Revisions to the Standards for the 
Classification of Federal Data on Race and Ethnicity (62 FR 58782). OMB 
also released Provisional Guidance on the Implementation of the 1997 
Standards for Federal Data on Race and Ethnicity on December 15, 2000. 
That guidance is available at: http://www.whitehouse.gov/omb/assets/information_and_regulatory_affairs/re_guidance2000update.pdf.
    As a result, these data with EDB are known to be inaccurate. Only 
an improvement of the MBR's race and ethnicity data collection will 
provide a long-range solution to the problem. We do not believe that it 
would be appropriate to establish race or ethnicity adjustments that 
would be based on EDB data until additional improvements are made to 
ensure that EDB race and ethnicity data are collected in a manner that 
is consistent with OMB standards.
    Comment: Several commenters suggested that CMS continue to improve 
the data. One commenter suggested methods set forth in various reports 
generated from public, private and academic entities. One commenter 
suggested that HHS issue guidelines for the uniform collection of data 
on race by health care organizations. Another commenter specified that 
CMS should consider conducting a mailing to persons with race coded as 
``other'' or ``unknown'' and evaluate the effectiveness of using 
surnames to identify the race of enrollees.
    One commenter believed that we may be able to develop coding 
modifiers to further verify the accuracy of the data provided. A 
commenter also believed that Medicare Advantage plans should be 
required to collect and report to CMS the race of all Medicare members. 
The commenter further suggests that the SSA should collect race 
information on

[[Page 49113]]

the SS-5 Form and through the enumeration at birth process using 1997 
OMB standards for race.
    Response: We appreciate the commenters' suggestions for improving 
race and ethnicity data. Improving the accuracy of race and ethnicity 
data by establishing consistent mechanisms by which race and ethnicity 
data are collected are essential for identifying and addressing health 
disparities. We are in the process of carrying out provisions of MIPPA 
and the Affordable Care Act (ACA) of 2010 that require the Secretary of 
Health and Human Services to evaluate race and ethnicity data and 
provide recommendations for improving the quality of the data.
    We appreciate the commenter's suggestion that Medicare Advantage 
plans should collect and report the race of their enrollees. We will 
take this suggestion under consideration, but note that Medicare 
Advantage plan requirements are beyond the scope of this rule. 
Similarly, we clarify that it would be beyond our authority to impose 
requirements on the SSA.
    Comment: Several commenters believed that race and ethnicity should 
not be case-mix adjusted asserting that the current data does not 
provide a rigorous statistical basis for reaching a reliable conclusion 
on the relevance of this characteristic.
    Other commenters believed that the reliability of CMS' existing 
data sets (REMIS and EDB) is sufficient for purposes of implementing 
race and ethnicity case-mix adjusters. Several commenters referred to a 
presentation at the 2009 American Society of Nephrology meeting that 
revealed near perfect agreement between the Medicare EDB and REMIS for 
three major U.S. race groups (Caucasian, African American and Asian) 
suggesting that race could be used as a case-mix adjuster for these 
three race groups.
    Another commenter believed that ESRD facilities may face 
operational difficulties in collecting race and ethnicity data, but 
believed that the 4-year phase-in period would allow providers to 
operationalize data collection. Other commenters stated that if deemed 
appropriate upon reconsideration, CMS should implement race and 
ethnicity adjustments. Several commenters stated that race and 
ethnicity adjustments would be more administratively manageable to 
report and would not require ongoing documentation especially for 
facilities that do not have sophisticated systems capabilities to track 
multiple patient-level adjusters.
    Response: Based on subsequent analyses, we agree with the commenter 
that the agreement between data collected on the Form 2728, located in 
SIMS, as compared to data in EDB is very high for Blacks and Whites. 
However we continue to have concerns that about the level of accuracy 
for the remaining racial and ethnic groups. Specifically, analyses 
reveal that the agreement for Asians is considered substantial and low 
moderate for American Indians or Alaska Natives and Hispanics. As 
indicated previously, we intend to continue to evaluate race and 
ethnicity data and provide recommendations for improving the quality of 
the data and re-evaluate the extent to which it would be appropriate to 
adopt race or ethnicity adjustments. As described above, we intend to 
set forth our additional analyses and proposal for handling race or 
ethnicity adjustments in future rulemaking.
    Comment: In comparing the two data analyses conducted by CMS, REMIS 
and EDB, one commenter believes that payment amounts would vary by as 
much as $21,000 on behalf of individuals whose race is defaulted to 
``Other.'' The commenter believes that this difference is unacceptable 
considering the volume of Medicare ESRD beneficiaries. Another 
commenter stated that the category ``Other'' produced wildly different 
results for adjusters in REMIS as compared to other databases.
    Response: To the extent that we were to implement race or ethnicity 
payment adjustments in the future, we do not believe that it would be 
appropriate to provide an adjustment for ``Other'' as this category may 
fail to reflect the characteristics of the individual. Rather, we would 
rely on OMB's established list of racial categories including: (1) 
White, (2) Black or African American, (3) American Indian or Alaska 
Native, (4) Asian, and (5) Native Hawaiian or Other Pacific Islander. 
As mentioned previously we intend to consider the extent to which OMB's 
guidance for allocating individuals who select more than one racial 
category into a single category would be appropriate for payment 
adjustment purposes.
    Comment: One commenter believed that we would need to further 
refine the race and ethnicity categories to avoid distortions that 
might result from lumping Native Hawaiians (the largest race/ethnic 
group) with Asians (one of the smallest race/ethnic groups).
    Response: As indicated in the proposed rule (74 FR 49963) the EDB 
is populated with race and ethnicity data that come from the SSA. The 
SSA's race and ethnicity data are collected on the SS-5 form which 
groups Asian, Asian-American or Pacific Islander into a single 
category. We agree with the commenter that to the extent we were to 
rely on data obtained from the EDB, there would be an increased risk of 
distortion. We further believe that it would be essential to base any 
proposed race or ethnicity adjustments on data collected from a source 
that is supplied by data that is collected in a manner that is 
consistent with OMB standards.
    Comment: One commenter asserted that Native Hawaiians have the 
highest average BMI and increased rates of obesity and diabetes. As 
such, the commenter believes that CMS should include a payment adjuster 
for ESRD patients in the state of Hawaii to reflect the higher costs 
involved in treating patients in that state.
    Response: As described in section II.F.3. of this final rule, we 
are finalizing the BMI case-mix adjustment under the ESRD PPS. To the 
extent Native Hawaiians have higher than average BMI, the ESRD 
facilities that provide treatment to these individuals will be 
compensated for this factor. In addition, our impact analysis reveals 
that the ESRD PPS would adequately reimburse ESRD facilities located in 
Hawaii. Specifically, facilities located in Hawaii are expected to see 
a 4.2 percent increase in payment. Therefore, consistent with our 
decision to not implement race or ethnicity adjustments, we decline to 
adopt the commenter's suggestion.
    Comment: One commenter suggested that we collect patient-level data 
for purposes of determining the extent to which race and ethnicity are 
independent predictors of cost associated with the treatment of ESRD. 
The commenter believed that implementation should only occur after CMS 
has an appropriate mechanism by which to collect the data. Another 
commenter questioned the extent to which the race and ethnicity 
variables used in the proposed rule were independent in relation to the 
other factors being used in the model. The commenter emphasized the 
importance of independence of the variables to assure accurate payments 
that are reflective of the differences in cost in treating certain 
patients. The commenter asserted that the discussion in the proposed 
rule pertaining to the findings from the different regression models 
suggests that the variables may not be independent. Thus, the model may 
result in overpayment to certain patients and underpayment to others.
    Response: As we indicated in the proposed rule, the race and 
ethnicity case-mix adjustments were based on a regression analysis that 
used patient-level separately billable payments and

[[Page 49114]]

facility-level costs (74 FR 49962). Each of the proposed payment 
variables, including race and ethnicity were independent variables. 
However, we believe that the race and ethnicity adjustment factors may 
reflect factors that are not otherwise reflected in the model. We 
intend to study this further and include our findings in future 
rulemaking.
    Comment: One commenter stated that many minority populations are of 
lower socioeconomic status and lack sufficient insurance coverage 
outside of Medicare. As such, the commenter indicated that race and 
ethnicity adjustments are even more important. Another commenter 
requested that we consider an adjustment for socioeconomic status to 
encourage dialysis providers to establish facilities in disadvantaged 
communities. The commenter suggested that a socioeconomic status 
adjustment may be a less problematic patient-level adjustment, as 
compared to other adjustments in the proposed ESRD PPS. For example, 
the commenter asserted that socioeconomic status cannot be gamed and 
would not raise privacy issues.
    Response: We do not have access to socioeconomic status data within 
our Medicare databases. However, because Medicaid eligibility is based 
on an individual's income and resources, we consider it to be one 
measure of socioeconomic status and one for which we have data. We have 
started to explore the extent to which Medicaid status is associated 
with increased cost. To date, we have not found that Medicaid status is 
associated with increased cost but we intend to study this potential 
variable in future proposed rulemaking.
    Comment: Several commenters believed that we should delay 
implementation of race and ethnicity case-mix adjusters and continue to 
investigate the degree to which such adjusters would be appropriate. 
Commenters asserted that the goal should be to close health disparity 
gaps first and then create an adjuster for any differences that remain. 
The commenters stated that to provide an adjustment without fully 
understanding the cause of the health disparity would create 
inappropriate incentives.
    The commenters suggested that we work to improve the adequacy of 
data that could be used as the basis of future race or ethnicity 
adjustments. For example, commenters asserted that specifying the race 
adjuster eligibility criteria would improve data accuracy and decrease 
the risk of provider gaming. Commenters requested that we specify the 
timeframe for completing refinements that would allow for adjustment. 
In the meantime, commenters stated that we should continue to collect 
data based on the categories included on the Form 2728 that was 
implemented on June 1, 2005 and develop a placeholder that recognizes 
the impact of race on the cost of dialysis. Other commenters believed 
that we should implement an adjustment for race while working with the 
community to develop further appropriate case-mix adjusters in the 
future. Another commenter stated that the initial adjusters could be 
periodically revised as additional, proven sources of data become 
available.
    Response: As described in the most recent IOM report in December 
2009 (Standardization for Health Care Quality Improvement, Institute of 
Medicine, 2009), Kilbourne and colleagues identify three key phases in 
addressing disparities: Detecting, understanding and reducing. We are 
currently in the detecting phase of accurately identifying vulnerable 
racial and ethnic groups and developing valid measures. Part of this 
phase involves implementation of a reliable tool for collecting racial 
and ethnic data that will ensure the linking of data to quality 
measures. Once we have a more complete understanding of the 
determinants of health disparities, we will be positioned to consider 
the extent to which a payment intervention is appropriate. We do not 
believe that it would be appropriate to implement payment intervention 
until the earlier phases of detecting and understanding racial and 
ethnic health disparities have been completed.
    As indicated previously, section 185 of MIPPA requires further 
study to identifying and addressing healthcare disparities in the 
Medicare program including those related to race or ethnicity. In 
addition, section 4302 of ACA requires ongoing analysis of race and 
ethnicity data to detect and monitor for trends in health disparities. 
In addition to these analyses, we intend to issue a Report to Congress 
recommending improvements to identifying health care disparities.
    Comment: Several commenters believed that we should continue to 
explore race and ethnicity case-mix adjustments and develop a 
methodology to collect racial and ethnic data that is reliable for 
reimbursement purposes. MedPAC suggested that CMS use current OMB 
categories to collect race and ethnicity data. This data could be 
collected via Form 2728. Other commenters believed that Form 2728 has 
sufficiently provided the race and ethnicity data for USRDS utilization 
analyses for several years.
    Other commenters were concerned about the potential for providers 
to misidentify racial and ethnic status to qualify for greater 
payments. The commenter suggested that we consider expanding racial and 
ethnic categories to minimize gaming and account for patients who 
associate with more than one racial category. Another commenter 
believed that instructions to patients to identify themselves with only 
one supplied race and ethnicity category on the form would mitigate 
data quality issues. Another commenter suggested that patients who 
elect to not select race or ethnicity categories should default to 
other or unknown and thus, become ineligible for the race or ethnicity 
adjustments.
    Other commenters indicated that many facilities rely on clerical 
personnel to complete the Form 2728. The commenter was concerned that 
this practice may result in incorrect or missing data which would have 
an impact on reimbursement.
    Response: To the extent we were to implement race or ethnicity 
adjustments in the future, we would rely on a collection instrument 
that is consistent with OMB standards. However, as discussed 
previously, we are not including a race or ethnicity adjustment in the 
ESRD PPS at this time. With the exception of the self-identification 
criteria, race and ethnicity data collected on the Form 2728 after May 
31, 2005 is consistent with the OMB collection standards. As mentioned 
previously in section II.C. of this final rule, the final ESRD PPS 
model is based on 2006-2008 data. Therefore, race and ethnicity data 
collected on the Form 2728 during the timeframe and reflected in SIMS 
is consistent with OMB's race categorizations. We note that ESRD 
facility costs and payments on behalf of patients during 2006-2008 that 
have been incorporated into the ESRD PPS model would not have been 
limited to incident patients. That is to say, costs and payments on 
behalf of patients between 2006-2008 included patients for whom the 
Form 2728 was completed prior to June 1, 2005. As indicated in the 
proposed rule, the Form 2728 that was in use prior to June 1, 2005 did 
not reflect the current OMB standards for collecting racial and ethnic 
information (74 FR 49963).
    With respect to addressing individuals who identify with more than 
one racial category, we note that OMB standards do not permit guiding 
an individual to select only one race. However, to account for 
individuals who select more than one racial

[[Page 49115]]

category, we believe that it may be possible to allocate these 
individuals into one race category. OMB has issued guidance to agencies 
for the allocation of multiple race responses for use in civil rights 
monitoring and enforcement. The March 9, 2000 OMB bulletin No. 00-02 is 
available on OMB's Web site at: http://www.whitehouse.gov/omb/BULLETINS_b00-02/?print=1.
    While we believe that this guidance may also be appropriate for 
purposes of establishing individuals' most appropriate payment 
adjustment factor related to racial designation, we intend to consider 
this issue further and present our analyses in subsequent rulemaking 
and solicitation of public comments.
    In response to the commenters concern that data on the Form 2728 
may be incorrect or missing, we believe that for the majority of 
patients the information is correct. We note that block 49 includes a 
physician attestation that the information on the form is correct. For 
this reason, we expect that information collected on the form to be 
correct and reliable.
    In summary, we believe that the use of data collected from the Form 
2728 may be appropriate both for purposes of establishing race or 
ethnicity adjustments and making payment adjustments under the ESRD PPS 
in the future. However, to ensure consistency with OMB's standards for 
the collection of race and ethnicity data, we intend to modify the 
administration instructions for completing the Form 2728 to specify 
that the information on race and ethnicity must be self reported. We 
believe that this modification will further improve the accuracy of the 
race and ethnicity data collected on the Form 2728. In addition, we 
believe that the physician attestation would verify that the patient 
had self-reported the racial and ethnic status. At that time we could 
also consider the extent to which it would be appropriate to expand the 
race categories.
    For the various reasons we discussed above, and after considering 
the public comments, we are not finalizing race or ethnicity case-mix 
adjustments in this final rule. We intend to continue efforts in 
improving Medicare program data on race and ethnicity. As described 
above, we intend to modify the Form 2728 to ensure consistency with 
OMB's standards for data collection. We also intend to complete the 
studies required under MIPPA and ACA that will assist us in identifying 
and monitoring health disparities on the basis of race or ethnicity. 
Upon completion of these studies, further analysis of studies 
referenced by commenters, and using updated data, we intend to re-
evaluate the extent to which it would be appropriate to include 
patient-level case-mix adjustments for race or ethnicity under the ESRD 
PPS. We will set forth a description of our further analysis and the 
basis of any proposed race or ethnicity adjustments in rulemaking to 
the extent that it is warranted.
h. Modality
    Section 1881(b)(14)(D)(iv) of the Act, as added by section 153(b) 
of MIPPA, gives the Secretary the authority to establish an ESRD PPS, 
which may include payment adjustments as the Secretary determines 
appropriate. Therefore, the Act gives the Secretary the authority to 
develop an ESRD PPS under which payment rates are based on dialysis 
modality.
    In the proposed rule, we presented data showing that per treatment 
composite rate PD costs were approximately 11 percent less than HD 
costs ($151.15 vs. $168.99) (74 FR 49967). Separately billable PD per 
treatment payments were about 60 percent less than those for HD 
payments. (See tables at 74 FR 49967.) We also cited data from the 
United States Renal Data System (USRDS) (74 FR 49967) showing that the 
average annual cost for PD patients ($53,327) was substantially less 
than that for HD patients ($71,889) (74 FR 49967).
    Despite these differences in cost between HD and PD, we did not 
propose to develop an ESRD PPS which uses type of dialysis modality as 
a payment variable. Using modality as a payment variable would result 
in increased predictive power in the resulting regression equations. 
Because composite rate costs and separately billable payments are lower 
for PD, the use of a modality payment variable would result in 
substantially lower payments for PD patients. The payment rates for HD 
patients would be slightly higher, because of the greater volume of HD 
patients, and the exclusion of the smaller proportion of PD patients 
from the average payment amount that would apply to HD patients. We 
stated that we believed the substantially lower payments for PD 
patients that would result if modality were used as a payment adjuster 
in the ESRD PPS would discourage the increased use of PD for patients 
able to use that modality (74 FR 49967). Because we want to encourage 
home dialysis, in which PD is currently the prevailing mode of 
treatment, we proposed an ESRD PPS which did not rely on separate 
payment rates based on modality (74 FR 49967). We stated that by 
establishing prospective payment rates that are higher for PD patients 
than they otherwise would be if separate payments were established 
based on modality, we believed home dialysis would be encouraged for 
patients able to use PD. We invited comments on this approach.
    The comments we received and our responses are as follows:
    Comment: Several commenters expressed gratitude that CMS had not 
proposed an ESRD PPS in which differential payments were made based on 
modality. By using the same base rate for HD and PD, the commenters 
maintained that this would encourage PD. A few commenters cited their 
own personal experiences on both HD and PD, pointing out the benefits 
of home PD, and how their quality of life, certain clinical outcome 
measures, and sense of well being improved after switching to PD. These 
commenters stated that more should be done to encourage PD.
    Response: We agree with the commenters, and we are finalizing the 
application of the same base rate payment amount for both HD and PD 
patients. We are hopeful that this will encourage the use of home PD 
for those patients able to benefit from that modality.
    Comment: One commenter stated that in countries such as Canada and 
Australia, payers incentivize PD when patients can benefit from 
dialysis at home. The commenter noted that currently there is no 
incentive to make PD more available in the U.S., but supported one 
bundled payment system for both HD and PD.
    Response: We believe that by providing one basic payment rate under 
the ESRD PPS for both PD and HD, facilities will have a powerful 
financial incentive to encourage the use of home PD among dialysis 
patients where feasible. Accordingly, we are finalizing the application 
of the same base rate payment amount under the ESRD PP for both HD and 
PD patients in this final rule. We will be monitoring the degree to 
which home dialysis increases in the future under the ESRD PPS.
    In the proposed rule, we pointed out that the case-mix adjustments 
proposed for pediatric patients (74 FR 49981), distinguished between HD 
and PD as a payment variable. The small number of pediatric dialysis 
patients, the limited ability of the two-equation regression model to 
accurately predict the separately billable MAP for pediatric patients, 
and the far greater prevalence of PD among pediatric patients, led us 
to examine alternative approaches in devising case-mix adjustments for 
those patients. The pediatric payment

[[Page 49116]]

adjustments described in the proposed rule, used modality, in part, to 
determine the case-mix adjusters for pediatric dialysis patients.
    For responses to the comments on the use of modality as a payment 
variable in connection with the proposed pediatric payment model, see 
section II.G. of this final rule.
4. Proposed Facility-Level Adjustments
a. Wage Index
    Section 1881(b)(14)(D)(iv)(II) of the Act, as added by section 
153(b) of MIPPA, specifies that the ESRD PPS may include such other 
payment adjustments as the Secretary determines appropriate, such as a 
payment adjustment by a geographic index, such as the index referred to 
under the existing basic case-mix adjusted composite payment system.
    In the current basic case-mix adjusted composite payment system, we 
use an index based on hospital wage and employment data from Medicare 
cost reports. In the CY 2006 PFS final rule with comment period (70 FR 
70167), we announced our adoption of the Office of Management and 
Budget's (OMB's) CBSA-based geographic area designations to develop 
revised urban/rural definitions and corresponding wage index values for 
purposes of calculating ESRD composite rates under the basic case-mix 
adjusted composite payment system. OMB's CBSA-based geographic area 
designations are described in OMB Bulletin 03-04, originally issued 
June 6, 2003, and is available online at: http://www.whitehouse.gov/omb/bulletins/b03-04.html. In addition, OMB has published subsequent 
bulletins regarding CBSA changes, including changes in CBSA numbers and 
titles. We stated that this and all subsequent ESRD rules and notices 
are considered to incorporate the CBSA changes published in the most 
recent OMB bulletin that applies to the hospital wage index (73 FR 
69758). The OMB bulletins may be accessed online at: http://www.whitehouse.gov/omb/bulletins/index.html.
    We also stated in the proposed rule that we intended to update the 
current ESRD wage index values annually (70 FR 70167). The ESRD wage 
index values used in the basic case-mix adjusted composite payment 
system are calculated without regard to geographic reclassifications 
authorized under sections 1886(d)(8) and (d)(10) of the Act and utilize 
pre-floor hospital data that are unadjusted for occupational mix (71 FR 
69685 and 73 FR 69758). Also as stated in proposed rule, we applied the 
current ESRD wage index to a 53.711 labor-related share of the 
composite rate. As we indicated, this labor-related share was developed 
from the labor-related components of the ESRD composite rate market 
basket (70 FR 70168). The ESRD wage index in the current basic case-mix 
adjusted composite payment system applies a wage index budget 
neutrality factor to ensure that the ESRD wage index is made in a 
budget neutral manner (70 FR 70170). As we previously noted, in our 
current basic case-mix adjusted composite payment system, we 
incorporate the wage index budget neutrality factor into the wage 
index. We compute a wage index factor and adjust it so that wage index 
budget neutrality can be achieved by the labor share component only.
    In the ESRD PPS proposed rule (74 FR 49968), we proposed to use the 
same method and source of wage index values as we have been using for 
the basic case-mix adjusted composite payment system. Specifically, we 
proposed that the ESRD wage index values to be used in the proposed 
ESRD PPS, would be calculated without regard to geographic 
reclassifications authorized under sections 1886(d)(8) and (d)(10) of 
the Act, and would utilize pre-floor hospital data that are unadjusted 
for occupational mix (74 FR 49968). We also proposed to use the OMB's 
CBSA-based geographic area designations to define urban/rural areas and 
corresponding wage index values. Consistent with those definitions, we 
proposed to define urban and rural areas at Sec.  413.231(b) (74 FR 
50024).
    Under the current basic case-mix adjusted composite payment system, 
we apply a floor as a substitute wage index for areas with very low 
wage index values. However, we have gradually reduced the ESRD wage 
index floor from 0.90 in CY 2005, to 0.85 in CY 2006, 0.80 in CY 2007, 
0.75 in CY 2008, 0.70 in CY 2009, and 0.65 in CY 2010 (74 FR 33637 and 
33638). We also stated that a gradual reduction was needed to ensure 
patient access in areas that have low wage index values, and that we 
would continue to reassess the need for a wage index floor in future 
years.
    In the ESRD PPS proposed rule, we proposed not to adopt a wage 
index floor (74 FR 49968). We noted that ESRD facilities affected by 
the floor may opt to go through the transition to the ESRD PPS, where 
the portion of their payment that is based on the ESRD PPS would be 
gradually increased from 25 percent of their payments in 2011 to 100 
percent of their payments in 2014. We intended to continue to gradually 
reduce the ESRD wage index floor for the portion of the payment that is 
based on the current basic case-mix adjusted composite payment system 
during the transition. Applying a gradual reduction only to the floor 
that applies to the existing basic case-mix adjusted composite payment 
system ESRD wage index was intended to accelerate the decline in the 
floor so that ESRD facilities would be less dependent on the floor. At 
the end of the transition, we indicated that we would apply their 
actual wage index values (74 FR 49968).
    In CY 2006, while adopting the CBSA designations for the basic 
case-mix adjusted payment system, we identified a small number of ESRD 
facilities in both urban and rural areas where there are no hospital 
data from which to calculate ESRD wage index values. Since there are 
ESRD facilities in these areas, we developed policies for each of these 
areas. The areas with ESRD facilities that have no hospital data are 
rural Massachusetts, rural Puerto Rico, and Hinesville, GA (CBSA 
25980). In the ESRD PPS proposed rule (74 FR 49969), we proposed to 
continue with our current policies for rural Massachusetts and 
Hinesville, Georgia (74 FR 49969). For rural Massachusetts, we proposed 
to adopt the methodology originally adopted, for CY 2008 PFS final 
rule, in which we compute the entire rural area consists of Dukes and 
Nantucket Counties. We determined that the borders of Dukes and 
Nantucket Counties are contiguous with CBSA 12700, Barnstable Town, MA, 
and CBSA 39300, Providence-New Bedford-Fall River, RI for establishing 
a wage index value. For Hinesville, GA (CBSA 25980), we proposed to 
continue to use the methodology, that is, we computed the average wage 
index value of all urban areas within the State of Georgia, that was 
adopted in the CY 2007 PFS final rule.
    Since the publication of the ESRD PPS proposed rule, we have 
determined that there is an additional urban area, Anderson, South 
Carolina (SC) (CBSA 11340), with no hospital data. For this urban area, 
Anderson, SC, we are using the same methodology we have used for the 
other urban area with no hospital data, that is, Hinesville-Fort 
Stewart, GA (CBSA 25980). Under the methodology used for that area, we 
computed the average of all urban areas within the State of South 
Carolina. We continue to believe that this method of establishing a 
wage index value for areas with no hospital data is the most 
appropriate method.
    We did not receive comments on the proposed continuation of our 
current policies for rural Massachusetts and Hinesville, Georgia. 
Therefore, in this

[[Page 49117]]

final rule we are finalizing the same methodology we have used for 
areas with no hospital data in the past, that is, compute the average 
wage index value of all urban areas within the state and use that value 
as the wage index.
    In the ESRD PPS proposed rule (74 FR 49969), we proposed to 
eliminate the wage index floor under the ESRD PPS and to use the value 
for rural Puerto Rico (0.4047) that has been used by other payment 
systems for rural areas that do not use a wage index floor. In 
particular, we have previously applied the ESRD wage index floor for 
rural Puerto Rico, because all areas in Puerto Rico that have a wage 
index were eligible for the ESRD wage index for the proposed ESRD PPS 
(74 FR 49969).
    We also proposed to use the labor-related share as measured by the 
proposed ESRD bundled market basket, which was 38.160 percent in the 
proposed rule (74 FR 49969, 50003). Our proposed adjustment for wages 
was set forth in Sec.  413.231 (74 FR 50024).
    For the proposed rule (74 FR 49969), we used the most current final 
wage index available at that time to complete the analysis. As we 
indicated, we anticipated that the proposed CY 2011 ESRD PPS wage index 
data for purposes of the ESRD PPS (that would not include any wage 
index budget-neutrality adjustment) along with the CY 2011 proposed 
update to the existing basic case-mix adjusted composite payment 
system, would be published in the CY 2011 PFS proposed rule (75 FR 
40167 through 40168). We also proposed to publish the final CY 2011 
ESRD PPS wage index along with the CY 2011 final rule update to the 
existing basic case-mix adjusted composite payment system in the CY 
2011 Physician Fee Schedule final rule, which we expect would be 
published in November of 2010 (74 FR 49969).
    The comments we received on the wage index proposal and our 
responses are set forth below.
    Comment: One commenter indicated that the CMS' use of the composite 
rate separately billable wage index listed on the facility level impact 
file is inaccurate and questioned the accuracy of the spreadsheet used 
in the proposed rule. Also, the commenter believed that the labor-
related share of the proposed bundle would be significantly lower than 
the share under the current rate.
    Response: The labor-related share based on the ESRD PPS bundled 
market basket ESRDB is lower than the labor-related share under the 
basic case-mix adjusted composite payment system. This is due to the 
fact that the labor-related share for the current system does not 
include the labor-related share component associated with separately 
billable items and services. The labor-related share in the proposed 
ESRDB market basket was 38.160 percent (74 FR 50003). This share 
represents the proportion of an ESRD facility's payment that is 
adjusted for geographic wage differences. For this final rule, in 
response to public comment, we made several methodological changes to 
the ESRDB market basket described in section II.J. of this final rule. 
The revised labor-related share is 41.37 percent.
    Comment: Many of the commenters agreed that for some rural 
facilities, additional staff must be recruited from nearby large 
cities, and travel costs and wage premiums are paid to encourage 
employees to endure the long commutes.
    Response: The wage data used to construct the wage index are 
updated annually, based on the most current data available and are 
based on OMB's definitions when applying the rural definitions and 
corresponding wage index values. As a result, the wage index reflects 
increased efforts by rural ESRD facilities.
    Comment: Commenters believed that the wage index floor should be 
maintained for all rural geographic locations to prevent access 
barriers and resulting rural disparities. The commenters also expressed 
concern that the proposed removal of this floor would aggravate 
disparities in care and would impair access to care at rural 
facilities.
    One commenter believed that the elimination of the wage index floor 
will result in a decline in a per treatment cost and questioned the 
adequacy of the methodology used to develop the wage index. Commenters 
from Puerto Rico strongly urged CMS to retract its proposal to 
eliminate the wage index floor applicable to dialysis services rendered 
in Puerto Rico in order to avoid endangering timely and accurate renal 
dialysis services to their patients. The commenters also believed that 
the wage index values are flawed because of the use of 4-year-old data 
to calculate current values in all areas of Puerto Rico.
    Response: As stated above, the wage data used to construct the wage 
index are updated annually, based on the most current data available 
and are based on OMB's definitions when applying the rural definitions 
and corresponding wage index values. Since publication of the ESRD PPS 
proposed rule, we have proposed a CY 2011 wage index floor of 0.60 for 
the case-mix portion of the blended payment for purposes of the 
transition in the CY 2011 PFS proposed rule (75 FR 40167).
    The only CBSAs that would be affected by the proposal to eliminate 
the wage index floor value for the ESRD PPS wage index are located in 
Puerto Rico. In Puerto Rico, the majority of ESRD facilities' wage 
indices are significantly below the current floor. As a result of 
public comments, we believe maintaining the wage index floor under the 
ESRD PPS will benefit ESRD facilities that have low wage index values.
    Therefore, for this final rule, we will finalize our proposal 
regarding the use of the OMB's CBSA-based geographic area designations 
to define urban/rural areas and corresponding wage index values as 
proposed. Also, although we proposed to eliminate the wage index floor 
under the ESRD PPS, we will continue to apply the wage index floor 
during the transition to the PPS portion of the ESRD PPS payment in 
2011. We note that eliminating the wage index floor over the course of 
the transition, provides an additional cushion to those facilities 
going through the transition, because they will continue to receive the 
benefit of the floor as they adjust to payments under the ESRD PPS. 
Although a commenter suggested that we apply the floor to all rural 
area values, it is important to note that no rural ESRD facilities 
outside Puerto Rico would benefit from the current floor because their 
wage indexes exceed 0.60.
    As we indicated in the proposed rule (74 FR 49969), we issued the 
proposed CY 2011 wage index for the composite rate portion of the 
blended payment in the CY 2011 PFS proposed rule (75 FR 40167) and will 
respond to public comments and finalize the CY 2011 ESRD PPS wage index 
in the CY 2011 PFS final rule later this year. Lastly, we are 
finalizing 413.231 (Adjustment for wages), however, we are revising the 
provision to indicate the wage index is applied to the labor-related 
share of the base rate.
b. Low-Volume Adjustment
    Section 1881(b)(14)(D)(iii) of the Act requires a payment 
adjustment that ``reflects the extent to which costs incurred by low-
volume facilities (as defined by the Secretary) in furnishing renal 
dialysis services exceed the costs incurred by other facilities in 
furnishing such services, and for payment for renal dialysis services 
furnished on or after January 1, 2011, and before January 1, 2014, such 
payment adjustment shall not be less than 10 percent.''

[[Page 49118]]

i. Defining a Low-Volume Facility
    As indicated above, section 1881(b)(14)(D)(iii) of the Act 
authorizes the Secretary to define ``low-volume facilities'' for 
purposes of a payment adjustment in the proposed ESRD PPS. As discussed 
in the proposed rule (74 FR 49969), we believed the low-volume 
adjustment should encourage small ESRD facilities to continue to 
provide access to care to an ESRD patient population where providing 
that care would otherwise be problematic. For the proposed rule, UM-
KECC performed analyses using data from CMS Medicare cost reports, 
SIMS, and OSCAR for years 2004-2006 to assist us in determining what 
the ESRD facility-level characteristics are that best demonstrate a 
low-volume facility (74 FR 49969). In the proposed rule, we described 
the methodology used to define a low-volume facility by setting the 
parameters for ESRD facility size. We explained that the term `year' 
would be established by the ESRD facility's final-settled cost report, 
where the final-settled cost report reports costs for 12 consecutive 
months (74 FR 49970).
    For purposes of exploring possible definitions for low-volume 
facilities, we began by developing a measure for facility size. Under 
the initial categorization, an ESRD facility that furnished less than 
5,000 treatments per year was considered small, an ESRD facility that 
furnished 5,000 to 10,000 treatments per year was considered medium, 
and an ESRD facility that furnished 10,000 treatments per year or more 
was considered large. We then categorized all ESRD facilities into four 
ESRD facility ownership types: (1) Independent, (2) regional chains, 
(3) Large Dialysis Organizations (LDOs), and (4) unknown ownership 
type. Of the hospital-based ESRD facilities, we found that 75.5 percent 
were independent, 10.7 percent were members of a regional chain/other 
category, 0.7 percent were members of an LDO, and 13.2 percent had 
unknown ownership status.
    The comparison between ESRD facility size and ownership type 
indicated that ownership varied with ESRD facility size and smaller 
ESRD facilities, especially those with less than 3,000 treatments, were 
relatively more likely to be independent than larger ESRD facilities. 
The comparison also indicated that while smaller ESRD facilities were 
less likely to be members of an LDO than larger ESRD facilities, a 
relatively large fraction of smaller ESRD facilities were members of an 
LDO. As a result of the comparison between ESRD facility size and ESRD 
facility ownership type, we chose to use ESRD facility ownership type 
as a variable in a two-equation regression analysis to test whether 
cost varied by ESRD facility ownership type within an ESRD facility 
size category (74 FR 49970).
    We also looked at the distribution of ESRD facility size across 
ESRD facilities that have an urban or rural status. We found that 
nearly half of the small ESRD facilities were rural and larger ESRD 
facilities were less likely to be rural. The comparison also indicated 
that because most ESRD facilities were urban, even with the lower 
percentage of small ESRD facilities in urban areas, more urban ESRD 
facilities than rural ESRD facilities would benefit from a low-volume 
payment adjustment. As a result of the comparison between ESRD facility 
size and urban/rural status, we used urban/rural status as a variable 
in a two-equation regression analysis to test whether cost varies by 
urban/rural status within an ESRD facility size category (74 FR 49971).
    In the proposed rule, we discussed the methodology used to identify 
the factors that could be targeted to ensure that we had the right 
population of ESRD facilities that were low-volume as well as the 
methodology used to identify the treatment threshold (74 FR 49971 
through 49975). We found that the cost multipliers for small ESRD 
facilities were greater than 1.1 for any of the definitions for small 
ESRD facility size with respect to number of treatments per year and 
that the cost multipliers tended to decline for successively higher 
cutoffs for defining small ESRD facilities. We also noted that if a 
payment multiplier fully reflected the cost multiplier, there would be 
a strong disincentive for ESRD facilities to increase volume above the 
cutoff. However, to the extent that a payment multiplier was smaller 
than the cost multiplier, this disincentive was somewhat diminished (74 
FR 49974).
    We explained that since the analyses included data that spanned a 
3-year period (2004-2006), we further evaluated the three ESRD facility 
size categories that we applied in the previous regression analysis, 
that is, less than 2,000 treatments, less than 3,000 treatments, and 
less than 4,000 treatments per year. We were interested to see the 
number of small ESRD facilities that were able to maintain their ESRD 
facility size status each year of the 3-year period. We proposed to use 
a threshold of ESRD facilities that provide less than 3,000 treatments 
per year across the 3-year period because it struck a balance between 
establishing an increment in payment that reflected the substantially 
higher treatment costs incurred by low-volume facilities (an increment 
that tended to decrease as the low-volume threshold was raised) but 
still applied to a sufficiently large number of ESRD facilities to have 
an impact (74 FR 49975).
    In the proposed rule, we explained that in accordance with the 
statute, we defined low-volume facilities in Sec.  413.232, as an ESRD 
facility that meets the following criteria: (1) Furnished less than 
3,000 treatments in each of the 3 years preceding the payment year; and 
(2) has not opened, closed, or received a new provider number due to a 
change in ownership during the 3 years preceding the payment year (74 
FR 49975).
    In the proposed rule, we expressed our awareness that there are 
Medicare-certified ESRD facilities that solely furnished support 
services and training for home hemodialysis and home peritoneal 
dialysis to ESRD beneficiaries. We expressed our concern that it may 
not be appropriate to extend low-volume eligibility to these types of 
facilities (74 FR 49975).
    In addition, in the proposed rule, we expressed our concerns about 
potential misuse of the proposed low-volume adjustment. Specifically, 
our concern was that the low-volume adjustment could incentivize 
dialysis companies to establish small ESRD facilities in close 
geographic proximity to other ESRD facilities, thereby leading to 
unnecessary inefficiencies, in order to obtain the low-volume 
adjustment. To address our concern, we proposed criteria for ESRD 
facilities to be eligible for the low-volume adjustment. We proposed 
that for the purposes of determining the number of treatments under the 
proposed definition of a low-volume facility, the number of treatments 
considered furnished by the ESRD facility would be equal to the 
aggregate number of treatments actually furnished by the ESRD facility 
and the number of treatments furnished by other ESRD facilities that 
are both: (i) Under common ownership with; and (ii) 25 road miles or 
less from the ESRD facility in question. However, we proposed to 
grandfather those commonly owned ESRD facilities that had been in 
existence and certified for Medicare participation on or before 
December 31, 2010, thereby exempting them from the geographic proximity 
restriction (74 FR 49975).
    In the proposed rule, we discussed that there would need to be a 
method in place so that existing ESRD facilities that met the 
definition of a low-volume facility could be identified. We proposed 
that ESRD facilities could

[[Page 49119]]

attest to the FI/MAC that they qualify as a low-volume facility (74 FR 
49975 through 49976).
    We solicited comment on the change of ownership element of the 
proposed definition of a low-volume facility. We did not receive any 
comments and, therefore, we are finalizing the change of ownership 
element of the low-volume definition at Sec.  413.232.
    We did not receive comments on the proposed grandfathering 
provision nor the ESRD facilities attestation of low-volume status 
requirement. Therefore, in this final rule, we are finalizing those 
provisions as proposed. We received a few comments on the 
appropriateness of applying the low-volume adjustment to training ESRD 
facilities as set forth below.
    Comment: One commenter was opposed to applying the low-volume 
adjustment to ESRD facilities that solely furnish support services and 
training to home patients. The commenter believed that because these 
facilities do not treat patients, they should not be eligible for the 
low-volume adjustment. Two commenters believed that it is appropriate 
to apply the low-volume adjustment to eligible ESRD facilities that 
solely furnish support services and training to home patients. One 
commenter explained that allowing these types of facilities to be 
eligible for the low-volume adjustment is consistent with encouraging 
home dialysis options. Another commenter provided a detailed 
explanation as to why small facilities that only furnish PD should 
qualify for the adjustment. This commenter also asked for clarification 
as to how CMS would identify facilities that solely furnish support 
services and training and if these facilities would be excluded from 
the analysis. One commenter expressed concern about CMS' treatment of 
home dialysis services in the low-volume policy indicating that CMS 
does not have the ability to properly identify training programs.
    Response: We maintain a database of all ESRD facilities and their 
respective Medicare certifications. We are able to use this database to 
develop reports and to analyze and monitor the different facility 
characteristics and trends. The cost reports used in determining low-
volume ESRD facilities for the analyses of costs for composite rate and 
separately billable services identifies both home and in-facility 
dialysis treatments, including training treatments.
    With regard to the comments concerning the facilities that solely 
furnish support services and training, in our analysis we controlled 
for the percentage of training treatments in the facility so that the 
adjustment for low-volume facilities would be independent of costs 
associated with home dialysis training. Therefore, we are including 
ESRD facilities that solely furnish support services and training as 
being eligible for the low-volume adjustment. We believe that including 
this type of ESRD facility as being eligible for the low-volume 
adjustment could encourage ESRD facilities in rural areas, to provide 
home dialysis training. We will monitor the extent to which facilities 
that solely furnish home dialysis training support receive the low-
volume payment adjustment and whether the number of these facilities 
increases after implementation of the ESRD PPS.
    We received many comments on the possible unintended effects of 
establishing a treatment threshold and other comments on the definition 
of a low-volume ESRD facility as set forth below.
    Comment: Many commenters expressed concern regarding potential 
disincentives low-volume facilities could have regarding patient care. 
The commenters suggested that CMS consider strategies for monitoring 
the low-volume adjustment in addition to those stated in the proposed 
rule. The commenters claimed that facilities will not offer additional 
treatments if it means that those additional treatments will render the 
facilities ineligible for the low-volume adjustment. The commenters 
also asserted that dialysis chains will establish facilities in a 
market where another facility is sufficiently servicing a location just 
to be able to take advantage of the adjustment. The commenter stated 
that a dialysis chain could create an artificial low-volume facility 
that purposely operates below its efficiency level in order to receive 
the adjustment. The commenters recommended that CMS enact controls and 
measures to prevent gaming of the low-volume adjustment and to ensure 
that those facilities which serve disadvantaged areas are correctly 
identified. One commenter suggested that CMS only apply the adjustment 
to facilities that are not within 30 road miles of another facility.
    Response: We share the commenter's concerns and agree that there is 
potential for gaming as a result of the low-volume adjustment. At this 
time, we are not finalizing any additional criteria or requirements. We 
believe that the geographic proximity restriction, as described in the 
ESRD PPS proposed rule (74 FR 49975), produces the same effect as the 
commenter's suggestion of not allowing ESRD facilities that are within 
30 road miles of another ESRD facility to be eligible for the low-
volume adjustment. We believe that the commenter's suggestion is too 
restrictive in that there could be independent small ESRD facilities 
that are servicing areas efficiently even if there are within 30 road 
miles of another independent ESRD facility. We will monitor payments 
under the ESRD PPS and the location of new facilities to determine if 
changes in the criteria that qualify ESRD facilities as being low-
volume are warranted.
    Comment: Many commenters supported the low-volume adjustment 
indicating that the adjustment would encourage small ESRD facilities to 
continue to provide access in areas where the patient base is low.
    Response: We thank the commenters for their support.
    Comment: A couple of commenters questioned the rationale we used in 
determining the treatment threshold. Specifically, the commenters 
stated that CMS used an arbitrary selection of 3,000 treatments, which 
ignores the real and measurable higher costs per treatment incurred by 
low-volume facilities performing 4,000 or 5,000 treatments per year. A 
few commenters requested that CMS provide a detailed explanation of its 
methodology for selecting facilities as being eligible for the low-
volume adjustment and verify that facilities identified as low-volume 
meet the criteria of providing less than 3,000 treatments.
    A few commenters expressed concern that the proposed treatment 
threshold of less than 3,000 treatments would capture too low of a 
population of small facilities leaving out many facilities that they 
believe should receive the adjustment. Several commenters expressed 
concern that most pediatric facilities may not qualify based on the 
less than 3,000 treatment threshold. The commenters suggested that CMS 
raise the treatment threshold portion of the low-volume definition to 
less than 4,000 treatments.
    Response: We disagree with the comment that our proposal to 
establish a threshold of less than 3,000 treatments was arbitrary. As 
discussed in the proposed rule, we began the development of the low-
volume adjustment by analyzing facility size. We determined facility 
size by looking at the total number of treatments that a facility 
furnished annually because that was the basis for which they receive 
payment. We used the total treatment counts from cost reports for 2004, 
2005, and 2006. We carefully assessed treatment counts beginning at 
less than 1,000 and moved upward to more than 10,000. We performed 
comparisons of

[[Page 49120]]

different facility characteristics against the different treatment 
thresholds and studied the trends. We found that in each comparison, 
when the number of treatments increased, the cost that facilities 
incurred for composite rate services decreased (74 FR 49970).
    For this final rule, we repeated the analyses using cost reports 
for 2006, 2007, and 2008. We also used SIMS data for total treatments 
for calendar year 2008 to see the change in the percentage of certain 
ESRD facility types that would be eligible with a less than 4,000 
treatment threshold that may not have been eligible with a less than 
3,000 treatment threshold. As displayed in Tables 23 and 24, we 
compared characteristics of facilities eligible for a low-volume 
adjustment that are based on a 3,000 treatment threshold for 
determining low-volume status to characteristics of facilities eligible 
for the low-volume adjustment that are based on a 4,000 treatment 
threshold. We found the percent of Medicare HD-equivalent dialysis 
treatments that would qualify for the low-volume adjustment increased 
from 0.7 percent using a 3,000 treatment threshold to 1.9 percent using 
a 4,000 treatment threshold. The tables also show that when compared to 
larger facilities, facilities that would be eligible for the low-volume 
adjustment are more likely to be located in a rural area, less likely 
to be part of an LDO, more likely to be hospital based, likely to have 
a somewhat higher percentage of Medicare patients, more likely to be a 
pediatric facility, more likely to have previously received an isolated 
essential facilities (IEF) composite rate payment exception, and more 
likely to concentrate on home dialysis.
    Based on the commenter's arguments and our subsequent analysis 
regarding the treatment threshold, in this final rule, we are 
finalizing a threshold of less than 4,000 treatments and we are 
revising the regulation at Sec.  413.232 to reflect this threshold.
BILLING CODE P

[[Page 49121]]

[GRAPHIC] [TIFF OMITTED] TR12AU10.027

BILLING CODE C

[[Page 49122]]

    Comment: One commenter recommended that CMS consider a stratified 
differential payment to all ESRD facilities based on treatment 
thresholds. The commenter further explained that under a differential 
payment method, facilities would receive the largest adjusted payment 
for the first 1,000 treatments and then as the number of treatments 
increases, the payment amount would decrease.
    Response: We thank the commenter for their suggestion. We will 
monitor the number of facilities that are low-volume throughout the 
initial years of the ESRD PPS and analyze their behaviors to decide if 
we should develop a different methodology in determining low-volume 
eligibility in future refinements.
    Comment: We received a few comments objecting to our proposal to 
use total annual treatments as a criterion in the low-volume 
definition. The commenters explained that there are too many variables 
associated with using treatments, such as, patients hospitalized, 
patients who travel, patient-visitors, and missed treatments. The 
commenters stated that a stable method of determining the volume of a 
facility is by patient census or by counting the number of chairs 
available for furnishing treatments (stations) in the facility.
    Response: We disagree that a stable method of determining the 
volume of an ESRD facility would be by patient census or stations in 
the facility. In the proposed rule, we explained that in the initial 
analysis, an ESRD facility size was defined by the number of treatments 
(74 FR 49970). Payments to ESRD facilities are paid on a per treatment 
basis and we noted that patient census accounted for by the number of 
treatments that are furnished. We believe that furnishing care to 
patients that get hospitalized, patients who travel, patient-visitors, 
and those patients that miss treatments is a universal occurrence among 
all ESRD facilities and, therefore, these circumstances neither serve 
as an advantage nor a detriment in an ESRD facility's eligibility for 
the low-volume adjustment. We do not consider patient census or number 
of stations as indicators of low-volume status, because these would not 
reflect the actual number of treatments provided. In addition, we 
continue to believe the use of total treatments, including those 
covered by other payers, is necessary to determine eligibility for low-
volume status.
    Comment: A few commenters from hospital associations requested 
clarification on which treatments would count toward the proposed 
treatment threshold, because they furnish both inpatient and outpatient 
dialysis services.
    Response: Payment for renal dialysis services under the current 
payment system and under the ESRD PPS is made to Medicare-certified 
ESRD providers of services or renal dialysis facilities for furnishing 
outpatient maintenance renal dialysis items and services. Given that 
the ESRD PPS pertains to outpatient maintenance dialysis, the low-
volume adjustment treatment threshold only pertains to outpatient 
dialysis and therefore, the treatments counted do not include inpatient 
dialysis treatments.
    Comment: One commenter suggested that CMS include payer mix as a 
criterion in determining the eligibility of a low-volume facility. The 
commenter expressed concern that facilities that have a higher 
percentage of Medicare-only patients, or patients that are Medicare and 
Medicaid eligible, have a high risk of having low profit margins.
    Response: We disagree with the commenter that payer mix should be 
used as a criterion in determining low-volume eligibility. As we stated 
in the proposed rule (74 FR 49969), we believe the low-volume 
adjustment is intended to encourage small ESRD facilities to continue 
to provide access to care to an ESRD patient population where providing 
that care would otherwise be problematic. Therefore, we will provide an 
adjustment based on the volume of treatments provided and not on the 
basis of a payer mix. We note that many ESRD facilities determined 
eligible for the low-volume adjustment have a high percentage of 
Medicare patients (see Table 24).
    Comment: Some commenters suggested that the implementation of the 
low-volume criteria should be more specific and clear in stating 
eligibility for the adjustment. Two commenters questioned how CMS will 
determine when a facility reaches its 3000th treatment. The commenters 
suggested that one way we could determine when a facility reached the 
3,000 treatment threshold is to use Medicare claims. The commenter 
explained that if CMS uses Medicare claims to make this determination, 
then this would suggest that CMS is not including non-Medicare 
treatments. The commenters suggested that the alternative to using 
Medicare claims would be to use cost reports. However, the commenters 
expressed concern that using cost reports would create too long of lag 
time from when the facility is no longer eligible for the low-volume 
adjustment and when the FI/MAC would be able to identify total 
treatments. The commenters expressed concern that using the cost 
reports to verify that a facility does or does not continue to be 
eligible for the low-volume adjustment means that CMS would 
retroactively collect monies paid out on all treatments that exceeded 
the threshold in that payment year. Other commenters suggested that CMS 
use cost reports to terminate the application of the low-volume 
adjuster at the time the cost report is submitted and to not claw back 
the dollars already paid out.
    Response: We believe that we were explicit in our discussion of 
criteria in the proposed rule (74 FR 49975), but we agree that we did 
not discuss the implementation in the proposed rule. We will provide 
additional information on the implementation of the low-volume 
adjustment in the future. Therefore, we are finalizing the low-volume 
definition and the applicable criteria as set forth in Sec.  413.232.
    We used all treatments including non-Medicare treatments from the 
cost reports to establish the low-volume threshold, as we believe that 
inclusion of all treatments regardless of payer type represents the 
true volume of treatments that are provided to ESRD patients. If we had 
not included treatments from other payer types, we would have not 
determined the actual volume of services provided to individuals with 
ESRD. Therefore, we will use cost reports to confirm facility status as 
low-volume.
    We agree with the commenter that there is a lag time from when the 
facility may no longer be eligible for the low-volume adjustment and 
when the FI/MAC finalizes its cost report for that payment year. It is 
our understanding that ESRD facilities have accounting systems in place 
that allow them the ability to record the number of patients that they 
currently care for, and are therefore aware of the number of treatments 
it furnishes on a monthly basis.
    We recommend that once a facility determines it has furnished over 
4,000 treatments in the payment year that it would notify its 
respective FI/MAC that it no longer qualifies as a low-volume facility 
and request to no longer have the adjustment applied to its treatments. 
Where a facility no longer meets the eligibility requirements and does 
not notify its FI/MAC, CMS will develop procedures to ensure that ESRD 
facilities receive the appropriate payments. We will address these 
procedures in detail in the future.
    Comment: A few commenters stated that they do not believe that the 
data CMS used to develop the low-volume adjustment was appropriate. The 
commenters explained that cost reports

[[Page 49123]]

have not been used for purposes of setting payment and that their 
experience with cost reports is that they typically have extreme 
values/errors that can distort results. The commenters suggested that 
CMS perform a more detailed review of the individual facilities that it 
identified as being qualified to receive the low-volume adjustment to 
ensure that the correct facilities are being identified. The commenters 
recommended that we consider adhering to the statutory recommendation 
of a 10 percent adjustment in absence of clear, concrete data.
    Response: We use the cost report information to obtain facility 
level information that includes facility costs for composite rate 
services and the number of dialysis treatments provided by a facility. 
Because the low-volume payment adjustment is a facility level 
adjustment, whereby an ESRD facility would receive a payment adjustment 
based on the number of maintenance dialysis treatments it furnished, we 
believe the cost report would be the appropriate source to obtain that 
information. We agree with the commenter that in our data analysis for 
the ESRD PPS, we found that there were individual cost reports with 
extreme values or errors and a methodology has been used to exclude 
these records from the analyses (discussed further in section II.C. of 
this final rule). We will be monitoring the use of the low-volume 
adjustment to ensure that appropriate ESRD facilities, which have not 
exceeded the 4,000 treatment threshold, will receive the low-volume 
payment adjustment. In the meantime, we believe using the adjustment 
derived from the regressions analysis is a better measure of the costs 
of low-volume facilities.
    Comment: We received two comments requesting clarification of why 
we used 89 low-volume facilities in the low-volume adjustment analysis 
but listed 166 low-volume facilities in the impact file. The commenters 
provided examples of facilities that were identified by CMS as low-
volume in the impact analysis, but according to their research, did not 
meet the low-volume criteria, such as (1) 6 facilities closed in 2007 
or 2008; (2) 11 facilities had greater than 3,000 total treatments for 
cost report year 2006; (3) 2 facilities were start-ups or may have 
changed ownership in 2007; and (4) 30 facilities have zero workstations 
which would indicate that they appear to be home dialysis programs. The 
commenters stated that these examples indicate that CMS is incorrectly 
identifying facilities as low-volume.
    Response: As discussed in the proposed rule (74 FR 49969), the data 
used for the regression analysis which was used to determine the 
magnitude of the adjustment for low-volume facilities (not to identify 
the actual ESRD facility), was made from Medicare cost reports, SIMS, 
and OSCAR for the years 2004, 2005, and 2006. Using the data available 
at the time the analysis was completed, we estimated that 89 facilities 
with cost report data available for the regression analysis would 
qualify as low-volume facilities (74 FR 49975).
    However, to assess the impact of the ESRD PPS in 2011, we used the 
most recent data available to determine total facility treatments. 
Because cost reports for 2007 were generally not complete at the time 
of the analysis, we used SIMS data to identify low-volume facilities 
that would be eligible for the adjustment. The information in SIMS is 
populated from the Annual Facility Survey which is submitted by all 
ESRD facilities on a yearly basis. Based on the data available at the 
time the impact analysis was completed, 166 facilities met the low-
volume definition proposed at Sec.  413.232 (74 FR 50018). Therefore, 
it is possible that there is conflict between CMS's data and the data 
that was being analyzed by the commenter due to the timing of when the 
analysis was completed and the difference in data sources.
    Comment: One commenter disagreed with the proposed requirement that 
an ESRD facility must provide less than the treatment threshold for 
three consecutive years before becoming eligible for the low-volume 
payment adjustment if the ESRD facility serves a population of patients 
located in remote areas. The commenter suggested reducing the 
qualification time period to one year. One commenter expressed concern 
that limiting the low-volume adjustment to facilities that have been in 
operation for three years would freeze the number of ESRD facilities in 
rural areas, thereby causing patient access issues.
    Response: We appreciate the commenter's suggestion however we do 
not have a mechanism in place to determine if a facility is in a remote 
area. We discuss rural facilities later in this section of this final 
rule.
    We believe that a 3-year waiting period serves as a safeguard 
against facilities that have the opportunity to take a financial loss 
in establishing new facilities that are purposefully small. We 
structured our analysis of the ESRD PPS by looking across data for 
three years as we believe that the 3-year timeframe provided us with a 
sufficient span of time to view consistency in business operations.
    Comment: Several commenters recommended that the IEF be considered 
eligible for the low-volume adjustment regardless of the number of 
treatments they provide each year. Two commenters expressed concern 
that twelve of the 37 facilities with current IEF Medicare exceptions 
exceeded the 3,000 low-volume threshold. The commenters believe that 
the facilities that currently have IEF status have been deemed as an 
IEF through the exception process by providing evidence of their excess 
costs due to furnishing dialysis treatments in areas that are isolated. 
One commenter suggested that CMS review the cost reports for these IEFs 
and base the adjustment on current and accurate costs. Another 
commenter suggested the same idea but added that the adjustment be at 
least 10 percent.
    Response: To be eligible for an IEF exception rate under the 
current basic case-mix adjusted composite payment system, an ESRD 
facility was required to demonstrate that it met the criteria 
established by us. As discussed in section II.L. of this final rule, 
all exceptions currently in place will no longer apply under the ESRD 
PPS. The IEFs that retained their exception rate after the 
implementation of the basic case-mix adjusted composite payment system 
will no longer be able to retain that rate after the implementation of 
the ESRD PPS. As a result, there is no mechanism to reassess or grant 
exceptions. However, in the event that an ESRD facility elects to 
receive payment under the ESRD PPS transition period, any existing 
exceptions would be recognized for the purpose of the basic case-mix 
adjusted composite payment system portion of the blended payment 
through the transition.
    In the proposed rule, we indicated that there are currently 37 
facilities that retained their exception rates (74 FR 50018). However, 
the 37 facilities are not exclusively IEFs. The total represents both 
facilities that met the criteria for an IEF exception and facilities 
that demonstrated they have atypical service intensity.
    We do not believe that IEF facilities should automatically be 
considered low-volume because the criteria required for the IEF 
exceptions differ from the criteria established to be eligible for the 
low-volume adjustment.
    Comment: One commenter recommended that CMS develop a methodology 
similar to the one used to identify critical access hospitals (CAH). 
The commenter further explained that this would include mileage 
proximity to

[[Page 49124]]

another dialysis facility as well as number of treatments per year.
    Response: We appreciate this suggestion; however, we believe that 
ESRD facilities and CAHs are not comparable provider types. CAHs, 
defined at section 1820(c)(2)(B) of the Act, furnish a multitude of 
services and have provider-specific conditions of participation, and 
therefore, have criteria established to identify them. We believe that 
we have developed criteria that are appropriate to establish if an ESRD 
facility is eligible for a low-volume payment adjustment. Therefore, as 
we indicated in the previous response, we are finalizing the criteria 
to be used to determine low-volume eligibility in Sec.  413.232. We 
will monitor the growth of low-volume facilities to see if additional 
criteria are warranted in the future.
    Comment: Several commenters expressed concern that the low-volume 
adjustment would not ``level the marketplace between competitors and 
therefore would not help the average small dialysis organization 
(SDO)''. Some commenters stated that CMS should support small 
businesses because most SDOs are dependent on Medicare patients for the 
majority of their treatments. The commenters further stated that only 
facilities that are not part of an LDO should receive the low-volume 
adjustment because in comparison with the LDOs, SDOs furnish a small 
percentage of the dialysis patient population. As a result, commenters 
claimed that they are unable to benefit from the economies of scale of 
LDOs.
    Response: We appreciate the commenters' concerns, however, we 
continue to believe that the definition of a low-volume facility 
discussed in the proposed rule (74 FR 49975), and subsequently modified 
by this final rule which increased the treatment threshold from 3,000 
treatments to 4,000 treatments, identifies the ESRD facilities that 
incur high costs for furnishing renal dialysis items and services in 
areas that would otherwise be problematic. We believe that with our 
data analysis which provided empirical evidence of higher costs and our 
selection of criteria, we have identified those facilities that are 
low-volume. We note that in response to comments from SDOs, we have 
done an analysis to compare how the smaller dialysis facilities that 
are neither low-volume nor affiliated with a large dialysis 
organization will fair after implementation of the ESRD PPS. This 
analysis is discussed in section IV.B.1. of this final rule.
    We received a few comments on the proposed geographic requirements 
used to determine the number of treatments furnished by an ESRD 
facility to be eligible for the low-volume payment adjustment as set 
forth below.
    Comment: One commenter expressed concern that the low-volume 
adjustment should be developed based on the proximity of a facility to 
all other facilities and the total volume of services a facility 
furnishes. The commenter suggested that CMS implement a low-volume 
adjuster that is based on the total volume and proximity of the 
facility in question to other facilities. Another commenter suggested 
that CMS consider the regularity and frequency of dialysis care that 
patients need when determining the distance threshold as most dialysis 
patients are treated three times weekly. The commenter indicated the 25 
road mile standard may not be appropriate and that CMS may want to 
consider a shorter distance.
    Response: In the proposed rule, we explained that we were concerned 
about the potential misuse of the proposed low-volume adjustment 
because the low-volume adjustment could incentivize dialysis companies 
to establish small ESRD facilities in close geographic proximity to 
other ESRD facilities leading to unnecessary inefficiencies. Therefore, 
for the purposes of determining the number of treatments, we proposed 
that the number of treatments considered furnished by the ESRD facility 
would be equal to the aggregate number of treatments furnished by the 
other ESRD facilities that are both under common ownership, and 25 road 
miles or less from the ESRD facility in question. We developed the 
proximity criteria as a parameter to be used by the FI/MACs when they 
evaluate eligibility for the low-volume adjustment of new facilities 
that open in the future (74 FR 49975). We do not believe that the 
frequency that a patient receives dialysis treatments is relevant to 
determine the location of a new facility as the distance traveled would 
be different for each patient.
    Therefore, for the reasons above and those set forth in the 
proposed rule (74 FR 49975), in this final rule we are finalizing the 
geographic requirements used to determine the number of treatments 
furnished by an ESRD facility, which is to consider the total number of 
treatments furnished by an ESRD facility to be equal to the aggregate 
number of treatments furnished by the other ESRD facilities that are 
both under common ownership, and 25 road miles or less from the ESRD 
facility in question, to be eligible for the low-volume payment 
adjustment at Sec.  413.232.
    Comment: One commenter expressed concern that although they agree 
with the extra monies being allocated to high cost facilities for 
meeting the low-volume criteria, the effect on the patients that 
receive care in these facilities will be an increase in their co-
insurance amounts.
    Response: We agree with the commenter that the ESRD PPS will affect 
patient co-insurance amounts. However, we note that this adjustment was 
required under the statute.
ii. Defining the Percent of Increase
    Section 1881(14)(D)(iii) of the Act also requires the ESRD PPS 
include a ``payment adjustment that reflects the extent to which costs 
incurred by low-volume facilities (as defined by the Secretary) and for 
payment for renal dialysis services furnished on or after January 1, 
2011, and before January 1, 2014, such payment adjustment not be less 
than 10 percent.'' In the proposed rule, we discussed the definition 
and our analysis for a low-volume facility (74 FR 49969). Based on the 
definition and the analysis, the resulting low-volume payment 
adjustment was determined to be 20.2 percent (74 FR 49974). Using our 
proposed low-volume criteria, we measured the payments received by 
these ESRD facilities and determined that 76.4 percent of ESRD 
facilities meeting the proposed low-volume criteria would get an 
adjustment of 10 percent or more increase in payment relative to what 
they received under the current system.
    In our proposed rule (74 FR 49977), we proposed a 20.2 percent 
increase to the base rate to account for the costs incurred by low-
volume facilities for renal dialysis services furnished on or after 
January 1, 2011, and before January 1, 2014. The proposed low-volume 
adjustment policy was set forth at proposed Sec.  413.232 (74 FR 
49969). We invited comments on the low-volume facility proposed 
adjustment, which was discussed above.
    In addition, for purposes of determining the appropriate adjustment 
for the low-volume facilities defined above, we considered other 
options in addition to the 20.2 percent adjustment (74 FR 49978). As 
mentioned previously, section 1881(14)(D)(iii) of the Act requires the 
payment adjustment for low-volume facilities be not less than 10 
percent during the transition. One alternative we considered in 
determining the adjustment for low-volume facilities was the minimum 
statutory adjustment

[[Page 49125]]

of 10 percent. We stated that this adjustment would provide relief to 
low-volume facilities of the costs they incur to provide services. In 
addition, providing a lower payment adjustment results in less of a 
decrease in the ESRD PPS base rate that would apply to treatments 
furnished by all ESRD facilities and less beneficiary co-insurance 
obligation.
    The other alternative we mentioned for the low-volume adjustment 
was use of the midpoint between the statutory adjustment of 10 percent 
and the results of our data analysis which was 20.2 percent (74 FR 
49978). We stated that we believed that a 15 percent increase could 
establish an appropriate adjustment amount that would provide low-
volume facilities the incentive to utilize resources more efficiently 
and control their costs.
    We invited comments on these alternative options for determining 
the percent low-volume adjustment.
    The comments we received on this proposal and our responses are set 
forth below.
    Comment: Two commenters recommended that we reduce the 20.2 percent 
increase to the minimum 10 percent permitted by law because at 10 
percent, facilities would be less likely to deny treatments to ensure 
that they remain under the threshold.
    Response: For this final rule, we updated our ESRD PPS model with 
data for 2006, 2007, and 2008 and found that with a treatment threshold 
of 4,000 treatments, the updated increase to the base rate is 18.9 
percent. We believe that since we will be monitoring payments under the 
ESRD PPS and the location of new facilities as they are established, 
the 18.9 percent increase to the base rate is an appropriate adjustment 
that will encourage small facilities to continue to provide access to 
care. In addition, we believe it is more appropriate to use the 
regression driven adjustment rather than the 10 percent minimum 
adjustment mentioned in the statute. We believe that using the 
regression driven adjustment which is based on empirical evidence 
allows us to implement a payment adjustment that is a more accurate 
depiction of higher costs.
    Therefore, in this final rule we are finalizing a 18.9 percent 
increase to the base rate to account for the costs incurred by low-
volume facilities for renal dialysis services furnished on or after 
January 1, 2011.
c. Alaska/Hawaii Facilities
    Section 1881(b)(14)(D)(iv) of the Act permits the Secretary to 
include other payment adjustments as the Secretary determines 
appropriate. The basic case-mix adjusted composite payment system 
currently does not provide a separate adjustment for ESRD facilities 
located in Alaska and Hawaii. However, some prospective payment 
systems, such as the hospital inpatient PPS and the inpatient 
psychiatric facility PPS, provide a cost of living adjustment (COLA) 
for facilities located in Alaska and Hawaii. These COLA adjustments are 
applied to the non-labor portion of the payment and are based on the 
rationale that the wage index adjustment to the labor portion of the 
payment is not sufficient to provide for the higher costs incurred by 
facilities in Alaska and Hawaii. For example, the same supplies used by 
an ESRD facility located in Hawaii may cost more because there are 
additional (higher) transportation costs incurred to receive the same 
supplies compared to an ESRD facility located in the United States 
mainland. An analysis completed for the 2008 Report to Congress 
indicated there was no need for a COLA for these areas. After all 
adjustments (including wage and other adjustments), our analysis of 
ESRD facilities located in Alaska and Hawaii did not demonstrate any 
adverse impact from the ESRD PPS.
    In the proposed rule, we stated that our analysis continues to 
support that the ESRD PPS would adequately reimburse ESRD facilities 
located in Alaska and Hawaii (74 FR 49978). Therefore, we did not 
propose to adopt COLA adjustments for ESRD facilities in Alaska and 
Hawaii under the ESRD PPS. We invited public comments on the proposal.
    We received a few comments regarding the COLA for Alaska and Hawaii 
as set forth below.
    Comment: Two commenters believed that the adjustments contained in 
the proposed ESRD PPS did not adequately address the incremental costs 
incurred by providing dialysis services and supplies to ESRD patients 
in Alaska and Hawaii. The commenters urged CMS to reconsider the 
proposal to not apply a COLA adjustment for these States and indicated 
that the costs associated with furnishing ESRD treatments in these 
States remains higher than the cost of providing dialysis services in 
the contiguous United States.
    Response: We recognize the costs incurred by Alaska and the many 
islands of Hawaii might be attributable to the geographical barriers 
that may not be a burden to ESRD facilities located in the contiguous 
United States. However, as we indicated in the ESRD PPS proposed rule 
(74 FR 49978), the various analyses of ESRD facilities located in 
Alaska and Hawaii did not demonstrate any adverse impact from the ESRD 
PPS.
    Therefore, we do not believe that application of the COLA would be 
appropriate. As a result, in this final rule, we are not adopting COLA 
adjustments for ESRD facilities in Alaska and Hawaii under the ESRD 
PPS.
d. Rural
    Section 1881(b)(14)(D)(iv)(III) of the Act provides that the ESRD 
PPS may include payment adjustments as the Secretary determines 
appropriate such as a payment adjustment for facilities located in 
rural areas. We proposed to define rural facilities at Sec.  
413.231(b)(2) as facilities that are outside a Metropolitan Statistical 
Area or a Metropolitan Division (in the case where a Metropolitan 
Statistical Area is divided into Metropolitan Divisions), as defined by 
OMB (74 FR 49978).
    In the proposed rule, we indicated that based on our impact 
analysis, rural facilities would be adequately reimbursed under the 
proposed ESRD PPS. Therefore, we did not propose a facility-level 
adjustment based on rural location and we invited public comments on 
our proposal (74 FR 49978).
    Many of the commenters were concerned about beneficiary access to 
care that may result from insufficient payment to cover the costs of 
delivering renal dialysis services to patients in rural areas. This was 
particularly concerning to commenters who pointed out that ESRD 
beneficiaries who reside in rural locations already have fewer choices 
with regard to their care.
    We received comments opposing our proposal not to include a 
facility-level adjustment that is based on rural location, which 
included the following two assertions: (1) Currently the costs of 
providing renal dialysis services in rural areas are higher than in 
urban areas and that costs would further increase by expanding the 
bundle to include additional medications and laboratory tests; and (2) 
currently patient access to renal dialysis services in rural areas is 
limited and insufficient reimbursement would result in closure of these 
facilities further hindering patient access.
    The specific comments that we received on this proposal and our 
responses are set forth below.
    Comment: Several ESRD facilities and health care professionals 
indicated that rural and small facilities have higher operating cost 
and lower revenue than the larger, urban or suburban facilities. These 
facilities are forced to operate at a low margin or at a financial 
loss. Commenters identified several factors

[[Page 49126]]

that contribute to higher costs including: higher recruitment costs to 
secure qualified staff, a limited ability to offset costs through 
economies of scale, and decreased negotiating power in contractual 
arrangements for medications, laboratory services or equipment 
maintenance. One commenter indicated that compared to the large chains, 
rural dialysis providers will be unable to compete in negotiating 
prices for drugs and that this would be especially problematic for the 
manufacturers' monopoly on EPO and Cinacalcet.
    Commenters further noted that the lower revenues among rural ESRD 
facilities are attributed to serving a smaller volume of patients of 
which a larger proportion are indigent and lack insurance, and a 
smaller proportion have higher paying private insurance. Several 
commenters requested that CMS consider cost differentials in 
determining whether rural ESRD facilities warrant a payment adjuster. 
Other commenters requested that small rural facilities be paid based on 
the cost of providing services to allow them to break even.
    Response: As indicated in section II.L. of this final rule, rural 
facilities are expected to experience a -1.5 percent decline in 
payments in 2011 due to implementation of the ESRD PPS. We note, 
however, in accordance with section 1881(b)(14)(A)(ii) of the Act and 
discussed in section II.E.4. of this final rule, the ESRD PPS base rate 
was reduced by 2.0 percent so that the estimated total amount of 
payments in 2011 equals 98 percent of what would otherwise be paid if 
the ESRD PPS were not implemented. Therefore, rural facilities as a 
group are projected to receive less of a reduction than urban 
facilities and many other subgroups of ESRD facilities.
    We also note that as described in section II.A.3. of this final 
rule, implementation of oral-only Part D drugs will be delayed until 
2014. This delay will provide small, rural facilities additional time 
to consider negotiating options for obtaining the most favorable prices 
on drugs possible. For example, small rural facilities may benefit from 
joining cooperative arrangements to improve negotiating capacity. We 
intend to monitor how rural ESRD facilities fare under the ESRD PPS and 
will consider other options if access to renal dialysis services in 
rural areas is compromised under the ESRD PPS.
    Comment: Some commenters claimed that under the proposed rule, some 
rural facilities may not receive adequate reimbursement to continue to 
provide dialysis services in remote areas, resulting in compromised 
patient access to care. Commenters requested that CMS reassess its data 
for rural facilities following its reassessment of the data for low-
volume facilities.
    Response: As the commenter suggested, we reassessed the impact on 
ESRD facilities based on the final payment adjustments described in 
this final rule. As mentioned previously, the impact analysis conducted 
for this final rule indicates a 1.5 percent decrease in total payments 
to rural ESRD facilities. This small decline reflects the fact that 
44.5 percent of low-volume ESRD facilities are located in rural areas 
(as discussed earlier in this section of this final rule).
    Comment: One commenter was concerned that the 3 percent transition 
budget neutrality adjustment may particularly disadvantage the quality 
of care for rural dialysis patients, given their higher costs for 
patient transport, staff salary, and facility maintenance costs.
    Response: As described in section II.E.5. of this final rule, we 
are required by section 1881(b)(14)(E)(ii) of the Act to apply a 
transition budget neutrality adjustment to account for the effect of 
the transition on aggregate payments in order to stay within the 
overall requirement for a 2 percent reduction in expenditures in 2011.
    Comment: One commenter questioned whether defining every facility 
not located within a Metro statistical area (MSA) as rural reflects the 
variation in the degree of geographical isolation and therefore, cost 
among providers that are not located within an MSA. The commenter noted 
that cost differences may exist among facilities classified as rural 
that are further from an MSA compared to facilities closer to an MSA.
    Response: We recognize that there may be differences among rural 
facilities based on distance from an MSA. However, we do not have a 
separate mechanism to identify additional variation among facilities in 
the area outside of a particular MSA.
    Comment: A few commenters indicated that in rural settings the 
nephrologist facilitates care for other specialties by drawing 
laboratory tests or administering medications for conditions other than 
ESRD. One commenter stated that because the rural patients often do not 
have transportation to access these services separately from the 
dialysis visits, the ESRD facility cooperates by drawing these 
laboratory tests or administering medications ordered by the 
nephrologist in the interest of providing the patient with efficient 
healthcare delivery. The commenter stated that non-ESRD-related 
laboratory tests and medications ordered by the nephrologist should 
remain separately payable.
    Response: In the interest of patient convenience and in minimizing 
their transportation burden, we will not preclude ESRD facilities from 
drawing non-ESRD related laboratory tests on behalf of ESRD patients. 
As described in section II.K.2. of this final rule, the laboratory 
tests used for non-ESRD-related purposes would be identified with a 
modifier and paid separately. Similarly, as described in section 
II.K.2. of this final rule, there may be instances in which non-ESRD-
related medications may be administered in the ESRD facility. These 
medications would also be identified with a modifier and paid 
separately.
    Comment: Several commenters indicated that ensuring access to home 
dialysis and home dialysis training is essential to successfully 
serving a rural area.
    Response: We share the commenters' view with respect to the 
importance of ensuring access to home dialysis and home training. As 
discussed in section II.A.7. of this final rule, all home dialysis 
services will be included in ESRD PPS payments to ESRD facilities as of 
January 1, 2011. In addition, as discussed in section II.A.7. of this 
final rule, we are finalizing a training add-on adjustment to 
compensate ESRD facilities for the additional resources associated with 
home dialysis or self-dialysis training.
    For the reasons we explained above in response to the public 
comments and based on the data analysis conducted for this final rule, 
we are finalizing the proposed definition of rural facilities at Sec.  
413.231(b)(2) of this final rule and we are not implementing a 
facility-level payment adjustment that is based on rural location.
e. Site Neutral ESRD PPS Rate
    For dialysis services furnished before January 1, 2009, the basic 
case-mix adjusted composite rate differentiated between hospital-based 
and independent ESRD facilities. That is to say, the composite rate for 
hospital-based facilities was on average $4.00 more per treatment more 
than the composite rate for independent dialysis facilities.
    Section 1881(b)(12)(A) of the Act, requires a site neutral 
composite rate so that the payment rate for services furnished on or 
after January 1, 2009, by hospital-based ESRD facilities is the same as 
the payment rate paid to independent facilities under the current 
system. In addition, section 1881(b)(12)(A) of the Act requires that

[[Page 49127]]

in applying the geographic index to hospital-based facilities, the 
labor-related share shall be based on the labor-related share otherwise 
applied to the renal dialysis facilities. In the CY 2009 final rule (72 
FR 69881 and 72 FR 69935), we revised Sec.  413.174, which described 
the methodology for prospective rates for ESRD facilities, to conform 
to the statutory requirement.
    Section 1881(b)(14)(A)(i) of the Act provides that for services 
furnished on or after January 1, 2011, the Secretary shall implement a 
payment system under which a single payment is made under this title to 
ESRD facilities for renal dialysis services, in lieu of any other 
payment. Therefore, the site neutral payment provisions discussed above 
will be incorporated under the ESRD PPS and used to establish a single 
base rate that will apply to ESRD facilities.
5. Determination of ESRD PPS Payment Adjusters
    In the proposed rule, we described the selection of patient 
characteristics as potential case-mix adjusters using a modeling 
approach that relied on separate regression equations for CR and SB 
services (see Table 29 in the proposed rule 74 FR 49979). We stated 
that the predictive power of the separate estimating equation for CR 
services in terms of the proportion of variance explained (R\2\) was 
46.0 percent. The comparable figure for the SB regression equation was 
8.7 percent. The overall estimated R\2\ for the ESRD PPS payment model 
is 39.0 percent (74 FR 49978). While the case-mix adjustments were 
based on separate estimating equations, the equations were combined 
into a single payment formula for the ESRD PPS. The methodology for 
combining the separate composite rate and separately billable 
estimating equations was described in the proposed rule (74 FR 49980 
through 49981).
    We did not receive any public comments in connection with our 
methodology for combining the separate composite rate and separately 
billable estimating equations into a single payment formula for 
calculating the ESRD PPS payment adjusters. Accordingly, we are using 
that same methodology to combine the separate composite rate and 
separately billable payment adjusters using the payment variables 
adopted for this final rule.
    Table A in the Appendix shows how the payment adjusters from the 
separate CR and SB regressions were combined. The first two columns in 
Table A in the Appendix represent the CR and SB model results for each 
of the regression equations, carried to three significant figures. The 
third column of Table A of the Appendix presents a single payment 
multiplier for each patient characteristic based on its relationship to 
resource use for both CR and SB services. The payment adjusters in the 
third column (PmtMultEB) were calculated as the weighted 
average of the CR and SB multipliers. The weights correspond to each 
component's proportion of the sum of the average CR costs and SB 
payments per treatment for CYs 2006-2008, as shown in Table 25.
[GRAPHIC] [TIFF OMITTED] TR12AU10.029

    The weights were calculated using the three years of pooled data. 
Based on this analysis, the average cost for CR services per treatment 
as computed from the Medicare cost reports was $177.72. The average MAP 
per treatment for SB services based on Medicare claims for the same 
period was $83.97. Based on total estimated costs of $261.69 per 
treatment ($177.72 + $83.97), the relative weights are 
weightCR = 0.6791 for composite rate services ($177.72/
$261.69) and weightSB = 0.3209 for separately billable 
services ($83.97/$261.69). The payment multipliers presented in the 
third column of Table A in the Appendix were calculated as 
PmtMultEB = 0.6791 x PmtMultCR + 0.3209 x 
PmtMultSB. In this manner, the separate case-mix adjusters 
for composite rate and separately billable services were combined to 
obtain a single set of multipliers (shown in the third column of Table 
A in the Appendix) to compute the payment rates under the proposed ESRD 
PPS.
    Six co-morbidities were identified as payment adjusters for 
separately billable services only, as they did not have a statistically 
significant association with composite rate costs based on the 
regression results. These patient characteristic variables have a 
composite rate multiplier in Table A in the Appendix of 1.000. For 
these co-morbidities, there is no payment adjuster for composite rate 
services. Therefore, the payment multiplier is equal to 0.6791 x 1.000 
+ 0.3209 x PmtMultSB. The payment multipliers in the third 
column of Table A in the Appendix reflect the combined results from the 
two-equation model described in this final rule, and represent the 
case-mix adjustment factors that will be

[[Page 49128]]

applied to the base rate to compute the payment amount per treatment 
under the finalized ESRD PPS.

G. Pediatric Patients

    In section IX. of the proposed rule (74 FR 49981 through 49987), we 
pointed out that section 1881(b)(14)(D)(iv)(I) of the Act gave the 
Secretary the discretionary authority to develop a pediatric payment 
adjustment under the ESRD PPS. Consistent with that authority, we 
proposed our methodology for developing a pediatric payment adjustment 
and proposed pediatric patient-specific case-mix adjustment factors (74 
FR 49987).
    Using the same two-equation regression methodology developed for 
adult patients, the pediatric payment model incorporated the proposed 
adjustment factor of 1.199 from the adult payment model for patients 
less than age 18 for the purpose of computing the composite rate 
portion of the bundled payment for pediatric patients (74 FR 49982). In 
order to adjust the separately billable portion of the payment rate, we 
proposed the use of specific adjusters for each of eight pediatric 
classification categories (see Table 32 at 74 FR 49986). These 
classification groups reflected two age groups (<13 and 13-17), two co-
morbidity classification groups (none and one or more) based on the 
presence of either HIV/AIDS, diabetes, septicemia within 3 months, or 
cardiac arrest, and two modality groups (PD or HD). The result was a 
set of eight pediatric classification groups, each of which had its own 
bundled ESRD PPS payment multiplier. Those multipliers reflected the 
combined composite rate and separately billable adjustment factors 
developed in accordance with the two-equation regression methodology 
used in connection with the adult payment model. These adjustment 
factors were weighted according to the relative utilization of 
resources among pediatric patients obtained from the Medicare cost 
reports for 2004 through 2006 for composite rate services, and 2004 
through 2006 claims for separately billable services. The proposed 
adjustment factors, which would be applied to the base rate under the 
ESRD PPS, ranged from 0.963 to 1.215 (see Table 33 at 74 FR 49987).
    We received numerous comments from industry representatives 
including children's hospitals and other dialysis facilities treating 
pediatric patients, LDOs, hospital organizations, physician 
representatives, dialysis industry groups, and laboratories on our 
proposed pediatric payment model. Commenters were opposed to the 
methodology used to develop the proposed pediatric payment adjusters. 
The comments we received and our responses are set forth below.
    Comment: Several commenters stated that the proposed methodology 
underestimated the cost of caring for pediatric patients with ESRD, and 
that application of the proposed payment adjusters would cause severe 
financial hardship for facilities treating ESRD pediatric patients. The 
commenters pointed out that the proposed payment multiplier of 1.199 
used to adjust the composite rate portion of the pediatric MAP, as well 
as the composite rate portion of the MAP, is based on the costs of 
adult dialysis units, not pediatric specific services. The commenters 
suggested that the composite rate cost portion of the pediatric MAP, 
and the composite rate adjustment factor, should be based on actual 
cost data from pediatric dialysis units.
    The commenters believed that the present multiplier of 1.62 applied 
to the composite rate per treatment for pediatric patients was likely 
more reflective of actual pediatric costs, not the proposed factor of 
1.199. Other commenters recommended that CMS should perform further 
statistical analysis which uses the actual costs from pediatric ESRD 
facilities, or the pediatric units of ESRD facilities to determine the 
composite rate cost portion of the pediatric MAP, and the composite 
rate pediatric adjustment factor.
    Response: In the proposed rule, we pointed out the current 
pediatric adjustment factor of 1.62 was developed from only those ESRD 
facilities that sought and obtained an exception to their otherwise 
applicable composite payment rates (74 FR 49984). This factor only 
reflected the costs of ESRD facilities which exceeded their composite 
payment rates. Therefore, the 1.62 adjustment factor was likely biased 
upward because it was not developed from the costs of ESRD facilities 
with costs below their composite rates.
    However, the commenters raise a valid point. The generally lower 
payments for treating adult ESRD patients were commingled with 
pediatric payments in developing the composite rate portion of the 
proposed base rate. The multipliers from the composite rate and 
separately billable portions of the proposed pediatric payment 
adjustments were weighted based on average ESRD composite rate facility 
costs for 2004 through 2006. The multipliers were developed from data 
that were not restricted to pediatric ESRD facilities. Similarly, the 
adjustment factor of 1.199 applied to the composite rate portion of the 
proposed pediatric payment adjustment factors reflect the composite 
rate costs of pediatric patients treated in all facilities, not just 
pediatric ESRD facilities or the pediatric units of dialysis 
facilities. Because these costs reflect predominantly adult patients, 
they may be understated if, as is likely, the cost of care for 
pediatric patients in primarily adult facilities is less than the cost 
of care for pediatric patients in primarily pediatric facilities. We 
agree that further additional statistical analysis is warranted to 
determine whether a robust case-mix adjusted pediatric payment model 
can be developed based on co-morbid characteristics of pediatric 
dialysis patients, one which does not dilute the higher composite rate 
costs of pediatric patients with the generally lower composite rate 
costs of adult patients.
    We agree with the commenters that the proposed pediatric case-mix 
adjusters reflect composite rate costs that may understate the cost of 
treating pediatric dialysis patients, because of the predominance of 
adult patients in ESRD facilities. To respond to the commenters' 
concern that adoption of the proposed pediatric payment adjusters would 
not compensate ESRD facilities for the actual costs of furnishing 
dialysis to pediatric patients, we have modified the proposed payment 
adjusters applied to pediatric patients (see Table 33 in the proposed 
rule at 74 FR 49987). The pediatric payment adjusters we have adopted 
for this final rule reflect the higher average composite rate payment 
per treatment that we made in CY 2007 for pediatric dialysis treatments 
compared to those for adult patients and the lower average per 
treatment payments made for separately billable services furnished 
pediatric patients in that year. As discussed in section II.E.1. of 
this final rule, CY 2007 is the year used to develop the ESRD PPS base 
rate amount. Combined composite rate and separately billable average 
payments per treatment in CY 2007 for pediatric dialysis patients 
exceeded the comparable figure for adult patients by 10.5 percent 
($264.55 versus $239.39). This differential has been reflected in the 
pediatric payment adjusters set forth in this final rule.
    Comment: Several commenters maintained that the four co-morbidities 
included in the proposed rule for classifying pediatric ESRD patients 
into one of eight classification groups (HIV/AIDS, septicemia, 
diabetes, and cardiac arrest) (74 FR 49987) were not appropriate for 
the pediatric patient

[[Page 49129]]

population and were not frequently encountered. The commenters stated 
that these co-morbidities, while perhaps relevant in the adult 
population, do not accurately reflect the complexity and cost of 
providing dialysis treatments to children. The commenters recommended 
alternative co-morbidities which they believed would be more reflective 
of the clinical conditions encountered among pediatric ESRD patients 
and require more costly resource intensive care. Suggested co-
morbidities included developmental delay/mental retardation, growth 
retardation and renal osteodystrophy, deafness, seizure disorders, 
anxiety, secondary hyperparathyroidism, and rare genetic disorders such 
as cystinosis, primary hyperoxaluria, congenital hepatic fibrosis and 
other congenital diseases, chronic lung disease from hypoplastic lungs, 
and bone marrow and other solid organ transplants.
    Response: We appreciate the commenters' concerns that any co-
morbidity used as an ESRD pediatric payment adjustment reflects the 
cost and intensity of care necessary to provide outpatient dialysis to 
children. Unfortunately, because ESRD facilities rarely report co-
morbidities on the Medicare type 72X claims submitted for payment, we 
obtained the co-morbidities used to establish the proposed pediatric 
classification groups from the same Medicare claims data used to 
identify the co-morbidities in the adult payment model. The small size 
of the outpatient ESRD pediatric dialysis patient population (about 860 
patients in 2008) precluded the development of specific adjusters for 
individual co-morbidities due to a lack of statistical robustness. 
Therefore, we used a count of the number of defined co-morbidities in 
developing the pediatric classification groups.
    The commenters' suggestion to use co-morbidities typical of the 
clinical conditions encountered among ESRD pediatric patients merits 
consideration, although we believe that it might require a specific 
data collection effort to obtain the co-morbidities for analysis. 
Although the co-morbidities in the proposed rule were derived from 
measures originally developed using claims from the adult population, 
their inclusion in the pediatric payment model was based on analyses 
that showed their relationship to cost specifically in the pediatric 
population. As explained below, we have developed pediatric adjustment 
factors for this final rule which do not rely on specific co-
morbidities. We will consider the commenters' suggested alternative co-
morbidities in future refinements to the pediatric payment adjusters 
adopted in this final rule.
    Comment: Several commenters disagreed with the two age 
classification groups we used in the proposed pediatric payment model 
(age <13; 13-17). The commenters stated that the use of these two age 
groups undervalued the complexity and additional facility costs 
incurred in dialyzing children. Some commenters recommended only one 
age group (age <18) to simplify the bundle for pediatric dialysis.
    Other commenters recommended alternative age groups. One commenter 
with clinical experience treating pediatric ESRD patients pointed out 
that dialysis patients under age 5 use one nurse per dialysis station 
and patients ages 5-12 use one nurse for every two stations. The 
commenter suggested that adopting age categories using this information 
would result in three categories for pediatric ESRD patients (cm.725 * 
weightkg.425

Martha's BSA is calculated as:

BSAMartha = 0.007184 * 167.64.725 * 105.425 = 
0.007184 * 40.9896 * 7.2278 = 2.1284

    Table 29 reveals that the separately billable multiplier for BSA is 
1.014. Martha's case-mix adjustment based on her BSA of 2.1284 would 
be:

= 1.014(2.1284-1.87/0.1)
= 1.0142.584
= 1.037

    Step 1: Determine the predicted, ESRD outlier services MAP amount 
using the product of all applicable case-mix adjusters.
    The product of the patient-level outlier services case-mix 
adjusters as identified in Table 29:

= 66 year old: 1.000, BSA: 1.037, and GI bleeding: 1.571:
= 1.000 * 1.037 * 1.571
= 1.6291

The adjusted, average, ESRD outlier services MAP amount = $82.78

    The adjusted, average ESRD outlier services MAP amount * product of 
the outlier services case-mix adjusters:

= $82.78 * 1.6291
= $134.86

    Step 2: Determine the imputed average, per treatment, ESRD outlier 
services MAP amount based on utilization of all separately billable 
services on the monthly ESRD facility bill.
    Assume the imputed monthly ESRD outlier services amount = $4,000 
and that the corresponding total number of treatments in the month = 10

    The imputed, average, per treatment, outlier services MAP amount

= $4,000/10
= $400
    Step 3: Add the fixed dollar loss amount to the predicted, ESRD 
outlier services MAP amount.

The fixed dollar loss amount = $155.44
The predicted, ESRD outlier services MAP amount = $134.86
= $134.86 + $155.44
= $290.30

    Step 4: Calculate outlier payment per treatment.
    Outlier payment = imputed average, per treatment, outlier services 
MAP amount - (predicted, ESRD outlier services MAP amount plus the 
fixed dollar loss amount) * loss sharing percentage:

= ($400.00-$290.30) * .80
= $109.70 * .80
= $87.76

    Hypothetical Example--Pediatric Patient:
    John, is a 13 year old HD pediatric patient.
    Step 1: Determine the predicted, ESRD outlier services MAP amount.
    As specified in Table 29, determine the patient-level ESRD outlier 
services case-mix adjuster:

= 13 year old HD patient = 1.459
The adjusted, average, ESRD outlier services MAP amount = $53.06

    The adjusted, average, ESRD outlier services MAP amount * the 
product of the outlier services case-mix adjusters:

= $53.06 * 1.459
= $77.41
    Step 2: Determine the imputed, average, per treatment, ESRD outlier 
services MAP amount.

The imputed monthly ESRD outlier services amount = $4,000

Assume the corresponding total number of treatments = 10
    The imputed, average, per treatment, outlier services MAP amount =

= $4,000/10
= $400

    Step 3: Add the fixed dollar loss amount to the predicted, ESRD 
outlier services MAP amount.

The fixed dollar loss amount = $195.02
The predicted, ESRD outlier services MAP amount = $77.41
= $77.41 + $195.02
= $272.43

    Step 4: Calculate outlier payment per treatment.
    Outlier payment = imputed, average, per treatment, outlier services 
MAP amount -(predicted, ESRD outlier services MAP amount plus the fixed 
dollar loss amount) * loss sharing percentage:
= ($400.00 - $272.43) * .80
= $127.57 * .80
= $102.06

    The outlier payment amount would be added to the ESRD PPS payment 
amount, per treatment. For a detailed description of calculating the 
ESRD PPS payment amount per treatment, please refer to the hypothetical 
examples in the Comprehensive Payment Examples presented later in this 
section of this final rule.
4. Application of Outlier Policy During the Transition and in Relation 
to the ESA Monitoring Policy, Other Claims Processing Tools, and Other 
CMS Policies
    In the proposed rule, we indicated that the outlier payment policy 
would be limited to the proposed ESRD PPS (74 FR 49994). We proposed 
that for those ESRD facilities that do not elect to be excluded from 
the three year transition, outlier payments would be limited to the 
portion of the blended rate based on the payment rates under the 
proposed ESRD PPS.
    We also indicated that nothing within the proposed outlier payment 
policy would replace the claims monitoring implications related to the 
utilization of separately billable ESAs including currently available 
epoetin alfa (EPOGEN[supreg], or EPO), darbepoetin alfa 
(ARANESP[supreg]) or any ESAs that may be developed in the future and 
used by beneficiaries receiving renal dialysis services (74 FR 49994).
    The comments received on application of our proposed outlier policy 
during the transition and in relation to the ESA Claims Monitoring 
Policy and our responses to them are set forth below. Approximately 
half of the commenters supported and half opposed the continuation of 
our claims monitoring policy with respect to the utilization of ESAs.
    Comment: Some commenters stated that they believed there would be 
no incentive to overuse ESAs once the ESRD PPS is implemented in 2011 
and, therefore, the ESA Claims Monitoring Policy should be 
discontinued. Other commenters supported continuing to apply the ESA 
Claims Monitoring Policy under the ESRD PPS, maintaining that it would 
help ensure that ESAs would not be overutilized in order to obtain 
outlier payments. One commenter suggested that in instances where the 
patient's ESA and iron therapies are within the QIP parameters, then 
CMS should provide outlier payments. The commenter believed that it 
would be appropriate to include the costs of ESA therapy while the 
patient's hemoglobin remained at 13 or lower and the patient's iron 
stores were adequate, but exclude from the outlier calculation the 
costs of ESA therapy in instances where a patient's hemoglobin exceeded 
13, or if the patient's iron level was above an adequate level.
    Response: Currently there are two claims processing edits 
associated with the ESA Claims Monitoring Policy--the reduction in the 
payable ESA amount based on reported hemoglobin (or hematocrit) level, 
and medically unbelievable edits (MUEs) based on the ESA total 
administered dose. During the transition, ESRD facilities will be 
expected to meet our quality measures under the QIP, notwithstanding 
that the implementation of the QIP does not occur until January 1, 
2012, in addition to complying with other policies for coverage and 
claims processing.
    With respect to the basic case-mix adjusted composite payment 
system portion of the blended payment during the transition, we will 
continue to apply

[[Page 49146]]

both ESA Claims Monitoring Policy processing edits and implement any 
corresponding payment reductions. Although several commenters believed 
that the implementation of the ESRD PPS would provide sufficient 
incentives not to overutilize ESAs, obviating the need for continuation 
of the ESA Claims Monitoring Policy, we believe that the continued 
application of this policy will help ensure the proper dosing of ESAs, 
and provide an added safeguard against the overutilization of ESAs, 
particularly where the consumption of other separately billable 
services may be high, in order to obtain outlier payments.
    With respect to the commenter's suggestion that payments for ESAs 
should only be considered outlier eligible payments when a patient's 
hemoglobin is at 13 or lower, and excluded when the value exceeds 13, 
this recommendation does not consider the fact that hemoglobin levels 
can be volatile even when proper doses are administered. Fluctuations 
will occur because of the time required to titrate levels in response 
to the patient's specific condition. Therefore, linking ESA eligibility 
for outlier payments to a patient's achieved hemoglobin level is not a 
feasible payment option.
    With respect to the ESRD PPS portion of the blended payment, we 
will apply dosing reductions resulting from the application of the ESA 
Claims Monitoring Policy prior to any calculations of outlier 
eligibility. We believe that continuation of this policy is necessary 
in order to provide a disincentive for overutilization of ESAs in order 
to receive outlier payments, notwithstanding that the implementation of 
the ESRD PPS will tend to discourage overuse of ESAs, as ESAs are part 
of the payment bundle.
    The ESA dose edits will be applied prior to pricing so that we do 
not overvalue these services in determining eligibility for outlier 
payments. We note that the ESA Claims Monitoring Policy provides an 
opportunity for appeal to address those situations where there might be 
medical justification for higher hematocrit or hemoglobin levels. 
Beneficiaries, physicians, and dialysis facilities may submit 
additional documentation to justify medical necessity, and any payment 
reduction amounts may be subsequently reinstated when documentation 
supports the higher hematocrit or hemoglobin levels. To the extent 
successful appeals impact the amount of outlier payments on behalf of 
beneficiaries, those claims will be reprocessed to reflect the correct 
amount of outlier payments.
    Comment: One commenter believed that EPO dosing among ESRD patients 
has been historically high and recommended that we cap the EPO 
contribution in the base rate at 14,000 units per week. Similarly, the 
commenter questioned whether the inclusion of current ESA dosing 
parameters within the outlier calculation would be in the best interest 
of the patient and suggested that high doses related to 
hyporesponsiveness should be further investigated. The commenter 
recommended that we cap ESA dosing at 160,000 units per month (IV 
administration) until further valid studies have determined safer 
dosing levels.
    Response: With respect to the commenter's specific concern about 
the extent to which the cap on ESA dosing is appropriate, we note that 
this concern is beyond the scope of this rule. We appreciate the 
commenter's concern about potential excess ESA dosing of ESRD patients 
but, as discussed in section II.E. of this final rule, the amount of 
ESA payment included in the base rate comports with limits established 
under the ESA Claims Monitoring Policy.
    We stated in the proposed rule that both the base rate and the 
features of the outlier policy, including the outlier percentage and 
fixed dollar loss thresholds, were based on 2007 claims data (74 FR 
49990). In developing the base rate for the proposed rule we applied a 
medically unbelievable EPO limit of 30,000 units per treatment. This 
edit contributed to lower fixed dollar loss amounts. For purposes of 
the final rule, we have revised the ESA medically unbelievable edits to 
comport with CMS's own ESA Claims Monitoring Policy. Specifically, in 
2007, the ESA claims monitoring policy included a monthly medically 
unbelievable edit threshold of 500,000 for EPO and 1,500 mcg. for 
ARANESP[supreg]. The medically unbelievable edit thresholds were 
reduced to 400,000 units for EPO and 1,200 mcg. for ARANESP[supreg] in 
2008 (Transmittal 1307, Change Request 5700 (July 20, 2007)).
    For purposes of this final rule, the base rate and the features of 
the outlier policy, including the outlier percentage and the fixed 
dollar loss thresholds as reflected in Table 28 were based on 2007 
data. Although the medically unbelievable edits that were in place for 
EPO and ARANESP[supreg] were 500,000 units and 1,500 mcg., respectively 
in 2007, we chose to apply the edits that are currently in place. That 
is, we applied medically unbelievable edits of 400,000 units for EPO 
and 1,200 mcg. for ARANESP[supreg] in establishing the outlier policy's 
fixed dollar loss amounts. We believe that this edit is necessary for 
purposes of reflecting current CMS policy and to bring the projected 
fixed dollar loss amounts into line with ESA dosing that is consistent 
with the current ESA Claims Monitoring Policy. We point out that we 
applied a similar edit to the calculation of the base rate, in that the 
medically unbelievable edits that were in place for EPO and 
ARANESP[supreg] in 2007 were also used to calculate the components of 
the base rate that reflect payments for ESAs.
    Comment: One commenter responded to our request for identifying 
potential safeguards against the overuse of ESAs under the ESRD PPS. 
This commenter noted that there are certain diseases in which ESAs 
should not serve as the primary treatment approach for anemia where 
transfusion may be the better choice. This commenter suggested that we 
could implement measures to ensure that ESAs are not administered or 
reimbursed in the absence of evidence of iron depletion.
    Response: We agree with the commenter that there are multiple 
causes (for example, iron deficiency anemia, vitamin B12 deficiency, or 
folic acid deficiency) and treatment approaches for anemia. We expect 
that patients will be evaluated to determine the cause of their anemia 
and treated appropriately. We would also expect that ESRD facilities 
that administer ESAs in accordance with their patients' plans of care 
would do so in accordance with the FDA's approved indications.
    Comment: One commenter requested that we do further research into 
higher hemoglobin levels because the commenter believes that some 
patients do not do well with lower hemoglobin levels and therefore need 
more EPO.
    Response: Although we are not performing such research, we would 
agree that any research that attempts to examine the relationships 
among hemoglobin levels, ESA utilization, and clinical outcomes is 
welcome and should be encouraged.
    Comment: One commenter expressed concern that establishing 
reimbursement policy based on what the commenter believed are 
``misguided/unguided and perhaps dangerous treatment patterns,'' eroded 
the opportunity to improve quality of care and establish a financially 
sound policy. The comment included a copy of a report from the 
Department of Health and Human Services' Office of the Inspector 
General (US DHHS OIG) which described inconsistencies in ESRD 
facilities' policies and protocols for administering ESAs. Other 
commenters submitted comments indicating that there have not been 
studies that have reported an

[[Page 49147]]

appropriate target hematocrit and expressed concern that the proposed 
rule might encourage underutilization of EPO.
    Response: We are closely following the growing body of scientific 
evidence that describes the usage patterns of ESAs, as well as their 
potential benefits and harm. In order to further evaluate this body of 
evidence, CMS held a Medicare Evidence Development and Coverage 
Advisory Committee (MEDCAC) meeting on March 24, 2010. The purpose of 
the MEDCAC was to provide independent guidance and expert advice to us 
about the evidence on the use of ESAs in the management of anemia in 
patients with chronic kidney disease and end-stage renal dialysis 
disease. On June 16, 2010, we formally opened a new National Coverage 
Determination (NCD) regarding ESAs.
    Comment: Several commenters questioned specific features of the ESA 
Claims Monitoring Policy and ESA dosing of patients with chronic kidney 
disease (CKD).
    Response: We thank the commenters for stating their concerns. 
However, we solicited public comments on the extent to which we should 
continue to apply the ESA Monitoring Policy under the proposed ESRD 
PPS, which is a payment system applicable to Medicare beneficiaries 
with end-stage renal disease, not CKD. Comments concerning the ESA 
Claims Monitoring Policy and ESA dosing of patients with CKD are beyond 
the scope of this final rule.
    In developing this final rule, we have considered the extent to 
which it would be appropriate to extend the ESA Claims Monitoring 
Policy to include home dialysis patients who self-administer ESAs. 
Currently, the ESA Claims Monitoring Policy does not apply to ESA 
claims for patients who receive their dialysis at home and self-
administer their ESAs and we will continue this policy in 2011.
    We expect ESRD facilities managing home dialysis patients to use 
prudent judgment in ESA dosing and monitoring hemoglobin levels. 
Because outlier payments may be made on behalf of home dialysis 
patients as well as in-facility ESRD patients, we intend to monitor 
outlier payments for any unusual trends in outlier payments for all 
patients, including home dialysis patients who self-administer ESAs. We 
will continue to evaluate outlier payments and, if necessary, will 
address changes in the future.
    As a result of the public comments received and for the reasons we 
addressed above, we will continue to apply the ESA Claims Monitoring 
Policy edits on ESRD facility claims for purposes of calculating the 
basic case-mix adjusted composite payment system portion of the blended 
payment during the transition period, and in connection with 
determining the eligibility of ESA payments for outlier payments.

I. Comprehensive Payment Model Examples

    In section II.D. of this final rule, we demonstrated how the case-
mix adjustments based on separate estimating equations for CR and SB 
services (that is, the two equation model) were combined to obtain a 
single payment formula under the ESRD PPS. Table A in the Appendix 
contains the case-mix adjustments applicable to adult patients. In 
section II.G. of this final rule, we addressed the pediatric payment 
adjustments under the ESRD PPS. Table B in the Appendix contains the 
four pediatric classification categories and corresponding case-mix 
adjusters that will be applied to pediatric patients. In this section, 
we explain how the area wage index and case-mix adjustments will be 
applied to the adjusted base rate amount described in section II.E.4. 
of this final rule, reflecting combined CR and SB services, resulting 
in a patient-specific per treatment payment amount under the ESRD PPS, 
as set forth in Sec.  412.56. We demonstrate how the case-mix 
adjustments presented in Tables A and B in the Appendix would be 
applied for eight hypothetical ESRD patients to obtain the per 
treatment payment amounts under the ESRD PPS. We refer to the product 
of the applicable case-mix adjustment factors as the patient multiplier 
or PM. The ESRD PPS case-mix adjusters are shown in Table A in the 
Appendix for adult patients and Table B in the Appendix for pediatric 
patients.
    Each example uses the adjusted base rate of $229.63, covering Part 
B renal dialysis services and self-care home dialysis services as set 
forth under section 1881(b)(4) of the Act. Each example also assumes an 
ESRD wage index value of 1.1000. The labor-related share derived from 
the ESRD PPS market basket, described in section II.J. of this final 
rule, is 41.737 percent. Therefore, the starting point in each example 
prior to determining the patient-specific PM is a wage index adjusted 
base rate of $239.21. This amount was computed as follows:

Base rate $229.63
Labor-related share of base rate ($229.63 * .41737 = $95.84) $95.84
Wage index adjusted labor-related share ($95.84 * 1.1000 = $105.42) 
$105.42
Non labor-related share of base rate ($229.63 * (1 - .41737) = $133.79 
$133.79
Wage index adjusted base rate ($105.42 + $133.79 = $239.21) $239.21

    We also point out that each case-mix adjusted payment amount is 
reduced by 3.1 percent through the application of an adjustment factor 
of .969 to account for budget neutrality during the transition period. 
This is referred to as the transition budget neutrality adjustment, and 
is included as the last item in the computation of the payment amount 
for each patient, after application of all other case-mix adjustment 
factors (that is, all PMs), including any applicable add-on amounts for 
training treatments. It also applies to any outlier payments.

Example 1--Relatively Healthy ESRD Patient With No ESRD Payment Co-
Morbidities; No Outlier Payments Apply

    John, a 45 year old male Medicare beneficiary, is 187.96 cm. 
(1.8796 m.) in height and weighs 95 kg. John was diagnosed with ESRD in 
early 2010 and has been on HD since July 2010. He has chronic 
glomerulonephritis and hypertension, and has an AV fistula. The patient 
also has secondary hyperparathyroidism. John's payment rate for 
treatments furnished in January 2011 would be calculated as follows.
    Table A in the Appendix reveals that none of John's co-morbidities 
is among those for which a case-mix adjustment applies. The only 
pertinent factors to adjust the base rate amount are age, height, and 
weight. Using the formula for BMI, we see that John is not underweight, 
having a BMI of 26.89 kg/m\2\, which is greater than the threshold 
value of 18.5, the cut-off for underweight status:

BMIJohn = weightkg /height (m2)
= 95/1.87962
= 95/3.5329
= 26.89

    Therefore, there is no case-mix adjustment for low BMI. The formula 
for calculation of a patient's BSA is:

BSA = 0.007184 * heightcm.725 * weightkg.425

    John's BSA is calculated as:

BSAJohn = 0.007184 * 187.96.725 * 95.425
= 0.007184 * 44.5346 * 6.9268
= 2.2161

    Using the Table A in the Appendix multiplier of 1.020, John's case-
mix adjustment or payment multiplier (PM) based on his BSA of 2.2161 is 
computed as follows:

PMBSA = 1.020(2.2161-1.87)/0.1
= 1.0203.461

[[Page 49148]]

= 1.0709

    John's PM would reflect the applicable case-mix adjustments from 
Table A in the Appendix for both age and BSA and may be expressed as:

PMJohn = PMage * PMBSA
= 1.013 * 1.0709
= 1.0848

    John's ESRD payment rate for treatments furnished in January 2011 
would be:

$239.21 * 1.0848 * .969 = $251.45

Example 2--Same as Example 1, Except Dialysis Began November 15, 2010

    John's PM would have to include the adjustment for the onset of 
dialysis, because the treatments for which we are calculating the 
payment amount occur within 4 months of November 15, 2010. Because the 
onset of dialysis adjustment is limited to a maximum of 120 days, this 
particular adjustment would apply for treatments furnished between 
January 1, 2011 and March 15, 2011. John's applicable case-mix 
adjustments would be for a patient new to dialysis, age, and BSA, and 
may be expressed as:

PMJohn = PMDialQuest * PMAge * PMBSA

    Using the adjustment factors from Table 10, John's PM is:

PMJohn = 1.510 * 1.013 * 1.0709 = 1.6381

    For treatments furnished between January 1, 2011 and March 15, 
2011, John's payment rate per treatment would be:

$239.21 * 1.6381 * .969 = $379.70

    After March 15, 2011, when the onset of dialysis adjustment has 
expired, the payment would be $251.45, as calculated in Example 1.

Example 3--ESRD Patient With Multiple Co-Morbidities

    Mary, a 66 year old female, is 167.64 cm. (1.6764 m.) in height and 
weighs 105 kg. She has diabetes mellitus and cirrhosis of the liver. 
Mary was diagnosed with ESRD in 2006, and has been on HD since that 
time. Mary was admitted for a two week hospitalization from January 2-
16, 2011 due to gastrointestinal tract bleeding, a diagnosis confirmed 
upon discharge. Mary's hemorrhaging due to her GI bleeding ceased 
during her hospitalization. While in the hospital, Mary received 
inpatient dialysis. Mary was also discharged with a diagnosis of 
monoclonal gammopathy. After convalescing at home for 3 days, she 
resumed HD at an ESRD facility on January 20, 2010. The facility 
records the GI bleeding and monoclonal gammopathy diagnoses using the 
relevant ICD-9-CM codes for treatments received during the month of 
January. For claims submitted beginning with the month of February and 
continuing thereafter, the facility reports only the monoclonal 
gammopathy diagnosis, a chronic condition.
    The BMI calculation is:

BMI = weight kg/height(m2)
BMIMary = 105/1.6764 2
= 105/2.8103
= 37.3626

    Table A in the Appendix reveals that the PM in this example must be 
considered using the case-mix adjustments for gastrointestinal tract 
bleeding, monoclonal gammopathy, age, and BSA. Although Mary has 
diabetes and cirrhosis of the liver, these co-morbidities are not used 
in determining the case-mix adjusters under the ESRD PPS. The formula 
for calculation of a patient's BSA is:

BSA = 0.007184 * heightcm.725 * weightkg.425
BSAMary = 0.007184 * 167.64.725 * 105.425
= 0.007184 * 40.9896 * 7.2278
= 2.1284

    Using the Table A in the Appendix multiplier of 1.020, Mary's case-
mix adjustment or PM based on her BSA of 2.1284 is computed as follows:

PMBSA = 1.020 (2.1284-1.87)/0.1
= 1.020 2.584
= 1.0525

    Although Mary has both an acute co-morbidity (GI bleeding) and a 
chronic co-morbidity (monoclonal gammopathy) for the month of January, 
the facility may only be paid using the condition with the higher 
adjustment factor for the maximum number of 4 consecutive claim months 
in which payment for both co-morbidities must be considered. Because 
the case-mix adjustment for GI bleeding (1.183) exceeds that for 
monoclonal gammopathy (1.024), Mary's case-mix adjustment for co-
morbidities will reflect GI bleeding only for treatments received in 
January 2011 through April 2011. Therefore, for these treatments, 
Mary's PM may be expressed as:

PMMary = PMage * PMBSA * PMGIBleed
= 1.000 * 1.0525 * 1.183
= 1.2451

    For treatments received from January 20, 2011 through April 2011, 
Mary's payment rate per treatment is:

$239.21 * 1.2451 * .969 or $288.61

    Beginning with claims for May, only one co-morbidity applies for 
payment purposes, monoclonal gammopathy, for which the PM is 1.024. As 
this is a chronic condition, beginning with treatments furnished in May 
and continuing thereafter, Mary's PM may be expressed as:

PMMary = PMage * PMBSA * PMMono
= 1.000 * 1.0525 * 1.024
= 1.0778

    For treatments received in May 2011 and thereafter, provided no 
other co-morbidities apply, Mary's payment rate per treatment would be:

$239.21 * 1.0778 * .969 or $249.83

Example 4--ESRD Patient With Multiple Co-Morbidities, Onset of Dialysis 
Adjuster, Training Treatments, and Acute Co-Morbidity Recurrence Apply

    Ted, a 30-year-old male, began in-center HD on March 20, 2011. Ted 
has type II diabetes mellitus, sickle cell anemia, and was diagnosed on 
March 2 with bacterial pneumonia, which was treated with antibiotics. 
After completing his course of treatment with antibiotics, Ted was 
declared free of pneumonia on April 15. Because the patient has family 
caregivers available to assist him, Ted expressed a desire to become a 
PD patient. His nephrologist agreed that Ted was a suitable candidate 
for CAPD. On June 20, 2011, Ted began a series of 12 training 
treatments at his dialysis facility (one which does not qualify for the 
low-volume adjustment, but which is certified to provide home dialysis 
training) to transition to CAPD. These training treatments ended on 
July 21, 2011. Between July 18 and July 21, Ted had 2 training 
treatments. Ted successfully began CAPD on July 23, 2011, but was again 
diagnosed with bacterial pneumonia on August 10. After prolonged 
treatment with antibiotics, Ted was declared free of pneumonia on 
November 15, 2011.
    Ted is 170 cm. (1.70 m.) in height and weighs 78 kg. Table A in the 
Appendix reveals that the case-mix adjusters which must be considered 
in this case are those for age, BSA, onset of dialysis, bacterial 
pneumonia, and sickle cell anemia. As will be shown Ted does not 
qualify for the low BMI adjustment. In addition, the training add-on of 
$33.44 per treatment (prior to adjustment for area wage levels) must 
also be considered in the payment computations.

BMITed = weightkg/height (m\2\)
= 78/1.70\2\
= 78/2.89
= 26.99

    Because Ted's BMI exceeds the required threshold value of 18.5, 
there is no case-mix adjustment for low BMI. The formula for the 
calculation of a patient's BSA is:

BSA = 0.007184 * heightcm\.725\ * weightkg\.425\

[[Page 49149]]

    Ted's BSA is calculated as:

BSATed 0.007184 * 170\.725\ * 78\.425\
= 0.007184 * 41.4072 * 6.3700
= 1.8949

    Using the Table A in the Appendix multiplier of 1.020, Ted's case-
mix adjustment based on his BSA of 1.8949 is computed as follows:

PMBSA = 1.0201,8949-1.87)/0.1
= 1.020\.249\
= 1.0049

    The onset of dialysis adjustment is applicable in Ted's case, and 
extends from March 20, 2011 through July 17, 2011 (120 days). During 
this period, no case-mix adjustments for co-morbidities may be applied 
because the onset of dialysis adjustment supersedes the application of 
case-mix adjusters for co-morbidities. Neither may the training add-on 
be paid for the 10 training treatments furnished during the period the 
onset of dialysis adjustment is in effect. The only pertinent case-mix 
adjustments are those for age, BSA, and the onset of dialysis. For the 
120 day period from March 20, 2011, through July 17, 2011, Ted's PM is 
calculated as follows:

PMTED = PMage * PMBSA * 
PMDial/Onset
= 1.171 * 1.0049 * 1.510
= 1.7769

    Ted's ESRD payment rate per treatment from March 20, 2011 through 
July 17, 2011 would be:
$239.21 * 1.7769 * .969 = $411.88

    For the 2 training treatments furnished between July 18 and July 
21, the dialysis facility would receive a training add-on for each 
treatment, computed as follows:

Training rate--$33.44
Wage index--1.10
Training payment--$33.44 * 1.10 = $36.78

    Because Ted has a chronic co-morbidity, sickle cell anemia, the 
payment rate per treatment for dialysis treatments beginning July 18 
must reflect case-mix adjustments for age, BSA, and sickle cell anemia:

PMTed = PMage * PMBSA * PMSickle
= 1.171 * 1.0049 * 1.072
= 1.2615

    Ted's ESRD payment rate per treatment (excluding the training add-
on amount for 2 training treatments) would be:

 $239.21 * 1.2615 = $301.76

    Total payments for each of the 2 training treatments provided 
between July 18 and July 21 would be:

($301.76 + $36.78) * .969 = $328.05

    For claims submitted beginning August 2011, Ted's dialysis facility 
correctly reported the co-morbidities of sickle cell anemia and 
bacterial pneumonia. Because payment can only be made for the condition 
which yields the highest payment where two or more co-morbidities 
apply, Table A in the Appendix reveals that bacterial pneumonia is the 
condition with the higher case-mix adjuster (1.135). Therefore, this is 
the co-morbidity that will be reflected in the computation of Ted's PM 
as follows for claims submitted for the 4 months of August 2011 through 
November 2011 (the maximum number of claim months an acute co-morbidity 
case-mix adjuster can be applied without a subsequent recurrence):

PMTed = PMage * PMBSA * PMPneum
    = 1.171 * 1.0049 * 1.135
= 1.3356

Ted's ESRD payment rate per treatment for the months of August 2011 
through November 2011 would be:

$239.21 * 1.3356 * .969 = $309.58

    After November 2011, the only co-morbidity that would apply in 
computing the payment rate is Ted's chronic sickle cell anemia, for 
which the PM is 1.072. Beginning with claims submitted for the months 
of December 2011 and thereafter, assuming no other changes in Ted's 
condition, the payment rate per treatment would be based on the 
following case-mix adjusters:

PMTed = PMage * PMBSA * PMSickle
= 1.171 * 1.0049 * 1.072
= 1.2615

    Beginning with monthly claims for December 2011 and thereafter, 
Ted's ESRD payment rate per treatment would be:

$239.21 * 1.2615 * .969 = $292.41

Example 5--Aged ESRD Patient With Low BMI (< 18.5kg/m2), 
History of Hospitalization, Multiple Co-Morbidities, and Treatment in a 
Facility Qualifying for the Low-Volume (LV) Adjustment

    Agnes, an 82 year old female, is 160.02 cm. (1.6002 m.) in height 
and weighs 45.36 kg. She has longstanding type II diabetes mellitus and 
was diagnosed with ESRD in 2008. The patient has coronary artery 
disease and peripheral vascular disease. In January 2009, Agnes began 
dialyzing with an upper arm AV fistula which had been created the 
previous year. In March 2010, after an unsuccessful attempt to declot 
the AV fistula during hospitalization, Agnes experienced additional 
bleeding complications and has been dialyzed using a catheter ever 
since. In December 2010, the patient was admitted to the hospital after 
fainting during an outpatient dialysis treatment. She was diagnosed 
with pericarditis and discharged January 11, 2011. She resumed 
outpatient dialysis on January 13, 2011 at a facility which qualifies 
for the LV adjustment, because it has never had a treatment volume 
exceeding 3500 treatments since it opened in 2005. Her treating 
physician declared her free of pericardial inflammation on February 12, 
2011. On April 10, 2011, Agnes was hospitalized with bacterial 
pneumonia and remained hospitalized until April 25. She resumed 
outpatient dialysis on April 28. Agnes was declared free of bacterial 
pneumonia on May 15, 2011, after post-hospitalization treatment with 
antibiotics. The facility submitted monthly claims for the months of 
January and February 2011 with the reported diagnosis of pericarditis. 
For dialysis treatments furnished during the month of March, the 
facility submitted a monthly claim reporting no co-morbidities. For 
dialysis treatments furnished Agnes during the months of April and May, 
the facility reported on the monthly claims the co-morbidity of 
bacterial pneumonia.
    We must first use Agnes' height and weight to determine if a case-
mix adjustment for low BMI applies and determine Agnes' BSA. BMI is 
computed as follows:

BMIAgnes = weightkg/height(m2)
= 45.36/1.60022
= 45.36/2.5606
= 17.71

    Agnes' BMI is less than 18.5. Therefore, her PM must include the 
2.5 percent case-mix adjustment for underweight status.
    The BSA formula is:

BSA = 0.007184 * heightcm.725 * weightkg.425

Agnes' BSA is calculated as:

BSAAgnes = 0.007184 * 160.02.725 * 45.36.425
= 0.007184 * 39.6302 * 5.0592
= 1.4404
    Using the Table A in the Appendix multiplier of 1.020, Agnes' case-
mix adjustment based on her BSA of 1.4404 is calculated as follows:

PMBSA = 1.020(1.4404-1.87)/0.1
= 1.020-4.296
= .9184

    The applicable factors that should be used to calculate Agnes' PM 
are the case-mix adjusters for age, BSA, low BMI, pericarditis, 
bacterial pneumonia, and the facility adjuster for LV.
    For the months of January and February 2011, Agnes' ESRD facility 
reported on her monthly claims the pericarditis co-morbidity. Using the

[[Page 49150]]

Table A in the Appendix adjusters, Agnes' PM for the months of January 
and February may be expressed as:

PMAgnes = PMage * PMBSA * PMBMI * PMPericard * PMLV = 1.016 * .9184 * 
1.025 * 1.114 * 1.189 = 1.2668
    Agnes' ESRD payment rate for treatments furnished in January, 
February, and March 2011 would be:

$239.21 * 1.2668 * .969 = $293.64

    Although Agnes no longer had pericarditis as of February 12, 2011, 
her facility is entitled to payments for treatments furnished in March 
which reflect a case-mix adjustment for this acute co-morbidity, 
because case-mix for an acute co-morbidity may be applied for claims 
submitted for four claim months unless another co-morbidity yields a 
higher payment amount. Agnes' PM for April 2011 reflecting pericarditis 
is as follows:

PMAgnes * PMage * PMBSA * PMBMI * PMPericard * PMLV = 1.016 * .9184 * 
1.025 * 1.114 * 1.189 = 1.2668

    Her PM reflecting the co-morbidity of bacterial pneumonia is:

PMAgnes = PMage * PMBSA * PMBMI * PMPneum * PMLV = 1.016 * .9184 * 
1.025 * 1.135 * 1.189 = 1.2907

    Agnes' dialysis facility normally would be entitled to a payment 
adjustment for treatments reflecting the pericarditis co-morbidity for 
3 claim months after February 2011, because a payment adjustment 
reflecting a co-morbidity may be paid for 4 claim months, including the 
month in which the diagnosis was present and dialysis treatments were 
furnished. However, in April Agnes was diagnosed with bacterial 
pneumonia. Because Agnes' PM based on pneumonia is higher than that for 
pericarditis, her payment rate for April 2011 will be based on the 
bacterial pneumonia co-morbidity as follows:

$239.21 * 1.2907 * .969 = $299.18

    Because Agnes' dialysis facility is entitled to payments reflecting 
the bacterial pneumonia co-morbidity for claims for 4 claim months, the 
payment rate of $299.18 per treatment would apply for all treatments 
furnished in April through the month of July 2011, provided there are 
no other changes in Agnes' condition.

Example 6--Same as Example 1, With Outlier Payments (For a Description 
of the Outlier Payment Methodology, See Section II.H. of This Final 
Rule)

    John receives HD 3 times weekly. However, in January 2011 he 
suffered a compound ankle fracture and was hospitalized for 4 days from 
January 10 through 14. During the hospitalization John did not undergo 
any dialysis treatments. After discharge John resumed his dialysis 
treatments, but it was noted that his dialysis clinical indicators were 
markedly perturbed from baseline values, requiring additional 
laboratory testing and above average doses of several injectable drugs, 
particularly EPO, to return them to normal levels. During January 2011 
John received 9 outpatient HD treatments at his usual facility. The 
facility submitted a claim for allowable outlier services including 
drugs and biologicals, laboratory tests, and supplies totaling 
$3,000.00
    Using Table A in the Appendix, we begin by computing the predicted 
outlier services MAP per treatment based on the SB case-mix adjustment 
factors for the PM variables applicable to John, age and BSA:

SBPMJohn = PMageSB * PMBSASB

    John's BSA from Example 1 is 2.2161. Applying the SB adjustment 
factor from Table 10 for BSA, John's outlier services PM for BSA is 
computed as follows:

SBPMBSA = 1.014(2.2161-1.87)/0.1 = 1.0143.461 = 
1.0493

    John's outlier services PM is calculated as:

SBPMJohn = .992 * 1.0493 = 1.0409

    From Table 28, we determine that the outlier services MAP per 
treatment for adult patients is $82.78. Therefore, the case-mix 
adjusted predicted outlier services MAP per treatment for John is:

$82.78 * 1.0409 = $86.17

    Next, we determine the imputed outlier services MAP amount per 
treatment which reflects the cost of outlier services actually incurred 
by the ESRD facility. John's outlier services imputed amount averaged 
$3000.00/9 or $333.33 per session.
    Next, we must determine if John's dialysis facility is entitled to 
outlier payments by comparing the predicted outlier services MAP amount 
to the imputed outlier services MAP amount. But first, we must add the 
fixed dollar loss amount to the predicted outlier services MAP amount.
    The fixed dollar loss (FDL) amount for the predicted outlier 
services MAP, reflecting the case-mix adjustments for John for age and 
BSA is:

JohnFDL = $86.17 + $155.44 = $241.61

    Because John's average outlier services MAP for the outlier 
services services received was $333.33, which exceeds the outlier 
services MAP plus the FDL totaling $241.61, John's ESRD facility is 
eligible for outlier payments beyond the otherwise applicable ESRD PPS 
payment amount of $251.45.
    The outlier payments are calculated as follows:

Amount by which the imputed amount exceeds the predicted amount plus 
the FDL-- $333.33 - $241.61 = $91.72
Loss sharing ratio--80%
Outlier payments per treatment--$91.72 * .80 = $73.38
Outlier payments--$73.38 * 9 treatments * .969 = $639.95
Regular ESRD payments for January 2011--$251.45 * 9 = $2263.05
Total ESRD PPS payments for January 2011--$2263.05 + $639.95 = $2903.00

Example 7--Pediatric ESRD Patient Receiving Treatments in a Low-Volume 
(LV) Facility; Outlier Payments Apply

    Timmy is a 16 year old male with ESRD due to renal hypoplasia. The 
patient was on PD until 2009, when he received a deceased donor kidney 
transplant. Timmy's transplant failed in August 2010, and he has been 
on HD since that time. The patient receives dialysis through an AV 
graft. Timmy has a history of post-transplant lymphoma, which is in 
remission. He also has diabetes mellitus, which developed after the 
kidney transplantation. Timmy weighs 66.2 kg. and is 161.6 cm. in 
height. He was hospitalized in December 2010 with Staph bacteremia. As 
part of his HD, Timmy receives ARANESP[supreg] 60 mcg. IV q 2 weeks, 
paracalcitol 4 mcg. IV 3 times a week, and iron dextran 100 mg. IV 
every 2 weeks. The patient also takes 2 tablets, 667 mg. each of 
calcium acetate 3 times per day. Timmy had 12 HD treatments in January 
2011. The ESRD facility, which qualifies for the LV adjustment for 
adult patients, submitted a January claim for allowable outlier 
services including drugs and biologicals, laboratory tests, and 
supplies totaling $3800.00.
    Co-morbidities are not used to determine a pediatric patient's ESRD 
payment rate because these factors have been taken into account in the 
pediatric payment adjustments. Neither is the LV adjustment applicable 
to pediatric dialysis patients. The only variables relevant in 
determining Timmy's payment amount per treatment, without regard to 
outlier payments, are age and dialysis modality. Because Timmy is 16 
and undergoes HD, Table B in the Appendix reveals that his pediatric 
classification group is category 4, for which the PM is 1.277. Timmy's 
payment rate per treatment, without regard to outlier payments, is:

$239.21 * 1.277 * .969 = $296.00

    Timmy's dialysis facility would receive $296.00 for each of the 12

[[Page 49151]]

treatments it furnished in January 2011. Table B in the Appendix 
reveals that the SB case-mix adjustment factor for Timmy's pediatric 
classification group (cell 4) is 1.459.
    From Table 28, we determine that the outlier services MAP per 
treatment for pediatric patients is $53.06. Therefore, the case-mix 
adjusted predicted outlier services MAP per treatment for Timmy is:

$53.06 * 1.459 = $77.41

    Next, we determine the imputed outlier services MAP amount per 
treatment which reflects the cost of outlier services actually incurred 
by the ESRD facility. Timmy's outlier services imputed amount averaged 
$3800.00/12 or $316.67 per treatment.
    We then determine if Timmy's dialysis facility is entitled to 
outlier payments by comparing the predicted outlier services MAP amount 
to the imputed outlier services MAP amount. But first, we must add the 
fixed dollar loss amount to the predicted outlier services MAP amount. 
The fixed dollar loss (FDL) amount for the predicted outlier services 
MAP, reflecting Timmy's pediatric classification group, is:

TimmyFDL = $77.41 + $195.02 = $272.43

    Because Timmy's average outlier services MAP for the outlier 
services received was $316.67, which exceeds the outlier services MAP 
plus the FDL totaling $272.43, Timmy's ESRD facility is eligible for 
outlier payments beyond the otherwise applicable ESRD PPS payment 
amount of $296.00.
    The outlier payments are calculated as follows:

Amount by which the imputed amount exceeds the predicted amount plus 
the FDL--$316.67-$272.43 = $44.24
Loss sharing ratio--80%
Outlier payments per treatment--$44.24 * .80 = $35.39
Outlier payments--$35.39 * 12 treatments * .969 = $411.51
Regular ESRD payments for January 2011--$296.00 * 12 = $3552.00
Total ESRD PPS payments for January 2011--$3552.00 + $411.51 = $3963.51

Example 8--Pediatric ESRD Patient Receiving Training Treatments in a 
Low-Volume Facility

    Andrew, a 12 year old male with diabetes mellitus, has been on CCPD 
since June 2010. Andrew's father has been deceased for 5 years. His 
mother, who assists him with his dialysis at home, will be unable to 
assist Andrew with dialysis beginning on February 10, 2011, because of 
major surgery which will leave her physically unable to participate in 
her son's care for an extended period of time. Andrew's Aunt Millie, 
who lives nearby, has agreed to be Andrew's caregiver and assist him 
with his dialysis. Millie required 17 training sessions at Andrew's 
dialysis facility, which is certified to provide home dialysis 
training, in order to become knowledgeable and skilled sufficiently to 
perform this role. These training sessions began February 16 and ended 
March 10. Andrew's dialysis facility, which has been open for 5 years, 
has never furnished more than 3100 treatments in a year, and qualifies 
for the low-volume (LV) adjustment.
    Table B in the Appendix reveals that Andrew's pediatric dialysis 
classification group is cell 1, with an associated PM of 1.033. 
Although Andrew's dialysis facility is eligible for the LV adjustment 
for its adult patients, the LV multiplier does not apply to pediatric 
patients. During the months of January and February 2011, Andrew's ESRD 
payment rate per HD-equivalent treatment would be:

$239.21 * 1.033 * .969 = $239.44

    However, Andrew's dialysis facility is entitled to receive payment 
for a maximum of 15 training treatments furnished in connection with 
Andrew's new caregiver, Aunt Millie. Because the amount of the training 
add-on is adjusted by the dialysis facility's wage index (1.10), the 
amount of the training add-on is calculated as follows:

Training rate--$33.44
Wage index--1.10
Training payment--$33.44 * 1.10 = $36.78

    For the maximum number of 15 training treatments for which the 
training adjustment may be provided in connection with a PD patient, 
Andrew's payment rate, including the training add-on, would be:

($239.21 * 1.033 + $36.78) * .969 = $275.08

J. ESRD Bundled Market Basket

    Under section 1881(b)(14)(F)(i) of the Act, as added by section 
153(b) of MIPPA and amended by section 3401 of Public Law 111-148, 
beginning in 2012, the ESRD bundled payment amounts are required to be 
annually increased by an ESRD market basket increase factor that is 
reduced by the productivity adjustment described in section 
1886(b)(3)(B)(xi)(II) of the Act. The statute further provides that the 
market basket increase factor should reflect the changes over time in 
the prices of an appropriate mix of goods and services used to furnish 
renal dialysis services. Under section 1881(b)(14)(F)(ii) of the Act, 
as added by section 153(b) of MIPPA and amended by section 3401(h) of 
Public Law 111-148, the ESRD bundled rate market basket increase factor 
will also be used to update the composite rate portion of ESRD payments 
during the ESRD PPS phase-in period from 2011 through 2013, though 
beginning in 2012, such market basket increase factor will be reduced 
by the productivity adjustment. We intend to address in future 
rulemaking the productivity adjustment that will be applicable 
beginning in 2012. With regard to application of the ESRD bundled rate 
market basket in CY 2011, we note that as a result of amendments by 
section 3401(h) of Public Law 111-148 to section 1881(b)(14)(F) of the 
Act, a full market basket will be applied to the composite rate portion 
of the blended payment during the first year of the transition (i.e., 
1.0 percentage point will not be subtracted). Therefore, we have 
modified Sec.  413.196 by making conforming changes as a result of the 
Affordable Care Act.
    As required under section 1881(b)(14) of the Act, effective for CY 
2012 (and for purposes of the first year of the transition, CY 2011), 
CMS has developed an all-inclusive ESRD bundled rate (ESRDB) input 
price index. Although ``market basket'' technically describes the mix 
of goods and services used to produce ESRD care, this term is also 
commonly used to denote the input price index (that is, cost 
categories, their respective weights, and price proxies combined) 
derived from that market basket. Accordingly, the term ``ESRDB market 
basket'' as used in this document refers to the ESRDB input price 
index.
    A market basket has historically been used under the Medicare 
program to account for the price increases of the requisite inputs 
associated with the services furnished by providers. The percentage 
change in the ESRDB market basket reflects the average change in the 
price of goods and services purchased by ESRD facilities in providing 
renal dialysis services. Since a single payment rate exists for both 
operating and capital-related costs, the ESRDB market basket for ESRD 
facilities includes both operating and capital-related costs.
    In the proposed rule (74 FR 49997 through 50003), we discussed the 
development of the proposed cost categories and their respective 
weights for the ESRDB market basket using CY 2007 as the base year, the 
choices of price proxies, and an explanation of the methodology and 
results of the proposed ESRDB market basket. As described in the 
proposed rule (74 FR 49997), using a base year of CY 2007 and Medicare 
cost report data, we first

[[Page 49152]]

computed cost shares for the following nine major expenditure 
categories: (1) Wages and Salaries, (2) Employee Benefits for direct 
patient care, (3) Pharmaceuticals, (4) Supplies, (5) Laboratory 
Services, (6) Blood Products, (7) Administrative and General and Other 
(A&O), (8) Housekeeping and Operations, and (9) Capital-Related costs. 
We then supplemented the Medicare Cost Report data with additional data 
sources and expanded these cost categories to ultimately derive the 16 
proposed ESRDB market basket cost categories and weights (74 FR 49998 
through 50001). Also in the proposed rule, we described our selection 
of, and the rationale for, the appropriate price proxies to measure the 
rate of price change for each category (74 FR 50001 through 50002), as 
well as provided the projected annual rates of growth in the ESRDB 
market basket for CY 2009 through CY 2019 based on the most recent 
forecast available at the time. Additionally, we proposed that the 
ESRDB labor-related share equal 38.160 percent, which represented the 
sum of the weights for the following cost categories: Wages and 
Salaries, Benefits, Housekeeping and Operations, All Other Labor-
related Services, 87 percent of the cost weight for Professional Fees, 
and 46 percent of the weight for Capital-related Building and Equipment 
expenses (74 FR 50003).
    The comments we received on these proposals and the responses are 
set forth below.
    Comment: A commenter expressed concern that the proposed ESRD 
bundled PPS suggests that 42.8 percent of the facility's ESRD treatment 
costs are labor-related. The commenter was concerned that staff levels 
will be reduced to compensate for the revenue loss realized by the 
regressive formula of the proposed payment system.
    Response: The labor-related share in the ESRD bundled proposed rule 
was 38.160 percent (74 FR 50003). We are uncertain how the commenter 
calculated 42.8 percent. To provide clarification for the commenter, we 
note that the labor-related share of the ESRDB market basket is defined 
as the national average proportion of operating costs that are related 
to, influenced by, or vary with the local labor market. This share 
represents the proportion of an ESRD facility's payment that is 
adjusted for geographic wage differences. As discussed below, we have 
made several methodological changes to the ESRDB market basket based on 
the public comments received. The new labor-related share is 41.737 
percent. We will closely monitor the cost structure of the ESRD 
industry and the labor-related share of the ESRDB market basket, 
following implementation of the ESRD PPS. If new data show material 
shifts in the average cost structure for ESRD providers, including 
changes in the labor-related share, we will propose to rebase the ESRDB 
market basket, as technically appropriate.
    Comment: Several commenters recommended using 2008 or 2009 as the 
base year for the ESRDB market basket in order to more accurately 
represent the changes in facility operating costs that resulted from 
the compliance with the Conditions for Coverage and other trends. 
Commenters stated that cost reports from 2008 are available for CMS to 
use, and although they are not settled, MedPAC analysis found little 
difference between submitted and settled cost reports.
    Response: We agree with the commenters with regard to the issue of 
using more updated data for the base year for the development of the CY 
ESRDB market basket. As we indicated in the proposed rule, we proposed 
to use CY 2007 because it was the most recent year that both relatively 
complete Medicare cost report data and supplemental data from the 
Census' Business Expenditure Survey (BES) were available (74 FR 49997). 
That is, the proposed ESRDB market basket was developed over the winter 
of 2008 and spring of 2009. At that time, 2007 Medicare cost reports 
(MCR) represented the most complete set of data available. Therefore, 
the methodology used to finalize the proposed ESRDB market basket 
estimates was completed well in advance. The 2007 MCR data are 
comprised of financial data for ESRD facilities reporting on different 
fiscal years, including but not limited to federal fiscal, calendar, 
and ``state'' fiscal year (July 1 to June 30). A facility's MCR data 
are typically available between nine months and one year from the end 
of the facility's fiscal period. Since publication of the proposed 
rule, we have reviewed the 2007 MCR data using a complete sample and 
found that the cost weights are not materially different relative to 
those found in the proposed 2007 ESRDB market basket.
    The agency monitors market basket cost weights regularly to 
determine if significant changes have occurred from one year to the 
next. To that end, and based on public comment, we have constructed and 
analyzed cost weights from the newly available 2008 MCRs and determined 
there has been a material shift in the cost structure of ESRDs from 
2007 to 2008. Specifically, there was a notable decrease in the 
Pharmaceuticals cost weight for 2008 compared to 2007 (as discussed in 
more detail below). Therefore, we believe it is appropriate to use the 
2008 MCR data for the base year cost weights of the ESRDB market 
basket. We will continue to closely monitor the cost report data as the 
ESRD PPS is implemented; and should we observe any additional material 
changes in the cost structure of the industry, we will propose to 
rebase and revise the ESRDB market basket accordingly.
    Comment: Several commenters applauded CMS's decision to use the 
Producer Price Index (PPI) for prescription drugs as the price proxy 
for measuring price growth in ESRD drugs in the proposed ESRDB market 
basket.
    Response: We appreciate commenters' support for using the PPI for 
prescription drugs as the price proxy for measuring price growth for 
the ESRD drugs cost category. In this rule, we are finalizing the 
selection of this proxy for the following three reasons:
    (1) Relevance: This index contains an appropriate level of 
aggregation for use in the Medicare market baskets (including former 
Part D drugs covered in the ESRD bundle), as well as reflects 
competitive pricing observed in efficient markets.
    (2) Reliability: This index represents a consistent time series and 
allows for projections of future price changes that are based on 
technically sound econometric modeling techniques that are widely 
accepted.
    (3) Timeliness/Public Availability: The Bureau of Labor Statistics 
independently publishes this data on a monthly basis with no 
significant methodological changes.
    Comment: Several commenters believe that a better price proxy for 
drugs in ESRD facilities is the National Health Expenditure (NHE) 
estimate of prescription drug spending.
    Response: We believe the NHE estimate of prescription drug spending 
growth is not an appropriate price proxy for use in the ESRDB market 
basket. NHE growth rates reflect changes in total spending (that is, 
prices and quantities). The ESRDB market basket is intended to only 
reflect price changes, holding quantities fixed in a base year. For the 
reasons outlined above, we believe the PPI for prescription drugs is 
the appropriate price proxy to apply to the drugs cost category in the 
ESRDB market basket.
    Comment: Several commenters opposed the use of the Employment Cost 
Index (ECI) for Health Care and Social Assistance as the price proxy 
for Wages and Salaries. These commenters recommended that CMS use the 
ECI for Hospitals as the price proxy because

[[Page 49153]]

they claim it more accurately reflects the occupational mix in ESRD 
facilities than the ECI for Health Care and Social Assistance.
    Response: In the proposed rule, we proposed to use the ECI for 
Health Care and Social Assistance to proxy the Wages and Salaries cost 
category (74 FR 50001). That selection was largely driven by the ESRD 
industry's inclusion in the North American Industry Classification 
System's (NAICS) category 621, Ambulatory Health Care Services, which 
is one component that makes up the ECI for Health Care and Social 
Assistance (NAICS 62).
    In response to commenters' concerns, we have reviewed the 
occupational mix of ESRD facilities and compared it in detail to that 
of hospitals (found in NAICS category 622), nursing and residential 
care facilities (found in NAICS category 623), and the compilation of 
industries contained in the Health Care and Social Assistance category 
(NAICS category 62). To do this, we compared Full Time Equivalent (FTE) 
data from the ESRD Medicare cost reports with occupational composition 
data found in the Occupational Employment Statistics produced by the 
Bureau of Labor Statistics (BLS). We found that ESRD facilities have a 
somewhat unique occupational mix that differs, to varying degrees, from 
hospitals, nursing and residential care facilities, and the compilation 
of industries found in the health care and social assistance 
classification. These three comparisons were selected as they represent 
the health industries for which ECIs are available.
    Based on our analysis, we agree with the commenters that it would 
be appropriate to consider the use of the ECI for Hospitals as a price 
proxy for this category. In our follow-up analysis, we noted that the 
ESRD industry's occupational and skill mix (including physicians, 
registered nurses (RN), licensed practical nurses (LPN), and a variety 
of technicians) is not fully represented in NAICS category 62 (Health 
Care and Social Assistance). In comparing the ESRD occupational mix to 
the occupational mix of hospitals, we found that for many of the higher 
skilled occupations, the ESRD industry did bear certain similarities to 
that of the hospital industry. As a result, we have determined it would 
be appropriate to account for the unique occupational mix in ESRD 
facilities by utilizing a blended price proxy for the Wages and 
Salaries cost category. The blended proxy will incorporate the Wages 
and Salaries ECI for Health Care and Social Assistance (representing 50 
percent of the blend) and the Wages and Salaries ECI for Hospitals 
(representing the other 50 percent of the blend). In addition to using 
a blended ECI as the price proxy for Wages and Salaries, we will also 
use a blended ECI as the price proxy for the Benefits cost category 
using the same 50/50 ratio. Those ECIs include the Benefits ECI for 
Health Care and Social Assistance (50 percent) and the Benefits ECI for 
Hospitals (50 percent).
    Comment: Several commenters requested that CMS provide additional 
detail on the ESRDB market basket, stating that there were holes in 
documenting the methodology for its development. Particularly, the 
commenters stated that CMS omitted a significant amount of detail on 
the price proxies and did not provide the prospective reference data 
from which the price proxies are extracted. These commenters requested 
that CMS put the detailed forecast of the price proxies on the CMS Web 
site for public view. They noted that the information provided should 
be available to replicate the results of the ESRDB market basket, as 
proposed.
    Response: We agree that the public should be able to replicate the 
methodology used to construct the ESRDB market basket. We disagree, 
however, with the commenters' claim that the proposed rule lacked 
significant documentation regarding the methodology used to construct 
the ESRDB market basket. The proposed rule provided a detailed 
description of the data sources used to develop the ESRDB market basket 
cost weights (74 FR 50001). Likewise, as indicated in the proposed 
rule, the price proxies used in the ESRDB market basket were listed for 
each cost category and are based on data maintained and published by 
the BLS (74 FR 50001 through 50002). We would refer the commenter to 
BLS regarding any specific information on the detailed price proxies.
    To assist the commenter and other interested stakeholders in 
locating these price proxies on the BLS Web site, we have provided the 
individual BLS series codes for the indexes in the price proxy 
discussion of this final rule (below). The price proxies can be 
obtained by entering these codes at the BLS Web site (http://data.bls.gov/cgi-bin/srgate). Regarding the individual forecasts of the 
price proxies used to develop the CY 2011 ESRDB market basket update 
factor, these forecasts are developed by IHS Global Insight, 
Incorporated (IGI), a nationally recognized economic and financial 
forecasting firm. We purchase IGI's detailed price proxy projections 
for use in the Medicare market baskets. As a matter of practice, we 
publish all of the underlying detail for each price proxy for the 
historical period. However, because the projections of each individual 
price proxy are proprietary, we typically aggregate those projections 
into higher level categories and then publish the results with usually 
a one-quarter lag. Since the ESRDB market basket is a new market basket 
that is still progressing through the rule-making process, we have not 
published additional detail other than what has been published in the 
proposed rule. Following implementation of this PPS, we will begin 
publishing the ESRDB market basket, including the detail as described 
above, on the CMS Web site (http://www.cms.hhs.gov/MedicareProgramRatesStats/04_MarketBasketData.asp#TopOfPage).
    Comment: Several commenters stated that CMS did not specify a plan 
for the frequency of rebasing and revisions of the ESRDB market basket. 
Commenters stated that CMS usually rebases on a 4-year cycle in other 
provider indexes. They noted that this is an appropriate timeframe for 
the rebasing of the ESRDB market basket.
    Response: We monitor the market basket cost weights regularly to 
determine if significant changes have occurred from one year to the 
next. In general, we have typically proposed to rebase and revise the 
market baskets roughly every five years; although we have proposed 
alternatives to that rate when technically appropriate or when mandated 
by law (for example, the Inpatient Hospital Prospective Payment System 
(IPPS) market basket is required to be rebased more frequently than 
every five years, in accordance with Section 404 of Pub. L.108-173). We 
are unable to provide a specific rebasing schedule for the ESRDB market 
basket, in part, because this is a new payment system that is being 
implemented making it particularly difficult to say with certainty how 
frequently rebasings would be technically appropriate. In general, we 
do not explicitly state how often any market basket will be rebased or 
revised, unless there is a mandated rebasing schedule. As is the 
agency's practice, we will continuously monitor the composition of the 
new ESRDB market basket to determine the next technically appropriate 
time to rebase and revise the index. At that time, the agency will go 
through the notice and comment rulemaking process including proposing 
and finalizing any changes after consideration of public comments.
    Comment: One commenter believes that the ESRDB market basket update 
will not address the low margins for small dialysis organizations 
(SDOs), especially in the context of a two

[[Page 49154]]

percent reduction in payments under the ESRD PPS. The commenter stated 
that ESRDB market basket updates to payments in the following years 
should reflect increases in costs, and that it will likely not be 
enough to increase the SDO margins even to current levels.
    Response: The impact on SDOs is addressed in section IV.B of this 
final rule. The ESRDB market basket calculations produced by the Office 
of the Actuary in CMS are constructed entirely independent from any 
margins analysis. The ESRDB market basket updates represent the net 
result of combining price projections for each individual cost category 
with that category's respective cost weight.
    Notably, the CMS market baskets are not intended to update payments 
based on projected costs, which are equal to prices multiplied by 
quantities. The purpose of the ESRDB market basket, rather, is to 
update the base payment rate to account for the projected input price 
inflation associated with the goods and services required to provide 
ESRD bundled services while holding that market basket of goods and 
services constant.
    As a result of public comments, we have made several methodological 
changes to the proposed ESRDB market basket. First, as discussed above, 
we are using a 2008 base year rather than a 2007 base year for the 
ESRDB market basket. This year represents the latest year for which 
appropriately complete data are available. Second, we have changed the 
price proxies for the Wages and Salaries and the Benefits cost 
categories from ECIs for Health Care and Social Assistance (NAICS 
category 62) to blended indexes of the ECIs for Hospitals and the ECIs 
for Health Care and Social Assistance (as detailed above). Third, we 
are no longer including blood and blood products in the ESRDB market 
basket.
    In the proposed rule, blood and blood products were included in the 
proposed ESRDB market basket (74 FR 49999) since these products were 
included in the proposed ESRD bundled payment. However, as explained in 
section II.A.4. of this final rule, we have decided to remove blood and 
blood products from the bundled payment in response to public comment. 
Therefore, since blood and blood products are no longer included in the 
ESRD bundled payment, it is no longer appropriate to include that 
category in the ESRDB market basket.
    Lastly, we are delaying the inclusion of costs associated with 
oral-only drugs and biologicals formerly covered under Part D that have 
no injectable equivalents (or other form of administration) in the 
ESRDB market basket. Similar to blood and blood products, these costs 
were included in the ESRDB market basket in the proposed rule (74 FR 
49999) due to these products being included in the proposed ESRD 
bundled payment. However, in response to public comment, CMS has 
decided to delay implementation of including ESRD-related oral-only 
Part D drugs (without injectable equivalents or other forms of 
administration) in the bundled payment, as stated in section II.A.3. of 
this final rule. Therefore, it is no longer appropriate to include the 
costs associated with these products in the ESRDB market basket for 
this final rule.
    Below we discuss the ESRDB market basket we are finalizing, 
including the changes noted above. Additionally, in response to public 
comments, where relevant, we include the applicable BLS series code for 
the various price proxies. We believe this provides added transparency 
for the new ESRDB market basket.

Cost Category Weights

    The ESRDB market basket cost weights in this final rule are based 
on the CY 2008 cost report data for independent ESRD facilities. We 
refer to the ESRDB market basket as a CY market basket because the base 
period for all price proxies and weights are set to CY 2008 = 100. 
Source data included CY 2008 Medicare cost reports (Form CMS-265-94), 
supplemented with 2002 data from the U.S. Department of Commerce, 
Bureau of the Census' Business Expenditure Survey (BES). The BES data 
were aged to 2008 using appropriate price proxies to estimate price 
growth. The price proxies used for the aging of the BES data come from 
publicly available price indexes such as various producer price indexes 
(PPI), consumer price indexes (CPI), or employment cost indexes (ECI). 
All of these price proxies are based on data published by the U.S. 
Department of Labor, Bureau of Labor Statistics (BLS).
    Using Worksheets A, A2, and B from the CY 2008 Medicare cost 
reports, we first computed cost shares for eight major expenditure 
categories: Wages and Salaries, Employee Benefits for direct patient 
care, Pharmaceuticals, Supplies, Laboratory Services, Administrative 
and General and Other (A&O), Housekeeping and Operations, and Capital-
Related costs. In the proposed rule, we had initially computed cost 
shares for nine major expenditure categories (74 FR 49997); however, as 
stated earlier, we are now removing blood and blood products from the 
ESRDB market basket for this final rule, and therefore, we now yield 
one less major expenditure category than stated in the proposed rule. 
Edits were applied to include only cost reports that had total costs 
greater than zero. In order to reduce potential distortions from 
outliers in the calculation of the cost weights for the major 
expenditure categories, cost values for each category less than the 5th 
percentile or greater than the 95th percentile were excluded from the 
computations. The resulting data set included information from 
approximately 3,869 independent ESRD facilities' cost reports from an 
available pool of 4,299 cost reports. Expenditures for the eight cost 
categories as a proportion of total expenditures are shown in Table 30 
below. We note that the values calculated for the cost weights in this 
table differ from those that were published in the proposed rule (74 FR 
49998). This is a result of several factors including: The use of 2008 
Medicare cost report data rather than 2007 Medicare cost report data, 
the removal of blood and blood products costs from the ESRDB market 
basket, and the removal of costs associated with ESRD-related oral Part 
D drugs without injectable equivalents from the ESRDB market basket. 
While some of these changes in the cost weights are minor, we discuss 
the more notable differences in the CY 2007 and CY 2008 cost weights in 
the text below.

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[GRAPHIC] [TIFF OMITTED] TR12AU10.037

    Some costs that are required to be included in the ESRD bundled 
payment are not reported on the Medicare cost report. As a result, we 
supplemented Medicare cost report data with expenditure estimates for 
various ESRD-related oral drugs with injectable equivalents that are 
currently covered by Medicare Part D, as well as with additional lab 
expenses. The estimates for both of the aforementioned expenditures 
were provided by Kidney Epidemiology and Cost Center of the University 
of Michigan (UM-KECC). There are also costs that are reported on the 
Medicare cost report that are not included in the ESRD bundled payment. 
For instance, expenses related to vaccine costs were removed from total 
expenditures since these are excluded from the ESRD bundled payment.
    We expanded the expenditure categories developed from the Medicare 
cost reports to allow for a more detailed expenditure decomposition. To 
expand these cost categories, BES data were used as the Medicare cost 
reports do not collect detailed information on the items in question. 
Those categories include: Benefits for all employees, professional 
fees, telephone, utilities, and all other services. We chose to 
separate these categories to more accurately reflect changes in ESRD 
facility costs. We describe below how the initially computed categories 
and weights were modified to yield the final ESRDB market basket 
expenditure categories and weights presented in this final rule.

Wages and Salaries

    The weight for Wages and Salaries that was initially computed was 
derived from Worksheet B of the Medicare cost report. However, because 
Worksheet B only includes direct patient care salaries, it was 
necessary to derive a methodology to include all salaries, not just 
direct patient care salaries, in order to calculate the appropriate 
ESRDB market basket cost weight. This was accomplished in four steps, 
as follows:
    (1) From the trial balance of the cost report (Worksheet A), we 
computed the ratio of salaries to total costs in each cost center. The 
cost centers for which we calculated this ratio were drugs, 
housekeeping and operations, A&O, supplies, laboratories, capital-
related machinery, and EPO.
    (2) We then multiplied the ratios computed in step 1 by the total 
costs for each corresponding cost center from Worksheet B. This 
provided us with an estimate of non-direct patient care salaries for 
each cost center.
    (3) The estimated non-direct patient care salaries for each of the 
cost centers on Worksheet B estimated in step 2 were subsequently 
summed and added to the direct patient care salary figure (resulting in 
a new total salaries figure).
    (4) The estimated non-direct patient care salaries (see step 2) 
were then subtracted from their respective cost categories to avoid 
double-counting their values in the total costs.
    As a result of this process, we moved from an estimated Wages and 
Salaries cost weight of 22.297 percent (as estimated using only direct 
patient care salaries as a percent of total costs found on the Medicare 
cost report) to a weight of 26.338 percent (capturing both direct and 
non-direct patient care salaries and, again, dividing that by total 
costs found on the Medicare cost report), as seen in Table 30. For 
comparison purposes, we note that the Wages and Salaries cost weight in 
the proposed rule was 25.106 percent (74 FR 49998).
    When we add the expenditures related to laboratory expenses that 
were previously paid for under the Medicare fee schedule, and are not 
included in the Medicare cost report, the expenditures for ESRD-related 
oral drugs with injectable equivalents that are currently covered under 
Part D that are not included in the Medicare cost report, and remove 
the estimated vaccine costs that are to be paid outside of the bundle, 
then the cost weight for the Wages and Salaries category falls to 
24.965 percent.
    The final adjustment made to this category is to include contract 
labor costs. These costs appear on the Medicare cost report; however, 
they are embedded in the Administrative and General and Other category 
and cannot be disentangled using the Medicare cost reports alone. To 
move the appropriate expenses from the A&O category to Wages and 
Salaries, we used data from the BES. We first summed total contract 
labor costs in the survey. We then took 80 percent of that figure and 
added it to Wages and Salaries. At the same time, we subtracted that 
same amount from A&O. The 80-percent figure that was used was 
determined by taking salaries as a percentage of total compensation 
(excluding contract labor). The resulting cost weight for Wages and 
Salaries increases to 26.755 percent.

Benefits

    The Benefits weight was derived from the 2002 BES data aged forward 
to 2008 as a benefit share for all employees is not available from the 
ESRD Medicare cost report. Due to the change in the base year from CY 
2007 (used in the proposed rule (74 FR 49998)) to CY 2008 (used in this 
final rule), the 2002 BES data for each of the appropriate cost 
categories were aged to 2008 as opposed to 2007. The cost report only 
reflects benefits associated with direct patient care. In order to 
include the benefits related to non-direct patient care, we estimated 
this marginal increase from

[[Page 49156]]

the BES Benefits weight. This resulted in a Benefits weight that was 
1.143 percentage point larger (6.306 vs. 5.163) than the Benefits 
weight for direct patient care calculated directly from the cost 
reports. To avoid double-counting and to ensure all of the market 
basket weights still totaled 100 percent, we removed this additional 
1.143 percentage point for Benefits from Pharmaceuticals, 
Administrative and General and Other, Supplies, Laboratory Services, 
Housekeeping and Operations, and the Capital-related Machinery 
components. This calculation reapportions the benefits expense for each 
of these categories using a method similar to the method used for 
distributing non-direct patient care salaries as described above.
    The final adjustment made to this category is to include contract 
labor costs. Once again, these costs appear on the Medicare cost 
report; however, they are embedded in the Administrative and General 
and Other category and cannot be disentangled using the Medicare cost 
report alone. To move the appropriate expenses from the A&O category to 
Benefits, we followed the same methodology used to apportion contract 
labor wages and salaries noted immediately above. For Benefits, we 
applied the remaining 20 percent of total contract labor costs, as 
estimated using the BES, and included that in the Benefits cost weight. 
At the same time, we subtracted that same amount from A&O. The 20-
percent figure that was used was determined by summing direct patient 
care benefits (as estimated using the Medicare cost report) and non-
direct patient care benefits (as estimated using the BES) and taking 
that sum as a percentage of total compensation (excluding contract 
labor). The resulting cost weight for Benefits increases to 6.754 
percent.

Utilities

    We developed a weight for Utility expenses using the 2002 BES data, 
as utilities are not separately identified on the Medicare cost report. 
We aged these 2002 BES-based utility expenditures to 2008. We then 
disaggregated the Utilities category to reflect three subcategories: 
Electricity, Fuel (Natural Gas), and Water and Sewerage. We computed 
the ratio of each BES category to the total BES operating expenses. We 
then applied each ratio to the total operating expense percentage share 
as calculated from the cost reports, including the additions of ESRD-
related oral drugs with injectable equivalents that are currently 
covered under Part D and additional lab expenses, to estimate the ESRD 
facility weight for each utility expenditure category. These amounts 
were then deducted from the share of the combined Operation & 
Maintenance of Plant and Housekeeping cost category, where the expenses 
are included on the Medicare cost report (but cannot be separately 
identified). The resulting Electricity, Fuel (Natural Gas), and Water 
and Sewerage ESRDB market basket weights are 0.621, 0.127, and 0.516 
percent, respectively, yielding a combined Utilities cost weight of 
1.264 percent.

Pharmaceuticals

    The ESRDB market basket includes expenditures for all drugs 
included in the ESRD bundled payment, including separately billable 
drugs and ESRD-related oral drugs with injectable equivalents that are 
currently covered under Medicare Part D. We were able to calculate an 
expenditure weight for pharmaceuticals directly from the Drugs cost 
center on Worksheet B plus the expenditures of EPO which are reported 
on worksheet A2 of the Medicare cost reports. Vaccine expenditures, 
which are mandated as separately reimbursable, were excluded when 
calculating this cost weight. Section 1842(o)(1)(A)(iv) of the Act 
requires that influenza, pneumococcal, and hepatitis B vaccines 
described in subparagraph (A) or (B) of section 1861(s)(10) of the Act 
be paid based on 95 percent of average wholesale price (AWP) of the 
drug. Since these drugs are excluded from other prospective payment 
systems, we exclude them from the ESRDB market basket, as well. We 
estimate that expenditures for these three vaccines are approximately 1 
percent of the total Medicare-allowable payments for separately 
billable drugs. The resulting cost weight determined from the Medicare 
cost report for Pharmaceuticals is 26.358 percent, as seen in Table 30. 
For comparison purposes, we note that this cost weight in the proposed 
rule was 28.775 percent (74 FR 49998).
    Expenditures in 2008 for ESRD-related oral drugs with injectable 
equivalents that are currently covered under Part D were added to cost 
report totals. The estimate we used for these ESRD-related Part D drugs 
with injectable equivalents, provided by UM-KECC, is approximately $15 
million for 2008. Finally, to avoid double-counting, the weight for the 
Pharmaceuticals category was reduced to exclude the estimated share of 
non-direct patient care salaries and benefits associated with the Drugs 
and Epoetin cost centers. This resulted in an ESRDB market basket 
weight for Pharmaceuticals of 25.52 percent. EPO expenditures accounted 
for 17.359 percentage points of the Pharmaceuticals weight, ESRD-
related oral drugs with injectable equivalents that are currently 
covered under Part D accounted for 0.153 percentage point of the 
Pharmaceuticals weight, and all other drugs accounted for the remaining 
7.541 percentage points of the Pharmaceuticals weight.

Supplies

    We calculated the weight for Supplies included in the bundled rate 
using the reimbursable and separately billable expenditure amounts for 
the Supplies cost center on Worksheet B of the Medicare cost report. 
Supplies that are separately billable are reported as a separate line 
item on the cost reports and were also included. This total was divided 
by total expenses to derive a weight for the Supplies component in the 
ESRDB market basket. The computed weight for this category was reduced 
by the non-direct patient care salaries and benefits associated with 
the Supplies cost center. The resulting ESRDB market basket weight for 
Supplies is 9.216 percent.

Laboratory Services

    We calculated the weight for Laboratory Services included in the 
bundled rate using the reimbursable and separately billable expenditure 
amounts for the Laboratory cost center on Worksheet B of the Medicare 
cost report. The cost report expenditures do not include laboratory 
services paid for under the Medicare fee schedule, only facility-
furnished laboratory tests. Since a large majority of laboratory tests 
are paid via the fee schedule, we adjusted the laboratory fees upward. 
The inflation factor was computed from the ratio of ESRD facility 
Medicare laboratory payment data to the other facility Medicare 
laboratory payment data. This provides a measure of the extent to which 
laboratory services fall under the Medicare fee schedule. The weight 
for this category was similarly reduced by the non-direct patient care 
salaries and benefits associated with the Laboratory cost center. The 
resulting ESRDB market basket weight for Laboratory Services is 5.497 
percent.

Housekeeping and Operations

    We developed a market basket cost weight for this category using 
data from Worksheet A of the Medicare cost reports. Worksheet B 
combines the capital-related costs for buildings and fixtures with the 
Operation and Maintenance of Plant (Operations) and Housekeeping cost 
centers, so we were unable to calculate a weight directly from 
Worksheet B. We separated these

[[Page 49157]]

expenses from capital-related costs because we believe housekeeping and 
operations expenditures, such as janitorial and building services 
costs, are largely service-related and would be more appropriately 
proxied by a service-related price index. To avoid double-counting, we 
subtracted from the Housekeeping and Operations weight the utilities 
proportion described above, as well as the non-direct patient care 
salaries and benefits share associated with the Operations and 
Housekeeping cost center. The resulting ESRDB market basket cost weight 
for Housekeeping and Operations is 2.029 percent.

Administrative and General and Other (A&O)

    We computed the proportion of total A&O expenditures using the A&O 
cost center data from Worksheet B of the Medicare cost reports minus 
the A&O expenditures related to the Blood Products and Vaccine 
categories. As described above, we exclude contract labor from this 
cost category and apportion these costs to the salary and benefits cost 
weights. Similar to other expenditure category adjustments, we then 
reduced the computed weight to exclude salaries and benefits associated 
with the A&O cost center. The resulting A&O cost weight is 13.899 
percent. This A&O cost weight is then fully apportioned to derive 
detailed cost weights for Professional Fees, Telephone, All Other 
Labor-Related Services, and All Other Nonlabor-related Services.

Professional Fees

    A separate weight for Professional Fees was developed using the 
2002 BES data aged to 2008. Professional fees include fees associated 
with the following: advertising, accounting, bookkeeping, legal, 
management, consulting, administrative, and other professional services 
fees. To estimate professional fees, we first calculated the ratio of 
BES professional fees to a total of administrative and other expenses 
from BES. We applied this ratio to the A&O total cost weight to 
estimate the proportion of ESRD facility professional fees. The 
resulting weight is 1.773 percent. This cost weight is then separated 
into Labor-related Professional Fees (1.549 percent) and Nonlabor-
related Professional Fees (0.224 percent), which is described in more 
detail below.

Telephone

    Because telephone service expenses are not separately identified on 
the Medicare cost report, we developed a Telephone Services weight 
using the 2002 BES expenses aged to 2008. We estimated a ratio of 
telephone services expenses to total administrative and other expenses 
from BES. We applied this ratio to the total A&O cost weight to 
estimate the proportion of ESRD facility telephone expenses. The 
resulting ESRDB market basket cost weight for Telephone Services is 
0.597 percent.

All Other Labor-Related Services

    A separate weight for All Other Labor-related Services was 
developed using the 2002 BES data aged to 2008. All other labor-related 
services include repair and maintenance fees. We estimated a ratio of 
all other labor-related services expenses to total administrative and 
other expenses from BES. We applied this ratio to the total A&O cost 
weight to estimate the cost weight for ESRD facility All Other Labor-
related Services. The resulting ESRDB market basket cost weight is 
1.219 percent.

All Other Nonlabor-Related Services

    A separate weight for All Other Nonlabor-related Services was 
developed using the 2002 BES data aged to 2008. Non labor-related 
services include insurance, transportation, shipping, warehousing, 
printing, data processing services, and all other operating expenses 
not otherwise classified. We estimated a ratio of all other nonlabor-
related services expenses to total administrative and other expenses 
from BES. We applied this ratio to the total A&O cost weight to 
estimate the cost weight for ESRD facility All Other Nonlabor-related 
Services. The resulting ESRDB market basket cost weight is 10.311 
percent.

Capital

    We developed an ESRDB market basket cost weight for the Capital 
category using data from Worksheet B of the Medicare cost reports. 
Capital-related costs include depreciation and lease expense for 
buildings, fixtures, movable equipment, property taxes, insurance, the 
costs of capital improvements, and maintenance expense for buildings, 
fixtures, and machinery. Because housekeeping and operations costs are 
included in the Worksheet B cost center for Buildings and Fixtures 
capital-related expense, we excluded these costs and developed a 
separate expenditure category as noted above. Similar to the 
methodology used for other ESRDB market basket cost categories with a 
salaries component, we computed a share for non-direct patient care 
salaries and benefits associated with the Capital-related Machinery 
cost center. We used Worksheet B to develop two capital-related cost 
categories, one for Buildings and Fixtures, and one for Machinery. We 
reasoned this was particularly important given the critical role played 
by dialysis machines. Likewise, because price changes associated with 
Buildings and Fixtures could move differently than those associated 
with Machinery, we believe that separate price proxies would be more 
appropriate to track price changes for the different capital-related 
categories over time. The resulting ESRDB market basket cost weights 
for Capital-related Buildings and Equipment and Capital-related 
Machinery are 7.459 and 2.074 percent, respectively.
    Table 31 lists all of the expenditure categories in the ESRDB 
market basket and their corresponding CY 2008 cost weights and proxies, 
as developed in accordance with the methodology described above. For 
comparison purposes, we have added the corresponding CY 2007 cost 
weights as published in the proposed rule (74 FR 50010).
BILLING CODE P

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[GRAPHIC] [TIFF OMITTED] TR12AU10.038

BILLING CODE C

Price Proxies

    Once we determined the CY 2008 ESRDB market basket expenditure 
categories and weights, appropriate wage and price series or proxies 
were selected to measure the rate of price change for each category. 
All of the proxies are based on BLS data, and are grouped into one of 
the following three BLS categories:
    (1) PPIs: PPIs measure changes in the prices producers receive for 
their outputs. PPIs are the preferable price proxies for goods and 
services that ESRD facilities purchase as inputs in producing dialysis 
services, since these facilities generally make purchases in the 
wholesale market. The PPIs that we use measure price change at the 
final stage of production.

[[Page 49159]]

[GRAPHIC] [TIFF OMITTED] TR12AU10.039

    (2) CPIs: CPIs measure changes in the prices of final goods and 
services purchased by the typical consumer. Because these indexes may 
not reflect the prices faced by a producer, we used CPIs only if an 
appropriate PPI was not available, or if the expenditure more closely 
resembled a retail rather than wholesale purchase. For example, we used 
the CPI for telephone services as a proxy for the Telephone cost 
category because there is no corresponding PPI, and we reasoned that 
commercial and residential rates change similarly.
    (3) ECIs: ECIs measure the rate of change in employee wage rates 
and employer costs for employee benefits per hour worked. They are 
fixed-weight indexes that strictly measure changes in wages and 
benefits per hour, and are not affected by shifts in employment mix.
    We evaluated the price proxies using the criteria of reliability, 
timeliness, availability, and relevance. Reliability indicates that the 
index is based on valid statistical methods and has low sampling 
variability. Timeliness implies that the proxy is published regularly, 
preferably at least once a quarter. Availability means that the proxy 
is publicly available. Finally, relevance means that the proxy is 
applicable and representative of the cost category weight to which it 
is applied. The CPIs, PPIs, and ECIs we use meet these criteria.

Wages and Salaries

    As discussed above, we use a blend of the Wages and Salaries ECI 
for Hospitals (Civilian) (50 percent)(series code CIU1026220000000I) 
and the Wages and Salaries ECI for Health Care and Social Assistance 
(Civilian) (50 percent) (series code CIU1026200000000I) as the measure 
of price growth for Wages and Salaries in ESRD facilities. This 
particular blend was chosen to--(1) account for the presence of ESRDs 
in NAICS 62 (Health Care and Social Assistance), and (2) reflect the 
similarities observed in the occupational mixes between the ESRD 
industry and the hospital industry. We believe this approach results in 
an appropriate price index that reflects changes in the price of wages 
and salaries in the ESRD industry.

Benefits

    As discussed above, we use a blend of the Benefits ECI for 
Hospitals (Civilian) (50 percent) and the Benefits ECI for Health Care 
and Social Assistance (Civilian) (50 percent) as the measure of price 
growth for Benefits in ESRD facilities. We believe this approach 
results in an appropriate price index that reflects changes in the 
price of benefits in the ESRD industry.

Professional Fees

    We use the Compensation ECI for Professional and Related 
Occupations (Private) (series code CIU2010000120000I) as the proxy for 
professional fees. We selected this price proxy because it includes 
occupations such as lawyers, accountants, and bookkeepers that are 
represented in this cost category.

Utilities

    We use the PPI for Commercial Electric Power (series code WPU0542) 
and the PPI for Commercial Natural Gas (series code WPU0552) as the 
proxies for the Electricity and Natural Gas cost categories, 
respectively. We use the CPI for Water and Sewerage Maintenance (series 
code CUUR0000SEHG01) as the price proxy for the Water and Sewerage cost 
category.

Capital-Related--Building and Equipment

    We use the CPI for Owner's Equivalent Rent of Residences (series 
code CUUR0000SEHC) as the price proxy for the Capital-related Building 
and Equipment cost category. We refer to this price proxy generally as 
the CPI for Residential Rent. As described earlier, this cost category 
includes building and fixtures, leased buildings, fixed equipment, and 
moveable equipment. Because machine equipment, particularly dialysis 
machines, is reflected in a separate cost category, the bulk of the 
expenditures captured here are for building and fixed equipment. 
Therefore, we would prefer to have a proxy that captures the price 
change associated with this type of capital expense. While there can 
sometimes be differences in the price levels for residential and 
commercial rent, we believe the CPI for Residential Rent approximates 
the change in the underlying costs associated with ESRD facilities' 
capital costs such as depreciation, interest, taxes, and other capital 
costs. Given the lack of an ESRD-specific proxy for capital costs, we 
believe that the CPI for Residential Rent represents the best available 
proxy for the changes in capital costs facing ESRD facilities.

Capital-Related--Machinery

    We use the PPI for Electrical Machinery and Equipment (series code

[[Page 49160]]

WPU117) as the price proxy for the capital-related machinery cost 
category. This PPI includes dialysis machines, which are a significant 
component of machine equipment costs reported by ESRD facilities. 
Therefore, we believe that this price proxy is the best measure of the 
price growth of this cost category.

Pharmaceuticals

    ESRD facilities use a variety of drugs during dialysis treatment 
including EPO which is currently a separately billable drug and 
accounts for the majority of ESRD facility drug expenses. We pay for 
erythropoietic agents to treat chronic anemia in ESRD patients. At 
present, Epogen(copyright) and ARANSP(copyright) 
(both manufactured by a single supplier) are two of the prevailing 
erythropoietic drugs available to treat anemia in ESRD patients. 
Medicare is the dominant purchaser of EPO since it is mainly used to 
treat kidney dialysis patients. For the ESRDB market basket, we use the 
PPI for Pharmaceuticals for Human Use (Prescription) (series code 
WPUSI07003) as the price proxy for the Pharmaceuticals category. We 
refer to this price proxy generally as the PPI for Prescription Drugs. 
We use this proxy for a variety of reasons. First, all of the market 
baskets that we produce include price proxies that are intended to 
reflect the efficient average price increase associated with the 
purchase of the particular input category. Accordingly, we have chosen 
to proxy the Pharmaceuticals cost category in the ESRDB market basket, 
which includes the mix of all prescription drugs purchased by dialysis 
facilities, by the PPI for Prescription Drugs because it reflects price 
changes associated with the average mix of all pharmaceuticals in the 
overall economy. Second, we anticipate the price changes associated 
with the assortment of drugs administered in ESRD facilities should, 
over time, be similar to the average prescription drug price changes 
observed across the entire economy. Finally, this price series was 
chosen as it is both publicly available and regularly published.

Supplies

    We use the commodity-based PPI for Medical, Surgical, and Personal 
Aid Devices (series code WPU156) as a proxy for changes in ESRD supply 
prices. Many of the supplies used in dialysis are included in this PPI, 
such as dialyzers, catheters, I.V. equipment, syringes, and other 
general medical supplies used in dialysis treatment.

Laboratory Services

    We use the PPI for Medical and Diagnostic Laboratories (series code 
PCU6215--6215--) as the price proxy for the ESRD Laboratory Services 
cost category. Most of the laboratory tests used in dialysis are blood 
chemistry tests (a covered component of the PPI for Medical and 
Diagnostic Laboratories). Additionally, some ESRD facilities are using 
diagnostic imaging services to monitor patient site access, and the 
points where waste exchange takes place (also a covered component of 
this price proxy).

Telephone

    We use the CPI for Telephone Services (series code CUUR0000SEED) as 
the price proxy for the Telephone cost category. This index is used as 
the price proxy for Telephone Services in other market baskets produced 
by CMS.

Housekeeping and Operations

    We use the PPI for Janitorial Services (series code 
PCU561720561720) as the price proxy for the Housekeeping and Operations 
cost category. This is the same price proxy that was used in the 
proposed rule; however, we referred to this proxy as the PPI for 
Building, Cleaning and Maintenance in the proposed rule (74 FR 50002). 
This PPI includes housekeeping, janitorial, and maintenance (excluding 
repairs) services, and is representative of the types of costs included 
in this cost category.

All Other Labor-Related Services

    We use the Compensation ECI for Service Occupations (Private) 
(series code CIU2010000300000I) as the price proxy for the All Other 
Labor-Related Services cost category. This category includes expenses 
related to repair services. We feel that the service occupations most 
accurately reflect the costs for these types of repair and maintenance 
services purchased by ESRD facilities.

All Other Nonlabor-Related Services

    We use the CPI for All Items Less Food and Energy (series code 
CUUR0000SA0L1E) as the price proxy for the All Other Nonlabor-Related 
Services cost category. This category includes costs such as data 
processing, purchasing, taxes, home office costs, and malpractice 
costs. The costs represented in this category are diverse and are 
primarily associated with the purchase of services. These costs are 
best represented by a general measure of inflation such as the CPI for 
All Items Less Food and Energy. Food and energy are excluded from the 
index to remove the volatility associated with those items. 
Additionally, energy prices are already captured in the utility price 
proxies.

ESRDB Market Basket Increases

    The final ESRDB market basket reflects the combination of cost 
weights and price proxies discussed above. As explained above, under 
section 1881(b)(14)(F) of the Act, as added by section 153(b) of MIPPA 
and amended by section 3401(h) of Public Law 111-148, for 2012 and each 
subsequent year, the Secretary shall reduce the market basket increase 
factor by the productivity adjustment described in section 
1886(b)(3)(B)(xi)(II) of the Act, which is equal to ``the 10-year 
moving average of changes in annual economy-wide private nonfarm 
business multi-factor productivity (as projected by the Secretary for 
the 10-year period ending with the applicable fiscal year, year, cost 
reporting period, or other annual period)''. For purposes of providing 
a forecast, Table 32 contains the projected rate of growth for CY 2011 
through CY 2020 for the ESRDB market basket (adjusted, where 
applicable, based on the estimated productivity adjustment for a given 
year). Although we provide a forecast here, we will address in future 
rulemaking the implementation and application of the productivity 
adjustment to the ESRDB market basket increase factor that will be 
required beginning in 2012. Also, as we indicated above, in CY 2011, we 
note that as a result of amendments by section 3401(h) of Public Law 
111-148 to section 1881(b)(14)(F) of the Act, a full market basket will 
be applied to the composite rate portion of the blended payment during 
the first year of the transition.

[[Page 49161]]

[GRAPHIC] [TIFF OMITTED] TR12AU10.040

ESRD Labor-Related Share

    The labor-related share of a market basket is determined by 
identifying the national average proportion of operating costs that are 
related to, influenced by, or vary with the local labor market. The 
labor-related share is typically the sum of Wages and Salaries, 
Benefits, Professional Fees, Labor-related Services, and a portion of 
the Capital share from a given market basket. We used the 2008-based 
ESRDB market basket cost weights to determine the labor-related share 
for ESRD facilities under a bundled system. Under the ESRDB market 
basket, the labor-related share for ESRD facilities is 41.737 percent; 
as shown in Table 33 below. These figures represent the sum of Wages 
and Salaries, Benefits, Housekeeping and Operations, All Other Labor-
related Services, 87 percent of the weight for Professional Fees 
(details discussed below), and 46 percent of the weight for Capital-
related Building and Equipment expenses (details discussed below).
[GRAPHIC] [TIFF OMITTED] TR12AU10.041

    The labor-related share for Professional Fees (87 percent) reflects 
the proportion of ESRD facilities' professional fees expenses that we 
believe varies with local labor market. As stated in the proposed rule 
(74 FR 50003), we recently conducted a survey of ESRD facilities to 
better understand the proportion of contracted professional services 
that ESRD facilities typically purchase outside of their local labor 
market. These purchased professional services include functions such as 
accounting and auditing, management consulting, engineering, and legal 
services. Based on the survey results, we determined that, on average, 
87 percent of professional services are purchased from local firms and 
13 percent are purchased from businesses located outside of the ESRD's 
local labor market. Therefore, we are including 87 percent of the cost 
weight for

[[Page 49162]]

Professional Fees in the labor-related share.
    The labor-related share for capital-related expenses (46 percent of 
ESRD facilities' adjusted Capital-related Building and Equipment 
expenses) reflects the proportion of ESRD facilities' capital-related 
expenses that we believe varies with local labor market wages. Capital-
related expenses are affected in some proportion by variations in local 
labor market costs (such as construction worker wages) that are 
reflected in the price of the capital asset. However, many other inputs 
that determine capital costs are not related to local labor market 
costs, such as interest rates. The 46-percent figure is based on 
regressions run for the inpatient hospital capital PPS in 1991 (56 FR 
43375). We use a similar methodology to calculate capital-related 
expenses for the labor-related shares for rehabilitation facilities (70 
FR 30233), psychiatric facilities, long-term care facilities, and 
skilled nursing facilities (66 FR 39585).

K. Implementation

1. Transition Period
    Section 1881(b)(14) of the Act replaces the current basic case-mix 
adjusted composite payment system with a case-mix adjusted bundled ESRD 
PPS, for Medicare outpatient ESRD facilities beginning January 1, 2011. 
Section 1881(b)(14)(E)(i) of the Act requires the Secretary to provide 
``a four-year phase-in'' of the payments under the ESRD PPS for renal 
dialysis services furnished on or after January 1, 2011. Although the 
statute uses the term ``phase-in'', other Medicare payment systems use 
the term ``transition'' to describe the timeframe during which payments 
are based on a blend of the payment rates under the prior payment 
system and the new payment system. For purposes of this ESRD PPS final 
rule, we use the term ``transition'' to describe this timeframe.
    Section 1881(b)(14)(E)(i) of the Act further requires that the 
transition occur ``in equal increments,'' with payments under the ESRD 
PPS ``fully implemented for renal dialysis services furnished on or 
after January 1, 2014.'' In addition, section 1881(b)(14)(E)(ii) of the 
Act permits an ESRD facility to make a one-time election to be excluded 
from the transition from the current basic case-mix adjusted composite 
payment system, with its payment amount for renal dialysis services 
based entirely on the payment amount under the ESRD PPS. This election 
must be made prior to January 1, 2011. Lastly, section 
1881(b)(14)(E)(iii) of the Act requires that we make an adjustment 
during the transition so that payments during the transition equal the 
estimated total amount of payments that would otherwise occur under the 
ESRD PPS without such a transition. The transition budget-neutrality 
adjustment policy is set forth at Sec.  413.239 and is discussed 
further in section II.E.5. of this final rule.
    In accordance with section 1881(b)(14)(E) of the Act, we proposed 
to implement the transition from the current basic case-mix adjusted 
composite payment system in equal increments, so that renal dialysis 
services furnished on or after January 1, 2014, would be paid entirely 
based on the payment amount under the ESRD PPS. Specifically, we 
proposed that for renal dialysis services provided during the 
transition period beginning January 1, 2011 and ending December 31, 
2013, ESRD facilities would receive a blended payment for each dialysis 
treatment consisting of the payment amount under the basic-case mix 
adjusted composite system and the payment amount under the ESRD PPS (74 
FR 50003). We noted that, because ESRD facilities would receive an all-
inclusive payment during the transition period for all renal dialysis 
services, other entities, such as Method II DME suppliers and 
laboratories would no longer bill Medicare beginning January 1, 2011 
for renal dialysis services furnished to ESRD patients. These entities 
would need to seek payment from the patient's ESRD facility (74 FR 
50003).
    The comments we received and our responses are set forth as 
follows:
    Comment: Many commenters suggested that we consider implementing 
Part D drugs in the bundled payment during the last year of the 
transition and, indicated that the inclusion of these drugs would 
impact an ESRD facility's decision of whether to elect to go into the 
transition period or to receive full payment under the ESRD PPS. The 
commenters believed that we should collect accurate data on the costs 
of Part D drugs before they are implemented as part of the ESRD PPS 
bundle.
    Response: In this final rule and in response to public comment, we 
are delaying implementation of payment under the ESRD PPS of ESRD-
related oral-only drugs that are currently separately paid under Part D 
until January 1, 2014. The decision to delay implementation of oral-
only drugs is discussed in section II.A.3.a. of this final rule. The 
implementation of ESRD-related drugs and biologicals under the ESRD PPS 
is discussed in section II.A.3. of this final rule. Because we are 
implementing all other ESRD-related former part D drugs and biologicals 
effective January 1, 2011, we included a $0.49 adjustment to the 
portion of the blended payment amount related to the basic case-mix 
adjusted composite payment system to account for those drugs. To derive 
the $0.49 adjustment, we used the 2011 price inflated payment amounts 
divided by the Part D HD-equivalent treatments for Part D enrollees as 
discussed in section II.F.5. of this final rule. We will continue to 
analyze the prices paid under Part D for oral-only ESRD-related drugs 
so that we are able to appropriately price these drugs in the ESRD PPS 
base rate.
    Comment: Many commenters suggested that we consider implementing 
laboratory tests in the bundled payment during the last year of the 
transition. The commenters explained that there will be administrative 
burden in contracting for laboratory services during the transition 
period. The commenters indicated that even if laboratories are willing 
to enter into a contract, they are concerned about their ability to 
negotiate reasonable prices given the low volume of services that they 
would request from the laboratories.
    Response: Section 1881(b)(14)(A)(i) of the Act requires CMS to 
include all renal dialysis services, which include ESRD-related 
diagnostic laboratory tests, into one single payment effective January 
1, 2011. Section 1862(a)(24) of the Act prohibits unbundling of 
expenses for renal dialysis services (as defined in section 
1881(b)(14)(B) of the Act). Therefore, we do not have the authority to 
pay laboratories directly for ESRD-related diagnostic laboratory tests. 
We note, under the current basic case-mix adjusted composite payment 
system, certain ESRD-related laboratory tests are included in the 
composite rate. ESRD facilities would have been required under the 
current basic case-mix adjusted composite payment system to establish 
arrangements with laboratories to perform these laboratory tests and 
receive payment from the ESRD facility. Therefore, we do not agree that 
bundling all ESRD-related laboratory tests under the ESRD PPS will pose 
a significant burden.
    For CY 2011, we proposed to make payments based on 75 percent of 
the payment rate under the basic case-mix adjusted composite payment 
system and 25 percent of the payment rate under the ESRD PPS. For CY 
2012, we proposed to make payment based on 50 percent of the payment 
rate under the basic case-mix adjusted composite payment system and 50 
percent of the payment rate under the ESRD PPS. For

[[Page 49163]]

CY 2013, we proposed to make payment based on 25 percent of the payment 
rate under the basic case-mix adjusted composite payment system and 75 
percent of the payment rate under the ESRD PPS. For renal dialysis 
services furnished on or after January 1, 2014, we proposed that 
payment to ESRD facilities would be based on 100 percent of the payment 
amount under the ESRD PPS (74 FR 50003).
    We did not receive public comments on the proposed blending 
methodology for the transition from the basic case-mix composite 
payment system to the ESRD PPS bundled payment system and, therefore, 
we are finalizing the blending methodology as proposed in Sec.  
413.239(a).
    We proposed that the portion of the blended rate based on the 
payment amount with regard to the basic case-mix adjusted composite 
payment system would be comprised of the composite payment rate (which 
is adjusted by the basic case-mix adjustments and a wage index), the 
drug add-on amount, and payment amounts for items and services 
furnished to dialysis patients that are currently separately paid under 
Part B by Medicare to entities other than the ESRD facility. We also 
proposed to include a $14 adjustment to the portion of the blended 
payment amount related to the basic case-mix adjusted composite payment 
system during the transition to account for the ESRD-related drugs and 
biologicals that are currently separately paid under Part D and were 
proposed to be included in the ESRD PPS base rate (74 FR 50004). 
Because we are delaying payment under the ESRD PPS for former Part D 
oral-only drugs, the proposed $14 adjustment will be $0.49 for this 
final rule, as discussed in section II.E.5. of this final rule.
    We did not receive comments on the composition of the portion of 
the blended rate based on the basic case-mix adjusted composite payment 
system. Therefore, we are finalizing our proposal that the portion of 
the blended rate based on the basic case-mix adjusted composite payment 
system will be comprised of the composite payment rate (which is 
adjusted by the basic case-mix adjustments and a wage index), the drug 
add-on amount, and payment amounts for items and services furnished to 
dialysis patients that are currently separately paid under Part B. We 
will include a $0.49 adjustment to the portion of the blended payment 
amount related to the basic case-mix adjusted composite payment system 
during the transition to account for the ESRD-related drugs and 
biologicals (currently separately paid under Part D), but effective 
January 1, 2011, will be bundled under the ESRD PPS, (as discussed in 
section II.E.5. of this final rule).
    In the proposed rule, we discussed that for the years during which 
the transition is applicable, section 1881(b)(14)(F)(ii) of the Act 
requires the Secretary to annually increase the portion of the ESRD PPS 
that is based on the composite rate that would otherwise apply if the 
ESRD PPS had not been enacted (74 FR 50004). In particular, at the time 
the ESRD PPS proposed rule was published, section 
1881(b)(14)(F)(ii)(II) of the Act required the composite rate portion 
of the blended payment to be updated annually by the ESRDB market 
basket update minus 1.0 percentage point. Therefore, for each year of 
the transition, to maintain the 98 percent budget-neutrality amount, we 
proposed that the composite payment rate portion of the blended amount 
would be updated by the applicable case-mix adjustments, the drug add-
on adjustment, the current wage index, and the ESRDB market basket 
update minus 1.0 percentage point.
    We also proposed that payments for items and services furnished to 
dialysis patients that are paid separately under Part B under the 
current composite payment rate methodology, that is, ESRD-related 
laboratory tests, ESRD-related drugs, and ESRD-related supplies, blood, 
and blood products would no longer be paid separately. Instead, those 
items and services would be priced to reflect how they are currently 
paid (for example, using a fee schedule or ASP amount) (74 FR 50004).
    We address comments related to the market basket in section II.J. 
of this final rule; laboratory tests in section II.A.4; ESRD-related 
drugs in sections II.A.2. and II.A.3.; ESRD supplies in section II.A.4; 
and, blood and blood products in section II.A.6. of this final rule. As 
discussed in these respective sections, for this final rule, ESRD-
related blood and blood products will not be included in the ESRD PPS 
bundle and ESRD-related laboratory tests and ESRD-related drugs will no 
longer be separately paid. In addition, in accordance with section 
3401(h) of the Affordable Care Act, which revised section 
1881(b)(14)(F) of the Act, for CY 2011, the full ESRDB market basket 
update will apply and, for CY 2012, the ESRDB market basket update 
reduced by a productivity adjustment would apply as discussed in 
section II.J. of this final rule.
    In the proposed rule, we noted that there are ESRD facilities that 
have existing exception amounts that are used for payment in lieu of 
the composite rate, drug add-on payment, and basic case-mix 
adjustments. Any existing exception amounts would not be updated by the 
ESRDB market basket throughout the transition (74 FR 50004). Finally, 
in the proposed rule, we discussed that the portion of the blended rate 
based on the ESRD PPS would include the base rate and all applicable 
patient-level, facility-level adjustments, and outlier payments as set 
forth in proposed Sec.  413.231, Sec.  413.232, Sec.  413.235 and Sec.  
413.237. We respond to comments regarding exceptions in section II.L.1; 
the ESRD PPS base-rate in section II.E; patient-level adjusters in 
section II.F.3; and, facility-level adjusters in section II.F.4. of 
this final rule.
    As noted in the proposed rule, section 1881(b)(14)(E)(ii) of the 
Act gives an ESRD facility the option to make a one-time election to be 
excluded from the four-year transition from the current basic case-mix 
adjusted composite payment system in the form and manner specified by 
the Secretary (74 FR 50004). Once made, this election may not be 
rescinded. ESRD facilities may choose to be paid the blended rate under 
the transition period in order to give them time to determine the 
impact of the ESRD PPS on their operations and to make necessary 
adjustments. We indicated in the ESRD PPS proposed rule that we 
believed ESRD facilities would choose to be excluded from the 
transition if they concluded that they would benefit financially from 
the payment amount under the ESRD PPS (74 FR 50004).
    Section 1881(b)(14)(E)(ii) of the Act requires that ESRD facilities 
wishing to be excluded from the transition must make an election to be 
excluded and their election must be made prior to January 1, 2011, in 
the form and manner specified by the Secretary. We proposed that ESRD 
facilities notify their FI/MAC of their election choice in a manner 
established by the FI/MAC no later than November 1, 2010, regardless of 
any postmarks or anticipated delivery dates. We proposed that ESRD 
facilities that become certified for Medicare participation and begin 
to provide renal dialysis services between November 1, 2010 and 
December 31, 2010, would notify their FI/MAC of their election choice 
at the time of enrollment. Once an ESRD facility notifies its 
respective FI/MAC of their election choice, on or before November 1, 
2010 (or at the time of enrollment for newly-certified ESRD facilities 
that begin to provide renal dialysis services between November 1, 2010 
and December 31, 2010), the ESRD

[[Page 49164]]

facility's election cannot be rescinded (74 FR 50004).
    We also proposed that ESRD facilities that fail to affirmatively 
make an election by November 1, 2010, would be paid based on the 
blended amount during the transition. We proposed that elections 
submitted by ESRD facilities that wish to be excluded from the 
transition that are received, postmarked, or delivered by other means 
after November 1, 2010, would not be accepted. Thus, we proposed that 
all ESRD facilities wishing to be excluded from the transition should 
submit their election choice by the proposed deadline. ESRD facilities 
electing to be excluded from the transition will receive full payment 
under the ESRD PPS for renal dialysis services furnished on or after 
January 1, 2011 (74 FR 50004).
    We did not receive any comments regarding the proposed one-time 
election process and, therefore, in this final rule we are finalizing 
Sec.  413.239 with modifications to indicate that the FI/MAC will 
establish the manner in which an ESRD facility will indicate its 
intention to be excluded from the transition, consistent with our 
proposal.
    We received the following general comments regarding the transition 
period.
    Comment: Most of the commenters appreciated the transition period 
and agreed that the time from 2011 through 2014 allows them time to 
make adjustments to their operations. One commenter requested that we 
allow the SDOs the time to consider the final rule so that they can 
make informed decisions regarding transitioning. Another commenter 
suggested that we eliminate the transition period, continue to pay ESRD 
facilities based on the current composite rate system, and then 
implement the ESRD PPS fully in 2014. The commenter explained that this 
approach would simplify the implementation and remove the need for a 
complex dual payment system during the transition period.
    Response: The statute requires a 4-year transition period for ESRD 
facilities that do not opt to be excluded from the transition. In 
addition, after January 1, 2011, the statute requires that a single 
payment for renal dialysis services be made to ESRD facilities for 
renal dialysis services furnished to ESRD beneficiaries.
a. New ESRD Facilities
    Section 1881(b)(14)(E)(i) of the Act permits a provider of services 
or a renal dialysis facility to make a one-time election to be excluded 
from the transition, it also provides that this election must be made 
prior to January 1, 2011. As a result, we proposed that ESRD facilities 
that are certified for Medicare participation and begin providing renal 
dialysis services or home dialysis services on or after January 1, 
2011, would not have the option to choose whether to be paid a blended 
rate under the transition or the payment amount under the ESRD PPS. 
Rather, we proposed in Sec.  413.239(c) that new ESRD facilities would 
be paid based on 100 percent of the payment amount under the ESRD PPS 
(74 FR 50004). As we did not receive any public comments regarding this 
proposal, we are finalizing Sec.  413.239(c) as proposed.
    We proposed to define a new ESRD facility as an ESRD facility that 
is certified for Medicare participation on or after January 1, 2011 in 
Sec.  413.171. We did not receive any public comments regarding this 
proposal. Accordingly, for the reasons we set forth in the proposed 
rule, we are finalizing Sec.  413.171 as proposed.
b. Limitation on Beneficiary Charges Under the ESRD PPS and Beneficiary 
Deductible and Co-Insurance Obligations
    Section 1833 of the Act governs payments of benefits for Part B 
services and the cost sharing amounts for services that are considered 
medical and other health services. In general, many Part B services are 
subject to a payment structure that requires beneficiaries to be 
responsible for a 20 percent co-insurance after the deductible (and 
Medicare pays 80 percent). With respect to dialysis services furnished 
by ESRD facilities to individuals with ESRD, under section 
1881(b)(2)(a) of the Act, payment amounts are 80 percent (and 20 
percent by the individual) (74 FR 50005).
    We proposed the items and services that would be considered renal 
dialysis services included in the ESRD PPS payment, such as composite 
rate services, certain separately billable ESRD-related injectable 
drugs, ESRD-related drugs and biologicals currently covered under Part 
D, laboratory testing, etc. We acknowledged that certain items and 
services such as laboratory tests and Part D drugs currently have 
different beneficiary co-insurance structures. However, we indicated 
that these items and services would be considered renal dialysis 
services after the ESRD PPS is implemented when furnished by an ESRD 
dialysis facility to an ESRD beneficiary. Therefore, we proposed that a 
20 percent beneficiary co-insurance would be applicable to the ESRD PPS 
payment for these services including any adjustments to the ESRD PPS 
payment such as adjustments for case-mix, wage index, outlier, etc. (74 
FR 50005).
    We proposed that an ESRD facility receiving an ESRD PPS payment 
could charge the Medicare beneficiary or other person only for the 
applicable deductible and co-insurance amounts as specified in proposed 
Sec.  413.176. Therefore, the beneficiary co-insurance amount under the 
ESRD PPS would be 20 percent of the total ESRD PPS payment (including 
payments made under the transition). We noted that the amount of co-
insurance is based on the proposed ESRD PPS payment for renal dialysis 
services and home dialysis in 42 CFR Part 413. We explained that, in 
general, ESRD facilities are paid monthly by Medicare for the ESRD 
services they furnish to a beneficiary even though payment is on a per 
treatment basis. We proposed to continue this practice to pay ESRD 
facilities monthly for services furnished to a beneficiary beginning 
January 1, 2011 (74 FR 50005).
    During the transition period before January 1, 2014, ESRD 
facilities that do not elect to go 100 percent into the ESRD PPS in 
2011 would receive a blended payment amount. We proposed that the 
blended monthly payment amount would be subject to a 20 percent 
beneficiary co-insurance (74 FR 50005).
    Additionally, in accordance with section 1881(b)(1) of the Act, we 
proposed in Sec.  413.172(b) that an ESRD facility may not charge a 
beneficiary for any service for which payment is made by Medicare. This 
policy would apply, even if the ESRD facility's costs of furnishing 
services to that beneficiary are greater than the amount the ESRD 
facility would be paid under the proposed ESRD PPS (74 FR 50005).
    We received about 230 comments on beneficiary co-insurance 
obligations which are summarized below.
    Comment: A number of commenters believed dialysis facilities would 
be burdened by collecting the beneficiary coinsurance, especially co-
insurance associated with the Part D oral drugs. The commenters stated 
that ESRD facilities are caregivers and not pharmacies and, therefore, 
their staff does not currently collect co-insurance and that if staff 
had to collect co-insurance, it would interrupt patient care. Other 
commenters expressed concern about the burden associated with 
collecting co-insurance liabilities because they would have to develop 
new systems.
    Response: We do not agree with the commenters that collecting co-
insurance would be a new requirement for ESRD

[[Page 49165]]

facilities because there has been a beneficiary co-insurance liability 
on the composite payment system as well as the basic case-mix adjusted 
composite rate payment. As discussed in section II.A.3. of this final 
rule, implementation of oral-only drugs will be delayed until January 
1, 2014. Therefore, we do not believe that ESRD facilities will 
experience additional burden as a result of the implementation of the 
ESRD PPS effective January 1, 2011.
    Comment: A number of commenters were concerned about the financial 
affects on beneficiaries with ESRD due to the copays that would result 
from the new bundled PPS. The commenters believed the new bundled PPS 
would increase beneficiary co-insurance and, therefore, would be a 
financial burden on patients, many who have limited income. Some 
commenters believed CMS should do an analysis of the impact of the 
increased beneficiary co-insurance on patients since there is no data 
available. A number of commenters with ESRD were worried about being 
able to pay for their dialysis treatment.
    Response: Under the current basic case-mix adjusted composite 
system, there has been an incentive for excess use of separately 
billable items and services and patients have been responsible for a 20 
percent co-insurance liability on most of these separately billable. 
For this reason, in addressing co-insurance obligations under the 
current composite payment methodology, it is important to consider not 
only the co-insurance associated with the composite rate itself, but 
also the 20 percent co-insurance obligation for most separately billed 
drugs and biologicals.
    Under the ESRD PPS, the base rate (which includes composite rate 
services as well as items and services that are currently separately 
billable) reflects the average cost for furnishing dialysis services to 
patients. For this reason, if patients use less than the average of 
separately billable items and services (that is, items and services 
that were separately paid under the current basic case-mix adjusted 
composite payment system), they can expect an increase in their co-
insurance obligation. However, if patients use more than the average of 
separately billable items and services, they should pay less in co-
insurance under the ESRD PPS. The amount of the difference in co-
insurance under the current basic case-mix adjusted composite payment 
system and the ESRD PPS for an individual patient is directly related 
to how their use of separately billable services compares to the 
average amount. We acknowledge that this comparison does not reflect 
that under the ESRD PPS, beneficiaries will assume a 20 percent co-
insurance liability for non-routine laboratory tests that was not 
assumed under the current basic case-mix adjusted composite payment 
system. However, we note that under the current basic case-mix 
composite rate system, certain routine laboratory tests are included in 
the composite rate. Therefore, beneficiaries have been responsible for 
co-insurance associated with ESRD-related laboratory tests that are 
included in the composite rate.
    A bundled PPS allows patients to pay co-insurance based upon the 
bundled rate for all items and services needed for their treatment 
without additional co-insurance costs if more separately billed items 
or services are needed.
    Comment: Many commenters raised concerns about the financial burden 
for patients under the ESRD PPS because patients would have to pay co-
insurance for oral drugs and laboratory tests. The commenters stated 
that shifting the oral drugs from Part D to Part B could result in 
significant increases in out-of-pocket costs for beneficiaries. Other 
commenters indicated that some ESRD patients currently have high out-
of-pockets costs for their oral drugs and believed bundling the oral 
drugs would cause this cost to be even higher. Some commenters 
indicated that beneficiaries would not have the option to use generics 
or less expensive drugs in order to save money. Other commenters 
indicated that some ESRD patients would not reach catastrophic coverage 
under Part D with the new bundled system because they will be in the 
coverage gap for a longer time.
    Some commenters were concerned that beneficiaries who have the low-
income subsidy under Part D will have to pay higher co-pays for these 
drugs. Some commenters stated that data presented at the recent 
American Society of Nephrology meeting, showed that 68 percent of 
dialysis patients are enrolled in Medicare Part D and 76 percent of 
these patients have the low-income subsidy. A few commenters were 
concerned that States' Medicaid programs may not cover the 20 percent 
co-insurance for oral drugs for dual-eligibles, which they would have 
received under Part D. One commenter stated that including Part D drugs 
in the bundle could eliminate access to financial programs that assist 
patients with co-pays, such as Medicare Low Income Assistance programs 
as well as program such as the American Kidney Fund's Part D Program 
for Prescription Bone Medication. Some commenters suggested that CMS 
should delay the inclusion of the oral drugs specifically the ones with 
no injectable equivalent because of the lack of data available on the 
use of these drugs so that CMS can obtain data to assess the financial 
impact on beneficiaries and facilities. A few commenters requested that 
CMS assess the possible negative effects on beneficiaries who would now 
be responsible for co-insurance payments for both oral drugs and 
laboratory tests.
    Response: As discussed in section II.A.3.a. of this final rule, we 
are delaying the implementation of oral-only drugs currently covered 
under Part D under the ESRD PPS until January 1, 2014. In section 
II.A.3. of this final rule, we discuss the inclusion of a limited 
number of ESRD-related oral drugs and biologicals with other forms of 
administration. Therefore, the oral-only drugs will continue to be 
covered under Medicare Part D until January 1, 2014. At that time, when 
oral-only drugs are paid under the ESRD PPS, the same co-insurance 
structure described in this section will apply for oral-only drugs. We 
plan to collect data on the oral-only ESRD-related drugs to assess the 
impact on beneficiaries and ESRD facilities. We will address the 
implementation of the oral-only drugs in the ESRD bundle in future 
notice of proposed rulemaking.
    Comment: A few commenters were concerned about the negative impact 
the additional co-insurance would place on beneficiaries which may 
contribute to decisions to discontinue treatment, medications, etc. The 
commenters stated that many patients have difficulty in meeting the co-
pays under the current system. The comments believe that if there is an 
increase in beneficiaries' payments, there is the possibility of 
beneficiaries missing treatments that would affect their quality of 
care. A few commenters were specifically concerned about patient 
noncompliance with taking their medications due to higher out-of-pocket 
costs. One commenter expressed concern that facilities would be held 
responsible for the drop in the compliance rates under the QIP.
    Response: We appreciate the commenters' concerns about the affects 
of the co-insurance liability on patients. However, as we discussed in 
the proposed rule (74 FR 50005), section 1833 of the Act governs 
payments of benefits for Part B services and the cost sharing amounts 
for services that are considered medical and other health services. We 
also explained that with respect to dialysis services furnished by ESRD 
facilities to individuals with ESRD, under section 1881(b)(2)(a) of the 
Act, payment amounts are 80 percent (and 20 percent by the individual). 
Therefore, we do not have the authority

[[Page 49166]]

to eliminate the beneficiary co-insurance liability.
    As we have discussed in previous responses, beneficiaries have been 
responsible for co-insurance under the current basic case-mix adjusted 
composite payment system. Under the ESRD PPS, beneficiaries will 
continue to assume the co-insurance liability for the renal dialysis 
services provided by ESRD facilities. However, rather than a co-
insurance for each separately billable item and for the basic case-mix 
adjusted composite rate under the current system, beneficiaries will 
pay co-insurance on the ESRD PPS payment amount which includes the ESRD 
PPS base rate and all applicable payment adjustments under the ESRD 
PPS.
    We discuss the applicable adjustments which would be applied to the 
ESRD PPS base rate and subject to the beneficiary co-insurance 
liability in sections II.F.3. of this final rule. As discussed in 
section II.A.3.a. of this final rule, oral-only ESRD-related drugs will 
not be implemented under the ESRD PPS until January 1, 2014. Therefore, 
we do not believe that implementation of the ESRD PPS effective January 
1, 2011, will cause patients to make decisions to discontinue any 
medications or treatment because of their co-insurance liability.
    Comment: Many commenters expressed concern that ESRD facilities 
would need to develop systems for collecting medication co-payments. 
Other commenters expressed concern for the safety of ESRD facility 
staff stating that ESRD facilities maintaining cash on hand from 
patients' medication co-payments would place their staff and patients 
at risk for crime and theft. The commenters also stated they would need 
to hire additional security to protect against crime and theft. Another 
commenter stated that there is currently no billing mechanism in place 
between ESRD facilities and pharmaceutical companies nor is there a 
mechanism by which the pharmaceutical company could collect the 
patient's co-payment obligation for drugs included in the ESRD PPS 
bundle.
    Response: Because ESRD-related drugs are included in the ESRD PPS 
bundle and, therefore, are in the ESRD base rate, the ESRD facility is 
responsible for obtaining any applicable co-insurance from their 
beneficiaries. A beneficiary would not have a co-insurance liability on 
each prescription, but rather on the bundled ESRD PPS payment amount. 
Beneficiaries have a co-insurance liability under the current basic 
case-mix adjusted composite rate. Therefore, we do not understand the 
concerns being raised about the need to collect co-insurance payments 
under the ESRD PPS, as this responsibility exists under the current 
payment system. We expect that ESRD facilities will employ any 
necessary measures that they require to ensure their staff's safety. We 
believe that because collection of co-insurance payments exist under 
the current ESRD payment system, the same safety concerns exist and the 
same measures to address these concerns are in place.
    Comment: A number of commenters expressed concern that under the 
ESRD PPS, beneficiaries will have to pay co-insurance on laboratory 
tests. The commenters noted that beneficiaries currently have no 
financial responsibility to pay for their laboratory tests because 
Medicare pays 100 percent. The commenters believed the inclusion of 
laboratory tests in the ESRD PPS bundle would lower Medicare's 
obligation to only 80 percent of the payment and require beneficiaries 
to pay the 20 percent co-insurance for associated costs, resulting in 
increased out-of-pocket costs for beneficiaries. The commenters 
indicated that both beneficiaries and dialysis facilities would be 
penalized financially for laboratory services.
    A few commenters complained about the burden and cost of collecting 
co-insurance for laboratory tests because most facilities do not have 
their own laboratories. One commenter indicated that according to the 
proposed rule, Medicare beneficiaries with ESRD who require dialysis 
will not have access to needed laboratory tests, which will be 
discriminatory. The commenter further believed patients who currently 
do not have a co-insurance obligation for laboratory tests, will now be 
responsible for 20 percent which might result in financial burden for 
many patients who already might be on limited or fixed incomes. Another 
commenter noted that those with limited or fixed incomes may be subject 
to an additional $300 to $400 per year for co-insurance on laboratory 
tests. One commenter believed the additional co-insurance would 
presumably be covered by Medicare Supplemental plans but could not 
predict the effects of the bundle for the costs of Medicare 
supplemental insurance. One commenter noted that Congress in MIPPA did 
not indicate that the longstanding policy that Medicare paying 100 
percent for laboratory tests would change under the ESRD bundled 
system. Another commenter stated that historically CMS recognized the 
difficulty of placing a co-insurance on laboratory tests on facilities 
and patients and excluded diagnostic testing from beneficiary co-
insurance obligations.
    Response: As we discussed in section II.A.4. of this final rule, 
ESRD-related laboratory tests are considered renal dialysis services 
and are included in the ESRD PPS bundled base rate, and therefore, as 
part of the ESRD base rate after applicable adjustments are applied, 
would be subject to the 20 percent co-insurance (that is, individual 
laboratory services would not be subject to a separate beneficiary co-
insurance liability). In other words, under the ESRD PPS, beneficiaries 
will not have a co-insurance liability for each laboratory test, but 
rather beneficiaries will have a co-insurance liability on the total 
payment that Medicare makes to an ESRD facility on their behalf. This 
is analogous to the beneficiary co-insurance liability under the 
current basic case-mix adjusted composite rate where beneficiaries have 
a co-insurance liability for the composite payment made to ESRD 
facilities on their behalf and not co-insurance liability on each 
composite rate service they receive.
    We note that most routine laboratory tests for ESRD-related 
purposes are currently included in the basic case-mix adjusted 
composite rate. This means that currently, beneficiaries with ESRD have 
a co-insurance liability for the composite rate, which includes 
laboratory tests. We do not see the inclusion of ESRD laboratory tests 
in the ESRD PPS as being any different than what occurs currently under 
the basic case-mix adjusted composite rate system.
    Comment: One commenter expressed concern that the implementation of 
the bundled ESRD PPS presents a substantial risk to ESRD facilities 
because of the potential for non-recovery of co-insurance payments for 
patients who are dually eligible under Medicare and Medicaid. The 
commenter recommended that CMS should create a new billing code for the 
bundle of services under the ESRD PPS and require States to recognize 
the new Medicare payment system. The commenter stated that CMS could 
work through the National Association of State Medicaid Directors to 
educate the States well in advance of the implementation of the PPS to 
provide ample time for them to adjust their co-insurance amounts, as 
required.
    Response: We have already begun outreach efforts with the States to 
ensure that State Medicaid Agencies understand their responsibilities 
to adjust their systems so that co-insurance amounts are properly 
determined and paid appropriately for dually-eligible

[[Page 49167]]

beneficiaries upon implementation of the ESRD PPS.
    Although an ESRD PPS billing code may make it easier for States to 
determine whether they have an obligation to pay co-insurance on behalf 
of a patient with ESRD, line item billing by date of service (where 
each renal dialysis service is itemized on the claim) will continue to 
be necessary in order for blended payments to be made during the 
transition and for identification of outlier services.
    Comment: Several commenters were concerned about dialysis 
beneficiaries who have Medigap supplemental plans because oral drugs 
and laboratory tests have not previously been covered under Medigap. 
The commenters were specifically concerned about how Medigap plans will 
adjust to the inclusion of oral drugs in the ESRD PPS. A commenter 
questioned if Medigap plans would consider drugs as renal dialysis 
services. Several commenters stated that Medigap insurers may deny 
payment of the beneficiary co-insurance because statute prevents them 
from coordinating benefits for oral drugs. Several commenters believed 
that Medigap premiums would increase significantly and would 
financially burden patients.
    One commenter stated that CMS should take into consideration that 
Medicare is the only insurance available to stage 5 chronic kidney 
disease patients (that is, ESRD patients). Another commenter believed 
that the ESRD PPS will target patients with private insurance and their 
co-insurance for additional revenue which would be an unfair burden on 
those that pay their insurance and co-insurance out-of-pocket. A 
commenter with private drug insurance was concerned about the costs and 
processes to pay two sets of premiums and co-insurance. Another 
commenter stated that the copayment under Medicare could significantly 
exceed the current copayments for those with private insurance.
    Response: We believe that generally, Medigap and other private 
insurance plans cover co-insurance and copayment obligations for 
Medicare Part B services after the beneficiary meets the Part B 
deductible amount. We do not expect this to change under the ESRD PPS 
bundle. We are unable to address if these plans will continue to cover 
the co-insurance under the ESRD PPS. As we discussed in a previous 
response, ESRD-related oral drugs and laboratory tests included in the 
ESRD PPS bundle are considered renal dialysis services under the Part B 
benefit. Therefore, we do not believe there should be issues with 
Medigap plans because such oral drugs are renal dialysis services. We 
reiterate that payment under the ESRD PPS for oral-only drugs currently 
covered under Part D will be delayed until January 1, 2014.
    We do not agree with the comments that Medicare will target 
patients with private insurance and their copays for additional 
revenue. The ESRD PPS, as a Medicare Part B payment system for 
outpatient maintenance dialysis, provides payment on behalf of Medicare 
beneficiaries to ESRD facilities that provide home dialysis and renal 
dialysis services. Therefore, beneficiary's co-insurance liability is 
not based on the absence or presence of private insurance.
    We also do not anticipate any change with regard to beneficiaries 
with private drug insurance and the costs and processes to pay two sets 
of premiums and co-insurance under the ESRD PPS. As we discussed in 
previous responses, under the current basic case-mix adjusted composite 
payment, beneficiaries are subject to co-insurance liability for 
composite and separately billable payments made to ESRD facilities. We 
acknowledge that this co-insurance obligation changes under the ESRD 
PPS because the Medicare payment made to ESRD facilities will include 
items and services that are separately billable under the current basic 
case-mix adjusted composite payment system.
    Comment: A few commenters expressed concern that the wide array of 
case-mix adjusters would create an inequity for patients, especially 
the sicker patients, because their bundled payment rate will be higher 
due to the adjustments with sicker patients having higher co-insurance. 
Other commenters stated that the proposed adjusters like age, health 
history, and clinic size would add extra work and complexity to 
reimbursement and would increase the co-payment. Another commenter was 
concerned that patients would not withstand the additional out-of-
pocket costs associated with the ESRD bundle and the case-mix 
adjusters. One commenter opposed the application of beneficiary co-
payment amounts to outlier payments asserting that this would set a 
dangerous precedent for discrimination on the basis of patient 
characteristics. The commenter recommended that CMS limit all patients' 
co-payment responsibility to 20 percent of the base rate payment 
amount.
    Response: We do not have the authority to determine how the 
beneficiary co-insurance liability is applied. Section 1881(b)(2)(A) of 
the Act requires payments for dialysis services furnished by ESRD 
facilities to individuals with ESRD for which payments may be made 
under Part B to be equal to 80 percent of the amounts determined. The 
statute further requires that payments from individuals are to be 20 
percent of the amount for such services after the deductible. 
Therefore, Medicare is required by statute to pay 80 percent and the 
beneficiary's responsibility is 20 percent of the amounts established 
for ESRD PPS renal dialysis services. This would include applying the 
beneficiary co-insurance liability to the ESRD PPS base rate and all 
applicable adjustments, including the outliers.
    We do not agree that applying the beneficiary co-insurance 
liability based on characteristics is discriminatory. We discuss the 
patient characteristics that have demonstrated higher usage of 
separately billable items in section II.F.3. of this final rule. 
Because these characteristics (such as age, BSA and BMI) result in 
higher resource utilization and therefore higher costs, ESRD facilities 
will receive a payment adjustment to the ESRD PPS base rate and 
beneficiaries will be required to assume 20 percent of the costs. We 
note that under the current basic case-mix adjusted composite payment 
system, many of the same patient characteristics have been applied to 
the composite rate (age, BMI and BSA) and beneficiaries have been 
required to assume 20 percent of those payments.
    Payments under the ESRD PPS reflect the extent to which additional 
resources are utilized. In situations where a patient with ESRD is 
sicker and, therefore, utilizes more resources, the payment to the ESRD 
facility providing renal dialysis services to that patient would 
reflect the higher resource use. Under the current basic case-mix 
adjusted composite payment system, greater resource utilization is 
reflected by greater use of separately billable items that are subject 
to a beneficiary co-insurance liability. In other words, patients have 
been subject to paying co-insurance under the current payment system 
based on the use of resources.
    Therefore, based on the comments and the reasons discussed above, 
we are finalizing the beneficiary co-insurance liability of 20 percent 
applied to the ESRD PPS payment inclusive of all applicable payment 
adjustments.
2. Claims Processing
    Section 1881(b)(14)(A)(i) of the Act requires the Secretary to 
implement a payment system under which a single payment is made for 
renal dialysis services and other items and services (for example, 
supplies and equipment

[[Page 49168]]

used to administer dialysis, drugs, biologicals, laboratory tests, and 
support services) related to home dialysis. In the proposed rule, we 
noted that implementation of the ESRD PPS will require changes to the 
way we process claims. Some of the changes we proposed may involve 
establishing consolidated billing rules and edits and changes to the 
data elements reported on claims (74 FR 50005).
    The consolidated billing approach essentially confers to the ESRD 
facility the Medicare billing responsibility for all of the renal 
dialysis services that its patients receive. The consolidated billing 
rules and edits that are being set forth in this final rule are 
described further below.
a. Consolidated Billing Rules and Edits
    In the proposed rule (74 FR 50005), we explained that since the 
ESRD PPS payment model represents an all-inclusive payment for renal 
dialysis services and home dialysis items and services, the ESRD 
facility is responsible for all of the ESRD-related services that its 
patients receive. Items and services that are paid separately under the 
current basic case-mix adjusted composite rate (such as laboratory 
tests), would no longer be billed for by entities (such as laboratories 
and DME suppliers), and therefore, payment for these services would be 
made only to the ESRD facility so that duplicate payment is not made by 
Medicare. Although DME suppliers and laboratories may not bill Medicare 
for ESRD-related services paid under the ESRD PPS beginning January 1, 
2011, in the event an erroneous bill is submitted, consolidated billing 
edits will prevent payment for those services under the ESRD PPS.
    In the proposed rule, we also discussed the difficulty in 
differentiating between a renal dialysis service and a service 
furnished for other non-ESRD conditions (74 FR 50005). In order to 
ensure proper payment in all settings, we explored the use of modifiers 
to identify those services furnished that are not ESRD-related (74 FR 
50005).
    We received one comment regarding consolidated billing.
    Comment: One commenter expressed concern that consolidated billing 
would require entirely new billing and payment arrangements for 
dialysis facilities and for the suppliers under arrangement. The 
commenter explained that building these relationships may be 
particularly challenging for SDOs. Further, the commenter stated that 
the proposed consolidated billing arrangement is similar to the 
provisions applicable to skilled nursing facilities (SNF). However 
there is a large difference in volume of administrative employees that 
can implement the new set of business practices necessitated by 
consolidated billing.
    Response: We do not expect that the billing requirements under the 
ESRD PPS will require substantial changes in billing. Under the current 
basic case-mix adjusted composite payment system ESRD facilities that 
do not provide laboratory testing services, drugs, DME and supply 
services directly, would have to provide these items and services under 
arrangements. However, under the ESRD PPS there may be more services 
furnished than those under existing arrangements.
    With respect to changes to the claims, under the ESRD PPS, there 
are requirements for ESRD facilities to provide additional information 
in existing fields. For example, ESRD facilities will be required to 
(1) itemize all drugs and biologicals provided to each individual 
patient; (2) itemize all laboratory tests provided to each individual 
patient; (3) place a modifier for non-ESRD related laboratory tests, 
drugs and biologicals, and supplies and equipment for the purpose of 
receiving separate payment; and (4) enter a co-morbidity ICD-9-CM 
diagnostic code (as described in section II.A.3. of this final rule) 
recognized for purposes of the co-morbidity payment adjustment. Because 
ESRD facilities have been required to line itemize under the current 
basic case-mix adjusted composite payment system and as ESRD facilities 
had been encouraged to enter co-morbidities on ESRD claims, we do not 
consider any of these reporting requirements to be an additional 
burden.
    We are not requiring ESRD facilities to itemize supplies and 
equipment that are ESRD-related and are therefore paid through the 
bundle. However, in the event that supplies or equipment are not ESRD-
related, ESRD facilities will place a modifier for those supplies and 
equipment signifying that they were used for services that are not 
ESRD-related and eligible for separate payment.
    Comment: One commenter suggested that we consider deferring the 
consolidated billing edits for laboratory tests, drugs, and DME 
equipment and supplies until the full implementation of the ESRD PPS. 
The commenter also requested that we ensure that all interested parties 
receive adequate provider education regarding the changes implemented 
with the final rule.
    Response: We are unable to delay implementation of the consolidated 
billing rules and edits because, as mentioned above, the ESRD PPS is an 
all-inclusive payment for home dialysis and renal dialysis services and 
ESRD facilities are responsible for all ESRD-related services furnished 
to their patients. Because it is a bundled payment system for which a 
single payment is made the ESRD facility, we are required to ensure 
that payment for these services is made only to the ESRD facility so 
that duplicate payment is not made by Medicare. We intend to issue 
educational materials regarding the implementation of the ESRD PPS to 
all interested parties in the near future.
i. Laboratory Tests
    Section 1881(b)(14)(B)(iv) of the Act requires that ESRD-related 
diagnostic laboratory tests not included under the current basic case-
mix composite payment system must be included as part of the ESRD PPS 
payment bundle. In the proposed rule, we explained that patients with 
ESRD often have co-morbid conditions which would require many of the 
same laboratory tests as those required to monitor the patients' ESRD 
(74 FR 50005). Therefore, we acknowledged that it may be difficult to 
differentiate between an ESRD-related laboratory test and tests ordered 
for non-ESRD-related conditions. We indicated that to ensure proper 
payment in all settings, we were exploring the use of modifiers to 
identify laboratory tests furnished for ESRD-related conditions from 
those furnished for non-ESRD-related conditions.
    We received numerous comments regarding the proposed inclusion of 
laboratory tests in the ESRD PPS bundled payment which are set forth 
below.
    Comment: Many commenters expressed concern that it is common for a 
patient's nephrologist to act as their primary care physician (PCP) and 
monitor all of the patient's medical conditions. The commenters 
expressed concern that there would be unintended consequences if the 
non-ESRD-related laboratory tests ordered by the nephrologists are 
included in the ESRD PPS bundle. Commenters were concerned that 
patients would be referred to medical specialists which would fragment 
care and require additional travel for medical appointments. Commenters 
were also concerned that patients would require more needle sticks if 
non-ESRD-related laboratory tests were included in the ESRD PPS bundle.
    Some commenters indicated that it is common for physicians other 
than the

[[Page 49169]]

nephrologist to order laboratory tests from the ESRD facility. The 
commenters explained that the ESRD facility draws the specimen and then 
either furnishes the testing, if they are qualified to do so, or sends 
the specimen to a laboratory. The commenters believed that it is 
helpful for the patient and their continuity of care, if other 
physicians have this type of service (courtesy draws) available to 
them. Several patients requested that CMS continue to allow courtesy 
draws because it protects patients' vascular access site and saves 
patients from making multiple trips.
    Response: As we discussed in a previous response, ESRD facilities 
will be able to identify laboratory tests, drugs, biologicals, and 
other items that are not ESRD-related by utilizing a modifier on 
claims. Therefore, in this final rule, we are finalizing a consolidated 
billing approach that gives the ESRD facilities and laboratories the 
ability to identify non-ESRD-related laboratory tests, by using a 
modifier, which allows for separate payment.
    With regard to the commenters who indicated that providers other 
than the patient's nephrologist may order non-ESRD-related laboratory 
tests in order to preserve patient's vascular access and to mitigate 
multiple medical visits, physicians or other practitioners that 
directly submit orders to the ESRD facility to furnish a laboratory 
test or draw a specimen to send to an independent laboratory will be 
able to continue to do so. However, we remind ESRD facilities that they 
would still be subject to the following rules: (1) ESRD facilities are 
expected to furnish such services in accordance with the conditions 
that all laboratories must meet to be certified to perform testing on 
human specimens under the Clinical Laboratory Improvement Amendments of 
1988 provided at Sec.  493; and (2) physicians are required to order 
the diagnostic tests in accordance with the conditions provided at 
Sec.  410.32.
    Comment: We received numerous comments requesting that we implement 
a specific listing of routine ESRD-related laboratory tests that are 
included in the ESRD PPS bundle. Many commenters identified laboratory 
tests they believed belong in the listing. Some of the commenters 
referred to the laboratory tests that are currently paid under the 
composite payment system, while other commenters referred to a list 
that State and Federal surveyors use as guidance while conducting 
audits of the ESRD facilities. Two LDOs and two other dialysis advocacy 
associations provided a listing of approximately 50 laboratory tests. 
Another commenter suggested that we use a listing of laboratory tests 
that were developed through the Kidney Disease Outcomes Quality 
Initiative. We also received requests to omit diagnostic tests used for 
kidney transplants, bacteriology tests, and tests furnished 
specifically for travelling patients.
    Response: We agree with the commenters that there should be a 
specific list indentifying laboratory tests that are furnished for ESRD 
patients. We believe that a listing of laboratory tests can be used as 
part of a consolidated billings strategy to mitigate duplicate payment. 
We also believe that ESRD facilities can use this list in developing 
contractual relationships with laboratories. However, in developing a 
listing of laboratory tests that are considered to be ESRD-related, we 
found that there are some laboratory tests that are specifically 
necessary for monitoring a patient's ESRD condition. We also found that 
there are numerous laboratory tests that are used by physicians not 
only for ESRD-related conditions, but also for other reasons. 
Therefore, a clinical review of the laboratory tests suggested by the 
commenters was performed by CMS physicians and other medical 
professionals.
    As a result of this review, we have compiled a listing of 
laboratory tests that are used to diagnosis or monitor ESRD-related 
conditions which is presented in Table F of the Appendix. The 
laboratory tests listed, if furnished to ESRD patients by the ESRD 
facility directly or under arrangement, will be considered renal 
dialysis services (unless otherwise specified as being performed for 
non-ESRD-related conditions) and will be covered under the ESRD PPS 
bundled payment. If a laboratory test is furnished by the ESRD facility 
or by an independent laboratory for reasons that are not ESRD-related, 
then that laboratory tests can be billed with a modifier which would 
allow for separate payment. We acknowledge that the list of ESRD-
related laboratory tests displayed in Table E of the Appendix is not an 
all-inclusive list and we recognize that there are other laboratory 
tests that may be ESRD-related. We will monitor claims to see if 
additional laboratory tests should be added.
    Comment: Commenters expressed concern that there are many ESRD 
facilities that do not own their own laboratories and those ESRD 
facilities would experience high costs implementing new billing 
systems. The commenters further explained that the laboratories will 
need to bill the ESRD facilities making the ESRD facilities responsible 
for additional documentation and claims processing. One commenter 
argued that the proposed effective date of January 1, 2011, does not 
allow time to implement the contract changes that will be required.
    Response: We do not understand the commenters' concerns. Currently, 
ESRD facilities that do not own their own laboratories must have 
contracting arrangements with a laboratory for the laboratory tests 
included in the current basic case-mix adjusted composite payment 
system. Section 494.130 provides that, ``ESRD facilities must provide, 
or make available, laboratory services (other than pathology and 
histocompatibility) to meet the needs of the ESRD patients. Any 
laboratory services, including tissue pathology and histocompatibility 
must be furnished by or obtained from, a facility that meets the 
requirements for laboratory services specified in part 493 of this 
chapter.'' Therefore, we do not see the implementation of the ESRD PPS 
as requiring any changes from existing practices, with the exception of 
the inclusion of additional laboratory tests under the ESRD PPS.
ii. Drugs and Biologicals
    As we discussed in the proposed rule, section 1881(b)(14)(B) of the 
Act defines renal dialysis services to include, among other things, 
certain drugs and biologicals, including drugs and biologicals that 
were separately payable under Part B and Part D. Under the current ESRD 
basic case-mix adjusted composite payment system, ESRD facilities 
generally do not furnish oral drugs to their ESRD patients. ESRD 
patients currently acquire these drugs and biologicals either through 
Medicare Part D, private insurance, or independently.
    We proposed to include renal dialysis service drugs formerly 
covered under Part D under the ESRD PPS. We further proposed that ESRD 
facilities furnish these and any other self-administered ESRD-related 
drugs to beneficiaries either directly or under arrangement. We 
explained that regardless of the mechanism by which these drugs would 
be furnished (directly or under arrangement), we believed that some of 
the Part D provisions set forth in the 42 CFR Part 423, would become 
relevant for ESRD facilities. We requested public comments on the 
extent to which Part D requirements should apply to ESRD-related oral 
drugs (74 FR 50006).
    We also stated in the proposed rule that we expected ESRD 
facilities to update their grievance processes to account for all self-
administered ESRD-related drugs (74 FR 50006). Patients would continue 
to have access to both

[[Page 49170]]

internal and external grievance processes including the ESRD Network 
and the State survey agency.
    We indicated in the proposed rule that in the case of any ESRD 
facility that would seek to furnish drugs directly, those facilities 
would have to comply with state pharmacy licensure requirements. We 
noted that, as an alternative, many ESRD facilities would forego the 
process of becoming licensed as a pharmacy and instead, furnish renal 
dialysis service drugs formerly covered under Part D under arrangement 
with a licensed pharmacy. We indicated that the ESRD facility would 
provide their patients with a listing of pharmacies with which it would 
have arrangements with to dispense the renal dialysis service drugs (74 
FR 50006).
    As indicated in proposed Sec.  413.241, we further expected that 
the ESRD facilities would establish arrangements with pharmacies in a 
manner that would facilitate beneficiary access to renal dialysis 
service drugs. That is to say, at a minimum, we expected that the 
arrangement would take into account variables like the terrain, whether 
the patient's home is located in an urban or rural area, the 
availability of transportation, the usual distances traveled by 
patients in the area to obtain health care services, and the pharmacy's 
capability to provide all classes of renal dialysis service drugs to 
patients in a timely manner. In addition, we expected that ESRD 
facilities would coordinate the provision of renal dialysis service 
drugs on behalf of traveling patients to facilitate ongoing compliance 
with the plan of care during periods of travel (74 FR 50006-50007).
    To prevent duplicate payment under both Part D and Part B for 
bundled drugs and biologicals formerly covered under Part D, we 
indicated in the proposed rule that we were considering the 
incorporation of an ESRD indicator on the Part D eligibility 
information that would prevent Part D drug payments for bundled ESRD 
drugs and biologicals at the pharmacy. We proposed that the pharmacy 
would bill the ESRD facility for all renal dialysis service drugs and 
biologicals included in the proposed ESRD PPS that were dispensed, but 
would not be permitted to bill the patient for the usual Part B co-
insurance amount, nor treat these drugs in accordance with the Part D 
rules. The ESRD facility would collect applicable beneficiary co-
insurance based on the ESRD PPS per treatment payment amount (74 FR 
50007).
    In the proposed rule, we noted that the cost of the drugs and 
biologicals currently separately payable under Part D that we proposed 
to be designated as Part B renal dialysis services for purposes of the 
proposed ESRD PPS, would be reflected in the ESRD PPS portion of the 
blended payment (74 FR 50007).
    The comments we received on these proposals and our responses are 
set forth below.
    Comment: Many commenters requested that oral medications not be 
bundled but rather, should continue to be obtained through Part D. The 
commenters believed that bundling the oral drugs into the ESRD PPS 
would eliminate patient protections that are currently in place under 
Medicare Part D such as drug utilization review, medication therapy 
management, beneficiary choice in drugs within each drug class, 
geographic access standards and reduced co-insurance levels for low-
income subsidy eligible patients.
    To the extent oral medications are bundled, some commenters 
believed that we should implement similar Part D protections into the 
ESRD PPS. Other commenters asserted that bundling oral medications into 
the ESRD PPS would result in a duplication of the Medicare Part D 
system, questioning CMS for considering the imposition of a system 
similar to Part D asserted that doing so would increase inefficiencies 
and cost.
    Response: We appreciate the commenters interest in maintaining 
patient protections that ensure access to drugs. As discussed in 
section II.A.3. of this final rule, although ESRD-related oral drugs 
and biologicals are included in the ESRD PPS bundle as of January 1, 
2011, we are delaying payment under the ESRD PPS of ESRD-related oral-
only medications until January 1, 2014. Therefore, because the majority 
of the oral drugs currently paid under Part D are oral-only drugs and 
payment under the ESRD PPS for oral-only drugs has been delayed until 
January 1, 2014, we intend to further evaluate beneficiary protections 
under the ESRD PPS related to oral drugs. We note that we are 
developing monitoring procedures that we will discuss in the future.
    We acknowledge that as discussed in section II.A.3. of this final 
rule, there are a limited number of ESRD-related oral drugs and 
biologicals with other forms of administration which will be 
implemented January 1, 2011 and therefore, ESRD facilities will be 
required to ensure that patients have access to these drugs. 
Consequently, ESRD facilities will need to address their concerns in 
order to be able to furnish ESRD-related oral drugs and biologicals 
with other forms of administration, prior to January 1, 2011. With 
regard to the oral drugs that are being bundled in 2011, we believe 
these concerns can be alleviated and/or gradually addressed because 
such drugs have some other forms of administration.
    Comment: Many commenters opposed the bundling of oral medications 
citing logistical and operational concerns associated with furnishing 
drugs either directly or under arrangement. The commenters believed 
that activities associated with furnishing these drugs directly would 
necessitate infrastructure and staffing changes that would drive up 
costs. These commenters stated that developing expertise in meeting 
pharmacy requirements and in hiring additional personnel, adopting 
technology and creating space for the storage and distribution of self 
administered drugs would require a great deal of effort and resources. 
The commenters stated that pharmacists would need to be hired to comply 
with dispensing requirements under State and Federal law. Other 
commenters believed that nursing and social work staff would be 
expected to distribute the self-administered drugs and that this task 
would detract from their nursing and social work duties.
    Other commenters believed that clinical care staff such as 
registered nurses and personal care attendants would be cut to fund the 
additional cost of bringing pharmacy staff on board. Several commenters 
indicated that ESRD facilities currently in operation will be 
constrained in their ability to create in-house pharmacies or to store 
additional bundled drugs in instances where they have already maximized 
their square footage.
    Similarly, commenters were also concerned about the additional 
burden ESRD facilities that elect to furnish these drugs under 
arrangement would experience such as establishing and maintaining 
pharmacy contracts. Commenters identified pros and cons of contracting 
with a large number of pharmacies versus contracting with a few 
pharmacies. The commenters believe that large numbers of contracts 
would promote convenient patient access but ESRD facilities' 
administrative costs would increase proportionally according to the 
number of pharmacies with which they contract. Overall, commenters 
asserted that payment under the ESRD PPS would not cover the additional 
costs of administrative burdens and increased staffing needs that will 
result from the bundling of oral drugs.
    One commenter supported the option to allow facilities to choose 
between furnishing oral drugs directly or under arrangement. This 
commenter further noted that by allowing this choice, CMS

[[Page 49171]]

did not directly impose a requirement that a facility become a licensed 
pharmacy or have a pharmacist on staff. This commenter believed that 
beneficiary access to drugs would be preserved through facility 
arrangements with contracted pharmacies much like facilities currently 
contract with clinical laboratories.
    Response: As we discussed in detail in section II.A.3.a. of this 
final rule, we are delaying payment for oral-only drugs under the ESRD 
PPS until after the ESRD PPS transition. We agree with the comment that 
ESRD facilities will have choices regarding whether and how to furnish 
ESRD-related oral drugs and biologicals that have other forms of 
administration. For example, an ESRD facility may continue to furnish 
the injectable and other forms of iron or may elect to furnish the oral 
forms of these drugs (and biologicals), as determined by the patients' 
plans of care. ESRD facilities will need to determine how they will 
obtain and furnish these drugs and biologicals (for example under 
arrangement or mail order). We note that ESRD facilities currently 
furnish drugs and biologicals to patients and, therefore, would have 
experience and arrangements under the current basic case-mix adjusted 
composite payment system. We acknowledge that these experiences and 
arrangements may only address the injectable drugs and biologicals and, 
that given the inclusion of the other ESRD-related drugs and 
biologicals under the ESRD PPS beginning January 1, 2011, additional 
arrangements may be needed.
    Comment: One commenter was concerned that the bundling of oral 
drugs would result in an automatic shift of patients' drug coverage to 
Medicare. The commenter believed that patients who currently rely on 
drug coverage from private retiree or employer health plans with little 
or no cost sharing will be disadvantaged under the ESRD PPS. Another 
commenter believed that the ESRD PPS may benefit uninsured patients who 
currently either cannot receive these drugs or have difficulty getting 
to a pharmacy.
    Response: We do not agree with the commenter that bundling oral 
drugs will shift patients' drug coverage to Medicare. Under the ESRD 
PPS, Medicare coverage for some ESRD-related drugs and biologicals will 
shift from Medicare Part D to Part B and, therefore, would be included 
in the ESRD PPS. The statute does not govern private insurance or 
require that drug coverage shift from private insurance to Medicare 
Part B. Furthermore, the statute does not change private insurance or 
incorporate coverage of services paid for by private insurers.
    We do not believe that the ESRD PPS will have any effect with 
regard to benefiting patients who are currently having difficulty 
getting to a pharmacy. Under the ESRD PPS, patients may still need 
access to a pharmacy for their ESRD-related oral drugs and biologicals 
if the ESRD facility provides drugs and biologicals under arrangement.
    With regard to the comment that uninsured patients will benefit 
under the ESRD PPS, we agree that patients who currently do not have 
drug coverage (either privately or through Part D) will benefit from 
the inclusion of ESRD-related oral drugs and biologicals under the ESRD 
PPS. However, as these drugs and biologicals have been included in the 
ESRD PPS base rate, patients will have a co-insurance liability.
    Comment: Several commenters stated that bundling of oral drugs 
provides an unfair advantage to LDOs which the commenters believed 
control the market for certain ESRD-related drugs. Commenters also 
believed that LDOs have a further advantage because they have developed 
in-house pharmacies.
    Other commenters stated that small ESRD facilities would not have 
the resources to develop in-house pharmacies and would need to contract 
for oral medications. One commenter asserted that SDOs that opt to 
furnish drugs under arrangement would not reach the volume necessary to 
contract with pharmacy benefit managers (PBMs) and would need to 
contract with smaller pharmacies at less favorable rates. Another 
commenter asserted that small and rural facilities and their local 
pharmacy partners will be disadvantaged because they are less capable 
of aggressively negotiating drug prices.
    Several commenters urged CMS to propose a standard national method 
for dialysis facilities to establish prospective contracts with 
multiple traditional and mail-order pharmacies for the furnishing of 
dialysis-related drugs, regardless of the size of the dialysis 
provider. Other commenters suggested that CMS negotiate with 
pharmaceutical manufacturers on behalf of ESRD facilities to establish 
prices for ESRD-related drugs. Another commenter suggested that as an 
alternative to furnishing medications directly, ESRD facilities could 
rely on a third party Competitive Acquisition Program (CAP) vendor to 
purchase and distribute Part B renal dialysis service drugs to ESRD 
patients.
    Response: We thank the commenters for expressing their concerns 
about the advantages and disadvantages that they believe exist between 
large and small dialysis organizations and for providing suggestions 
for ways in which ESRD facilities could obtain ESRD-related drugs and 
biologicals. However, we are not specifying in this rule how ESRD 
facilities are to obtain ESRD-related drugs and biologicals.
    Thus, we are not adopting a national method for establishing 
contracts with pharmacies, nor will we negotiate with drug 
manufacturers on behalf of ESRD facilities to establish ESRD-related 
drug prices. We note that CAP participation is limited to Medicare 
physicians who administer drugs in their offices. However, we will take 
these suggestions into consideration when we implement ESRD-related 
oral-only drugs under the ESRD PPS. In the meantime, we encourage ESRD 
facilities to pursue group purchasing arrangements with similarly 
situated organizations to secure the most favorable drug prices 
possible.
    Comment: One commenter stated that organizations with demonstrated 
pharmacy capabilities can help ESRD facilities minimize potential 
operational and administrative burdens of managing pharmacy care. The 
commenter further stated that mail order pharmacies provide ESRD 
patients with consistency of care and ease of access to their necessary 
medications while also saving payers and patients money.
    Response: We appreciate the commenter's input and believe that ESRD 
facilities that elect to furnish drugs under arrangement will seek 
contracts with pharmacies on the basis of competitive pricing and on 
the value that contracted pharmacies can offer to the ESRD facilities' 
patients in terms of convenient access.
    Comment: Several commenters requested clarification as to whether 
the ESRD facility will be required to hire a pharmacist or if the 
nurses will be required to dispense the oral drugs. An ESRD facility 
nurse expressed concern that she would be forced to act as a 
pharmacist, performing duties that would be beyond the scope of nursing 
practice.
    Response: We do not require that ESRD facilities hire a pharmacist 
nor do we require that ESRD facilites dispense oral drugs. Rather, 
under the ESRD PPS, ESRD facilities will be required to provide ESRD-
related drugs and biologicals (including ESRD-related drugs and 
biologicals with other forms of administration). ESRD facilities will 
need to determine how they will obtain and dispense drugs and 
biologicals (that is, directly or under arrangements). However, ESRD 
facilities and the

[[Page 49172]]

professional staff associated with these facilities will continue to be 
required to comply with State and Federal laws pertaining to dispensing 
of prescription drugs and biologicals.
    Comment: One commenter requested clarification as to how oral 
medications would be dispensed and charted; on a per treatment, weekly 
or monthly basis. Several commenters believed that oral drugs covered 
under the ESRD PPS (such as phosphate binders), would only be provided 
on the days that the patient is in the facility and during the dialysis 
treatment itself. Other commenters stated that phosphate binders should 
be given with meals and that administering phosphate binders during 
dialysis could result in patients experiencing nausea, vomiting, 
choking or altered blood pressure.
    Several commenters expressed concern that ESRD facilities may have 
difficulty recouping the full payment amount for oral medications that 
are taken outside the ESRD facility, particularly in instances where 
multiple days, weeks or months-worth of medications are prescribed. The 
commenter provided an example in which an ESRD facility provided a 
patient with a month's supply of a drug but, as a result of missed 
treatments, the facility would only receive payment for a partial month 
worth of treatments and would not recoup the full cost of the 
medication furnished.
    Other commenters were concerned that patients may encounter 
additional burden if ESRD facilities do not approve 30 day supplies of 
drugs. The commenters stated that smaller prescribed quantities of 
drugs would increase the number of trips that patients would need to 
make to the pharmacy, which would be particularly burdensome for 
patients with limited transportation.
    Response: ESRD facilities will be required to record the quantity 
of oral medications provided for the monthly billing period. In 
addition, ESRD facilities would submit claims for oral drugs only after 
having received an invoice of payment. We will address recording of 
drugs on an ESRD claim in future guidance.
    We appreciate the commenter's concern that ESRD facilities believe 
they will be at risk for drug costs incurred but for which payment may 
not be recouped as a result of missed treatments. Under the ESRD PPS, 
payments are made on a treatment basis. However, some ESRD-related oral 
drugs and biologicals may be required to be taken on days that do not 
correspond with a treatment. We will be providing instruction on how 
these medications are to be entered on the ESRD claim. We believe that 
ESRD facilities will need to ensure, to the best of their ability, that 
patients do not miss treatments. ESRD facilities will need to determine 
the most appropriate way to furnish drugs and biologicals that ensures 
that patients receive their required medications, while mitigating the 
facilities' risk for drug costs.
    Comment: One commenter stated that hospital-based ESRD facilities 
meet their patients' medication needs through the use of intravenous 
medications prepared by the hospital's on-site pharmacy. One commenter 
indicated that state pharmacy licensure requirements do not permit the 
hospital pharmacy to dispense outpatient medications. The commenter 
further noted that hospital-based ESRD facilities would need to 
establish a contract with an outside pharmacy to furnish the necessary 
oral medications.
    Response: We want to clarify that in bundling ESRD-related 
injectable and oral drugs and biologicals with other forms of 
administration, we are not mandating that ESRD facilities change from 
intravenous to oral or other forms of these drugs. As indicated in the 
proposed rule, we would expect that any ESRD facility that provides 
outpatient maintenance renal dialysis items and services, would either 
establish their own licensed pharmacies or contract with licensed 
pharmacies.
    Comment: Several commenters asserted that bundling oral medications 
into the ESRD PPS would create confusion between Part B and Part D for 
patients, ESRD facilities, pharmacies and Part D sponsors. One 
commenter supported our proposal to create an ESRD indicator as a way 
of preventing duplicate payment of drugs under Part B and Part D. Other 
commenters stated that Part D plans would bear much of the burden of 
ensuring that ESRD patients do not receive drugs under Part D coverage 
that have been bundled into the ESRD PPS as ESRD-related services. The 
commenter stated that because Part D already has effective cost control 
mechanisms in place, it is not necessary to bundle Part D drugs into 
the ESRD PPS for purposes of controlling costs. Another commenter 
believed that where an ESRD-related drug is indicated for non-ESRD-
related indications, the ESRD indicator would not provide all the 
information necessary to prevent duplicate payment.
    Response: We intend to implement an ESRD indicator that will store 
a beneficiary's ESRD status in Part D systems. Part D sponsors would be 
expected to share the information with their claims processing 
contractors for purposes of claims adjudication. This indicator will 
allow contracted pharmacies to correctly bill ESRD-related drugs to the 
ESRD facility and non-ESRD-related drugs to Part D.
    We do not agree with the commenter that it is not necessary to 
bundle Part D drugs in the ESRD bundle because Part D has mechanisms to 
control costs. We discuss the interpretation of the definition for 
renal dialysis services and the inclusion of Part D drugs in the ESRD 
bundle in section II.A.3. of this final rule.
    With regard to the commenter's concern that an ESRD indicator would 
not provide necessary information to prevent duplicate payment, when a 
drug is indicated for non-ESRD-related conditions, as we discuss later 
in this section, ESRD facilities will be able to identify drugs and 
biologicals used to treat non-ESRD conditions with a modifier and will 
be paid separately for these items.
    Comment: One commenter expressed concern about potential 
administrative complexities that may be associated with furnishing 
drugs that are on the Drug Enforcement Agency's (DEA) list of 
controlled substances. This commenter further specified that the 
process of securing and renewing a DEA license would add to the 
administrative complexity of implementing the ESRD PPS.
    Response: We expect that ESRD facilities are currently complying 
with any applicable requirements associated with controlled substance 
administration if they provide controlled substances to their patients. 
While there is no requirement under the ESRD PPS for ESRD facilities to 
administer controlled substances, if an ESRD elects to provide them, 
they would be required to comply with State and Federal requirements.
    Comment: One commenter requested clarification as to how antitrust 
laws would be applied in the context of ESRD facilities that may seek 
to contract with one or more pharmacies for the provision of oral 
drugs. The commenter suggested that to the extent an ESRD facility were 
to contract with one pharmacy but not another, this may violate 
antitrust laws.
    Response: Antitrust laws are beyond the scope of this final rule. 
However, to the extent an ESRD facility opts to furnish drugs under 
arrangement, we would expect that the facility would conduct an 
independent compliance review of antitrust and any other applicable 
Federal or State laws.
    Comment: One commenter stated that OIG, MedPAC, or the Institute of 
Medicine should conduct studies two

[[Page 49173]]

years after implementation of the ESRD PPS to ensure proper 
implementation of oral-only drugs into the ESRD PPS bundle has occurred 
and that Medicare beneficiaries have not been adversely impacted.
    Response: We thank the commenter for this recommendation and note 
that to the extent these entites were to conduct such studies we would 
support those efforts. As discussed in this final rule, oral-only drugs 
PPS will not be paid under the ESRD PPS until January 1, 2014. We note 
that section 10335 of the Affordable Care Act requires the GAO to 
conduct a study and submit a report to Congress on Medicare beneficiary 
access to high quality dialysis services, including specific oral drugs 
(oral-only).
    As a result of the public comments and for the reasons discussed 
above, we are revising Sec.  413.241. The revised Sec.  413.241 will 
read as follows: ``Effective January 1, 2011, an ESRD facility that 
enters into an arrangement with a pharmacy to furnish renal dialysis 
service drugs and biologicals must ensure that the pharmacy has the 
capability to provide all classes of renal dialysis drugs and 
biologicals to patients in a timely manner.''
iii. Home Dialysis
    In the proposed rule, we discussed that section 1881(b)(14)(A)(i) 
of the Act requires the costs of home dialysis supplies and services 
furnished under Method I and Method II, regardless of home treatment 
modality, be included in the ESRD PPS bundle. We proposed that the 
Method II home dialysis approach in its present form would no longer 
exist under the ESRD PPS effective January 1, 2011, but our proposal 
did not eliminate Method I in its present form (74 FR 50006). 
Therefore, a supplier could only furnish, under an arrangement with the 
ESRD facility, home dialysis equipment and supplies to a Medicare home 
dialysis patient and the supplier would have to go to the ESRD facility 
for payment. As discussed in section II.A.4. of this final rule, under 
the ESRD PPS, all home dialysis items and services are covered under 
the ESRD PPS payment and no separate payment will be made. In the event 
supplies or equipment are used for non-ESRD-related purposes, those 
supplies or equipment could be billed separately by utilizing a 
modifier which indicates that the supply or equipment is not ESRD-
related.
    The comments we received regarding Method II can be found in 
section II.A.7. of this final rule.
b. Expansion of the Data Elements Reported on Claims
    In the proposed rule, we explained that currently the services that 
are billed on the ESRD claim do not provide any detail of the composite 
rate items and services that are furnished to the patient beyond the 
treatment itself (74 FR 50006). We did not propose additional reporting 
requirements in regards to collecting data for composite rate items and 
services, but we noted that collecting additional data at the patient-
level is necessary for refinements to the case-mix adjustments of the 
ESRD PPS's payment model. We provided examples of items and services, 
such as time on machine, nutritional services, social work services, 
and nursing services included in the current basic case-mix adjusted 
composite payment system, but are not captured on the claim. We 
requested public comment on possible data elements and other claim-
based information that would identify patients who are high cost (74 FR 
50006).
    We received comments regarding the expansion of the data elements 
reported on claims as described below. The comments and our responses 
are set forth below.
    Comment: All commenters agreed that it is important to expand the 
data elements required on ESRD claims in order to effectively make 
refinements to the ESRD PPS payment model in the future. Some 
commenters agreed with the examples of services in the proposed rule. 
Two commenters stated that therapeutic nutritional services are 
critical for ESRD patients who cannot swallow or digest and absorb 
adequate nutrition from traditional nutrient formulas. One of the 
commenters suggested that we specifically collect data from ESRD 
facilities to assess the frequency and duration of nutrition services. 
Another commenter suggested that we collect drug data with applicable 
laboratory results that examine physiological responses to each drug.
    Response: We thank the commenters for their suggestions and will 
consider them when we initiate changes to the data elements required on 
claims. Further direction will be provided in the future.
3. Miscellaneous Comments
    We also received general comments related to the ESRD PPS, which 
are included below. The comments and our responses are set forth below.
    Comment: Several commenters requested that there be a payment 
adjustment for nursing home staff providing care to beneficiaries with 
ESRD.
    Response: The ESRD PPS will provide a bundled payment for renal 
dialysis services provided by a Medicare-certified ESRD facility. The 
case-mix payment adjustments are provided to account for the additional 
costs associated with separately billable items and services, of 
providing dialysis related services for patients with certain 
characteristics. The facility payment adjustments, including the 
outlier payment, are provided to account for the additional composite 
costs of providing dialysis related services. A payment adjustment for 
nursing home staff services would not be available under the ESRD PPS 
because payment for nursing home staff is covered separately outside of 
the ESRD PPS and, such services do not meet the definition of renal 
dialysis services for which ESRD facilities are paid a single rate.
    Comment: One commenter was concerned that the proposed ESRD PPS 
would violate State and Federal anti-kickback and physician self-
referral laws. The commenter believed that under the proposed ESRD PPS, 
an ESRD facility would be required to bill directly for laboratory 
tests that currently, are billed by the laboratory. The commenter 
believed that in cases where ESRD facilities have physician ownership, 
this arrangement would result in the ESRD facility sharing in profits 
of self-ordered laboratory tests. The commenter was concerned that 
physician-owned ESRD facilities, may be in violation of physician self-
referral rules, and that these facilities would not be permitted to 
submit bills for laboratory charges. The commenter concluded that under 
the ESRD PPS, laboratories, as the provider of laboratory services, 
should continue to bill Medicare to avoid potential anti-kickback or 
Stark violations. Another commenter expressed concern that to the 
extent the ESRD facility would omit laboratory services from the ESRD 
facility claim in an attempt to adhere to physician self-referral 
rules, the services would not count towards the outlier eligibility 
calculation rendering the ESRD facility ineligible for potential 
outlier payment for laboratory services. Another commenter stated that 
to the extent that hospital-based ESRD facilities choose to enter into 
arrangements with community pharmacies for self-administered ESRD 
drugs, the facility would have to initiate a Stark law compliance 
review in the event that the community pharmacy has physician owners.
    Response: Because all renal dialysis services, including ESRD-
related laboratory services and drugs (with the exception of oral-only 
drugs), will be

[[Page 49174]]

paid under the ESRD PPS beginning January 1, 2011, these services as 
described 42 CFR Sec.  411.351, would not be considered designated 
health services subject to physician self-referral requirements. If 
ESRD facilities have arrangements that they believe may be subject to 
the Federal anti-kickback statute, these facilities should contact the 
OIG. (Information about the Federal anti-kickback statute is available 
on the OIG's Web site at http://oig.hhs.gov.)
    Comment: One commenter indicated the importance of monitoring fluid 
status and the need to develop strategies and practices for effective 
and safe fluid removal.
    Response: We agree that fluid management is important; however, 
methods for monitoring fluid status are beyond the scope of this final 
rule.
    Comment: Several commenters offered suggestions for additional 
collection of data and analyses which they believed would be helpful in 
connection with improving and refining the ESRD PPS. Suggestions were 
wide-ranging and included additional analyses showing beneficiary out-
of pocket expenses under the PPS, collection of data to determine how 
dialysis practice patterns change under the new system, analyses for 
additional performance measures that could be integrated into the QIP, 
analysis on changes in the utilization of drugs subsequent to PPS 
implementation, refinement of data sources to evaluate race as a 
potential case-mix adjuster, collection of data on home dialysis 
training services and analysis of the effect on home dialysis, and 
collection of data and analysis to incorporate new drugs, technologies, 
and advances in clinical protocols into the ESRD PPS.
    Response: We appreciate all of the commenters' suggestions on the 
collection of data and recommendations for subsequent analyses we could 
undertake to monitor and refine the ESRD PPS. As we gain experience 
with the new system, certain policy issues may emerge requiring more 
immediate attention for data collection and analysis. We recognize that 
we must balance the need for additional data and the potential for 
improvements and revisions to the ESRD PPS with the administrative 
burden that may be created. We will take all of these suggestions and 
recommendations under advisement for consideration of future 
refinements to the ESRD PPS.
    Comment: Commenters expressed concern that we did not include 
information on how we intend to identify ESRD-related items and 
services after 2011. The commenters requested that we establish a 
periodic review process to add or remove items and services in the ESRD 
PPS bundle such as laboratory tests and drugs as well as update the 
reimbursement allocated to those services as market conditions change. 
Other commenters pointed out that we made policy determinations related 
to a number of specific items and services under the ESRD PPS based 
upon the current clinical practice for ESRD. The commenters requested 
that we specify an appropriate process for updating policies under the 
ESRD PPS as clinical treatments evolve and new technologies emerge.
    Other commenters expressed concern that there will be little 
incentive for innovation from the medical products industry for new 
therapies and that CMS should encourage investment and innovation to 
improve patient outcomes. One commenter stated they believed we have 
the flexibility to provide for a separate payment for new and 
innovative drugs and technologies for a defined period of time while 
determining the appropriate costs of the new therapies for inclusion in 
the ESRD PPS bundle.
    Response: We do not agree that the ESRD PPS will inhibit the 
development of new technologies or treatment. The ESRD PPS does not 
dictate, limit or prescribe any treatment or technologies used for ESRD 
patients. Rather, the ESRD PPS provides a payment for the average 
patient as well as adjustments to that payment rate to account for 
increased resource utilization. We have determined that several aspects 
of the ESRD PPS will need to be updated annually to keep current with 
new renal dialysis services. As we discussed in section II.A.3 of this 
final rule, we have not specified drugs and biologicals that would be 
renal dialysis services, but rather we specified categories by mode of 
action to provide for any new drugs or biologicals that may be 
developed or used in the future. For example, for anemia management, 
new drugs that constitute renal dialysis services that are approved for 
the treatment of anemia and are furnished by an ESRD facility, would be 
reported on the ESRD facility claims and paid under the ESRD PPS. We 
will use this information to update the list of ESRD-related drugs and 
biologicals, including the drug categories each January 1 for purposes 
of the outlier policy (see section II.H. of this final rule).
    In a similar manner to drugs, we will need to keep the list of 
ESRD-related laboratory tests up-to-date for purposes of the outlier 
policy. The clinical laboratory fee schedule is updated annually to 
reflect updates in Medicare payment as well as to reflect new tests. We 
will be reviewing on an annual basis the new tests that are being added 
to the clinical laboratory fee schedule so that we can determine 
whether any of them are ESRD-related so they can be recognized under 
the outlier policy.
    With regard to new technology, the payment structure under the ESRD 
PPS does not specify the type of modality (and therefore, the type of 
technology) that should be used for dialysis. Rather, the per-treatment 
payment provides for ESRD facilities to use the modality they believe 
is best, as determined by the individual plan of care. We believe that 
under the ESRD PPS, ESRD facilities will have the opportunity to 
utilize any new technology that arises.
    We believe that these mechanisms of updating ESRD-related drugs and 
biologicals and laboratory tests, will address any changes that may 
arise in the future. However, should the technologies and treatments 
for ESRD change significantly at some point in the future, we could 
consider whether other mechanisms may need to be incorporated through 
future rulemaking to ensure that Medicare ESRD patients continue to 
have access to important advances in care.
    Comment: One commenter suggested that we update the ESRD PPS base 
rate, patient-specific adjusters, co-morbidity case-mix adjusters and 
facility-level adjusters no later than CY 2013 because by that time we 
should have adequate data. The commenter expressed concern that if the 
ESRD PPS is not updated annually, the adjusters could remain unchanged 
over an extended period of time and would not reflect changes in the 
costs of provided ESRD care.
    Response: We plan to implement payment for oral-only ESRD-related 
drugs under the ESRD PPS base rate after the ESRD PPS transition in 
2014. In order to do so, we anticipate that the rulemaking to implement 
oral-only drugs under the ESRD PPS in 2014 would take place during 
2013.
    After that refinement, we expect to update periodically the 
regression analysis using the most recent claims and cost report data 
to determine if changes to the type and amount of payment adjustments 
are warranted. In addition, we will update the ESRD PPS annually to 
reflect the latest market basket forecast with adjustments for 
productivity, geographical variations in wages to reflect the most 
current hospital wage data and CBSA definitions, and appropriate 
changes to the fixed-dollar loss threshold amounts to maintain the 1 
percent outlier policy.
    As we proposed, we have codified these annual updates in Sec.  
413.196

[[Page 49175]]

(Notification of changes in rate-setting methodologies and payment 
rates). However, we have revised the language to reflect that the 
market basket update could result in a negative update. Therefore, we 
replaced reference to the market basket percentage increase with the 
market basket update factors.
    Comment: Some commenters expressed concern about the role of the 
ESRD Networks. The commenters stated that there is a need to implement 
an ESRD Network Program that will effectively protect and support 
patients. The commenter suggested that the Network Program include 
mandatory best practice quality standards for all Networks to ensure 
that the quality of ESRD care is being judged consistently throughout 
the country. Other commenters expressed concern that the ESRD Networks 
are not accessible or attentive to patient concerns. Another commenter 
stated that the ESRD Networks should be tasked with monitoring and 
reporting involuntary discharges. Several commenters asked what role 
the ESRD Networks will have in implementing the ESRD PPS.
    Response: We promote high value quality healthcare for 
beneficiaries and utilizes a variety of approaches to meet this goal. 
Examples of these approaches include contemporary quality improvement, 
coverage and payment policy, public reporting, and regulatory 
enforcement. The 18 ESRD Networks are contracted by us to oversee and 
facilitate high quality ESRD care, promote quality improvement, 
evaluate and resolve patient grievances, and assist ESRD facilities in 
meeting Network goals. The Networks monitor and report information 
related to complaints and grievances and involuntary discharges. We are 
currently assessing the role of the ESRD Network Program as it relates 
to the ESRD PPS and the QIP and how to optimize the expertise of the 
Networks to accelerate improvements in dialysis care.
    Comment: Several commenters suggested a patient representative 
panel to monitor how the ESRD PPS will affect dialysis treatment and 
patient care. One commenter stated that there is little mentioned in 
the proposed rule with regards to patient satisfaction and that patient 
satisfaction is an important qualifier for future refinements to the 
system. Other commenters suggested that we establish a review process 
for evaluating the impact of the new PPS on patients and providers to 
ensure that the changes in payment do not result in clinical practice 
changes that adversely affect patients.
    Response: We are concerned about how the ESRD PPS affects 
beneficiaries and has aimed to identify and mitigate potential negative 
effects. The way beneficiaries experience dialysis care is important to 
us. The QIP provides a method to ensure quality dialysis care and 
refers to patient satisfaction (information regarding the QIP is found 
in section II.M. of this final rule). Because the statute indicates 
that the quality measures should include patient satisfaction measures 
to the extent feasible, we are assessing the dialysis facility Consumer 
Assessment of Healthcare Providers and Systems (CAHPS tool), to 
determine the feasibility and readiness of use within the QIP in future 
years. In addition, as an integral part of the QIP, a program 
monitoring plan is in development to identify indicators useful in 
determining adverse effects on vulnerable (high risk) populations. 
Patient input is an important component of our monitoring plan 
development activities.
    Comment: Some commenters expressed concern about non-compliant 
patients and gave suggestions for initiatives for incentivizing them to 
comply with their care plans. One example provided by the commenters 
was a ``pay less for performance'' incentive under which patients would 
be rewarded with a deduction in premiums if they follow their care 
plan. The commenters indicated that non-compliant behavior is very 
expensive in terms of furnishing healthcare.
    Response: We encourage a patient-centered care approach in which 
the patient is included as a multidisciplinary team member (see Sec.  
494.80 of the ESRD Conditions for Coverage). We also encourage sharing 
of best practices among ESRD facilities including best practices 
regarding patients compliance with their care plans. While we recognize 
the role a dialysis patient plays into the success of their own care, 
Medicare is paying dialysis facilities to provide dialysis services and 
as such, the dialysis facility is ultimately responsible for ensuring 
that patients participate in their plan of care. We note that we do not 
have the authority to reduce patient premiums (Part B premium or co-
insurance liability) to reflect patient compliance with their care 
plans.
    Comment: One commenter noted that the proposed ESRD PPS did not 
inform patients adequately about effects on their costs and indicated 
that patients need to be informed in a clearly understood manner about 
how the ESRD PPS will affect their costs.
    Response: We appreciate the commenter's concern about informing 
patients about the changes of the new ESRD PPS. We plan to outreach and 
educate facilities, providers and beneficiaries after this final rule 
is released.
    Comment: One commenter supported including drugs in the bundle and 
believed that having drugs covered by ESRD facilities will be helpful 
for many patients. This commenter noted that her drug use decreased 
since going on home hemodialysis and she was able to stop some 
medications which helped lower her copayments for drugs.
    Response: We thank the commenter for supporting our proposal to 
include drugs in the bundle.
    Comment: We received several comments regarding the need for 
updating the Medicare cost report for ESRD facilities. Commenters 
stated that in order to accurately determine how facilities will fare 
over time under the new payment system and in order to evaluate cost 
trends, cost report reform is required. The commenters further 
explained that all of the changes that will occur under the ESRD PPS 
will not be properly captured in the cost report in its current form. 
Some commenters argued that Medicare cost reports for ESRD facilities 
do not offer a resource for an accurate estimation of costs associated 
with home hemodialysis or other home modalities. One commenter stated 
that if payment adequacy and other benchmarking of costs associated 
with current and new ESRD modalities are to be possible, cost report 
instructions at the modality level will need substantial revision.
    Response: We agree that changes to the cost report are necessary to 
reflect the ESRD PPS and to improve the accounting of ESRD facility 
costs. Any changes in cost reporting will be addressed in the future.
    Comment: Commenters indicated that the proposed ESRD PPS will give 
dialysis facilities an incentive not to support their dialysis 
patients' efforts to travel. These commenters indicated that dialysis 
providers often require transient patients to submit Hepatitis B, 
Surface Antigen and Surface Antibody results which are more recent than 
required by the Centers for Disease Control and Prevention (CDC) 
guidelines. Under current practice, the patient is generally 
responsible for the cost of the testing; the proposed rule will shift 
the cost to the home dialysis facility.
    Response: Hepatitis B testing is included in the basic case-mix 
adjusted composite payment rate, and therefore, payments for these 
tests were included

[[Page 49176]]

in the ESRD PPS base rate. As a result, we expect that ESRD facilities 
will require Hepatitis B testing only when appropriate to meet CDC 
guidelines. The patient will have a 20 percent co-insurance liability 
on the ESRD PPS per treatment payment amount and does not have a 
financial liability specifically for Hepatitis B testing. As a result, 
we do not believe that the treatment of Hepatitis B under the ESRD PPS 
will affect or prohibit patients from traveling.
    Comment: Commenters indicated that patients who travel represent an 
administrative burden and economic loss to the patient's home facility 
and bundling will make traveling patients less attractive. A few 
commenters had concerns about how payment will be made for the 
administration of medications to traveling dialysis patients. 
Commenters believed that dialysis facilities will be cautious of 
arranging transient treatment if there is no established means of 
reimbursement between the patient's home facility and the transient 
facility. One commenter indicated that transient facilities will have 
no incentive to administer injectable medications or higher dosages of 
ESAs to traveling patients. The commenter also questioned which 
dialysis facility would be responsible for administering necessary 
medications to the traveling patient under the bundled ESRD PPS. Other 
commenters indicated that laboratory tests required by traveling 
patients should be specifically excluded from the bundled ESRD PPS. If 
the laboratory testing required by a destination unit are not 
separately billable, it will complicate and perhaps, compromise the 
ability of beneficiaries to travel for work, family and pleasure.
    Response: ESRD facilities that accept responsibility for a 
transient ESRD patient must furnish all necessary ESRD-related care. We 
expect the home dialysis facility and the transient dialysis facility 
to work together and exchange patient information regarding co-morbid 
medical conditions and drug dosing to accommodate dialysis patients who 
travel because of work, family or for pleasure. Given that beginning 
January 1, 2011, the bundled ESRD PPS base rate and adjustments include 
payments for laboratory tests, ESAs and other ESRD-related drugs and 
biologicals (other than oral-only ESRD-related drugs), dialysis 
facilities furnishing these services to the traveling patients will 
receive payment for these services through their bundled ESRD PPS 
payment.
    Comment: Several commenters offered views regarding the imprudence 
of not having an ESRD PPS demonstration project or pilot testing of the 
proposed ESRD payment approach before going forward with national 
implementation.
    Response: The MMA included a provision for a demonstration project 
to test the ESRD PPS prior to full implementation. However, that 
provision was repealed.
4. Comments Regarding Monitoring
    We received many comments, primarily from patients and health care 
practitioners expressing concerns about monitoring the effects of the 
ESRD PPS. Comments that pertain to the QIP are addressed in section 
II.M. of this final rule. Other comments and our responses are 
discussed below.
    Comment: Many commenters expressed concern about the need to 
monitor the impact of bundling ESRD drugs based on patient outcomes. 
Others questioned if there will be tracking mechanisms to see how 
payment changes will affect patient health. Some commenters cited 
particular areas of concern such as an increase in the number of 
parathyroidectomies being performed; iron use; bone mineral metabolism; 
hospitalization and vascular access.
    Response: We understand the concerns raised and have indicated 
throughout this final rule that we will be monitoring the outcomes and 
effects of the ESRD PPS. While virtually all commenters expressed 
concerns about the potential negative effects of the PPS, we believe 
that the ESRD PPS provides opportunities for positive outcomes as well. 
Therefore, we plan to look at positive effects as well as areas of 
vulnerabilities. We are in the process of identifying those areas 
including those expressed by commenters. For example, as we discussed 
in section II.A.3. of this final rule, we have identified ESRD-related 
categories of drugs rather than specific drugs that will allow us to 
identify trends or changes in the drugs utilized by outcome such as 
anemia management. Also, as discussed earlier in this section, ESRD 
facilities will be required to indicate ESRD-related drugs and 
biologicals with other forms of administration on their claims. Because 
we have information on Part B on the ESRD claims and Part D separately 
payable drugs and biologicals, we will have a baseline from which to 
compare future drug usage and can monitor for changes in drug 
substitutions and dosing. We are also able to monitor for changes in 
inpatient hospital admissions and outpatient services for ESRD patients 
to determine if there are increases in ESRD-related procedures such as 
parathyroidectomies.
    Comment: Some commenters questioned how changes from the ESRD PPS 
will be monitored for errors or fraud attempts.
    Response: We have identified a number of measures in this final 
rule that address potential errors or fraud attempts. For example, in 
section II.K.2.a. of this final rule, we have described how ESRD 
facilities and MCPs will be required to utilize a modifier to identify 
items and services that they attest are not renal dialysis services. In 
the low-volume facility discussion in section II.F.4. of this final 
rule, we identified criteria that ESRD facilities will be required to 
meet in order to be eligible for the low-volume payment adjustment. In 
section II.A.3. of this final rule, we indicated that specific criteria 
will be required to be documented for the co-morbidity categories 
eligible for a payment adjustment. These can be monitored or verified. 
In addition, as discussed in the previous response to comments, we are 
in the process of identifying areas of concern (for example, drug 
utilization). We will be issuing specific instructions and 
corresponding manual changes in the future.
    Comment: Some commenters indicated that oversight is needed to 
prevent ESRD facilities from ``cherry picking'' patients. One commenter 
expressed concern that the ESRD facility conditions for coverage allows 
patients to be involuntarily discharged for non-payment.
    Response: We appreciate the concerns expressed that there may be 
ESRD facilities that will select patients based on higher payments. We 
will require information on the ESRD claims that will allow us to 
identify patient characteristics that result in eligibility for payment 
adjustments. For example, in the discussion under the onset of dialysis 
found in section II.F.3. of this final rule, we indicated that we would 
be looking at the number of beneficiaries who become eligible for 
Medicare due to a shortened coordination of benefit period. We will 
monitor very closely, potential access concerns and could make 
adjustments to the PPS in future years. We expect that ESRD facilities 
and providers will not ``cherry Pick'' patients.
    We appreciate the commenters' concerns about patients being 
involuntarily discharged from an ESRD facility and note that, we intend 
to monitor for changes in the number and characteristics of patients 
who have been involuntarily discharged from their ESRD facility.

[[Page 49177]]

    Comment: Several commenters indicated that there could be an 
increase in negative outcomes because the ESRD PPS does not apply 
limits on payment for preventable errors or outcomes. One commenter 
recommended that ESRD facilities not receive payment for preventable 
negative outcomes.
    Response: We agree that other than the QIP discussed in section 
II.M. of this final rule, there is no payment reduction for negative 
outcomes. However, as we discuss in section II.F.3. of this final rule, 
we did not include certain co-morbidities, such as septicemia, as being 
eligible for a payment adjustment because we believe that it could be 
an incentive for poor outcomes. By not providing an opportunity to 
receive additional payment, we believe that we have mitigated payment 
incentives for poor outcomes.
    Comment: A few commenters expressed concern that CMS should be able 
to determine if patients are not receiving adequate amounts of 
Epogen[supreg]. One commenter recommended that CMS also monitor blood 
transfusions administered to beneficiaries with ESRD.
    Response: The commenters are correct that we collect hemoglobin 
information on ESRD claims. As we noted earlier, we will require ESRD 
facilities to indicate all renal dialysis-related drugs such as 
Epogen[supreg], including dosages on the ESRD claim. We will explain 
this in more detail in the future. We are also planning to monitor 
blood transfusions for ESRD patients in our monitoring plans. We note, 
as discussed in section II.M. of this final rule, hemoglobin is a 
measure under the QIP.
    Comment: One commenter recommended the establishment of an 
independent panel of stakeholders and experts to evaluate tracking of 
drugs. Another commenter suggested establishing an external oversight 
board comprised of dialysis community stakeholders including patients, 
physicians, nurses and providers to review monitoring reports to ensure 
transparency of data. The commenter believes the oversight board should 
have the authority to influence CMS policy to remediate any negative 
changes in availability or quality of patient care.
    Response: We thank the commenters for these suggestions and will 
take them into consideration as we develop our monitoring plan for the 
ESRD PPS.
    Comment: One commenter believed that it is extremely important to 
set up a monitoring system that ensures that under the ESRD PPS, 
patients and physicians maintain access to a wide range of available 
drugs. The commenter also stated that a process to monitor medication 
use in real-time using clearly delineated metrics more inclusive than 
quality measures, to ``ensure that no adverse effects of the bundle on 
patient care and outcomes.''
    Response: We have discussed that we are requiring ESRD facilities 
to identify on the ESRD claims, renal dialysis related drugs. We 
discussed in section II.A.3. of this final rule that we identified 
categories of renal dialysis related drugs using claims data for drugs 
which received separate payment. We expect that ESRD facilities will, 
therefore, ensure that their patients receive the drugs (and 
biologicals) that they require. At the current time, we are unable to 
monitor medication use in real time as we are dependent on information 
on ESRD claims submitted by the ESRD facilities.
    Comment: A few commenters were in favor of retaining the ESA Claims 
Monitoring Policy. These commenters suggested that similar monitoring 
policies be created for dosage administration and physiological 
response, for other drug classes (such as antibiotics, thrombolytics, 
vitamins and minerals).
    Response: We thank the commenters and will take the suggestions 
into consideration as we develop our monitoring policies.
5. Comments Beyond the Scope of This Final Rule
    We also received many comments that were beyond the scope of the 
ESRD PPS final rule, including comments the following topics: Educating 
patients on the importance of compliance with their prescribed 
treatment plan and expanding funding for educating people on strategies 
for the prevention of kidney disease; end of life care for dialysis 
patients; cost containment or price ceilings on pharmaceuticals and 
equipment; the need for financial planning for death and financial 
assistance to bereaved families in need, to deal with outstanding 
funeral and medical bills; consideration for studying the potential 
future of stem cell treatments; the need to be more progressive in 
offering cutting-edge options to beneficiaries; the need to establish 
criteria such as morbidity, prognosis, age and family support to 
determine a beneficiary's appropriateness for dialysis; consideration 
for a payment adjustment for beneficiaries with ESRD who are employed 
or attending school; concern that the surveyors from the Department of 
Health are not encouraging best practices and no longer pursue the goal 
of identifying ways to improve care for patients; and the need for 
disaster planning for the provision of dialysis treatments.
    Other commenters raised issues related to post-transplant coverage 
of immunosuppressive drugs, stating that coverage of post-transplant 
immunosuppressive drugs should be extended for the life of the 
transplant because oftentimes patients have difficulty affording these 
medications when Medicare coverage runs out. One commenter requested 
that Medicare preserve access to brand name post-transplant 
medications. A patient commenter requested help paying for a transplant 
and for post-transplant medical care. Another patient commenter wanted 
to know whether they could get a kidney. One commenter stated that it 
is unfortunate that nephrologists spend minimal time in training on 
home dialysis modalities. Another commenter stated that greater 
emphasis should be placed on long-term rehabilitation such that ESRD 
patients can enjoy active lifestyles, employment and community 
involvement. Another commenter believed that CMS should develop a plan 
to encourage and track employment status among patients with ESRD.
    Because the above issues are beyond the scope of this final rule, 
we have not addressed them in this final rule.

L. Evaluation of Existing ESRD Policies and Other Issues

    In the proposed rule, we reviewed existing ESRD policies to 
determine their applicability to the ESRD PPS. We proposed to eliminate 
the exceptions for isolated essential facilities, self dialysis 
training costs, atypical service intensity (patient mix) and pediatric 
facilities that exist under the basic case-mix adjusted composite 
payment system (74 FR 50007). We proposed to evaluate the current ESA 
monitoring policy (EMP) and the operational issues for circumstances in 
which Medicare is the secondary payer (MSP). We also proposed to 
maintain the bad debt policy and the 50-cent per treatment deduction to 
fund the ESRD Networks (74 FR 50007). We also proposed to set forth in 
Sec.  413.195 the limitation on review with regard to the ESRD PPS (74 
FR 50007). In addition, we explained that we were considering the 
extent to which the laboratory services 50 percent rule would continue 
to apply under the ESRD PPS (74 FR 50008).
1. Exceptions Under the Case-Mix Adjusted Composite Payment System
    Section 1881(b)(7) of the Act and Sec.  413.182 generally address 
exceptions to the composite payment rates. Section

[[Page 49178]]

422(a)(2) of BIPA prohibited the granting of new exceptions to the 
composite payment rates after December 31, 2000. Section 623(b) of the 
MMA amended section 422(a)(2) of BIPA to restore composite rate 
exceptions for pediatric facilities that did not have an exception rate 
in effect as of October 1, 2002. Section 422(a)(2)(D) of BIPA defined a 
pediatric facility as a renal dialysis facility at least 50 percent of 
whose patients are under 18 years of age.
    In the proposed rule (74 FR 50007), we noted that in the CY 2005 
PFS proposed rule (69 FR 47535), we explained that section 422(a)(2)(C) 
of BIPA provided that any ESRD composite rate exception in effect on 
December 31, 2000, would continue as long as the exception rate exceeds 
the applicable composite payment rate. We further explained the 
methodology that would be employed to compute the exception amount, and 
that we were proposing to allow each dialysis facility the option of 
continuing to be paid at its exception rate or at the basic case-mix 
adjusted composite rate. On April 1, 2004, we opened the exception 
window for pediatric facilities and noted that the window would close 
in September 27, 2004. We further explained that in the CY 2005 PFS 
final rule with comment period (69 FR 66332), we stated that the 
exception process was opened each time there is a legislative change in 
the composite payment rate or when we open the exception window, 
including our intent to open the pediatric exception windows on an 
annual basis. We also noted that we would provide for the continuation 
of the home training exception, to allow for facilities with home 
training exceptions to retain their current training exception rates as 
well as take advantage of the case-mix adjusted rates for non-training 
dialysis (74 FR 50007).
    In the proposed rule, we indicated that while section 153 of MIPPA 
does not directly address exceptions, section 1881(b)(14) of the Act 
creates an ESRD bundled prospective payment in lieu of payment under 
previous ESRD payment systems, and given that the ESRD PPS no longer 
directly addresses changes in the ESRD composite rate, we believe that 
the exceptions currently in place would no longer apply (74 FR 50007). 
We also noted we addressed the higher costs relating to case-mix 
through the patient characteristic adjustments and outlier payments (74 
FR 49949 and 49987). We proposed the elimination of the isolated 
essential facility, self dialysis training costs, atypical service 
intensity (patient mix) and pediatric facility exceptions, effective 
for ESRD renal dialysis services furnished on or after January 1, 2014 
(at the conclusion of the phase-in). In other words, any existing 
exceptions would terminate effective for ESRD treatment on or after 
January 1, 2014. Additionally, no further exception windows would be 
open effective for ESRD treatment furnished on or after January 1, 
2011, the effective date of the ESRD PPS. In the event that an ESRD 
facility elected to receive full payment under the ESRD PPS for renal 
dialysis services on or after January 1, 2011, any existing exceptions 
would no longer be recognized. In the event that an ESRD facility 
elected to receive payment under the transition period, any existing 
exceptions would be recognized for purposes of the basic case-mix 
adjusted composite payment system portion of the blended payment 
through the transition. We proposed to include the periods of 
exceptions and the elimination of the exceptions to the composite 
payment rates in Sec.  413.180 of the regulations. With respect to 
appeals under Sec.  413.194(b), we pointed out that such appeals apply 
only to exceptions to the composite rate granted before January 1, 2011 
(74 FR 50007).
    We received comments from three children's hospitals and one from 
the American Academy of Pediatrics concerning pediatric exceptions and 
these comments are described below. We did not receive any comments on 
our proposal to eliminate the isolated essential facility, self-
dialysis training costs, and atypical service intensity (patient mix) 
exceptions.
    Comment: One commenter indicated that the proposed pediatric case-
mix adjusters and elimination of the pediatric facility exceptions 
would reduce the costs adjustments needed by many pediatric facilities 
to remain operational. The commenter believed that the proposed 
pediatric case-mix adjusters and the elimination of the pediatric 
exceptions would result in children and adolescents with ESRD not 
having access to specialized dialysis care. Other commenters believed 
that these proposals fail to recognize the uniqueness of pediatric 
facilities that have State mandated higher staff ratios, additional 
staff required such as teachers and child life specialists, and higher 
supply costs associated with treating pediatric ESRD patients.
    Response: We believe that the changes we have made in this final 
rule with regard to the pediatric model address the specific needs of 
pediatric patients and the care that they require. We discuss these 
changes in detail in section II.G. of this final rule. With regard to 
the pediatric exceptions, as we discuss in greater detail below, we 
believe that our proposal to eliminate such exceptions is appropriate 
and warranted under the statute.
    Comment: One commenter indicated that the MIPPA legislation did not 
specifically eliminate the existing pediatric exceptions to the 
composite rate and believes that our interpretation of the MIPPA ``is a 
stretch.''
    Response: We do not agree with the commenter with regard to our 
interpretation of the MIPPA legislation and section 1881 of the Act. As 
we discussed in the proposed rule, we continue to believe that the ESRD 
PPS under section 1881(b)(14) of the Act creates an ESRD prospective 
payment system in lieu of payments under previous ESRD payment systems. 
Given that these exceptions pertain to the prior composite rate payment 
systems under section 1881(b) of the Act, we do not believe that such 
exceptions would carry forward or be appropriate under the ESRD PPS. 
After the ESRD PPS transition, no portion of the ESRD PPS payments will 
be based on the composite rate. As a result, we do not believe it would 
be appropriate to continue composite rate exception payments after 
January 1, 2014. We also believe that we have addressed the higher 
costs of pediatric patients in the final pediatric model discussed in 
detail in section II.G. of this final rule.
    We are finalizing the elimination of the isolated essential 
facility, self-dialysis training costs, atypical service intensity 
(patient mix)and pediatric facility exceptions effective for ESRD renal 
dialysis services furnished on or after January 1, 2014 (at the 
conclusion of the phase-in). We are also finalizing our proposal that 
no further exception windows would be open after January 1, 2011, the 
effective date of the ESRD PPS. In the event that an ESRD facility 
elects to receive full payment under the ESRD PPS for renal dialysis 
services furnished on or after January 1, 2011, existing exceptions 
would no longer be recognized. In the event that an ESRD facility 
elects to receive payment under the transition existing exceptions 
would be recognized for the purpose of the basic case-mix adjusted 
composite payment system portion of the blended payment. We are 
finalizing the inclusion of the periods of exception and the 
elimination of the exceptions to the composite payment rates in Sec.  
413.180 of the regulations. We note that appeals under Sec.  413.194(b) 
apply only to exceptions to the composite rate granted before January 
1, 2011.

[[Page 49179]]

2. Erythropoiesis Stimulating Agent (ESA) Claims Monitoring Policy
    In the proposed rule, we discussed the historic development of the 
ESA Claims Monitoring Policy. We noted that we were evaluating the 
extent to which we could continue the ESA Claims Monitoring Policy for 
renal dialysis services furnished on or after January 1, 2011. 
Specifically, at that time it was not known how the reduction in 
payment that is currently applied to the separately billed ESAs would 
be applied under the proposed ESRD PPS (74 FR 50008).
    In the proposed rule, we noted that we would continue to evaluate 
how to establish eligibility for outlier payments in instances where 
the ESA Claims Monitoring Policy is implicated. CMS is adopting the EMP 
under the ESRD PPS in computing basic case-mix adjusted composite 
payments amounts during the transition and it will be taken into 
account when determining eligibility for outlier payments. We have 
included the comments and responses pertaining to this policy in 
section II.H. of this final rule.
3. ESRD Facility Network Deduction
    In the proposed rule, we indicated that pursuant to section 
1881(b)(7) of the Act, to fund the ESRD Networks, 50 cents is deducted 
from the amount of each payment for each treatment (subject to such 
adjustments as may be required to reflect modes of dialysis other than 
hemodialysis). The reduction amount applies to all treatment 
modalities. We sited the Medicare Claims Processing Manual, Public Law 
100-04, Ch. 8, section 110 for information on the methodology for 
calculating the reduction.
    We proposed to continue this deduction under the ESRD PPS with a 
50-cent reduction per treatment from the payment made to ESRD 
facilities under the ESRD PPS for facilities that elect to receive 
payment under the ESRD PPS. For facilities that elect the ESRD PPS 
transition, we would apply the 50-cent reduction the blended payment 
amount (74 FR 50008).
    We did not receive any comments opposing the continuation of the 
ESRD network deduction. Therefore, we are finalizing that we will 
continue the 50-cent deduction under the ESRD PPS.
4. Bad Debt
    In the proposed rule, we explained that Sec.  413.89 and Chapter 3 
of the Provider Reimbursement Manual, Part 1 (PRM)(CMS Pub. 15-1) set 
forth the general requirements and policies for payment of bad debts 
attributable to unpaid Medicare deductibles and coinsurance amounts. 
Additional requirements for ESRD facilities are set forth at Sec.  
413.178. We further explained that under the basic case-mix adjusted 
composite payment system Medicare pays ESRD facilities 80 percent of a 
prospectively set composite rate for outpatient dialysis services. The 
Medicare beneficiary is responsible for the remaining 20 percent as co-
insurance, as well as any applicable deductible amounts as set forth in 
Sec.  413.176 of the regulations. If the ESRD facility makes reasonable 
collection efforts, as described in section 310 of the PRM, but is 
unable to collect the deductible or coinsurance amounts for items or 
services associated with the composite rate, we consider the 
uncollected amount to be a ``bad debt'', if the facility meets the 
requirements at proposed Sec.  413.178 and proposed Sec.  413.89 of the 
regulations. We also explained that at the end of the ESRD facility 
cost reporting period, Medicare recognizes a facility's Medicare bad 
debts. However, Sec.  413.178(a) requires CMS to reimburse ESRD 
facilities for its allowable bad debt up to the facility's costs as 
determined under Medicare principles (74 FR 50008).
    We explained in the proposed rule that in developing the proposed 
changes to the ESRD payment system, section 153(a)(4) of MIPPA states, 
as a Rule of Construction, that, ``nothing in this subsection or the 
amendments made by this subsection shall be construed as authorizing or 
requiring the Secretary of Health and Human Services to make payments 
under the payment system implemented under paragraph (14)(A)(i) of 
section 1881(b) of the Social Security Act (42 U.S.C. 1395rr(b)), as 
added by paragraph (1), for any unrecovered amount for any bad debt 
attributable to deductible and coinsurance on items and services not 
included in the basic case-mix adjusted composite rate under paragraph 
(12) of such section as in effect before the date of the enactment of 
this Act.'' Therefore, we stated that bad debt payments would continue 
to be made for the unpaid Medicare deductibles and coinsurance amounts 
for only those items and services associated with the basic case-mix 
adjusted composite rate. However, since the proposed single ESRD 
payment rate is for items and services included in the composite rate 
and for drugs and laboratory tests, we proposed to use only the 
composite rate portion of the proposed single ESRD payment rate to 
determine bad debt payments. We also proposed that bad debt payments 
for ESRD facilities would continue to be capped as required under Sec.  
413.178(a). We also indicated that the Medicare cost report and 
instructions in the PRM, Part 2 (CMS Pub. 15-2) might be revised to 
report the case mix adjusted composite rate payment and associated cost 
data necessary to compute the ESRD facility bad debt payments.
    In addition, we proposed to make a conforming change to regulation 
text at Sec.  413.178(d) regarding ESRD bad debt payment under the 
proposed ESRD payment system and include a cross-reference to Sec.  
413.178 in Sec.  413.89(h) and (i).
    We received several comments on bad debt. The comments and our 
responses are set forth below.
    Comment: One commenter questioned how dialysis-related bad debts 
would be determined under the ESRD PPS. The commenter also questioned 
if unreimbursed co-payments for laboratory services and Part D drugs 
would be reimbursed. The same commenter believes that if these services 
are in the bundle, then they should be included in the bad debt 
reimbursement and if they are not, then this would result in a 
financial burden for providers.
    Response: As we discussed above, section 153(a)(4) of MIPPA states, 
as a Rule of Construction, that, ``nothing in this subsection or the 
amendments made by this subsection shall be construed as authorizing or 
requiring the Secretary of Health and Human Services to make payments 
under the payment system implemented under paragraph (14)(A)(i) of 
section 1881(b) of the Social Security Act (42 U.S.C. 1395rr(b)), as 
added by paragraph (1), for any unrecovered amount for any bad debt 
attributable to deductible and co-insurance on items and services not 
included in the basic case-mix adjusted composite rate under paragraph 
(12) of such section as in effect before the date of the enactment of 
this Act.'' Therefore, we stated that bad debt payments would continue 
to be made for the unpaid Medicare deductibles and co-insurance amounts 
for only those items and services associated with the basic case-mix 
adjusted composite rate. However, since the single ESRD payment rate is 
for items and services included in the composite rate and for drugs and 
laboratory tests, we would use only the composite rate portion of the 
single ESRD payment rate to determine bad debt payments. As oral drugs 
were not included in basic case-mix adjusted composite rate, they would 
not be subject to bad debt reimbursement.
    In order to determine bad debt amounts for only the basic case-mix 
adjusted composite rate portion of the

[[Page 49180]]

bundled ESRD PPS payment, we will utilize data from the Medicare ESRD 
cost report to determine the percentage of basic composite rate costs 
to total costs on a facility-specific basis. The current ESRD cost 
report Form CMS 265-94 for freestanding facilities and Form CMS 2552-96 
for hospital-based facilities, contain data that can be used to compute 
a facility's percentage of composite costs to total costs. We will 
apply that facility-specific composite rate percentage to the 
facility's total bad debt amount associated with the bundled ESRD PPS 
payment. The resulting bad debt amount will be used to determine the 
allowable Medicare bad debt payment in accordance with Sec.  413.89 and 
Sec.  413.178. During the transition period, a facility will apply the 
facility-specific composite cost percentage to the bad debt amounts 
associated with only the transition composite rate portion of the 
bundled ESRD PPS payment. The resulting bad debt amount will be added 
to the bad debt amount associated with the transition portion of the 
facility's ESRD reasonable costs to determine the total allowable 
Medicare bad debt payment in accordance with Sec.  413.89 and Sec.  
413.178.
    Comment: One commenter believed that section 153(a)(4) of MIPPA is 
silent with regard to bad debt reimbursement for ESRD services and that 
the statute does not imply that bad debts for non-composite rate 
related services should or should not be covered. The commenter further 
believed that under the ESRD PPS, ESRD bad debts should be reported in 
the same manner as bad debts for other outpatient PPS services.
    Response: We believe that the Rule of Construction included in 
section 153(a)(4) of MIPPA, as stated above, would allow for the 
payment of bad debt amounts that are only associated with the basic 
case-mix adjusted composite rate. Thus, any bad debt amounts associated 
with drug and laboratory tests or with any non-composite rate amounts 
will not be allowed. We also note that under Sec.  413.89(i) and Sec.  
413.178(d), bad debts arising from covered services paid under a 
reasonable charge-based methodology, or a fee schedule are not 
reimbursable under Medicare. Thus, if a Medicare PPS or a portion of a 
Medicare PPS has its basis in reasonable charges or a fee schedule 
then, any associated bad debt amounts are not reimbursable.
    Comment: One commenter believed that certain proposals, 
specifically the inclusion of laboratory services in the co-insurance 
calculation, contravenes the MIPPA statute which, prohibits opening the 
bad debt issue and increases bad debt costs for ESRD facilities. The 
commenter further suggested that until oral drugs are accurately 
accounted for, they should not be in the bundle, to ensure that 
additional bad debt is not imposed on facilities. The commenter 
recommended that CMS use caution until meaningful tracking and 
compliance tools for States, secondary insurers, and beneficiaries be 
in place. The commenter also recommended that ESRD facilities not be 
left with additional bad debt resulting from a new payment system.
    Response: We believe that the method described above of applying a 
facility-specific composite rate percentage to the bad debt amounts 
associated with the ESRD PPS allows us to compute a facility's 
allowable bad debt payments in accordance with the Rule of Construction 
included in section 153(a)(4) of MIPPA.
    Comment: One commenter noted that it was burdensome to require 
hospitals to calculate bad debt under a composite rate definition that 
will no longer exist. The commenter urged CMS to have this policy 
modified to relate bad debt payments to the new payment system.
    Response: We believe that utilizing data that are already reported 
on the facility's current Medicare cost report to compute the allowable 
bad debt payment under the ESRD PPS, will mitigate the reporting burden 
to the provider. ESRD facilities will be required to continue to 
complete the appropriate cost report worksheets with the data necessary 
to compute the composite cost percentage and compute the allowable bad 
debt payment under the ESRD PPS.
    Based on the comments received, we are finalizing that bad debt 
payments will continue to be made for the unpaid Medicare deductibles 
and coinsurance amounts for only those items and services associated 
with the basic case-mix adjusted composite rate. However, since the 
single ESRD payment rate is for items and services included in the 
composite rate and for drugs and laboratory tests, we will use only the 
bad debt amounts associated with the composite rate portion of the 
single ESRD payment rate to determine a facility's allowable bad debt 
payments. We will use the methodology described above to apply a 
facility-specific composite cost percentage to the total bad debt 
amount associated with the bundled ESRD PPS payment to compute the bad 
debt amount for only the basic case-mix adjusted composite rate. Bad 
debt payments for ESRD facilities will continue to be made in 
accordance with Sec.  413.89 and Sec.  413.178 of the regulations, 
including the requirement to cap ESRD bad debt payments under Sec.  
413.178(a). We will revise and publish the appropriate cost reporting 
worksheets and instructions in the PRM, Part 2 (CMS Pub. 15-2) along 
with any other necessary administrative issuances, to implement the 
computation of Medicare ESRD bad debt payments through to the cost 
report, as described above, for services rendered on or after January 
1, 2011.
    In addition, we are finalizing the conforming change to regulation 
text at Sec.  413.178(d) regarding ESRD bad debt payment made under the 
ESRD payment system described in this final rule. We are also including 
a cross-reference to Sec.  413.178 in Sec.  413.89(h). In the proposed 
rule, we erroneously indicated that we were proposing to add a cross-
reference in Sec.  413.89(i). However, we did not make any proposed 
revisions to Sec.  413.89(i). Therefore, for this final rule, we are 
not revising Sec.  413.89(i).
5. Limitation on Review
    As discussed in the proposed rule, section 153(b) of MIPPA amends 
section 1881(b) of the Act to provide for a limitation on review. 
Specifically, section 1881(b)(14)(G) of the Act provides the following: 
``There shall be no administrative or judicial review under section 
1869 of the Act, section 1878 of the Act or otherwise of the 
determination of payment amounts under [section 1881(b)(14)(A)], the 
establishment of an appropriate unit of payment under [section 
1881(b)(14)(C)], the identification of renal dialysis services included 
in the bundled payment, the adjustments under [section 1881(B)(14)(D)], 
the application of the phase-in under [section 1881(b)(14)(E)], and the 
establishment of the market basket percentage increase factors under 
[section 1881(b)(14)(F)].'' We proposed to codify this limitation on 
review in Sec.  413.195 of the regulations (74 FR 50008).
    We received several comments concerning the limitation on review. 
The comments and responses are set forth below.
    Comment: Given the limitation of review clause, one commenter was 
concerned that it would impose a limit on payment for dialysis services 
of three treatments per week. The commenter believed that payment 
should be given for any treatments beyond the three treatments per week 
without requiring medical justification.
    Response: The limitation of review clause would prohibit review of 
our determination of the number of treatments that would be eligible 
for payment. We explain how the number of ESRD treatments eligible for 
Medicare

[[Page 49181]]

payment (that is, three treatments per week), was derived in section 
II.E. of this final rule. We do not agree that we should abolish the 
medical justification requirement for treatments that exceed the 
threshold because this process provides a mechanism to allow additional 
payment beyond the established treatment threshold.
    Comment: Several commenters requested we issue an ESRD PPS interim 
final rule to allow for additional comments or to challenge payments 
for Part D drugs, because the limitation on review would not allow for 
administrative or judicial review of the final rule.
    Response: Given that we have issued a proposed rule containing a 
detailed proposal for an ESRD PPS, allowed for an extended 90-day 
public comment period, and carefully considered the comments received, 
we believe that a final rule is appropriate. The ESRD PPS bundle is 
discussed in section II.A. of this final rule and we note that oral-
only drugs currently covered under Part D will not be paid under the 
ESRD PPS until January 1, 2014.
    As we proposed, we are codifying the limitation on review in Sec.  
413.195 of the regulations. However, we have revised the language to 
reflect that the market basket update could result in a negative 
update. Therefore, we replaced reference to the market basket 
percentage increase with the market basket update factors.
6. 50 Percent Rule Utilized in Laboratory Payments
    In the proposed rule (74 FR 50008), we discussed that as specified 
in CMS Pub 100-04, Chapter 16, Sect. 40.6, for a particular date of 
service to a beneficiary, if 50 percent or more of the covered 
laboratory tests within an Automated Multi-Channel Chemistry (AMCC) 
test are included under the composite rate payment, then all submitted 
tests are included within the composite payment and no separate payment 
is made for any of the AMCC tests. If less than 50 percent of the 
covered laboratory tests within the AMCC are composite rate tests, then 
all AMCC tests submitted are separately payable. We also described how 
ESRD facilities were to identify each test that is included in the 
composite rate and each test that is not included. We further explained 
that during the transition period, the 50 percent rule would continue 
to apply to the basic case mix adjusted composite payment system 
portion of the blended payment. We also stated that under the proposed 
consolidated billing provisions, the ESRD facility would assume the 
responsibility for all of the renal dialysis services that its patients 
receive, including laboratory tests. As a result, the ESRD facilities 
would apply the 50 percent rule billing procedures including 
application of the relevant modifiers. Medicare would not make separate 
payment for laboratory tests, rendering the 50 percent rule irrelevant 
for payment purposes. The 50 percent rule's relevance would be limited 
to its use in determining eligibility for outlier payment (74 FR 
50008).
    In the proposed rule, we noted that preliminary analyses revealed a 
small impact upon removing from eligibility for outlier services the 
AMCC tests to which the 50 percent rule applies. As a result, we 
considered excluding AAMC tests from the definition of outlier 
services, thus negating the need to apply the 50 percent rule under the 
proposed ESRD PPS (74 FR 50009). We also noted that we planned to 
continue to evaluate the impact of this approach and include further 
discussion in the final rule. We requested public comments on whether 
or not to include the AMCC tests in the definition of outlier services 
and retain the 50 percent rule under the proposed ESRD PPS.
    Because we are finalizing the use of the 50 percent rule with 
regard to determining eligibility for outlier payments, we have 
included our discussion of this issue, along with the comments and 
responses that we received pertaining to the 50 percent rule, in 
section II.H. of this final rule.
7. Medicare as a Secondary Payer
    In the proposed rule, we stated that Medicare may be a secondary 
payer (MSP) when the primary payer is a group health plan for ESRD 
items and services furnished to Medicare beneficiaries during the 30-
month Medicare coordination of benefit period (74 FR 50009). We further 
stated that at that time, we were unable to identify the systems 
operations and billing procedures impact of this relationship under the 
current basic case-mix adjusted composite payment system, and we were 
exploring how it would be utilized and managed under the proposed ESRD 
PPS. We stated that we believed that while there may need to be system 
changes in order to process MSP claims under the proposed ESRD PPS, 
there should be no impact on ESRD providers and on primary payers. We 
stated our intent to issue through administrative issuance, any changes 
in the manner of reporting information, should that be required. We 
solicited public comments on the operational issues of MSP under the 
proposed ESRD PPS.
    We received a few comments on MSP. The comments and our responses 
are set forth below.
    Comment: One commenter questioned what would prevent his secondary 
payer from dropping him or increasing his premiums. Another commenter 
suggested changing the MSP period for employed, child-rearing, in-
school, or under 25 years of age dialysis patients from 30 months to a 
continuous period.
    Response: Questions concerning premiums or other issues pertaining 
to secondary insurers are beyond the scope of this final rule. In 
addition, recommendations concerning changes to the coordination of 
benefits period are beyond the scope of this final rule.
    We believe that the implementation of the ESRD PPS will have no 
effect on MSP rules. We will continue to evaluate the need for changes 
to MSP systems, operations and billing procedures under the ESRD PPS 
and we will issue through administrative issuance any changes in the 
manner of reporting information should that be required.
8. Conforming Regulation Changes
    We proposed to amend 42 CFR Chapter IV. Specifically, we proposed 
conforming changes to existing regulations to reflect the current basic 
case-mix adjusted composite payment system and the ESRD PPS. We did not 
receive any public comment on these changes. Therefore, we are 
finalizing these conforming changes, along with the technical changes 
noted in the final rule, as follows:
     Section 413.170(a)--setting forth the principles and 
authorities under which CMS is authorized to establish a prospective 
payment system;
     Section 413.170(b)--providing procedures and criteria 
under which a facility may receive a pediatric exception;
     Section 413.171--defining base rate, composite payment 
system, basic case-mix adjusted composite payment system, ESRD 
facility;
     Section 413.172(a)--setting forth that payment for renal 
dialysis services and home dialysis services are based on prospective 
payment rates:
     Section 413.172(b)--requiring that all prospective 
payments to approved ESRD facilities as payment in full and defines 
approved ESRD facility;
     Section 413.174(a)--establishing prospective payment rates 
for hospital-based and independent ESRD facilities prior to January 1, 
2009;
     Section 413.174(f)--establishing payment for separately 
billable ESRD-related drugs and biological prior to January 1, 2011;

[[Page 49182]]

     Section 413.176(a) and (b)--establishing the beneficiary 
deductable;
     Section 413.178(d)--establishing bad debt under reasonable 
charge-based methodology or fee schedule are not reimbursable;
     Section 413.180(1),(2), and (3)--establishing the periods 
of exceptions to payment rates;
     Section 413.231(a)--establishing the adjusted labor 
portion of the base rate to account for geographic differences in area 
wage levels;
     Section 413.231(b)--defining urban and rural areas;
     Section 414.330(a)(2)--establishing exception for 
equipment and supplies furnished prior to January 1, 2011;
     Section 414.330(b)(2)--establishing exception for home 
support services furnished prior to January 1, 2011;
     Section 414.330(c)--establishing payment limits for 
support services, equipment and supplies furnished prior to January 1, 
2011; and
     Section 414.335(a)--establishing payment home EPO use 
prior to January 1, 2011.

M. Anemia Management and Dialysis Adequacy Measures

    In the September 29, 2009 proposed rule (74 FR 50009), we proposed 
to adopt three measures by which the quality of dialysis services 
furnished by ESRD providers participating in Medicare would be 
measured.
    Section 1881(h)(2)(A) of the Act requires that the measures 
specified for the Quality Incentive Program (QIP) include measures on 
anemia management that reflect the labeling approved by the Food and 
Drug Administration (FDA) for such management, measures on dialysis 
adequacy, and such other measures the Secretary specifies. To implement 
this section, we proposed (74 FR 50011) that for the first QIP 
performance period we would adopt the two anemia management measures 
and one hemodialysis adequacy measure that are currently used for 
Dialysis Facility Compare (DFC). Data needed to calculate these 
measures can be collected from Medicare claims submitted by ESRD 
providers/facilities on a patient-specific basis.
    The anemia management measures used for DFC assess the percentage 
of patients at a facility whose anemia was not controlled at both the 
high and low ends of the FDA-recommended hemoglobin levels. 
Specifically, these measures are: (1) The percentage of patients 
treated at a provider/facility with a Hemoglobin Less Than 10 g/dL and 
treated with erythropoiesis stimulating agents (ESAs), and (2) the 
percentage of patients at a provider/facility with a Hemoglobin Greater 
Than 12 g/dL and treated with erythropoiesis stimulating agents (ESAs).
    The current FDA labeling guideline released November 8, 2007 for 
the administration of ESAs to patients with chronic kidney disease, 
including ESRD patients, states, ``The dosing recommendations for 
anemic patients with chronic renal failure have been revised to 
recommend maintaining hemoglobin levels within 10 g/dL to 12 g/dL.''
    As we stated in the proposed rule (74 FR 50011), we believe that 
the proposed anemia management measures reflect the approved FDA 
labeling for anemia management because they assess the number of 
patients whose hemoglobin levels are at the low and high end of the FDA 
label recommendation. In addition, we believe that it is more 
appropriate to adopt two measures which together assess the high and 
low ends of the FDA recommended hemoglobin level range, rather than a 
single measure that reflects the percentage of patients who have 
hemoglobin levels within the 10 through 12 g/dL range, because two 
measures will provide a richer picture of provider/facility 
performance. Additionally, the low and high ends for anemia management 
have been of particular concern for the treatment of vulnerable 
patients and these measures will allow for monitoring for this 
potential outcome. These data will also allow us to calculate the 
percentage of patients who have hemoglobin levels within the 10 through 
12 g/dL range. Therefore, we proposed to adopt these two anemia 
management measures for the QIP (74 FR 50011).
    Anemia data have been reported on DFC since January 2001. As we 
noted above, we updated the reporting of anemia data for DFC in 
November of 2008 to be consistent with the new FDA labeling guideline 
released in November 2007; however, the methodology for calculating the 
provider/facility, State, and national averages for anemia measures has 
not changed since the initial release of DFC. We proposed to use the 
same methodology we use to calculate the anemia management measures for 
purposes of DFC to calculate the measures for purposes of the QIP 
because the methodology is consistent with how we have calculated that 
data since 2001 (74 FR 50011). Under this methodology, we will 
calculate the measures using hemoglobin data for Medicare patients who 
have been diagnosed with ESRD for at least 90 days and whose Medicare 
claims submitted by providers/facilities indicated the use of an ESA 
during that 90-day period. Data from patients whose first ESRD 
maintenance dialysis starts before day 90 or who have hemoglobin values 
of less than 5 g/dL or greater than 20 g/dL will be excluded from the 
measure calculation. In addition, there must be for the same patient at 
least 4 claims meeting this criteria for that data to be included in 
the data for a specific provider or facility.
    Technical details on the methodology used to calculate the anemia 
measures are available on the Arbor Research Collaborative for Health 
and University of Michigan Kidney Epidemiology and Cost Center Web 
site: http://www.dialysisreports.org/Methodology.aspx.
    The Hemodialysis Adequacy Measure (urea reduction ratio (URR)) that 
we proposed to adopt (74 FR 50011) is also used for DFC and assesses 
the percentage of patients at a provider or facility that get their 
blood cleaned adequately (blood urea is removed during in-center 
hemodialysis). Specifically, this measure assesses the percentage of 
in-center hemodialysis patients at a provider or facility whose urea 
reduction ratio (URR) is 65 percent or greater, a standard based on the 
National Kidney Foundation's Kidney Disease Quality Initiative Clinical 
Practice Guidelines (NKF-KDOQI). These guidelines are widely used and 
generally accepted throughout the ESRD community. More information on 
the calculation of the URR is available at http://www.dialysisreports.org/Methodology.aspx.
    The methodology for calculating the provider/facility, State, and 
national averages for the in-center hemodialysis measure has been used 
since January 2001 with the initial release of DFC; we proposed to use 
the same methodology to calculate the measure for purposes of the QIP 
to be consistent with how that data has been calculated since 2001 (74 
FR 50012). Under this methodology, we will calculate URR data only for 
Medicare patients who have been diagnosed with ESRD and received in-
center maintenance hemodialysis for at least 183 days from the date 
that they received their first maintenance dialysis treatment, and 
whose Medicare claims submitted by providers/facilities included a 
value for the URR. In addition, there must be for the same patient at 
least four claims meeting the criteria above for that data to be 
included in the data for a specific provider or facility. Technical 
details about the methodology we proposed to use to calculate the 
hemodialysis adequacy measure are available on the University of 
Michigan Kidney Epidemiology and Cost Center Web site

[[Page 49183]]

at: http://www.dialysisreports.org/Methodology.aspx. We note that the 
data we need to calculate the proposed anemia management and 
hemodialysis adequacy measures described above can be collected through 
ESRD claims, which is the only complete provider/facility level data 
set available to CMS at this time. For this reason in the September 29, 
2009 proposed rule published in the Federal Register (74 FR 50012), we 
proposed to adopt only the two anemia management measures and one 
dialysis adequacy measure described above.
    Although we recognize that section 1881(h)(2)(A)(i)(ii) states that 
the measures shall include ``measures on dialysis adequacy,'' only one 
dialysis adequacy measure is collected nationally and available to 
determine provider/facility-specific values. For this reason, we 
proposed to adopt only one dialysis adequacy measure. We also note that 
section 1881(h)(2)(A)(iii) of the Act states that the measures shall 
include, to the extent feasible, other measures as the Secretary 
specifies, including measures on iron management, bone mineral 
metabolism, and vascular access (intended to maximize the placement of 
arterial venous fistula). CMS did not propose in the September 29, 2009 
proposed rule, to adopt any measures in these categories for the QIP 
payment consequence year 2012 since we are not currently collecting 
data in a manner that would allow determination of provider/facility-
specific performance with respect to these categories of measures (74 
FR 50012). We are working to identify appropriate sources from which we 
can adequately capture data to support the future adoption of 
additional measures. Finally, as we stated in the ESRD PPS proposed 
rule (74 FR 50012), it is not feasible to propose a patient 
satisfaction measure at this time because the data collection tool has 
not been fully validated for the collection of relevant and industry 
accepted patient satisfaction data. Therefore, we believe it is not 
feasible to propose more than the aforementioned measures for the QIP 
payment consequence year 2012 because of the lack of complete and 
accurate data. We will address other measures in future rulemaking.
    In the September 29, 2009 proposed rule (74 FR 50012 through 
50016), we also outlined a conceptual model describing various 
components of the QIP under consideration, such as the weighting of 
measures and scoring methodology for determining payment reductions. 
The purpose of the conceptual model was to notify the public regarding 
what we believe to be essential components of the QIP and obtain 
detailed comments on those components for purposes of future 
rulemaking. Our previous discussion of the measures and the conceptual 
model may be found in the ESRD PPS proposed rule (74 FR 50009).
    We received approximately 194 comments on the proposed measures. 
Many commenters agreed that we should adopt the three proposed 
measures, although many also suggested that additional measures be 
included in the ESRD QIP to ensure a robust measurement of the quality 
of services furnished by dialysis providers/facilities. Commenters also 
noted the importance of including measures for pediatric, peritoneal 
and home hemodialysis patients to assure that quality care is provided 
to these populations.
    In response to public comments received about the inclusion of 
younger patients, we have decided that patients < 18 years of age will 
not be included in the final calculation of the anemia measures because 
at this time there is no consensus on the appropriate hemoglobin range 
for this age group. Further, using this exception makes these measures 
more consistent with the target age used in the clinical performance 
measures (CPMs) which have been used by providers/facilities for 
several years. Therefore, we will use the same methodology for data 
collection and analysis as used for calculation of the anemia measures 
reported to the DFC with the exception of not including patients < 18 
years of age in the final calculation of provider/facility performance 
on the measures.
    In response to a number of public comments received on these 
measures and in recognition of a number of concerns related to the 
exclusion of home hemodialysis patient data from the Hemodialysis 
Adequacy measure, we are clarifying that home hemodialysis patient data 
will be included in the calculation of the anemia management measures. 
Home hemodialysis patients have been included in the anemia management 
measures currently reported; however, there are different frequencies 
of treatment for the Home Hemodialysis population that makes the 
currently accepted measure of Hemodialysis Adequacy of a URR Greater 
than 65 percent invalid at this time. CMS is currently working with 
stakeholders to establish a measurement of the adequacy of a 
hemodialysis treatment that is accurate for this population. This is 
CMS' basis for excluding this population from the initial year of the 
QIP. Below we provide a brief summary of each measure proposed, a 
summary of the public comments received, and our responses to the 
comments.
    We also received comments on the weighting and scoring of measures 
and the setting of the national performance standard described in the 
conceptual model. Comments received on components of the conceptual 
model not related to these measures will not be addressed in this rule. 
As stated in the proposed rule, we intend to use these comments to 
inform future rulemaking.
1. Anemia Management Measures: Hemoglobin Less Than 10 g/dL and 
Hemoglobin Greater Than 12 g/dL
    As stated above, we proposed to use the anemia management measures 
as used in the current DFC database since January 2001 and as required 
by section 1881(h)(2)(A)(i) of the Act. The anemia management measures 
proposed for the QIP include two measures on anemia management that 
reflect the labeling approved by the FDA for such management (74 FR 
50011). Data for these measures can be collected from Medicare claims 
currently submitted by ESRD providers/facilities as required in the 
initial year. The anemia measures that were proposed are as follows:
     Percentage of Medicare patients at a provider/facility who 
have an average hemoglobin value less than 10.0 g/dL (referred to in 
this final rule as the ``Hemoglobin Less Than 10 g/dL'').
     Percentage of Medicare patients at a provider/facility who 
have an average hemoglobin value greater than 12.0 g/dL (referred to in 
this final rule as the ``Hemoglobin Greater Than 12 g/dL'').
    We proposed to calculate these measures using hemoglobin data for 
Medicare patients who have been diagnosed with ESRD for at least 90 
days and whose Medicare claims submitted by providers/facilities 
indicated the use of an ESA during that 90-day period. Data from 
patients whose first ESRD maintenance dialysis starts before day 90 or 
who have hemoglobin values of less than 5 g/dL or greater than 20 g/dL 
will be excluded from the measure calculation. In addition, there must 
be, for the same patient, at least 4 claims meeting this criteria for 
that data to be included in the data for a specific provider or 
facility. However, as described, ESRD patients less than 18 years of 
age will not be included in the measure calculation. (Technical details 
on the methodology we proposed to use to calculate the anemia measures 
are available on the Arbor Research Collaborative for Health and 
University of Michigan Kidney Epidemiology and Cost Center Web site: 
http://

[[Page 49184]]

www.dialysisreports.org/Methodology.aspx.)
    Comment: A few commenters voiced concern about the lack of measures 
specific to home hemodialysis. Because this modality is being advanced 
within the ESRD community and Medicare, commenters wished to ensure 
that measures for this patient population are incorporated in the QIP.
    Response: We agree that inclusion of home dialysis modalities (that 
is, home hemodialysis and peritoneal dialysis) data is important to 
ensure providers/facilities are incentivized to include these 
populations in quality improvement efforts. To that end, home 
hemodialysis patient data will be used to calculate provider/facility 
scores on the anemia management measures in the QIP payment consequence 
year 2012. However, due to the varying frequencies of treatments for 
the home hemodialysis population the use of the currently accepted 
measure of Hemodialysis Adequacy of a URR greater than 65 percent is 
invalid at this time. For this reason we will not include home 
hemodialysis patient data in the calculation of the Hemodialysis 
Adequacy measure at this time. We are currently working with 
stakeholders to establish a measurement of the adequacy of a 
hemodialysis treatment that is accurate for this population. Beyond 
anemia management and dialysis adequacy, we are continuing to work with 
the ESRD stakeholders to develop new quality measures for use in future 
years of the QIP that are applicable, relevant, and provide a means to 
assess the quality of care that is being delivered to the home 
hemodialysis population.
    Comment: Some commenters questioned the value of the Hemoglobin 
Greater Than 12 g/dL measure because they believe that the bundled 
payment should reduce the incidence of overutilization of 
erythropoiesis stimulating agents (ESAs). The commenters also stated 
that the percentage of patients with hemoglobin in the range of >10 g/
dL and <12 g/dL would be a more effective measure for the QIP.
    Response: Hemoglobin values at either end of the spectrum have 
adverse consequences for the ESRD patient population. We believe that 
focusing on the population that falls within the range of 10-12 g/dL 
will not provide the necessary information to evaluate the percentage 
of patients whose anemia is either inadequately treated or overtreated.
    A Hemoglobin Less Than 10 g/dL may be the result of inadequate 
administration of ESAs, inadequate iron stores, blood loss 
(gastrointestinal bleeding), an infectious process, or other clinically 
significant causes. Hemoglobin Less Than 10 g/dL can result in poor 
oxygenation, decreased activity, increased hospitalizations, need for 
blood transfusions, and death. We believe that the threat of such 
adverse consequences should prompt ESRD facilities to take steps to 
increase patients' average Hemoglobin to greater than 10 g/dL.
    On the other hand, a Hemoglobin Greater Than 12 g/dL may result 
from the overtreatment of anemia with ESAs. A Hemoglobin Greater Than 
12 g/dL while a patient is being treated with ESAs has been associated 
with an increased incidence of death in the ESRD population.
    By focusing solely on the percentage of patients that fall between 
10-12 g/dL, we believe that important clinical indicators of inadequate 
or overaggressive treatment of anemia would be lost. A summary of 
evidence regarding the importance of these measures may be accessed at: 
http://www.cms.gov/CPMProject/Downloads/ESRDAnemiaSummary05212008.pdf.
    Comment: Two commenters noted that patients who are active or 
younger may have higher average hemoglobin levels because higher 
hemoglobin supports their energy levels. Using the Hemoglobin Less Than 
10 g/dL and Hemoglobin Greater Than 12 g/dL for the first QIP 
performance period, according to the commenters, will force dialysis 
centers to prescribe less erythropoietin and maintain these patients' 
average hemoglobin levels closer to 10 g/dL, thereby reducing these 
patients' ability to continue working and greatly affecting their 
quality of life. Another commenter stated that patients who live at 
high altitudes may have higher average hemoglobin levels which should 
be accounted for in the QIP.
    Response: Section 1881(h)(2)(A)(i) of the Act requires that the 
measures on anemia management specified for the QIP reflect the 
labeling approved by the Food and Drug Administration (FDA) for such 
management. The current FDA guidance may be found at: http://www.fda.gov/Drugs/DrugSafety/PostmarketDrugSafetyInformationforPatientsandProviders/ucm126481.htm.
    We also note that due to the lack of scientific evidence indicating 
that anemia management for the pediatric population should be the same 
as the adult population, we do not believe it is appropriate to include 
the ESRD population under the age of 18 years in the final calculation 
of the two anemia management measures (Hemoglobin Less Than 10 g/dL and 
Hemoglobin More Than 12 g/dL) that we are finalizing for the QIP 
payment consequence year 2012. However, the data collection and measure 
calculation will remain consistent with that used for the DFC since 
2001 as described in the current methodology at: http://www.dialysisreports.org/Methodology.aspx.
    Lastly, guidelines for the administration of ESAs, along with dose 
adjustments are included along with the ESA packaging that is approved 
by the FDA. Dose adjustments are made at the discretion of the 
clinician, based on the needs of the individual patient in order to 
achieve the desired hemoglobin. This rationale is equally applicable to 
the population that lives at higher altitudes mentioned by the other 
commenter and is reported in Brookhard M.A., et al. Journal of American 
Society of Nephrology 19(7): 1389. 2008. In considering the commenters 
concerns for patients living in high altitude areas, we have 
determined, based on clinical studies, that while patients living at 
high altitudes may require less or lower doses of ESA to maintain 
hemoglobin levels at the appropriate level, they should not be excluded 
from the measure.
    Comment: One commenter recommended that patients not on ESAs be 
excluded from the Hemoglobin Greater Than 12 g/dL.
    Response: Patients who are not receiving ESAs are excluded from the 
Hemoglobin Greater Than 12 g/dL measure. The purpose of this measure is 
to monitor high hemoglobin that may be directly attributed to the use 
(possible overutilization) of ESAs and not attributed to other causes. 
Therefore, patients not receiving ESAs are excluded from Hemoglobin 
Greater Than 12 g/dL. Specifications for this measure may be found at: 
http://www.dialysisreports.org/Methodology.aspx.
    Comment: Two commenters had a concern about the specifications for 
the anemia management measures, particularly the time window for 
measurement. One of the commenters had concerns about the proposal to 
use the DFC specifications for the Hemoglobin Less Than 10 g/dL 
because, under those specifications, we calculate a yearly average for 
the hemoglobin level. The commenter recommended that CMS calculate a 3-
month average and then average these 3-month averages over a 12-month 
period (for example, create a 12-month average using 4 averaged patient 
quarters). The other commenter believed that the use of 12-month 
averaging to calculate the anemia management measures would

[[Page 49185]]

decrease the public's ability to separate good performers from poor 
performers. According to this commenter, when 12-month averages are 
used, clinical performance in most providers/facilities approximates 
the national average for performance on the anemia management measures. 
The commenter recommended that for purposes of the QIP, we calculate a 
3-month average based on a monthly assessment of lab results.
    Response: We proposed to calculate the proposed anemia management 
measures using the same specifications that we currently use for DFC 
because the methodology is consistent with how we have calculated those 
measures since 2001. Details and an explanation for the use of and 
planned continued use of the existing calculation used for the 
calculation of the anemia percentages are available on the following 
Web site: http://www.dialysisreports.org/Methodology.aspx.
    We believe that using the specifications currently in use for these 
measures will create minimal data collection disruptions for providers/
facilities because they are already submitting data in accordance with 
these specifications. However, as we review the data from the initial 
year of the ESRD QIP, we will use findings from this data review to 
determine whether or not specifications for this measure should be 
changed. We believe we have the authority to update specifications of 
quality measures in appropriate cases, such as when selected 
specifications do not result in useful or accurate information in 
comparing ESRD providers/facilities. However, we will use the 
rulemaking process to adopt any changes to measures or new measures 
into the QIP.
    After consideration of the comments received on the Anemia 
Management Measures and for the reasons stated above, we are finalizing 
the two anemia measures (Hemoglobin Less Than 10 g/dL and Hemoglobin 
More Than 12 g/dL) as proposed for the QIP payment consequence year 
2012 with one change to these measures. As noted above, patients < 18 
years of age will not be included in the final measure calculation of 
the two anemia measures because of lack of scientific evidence to 
support the appropriate hemoglobin range for this population and 
concerns voiced through public comment. Further, excluding the 
population less than 18 years of age is consistent with the target age 
for the Anemia Management CPMs in current use. However, we are 
finalizing the data collection process and calculation of the facility 
level measures consistent with what has been used for the DFC since 
2001. Once testing of data collection for additional measures is 
completed and such measures prove to be feasible and reliable measures, 
we will consider adding those measures in future years of the QIP.
2. Hemodialysis Adequacy Measure: Urea Reduction Ratio (URR)
    The Hemodialysis Adequacy Measure--Urea Reduction Ratio (URR)--is a 
nationally reported measure used in the DFC database since January 2001 
and can be calculated from claims data currently submitted by ESRD 
providers/facilities. The hemodialysis adequacy measure that we 
proposed to adopt (74 FR 50011) is the percent of hemodialysis patients 
with URR = 65 percent (referred to in this final rule as the 
``Hemodialysis Adequacy Measure''). We proposed to calculate URR data 
only for Medicare patients who have been diagnosed with ESRD and 
received maintenance dialysis for at least 183 days from the date that 
they received their first maintenance dialysis treatment, and whose 
Medicare claims submitted by providers/facilities included a value for 
the URR. In addition, there must be for the same patient at least 4 
claims meeting the criteria above for that data to be included in the 
data for a specific provider or facility. In the proposed rule (74 FR 
50013), we proposed that this measure would only apply to facility-
based hemodialysis and patients > 18 years of age. As we explain in 
detail below, peritoneal and home hemodialysis patients will not be 
included in this measure because, based on the clinical evidence, we 
have determined that the existing Hemodialysis Adequacy Measure of 
(URR) > 65 percent is not applicable to these patients.
    Comment: Several commenters stated that the Hemodialysis Adequacy 
Measure is not an accurate measure of dialysis adequacy and that the 
measure Kt/V is the more accurate and better measure. Additionally, one 
commenter stated that URR specifications should be adjusted for 
patients receiving short, daily dialysis (that is, dialysis received 5 
or more times per week for 2 to 3.5 hours as required to ensure 
adequate dialysis).
    Response: We currently use ESRD claims for quality data and the URR 
is one of the measures on the claims. However, the collected URR is 
only reported for patients receiving in-center hemodialysis and those 
above the age of 18 years (approximately 96 percent of hemodialysis 
patients). Accordingly, we believe it is appropriate to use this 
measure initially for the QIP. The use of URR >= 65 percent for the 
measurement of adequacy with peritoneal dialysis, home hemodialysis, 
and pediatric dialysis is not a valid measurement of dialysis adequacy 
because of the unique variations that exist with each different type of 
dialytic modality and patient population (that is, pediatric patients 
or adults). Starting July 2010, however, providers are required to 
submit both URR (in-center hemodialysis patients) and Kt/V (all 
modalities) on all ESRD claims as reported through CMS Change Request 
(CR 6782). Given that Kt/V will soon be submitted on claims and that it 
has become a more widely accepted measurement of the adequacy of 
dialysis and the National Quality Forum has endorsed quality measures 
using Kt/V for hemodialysis and peritoneal dialysis, we anticipate that 
the URR may be replaced by Kt/V in future program years.
    Comment: One commenter expressed concern about the Hemodialysis 
Adequacy Measure proposed for the QIP payment consequence year 2012 as 
a valid measure of quality. The claims data used for this measure 
reports the Hemodialysis Adequacy Measure as a range and does not 
require the number of treatment sessions. The commenter recommended 
that CMS require that providers/facilities report the specific URR 
value and the number of treatments to ensure that the measure captures 
only those patients receiving three treatments per week. Additionally, 
a commenter recommended that we calculate the measure using patient 
quarters rather than a 12-month average.
    Response: ESRD providers/facilities are required to submit the 
number of treatments and the specific URR value on each claim submitted 
for payment. The measure is currently calculated for purposes of DFC 
using data from patients that have three treatment sessions per week. 
Patients included in the measures are those receiving in-center 
hemodialysis. As noted previously, peritoneal and home hemodialysis 
patients are excluded as well as pediatrics because clinical evidence 
demonstrates that this is not a valid measure for these patients; 
however it is an accepted measure for in-center hemodialysis patients. 
Patients included in this measure must be greater than 18 years of age, 
have at least 4 claims and have been on dialysis for at least 183 days. 
Full details and technical specifications for this measure can be 
accessed at: http://www.dialysisreports.org/Methodology.aspx. It is 
important to note that initially for the QIP all

[[Page 49186]]

measures will be claims-based since that is the only complete facility 
level source of data available for this population. URR is being used 
in the QIP payment consequence year 2012 because it is a standard 
measure used in ESRD practice for in-center hemodialysis and has been 
publicly reported in the DFC since January 2001. We believe this will 
avoid confusion in the data collection process. We have analyzed the 
existing claims data to see if there was a significant variance in 
calculating the URR based on patient quarters rather than a 12-month 
average and found that there is no difference that would warrant a 
change in the current methodology that uses a 12-month average.
    Comment: A few commenters agreed that the proposed Hemodialysis 
Adequacy Measure should continue to exclude patients on peritoneal 
dialysis or home hemodialysis because this measure is not an accurate 
reflection of the effectiveness of these two modalities. Additionally, 
some of the commenters recommended that Kt/V be implemented to include 
peritoneal dialysis and home hemodialysis. Other commenters expressed 
concerns about the timing of laboratory testing for dialysis adequacy. 
Another commenter recommended that both the number of treatments prior 
to measurement of URR and when tests should be taken should be made 
clear. Lastly, there was concern among the commenters about the impact 
of residual renal function, which contributes to overall renal 
clearance and thus, would increase the measure score.
    Response: We agree with the commenters that the existing 
Hemodialysis Adequacy Measure of URR >65 percent should be excluded for 
home hemodialysis, pediatric dialysis and peritoneal dialysis patients, 
since it is not a valid measurement of the adequacy of treatment for 
those modalities based on treatment characteristics. We are in the 
process of working with the stakeholder community to develop consensus 
based measurements of adequacy for these modalities.
    With regard to the URR measure and number of treatments per week, 
the specifications state that the measure is based on thrice-weekly 
hemodialysis treatments. Those receiving more than three treatments per 
week are excluded from the current measure. Measure specifications may 
be accessed at: http://www.dialysisreports.org/Methodology.aspx. 
Additionally, we anticipate dialysis providers/facilities to use 
recommended KDOQI guidelines for laboratory testing for the calculation 
of Dialysis Adequacy. Guidelines can be accessed at: http://www.kidney.org/professionals/kdoqi/pdf/12-50-0210_JAG_DCP_Guidelines-HD_Oct06_SectionA_ofC.pdf.
    In terms of patients with residual renal function, residual renal 
function usually drops off after about 6 months on hemodialysis 
therefore, dialysis adequacy (URR) for patients are excluded until 
patients have been on hemodialysis for 6 months. As we indicated, 
starting July 2010, providers/facilities are required to submit both 
URR (hemodialysis patients) and Kt/V (all modalities) on all ESRD 
claims. Given that Kt/V will be submitted on all ESRD claims, and that 
Kt/V has become a more widely accepted measurement of the adequacy of 
dialysis and the National Quality Forum has endorsed quality measures 
using Kt/V for hemodialysis and peritoneal dialysis, we anticipate that 
the URR may be replaced by Kt/V in future program years which will 
allow for inclusion of these modalities as well as pediatric patients.
    Comment: One commenter noted that the use of 12-month averaging for 
the Hemodialysis Adequacy Measure diminishes the public's ability to 
discern performance differences between providers/facilities because, 
when 12-month averages are used, clinical performance in most 
providers/facilities approximates the average. The commenter 
recommended that we calculate the measure by using a three-month 
average based on a monthly assessment of lab results.
    Response: We appreciate the comment. To avoid any confusion in data 
collection, in the initial year of the QIP we will use the technical 
specifications used for the DFC. To date, the current specifications 
and data publicly reported on DFC have been viewed as accurate. 
However, if data in the initial year of the QIP demonstrate that 
specifications should be changed, we will take this recommendation 
under consideration.
    After consideration of the comments received on the Hemodialysis 
Adequacy measure (URR) and for the reasons discussed above, we are 
finalizing the Hemodialysis Adequacy measure for the QIP payment 
consequence year 2012. Once testing of data collection for Kt/V is 
completed and if Kt/V proves to be a feasible and reliable measure, we 
will consider replacing the URR measure with Kt/V in the future.
3. Additional Comments
    In the September 29, 2009 proposed rule (74 FR 50009), we did not 
propose to include any additional measures beyond the two anemia 
management measures (Hemoglobin Less Than 10 g/dL and Hemoglobin More 
Than 12 g/dL) and the Hemodialysis Adequacy Measure (URR) both of which 
will exclude ESRD patients less than 18 years of age for the QIP 
payment consequence year 2012. Section 1881(h)(2)(A)(iii)of the Act 
states that the measures shall include, to the extent feasible, such 
other measures as the Secretary specifies, including measures on iron 
management, bone mineral metabolism, vascular access (intended to 
maximize the placement of arterial venous fistula) and patient 
satisfaction measures. CMS did not propose to adopt any measures in 
these categories since we are not currently collecting data that would 
allow determination of provider/facility-specific performance with 
respect to these categories of measures. We are working to identify 
appropriate sources from which we can adequately capture data to 
support the future adoption of additional measures. We anticipate that 
measures such as Kt/V, vascular access and vascular access infections 
will be included in future program years when data sources prove valid. 
Finally, we believe it is not feasible to include a patient 
satisfaction measure at this time because there is no fully validated 
data collection tool available to collect relevant and industry 
accepted patient satisfaction measure data. Additional measures will be 
addressed in future rulemaking.
    Comment: A significant number of commenters expressed concern about 
the lack of mineral metabolism measures in the list of measures 
proposed for 2012, with particular concern for the monitoring of 
parathyroid hormone levels (PTH), Phosphate (PO4) and calcium levels. 
Commenters noted that the inclusion of calcimimetics and phosphate 
binders in the bundled payment could result in the underutilization of 
these effective medications, and some commenters were also concerned 
about the potential for overutilization of parathyroidectomies as a 
less expensive option to the medications.
    Response: On April 15, 2008, we published in the Federal Register 
the Medicare Conditions for Coverage (CfC) for End-Stage Renal Disease 
Facilities final rule (73 FR 20370). These Medicare CfCs are enforced 
by periodic site visits by state survey agencies and specifically 
require the development and execution of Patient Plans of Care to 
``provide the necessary care to manage mineral metabolism and prevent 
or treat renal bone disease.'' (See 42 CFR Sec.  494.90(a)(3).) In 
addition, Sec.  494.110(a)(2)(iii) requires dialysis facilities to 
include bone and mineral

[[Page 49187]]

metabolism outcomes as part of their ongoing Quality Assessment and 
Performance Improvement Programs. We consider the mineral metabolism 
and renal bone disease measure as measures that will be considered for 
future years of the QIP; however, for the reasons we discussed above, 
these measures will not be included for 2012.
    Comment: We received several comments stating that the three 
performance measures we proposed for the QIP payment consequence year 
2012 were not adequate for evaluating the quality of care offered by 
ESRD providers/facilities. Several commenters recommended that we also 
adopt outcome measures for the QIP specifically dealing with 
hospitalizations, infections, vascular access and iron management. A 
few commenters also suggested that measures on transfusion and 
transplant rates be included.
    Response: We agree that the measure topics suggested by these 
commenters would allow us to more fully assess the quality of care 
provided to Medicare ESRD beneficiaries. As stated above, we are in the 
process of developing additional quality measures that we will consider 
for use in future years of the QIP. At this time, ESRD Medicare claims 
are the only complete provider/facility-level data set available to us. 
The three measures that we are finalizing for the first year of the 
QIP--two anemia management measures (Hemoglobin less than 10 g/dL and 
Hemoglobin more than 12 g/dL) and one Hemodialysis Adequacy Measure 
(URR)--focus on core aspects of the medical management of ESRD Medicare 
beneficiaries and have significant implications for their quality of 
life, morbidity and mortality. Further, observational studies and 
practice pattern analyses have shown that providers/facilities that 
perform well on these three measures also experience better patient 
outcomes in terms of reduced hospitalizations and reduced risk of heart 
attack, stroke and other adverse events.
    Comment: Recognizing that CMS is not proposing at this time to 
include other measures in the QIP such as iron management, bone mineral 
metabolism, and vascular access and that CMS has concluded that it is 
not feasible to propose a patient satisfaction measure at this time, 
one commenter requested a detailed plan for incorporating these 
measures into the ESRD QIP. Additionally, the commenter emphasized the 
importance of establishing a tracking system to ensure baseline values 
for bone and mineral metabolism markers because these may be 
significantly impacted by the incorporation of oral medications in the 
bundled payment.
    Response: We are dedicated to the ongoing process of developing 
additional quality measures, refining existing quality measures and 
identifying complete and accurate data sources for use in future years 
of QIP including measures addressing the commenter's concerns regarding 
bone mineral metabolism and the potential impact with bundled payment. 
Currently, ESRD claims provide the only complete set of facility level 
quality data to support the existing measures. We will be monitoring 
the data to ensure that the ESRD QIP is achieving the desired quality 
clinical outcomes. We plan to use the rulemaking process as the way to 
propose the incorporation of new measures currently under development 
such as hospitalizations, mineral metabolism, vascular access 
infections, iron management and fluid volume weight management as well 
as pediatric measures. In addition, we will have a comprehensive 
monitoring plan in place when the new PPS begins that ensures access 
and quality care are furnished to ESRD beneficiaries.
    Comment: Several commenters expressed support for inclusion of 
patient-centered measures in the QIP, such as patient quality of life, 
ability to return to work or whether patients are in rehabilitation. 
One commenter supported the implementation of a measure of patient 
awareness of ESRD treatment options (such as transplant and different 
dialysis modalities). The commenter also noted that for patients, these 
types of measures may often be more useful to patients in their 
decision making than clinical measures.
    Response: We agree that patient-centered measures, such as 
awareness of treatment options, are important for the ESRD population 
in making decisions such as where they wish to seek care. We appreciate 
the recommendation to incorporate measures evaluating patient outcomes 
from a patient's perspective, including patient awareness of treatment 
options, percentage of patients working or in rehabilitation, and 
quality of life surveys into the QIP. The NQF has endorsed measures of 
this type, and we are actively seeking a data source for such data as 
well as developing a means to collect these data. We intend to use such 
measures in future payment years and will do subsequent rulemaking on 
these additional measures.
    Comment: One commenter recommended the inclusion of a Practice-
related Risk Score (PRS) and a patient-level all Clinical Performance 
Measure (CPM) index as QIP measures, stating that these types of 
measures may be better for establishing a facility or provider's 
quality of care. Composite measures are made up of discrete quality 
measures that, when calculated together, provide a score that assesses 
more than one aspect of patient care. According to the commenter, the 
recommended PRS would be a composite, facility-level index of four key 
dialysis quality measures, including the percent of patients with: (1) 
Kt/V >1.2; (2) Hemoglobin >11g/dL; (3) Albumin >4.0g/dL; and (4) A 
central venous catheter for dialysis access. The commenter noted that 
the score for the PRS may be a good predictor of mortality. The 
commenter also recommended a patient-level CPM index that would be 
similar to the PRS and would be composed of dialysis adequacy (single-
pooled Kt/V urea of >1.2); Anemia (Hemoglobin >11g/dL); albumin (>40g/L 
with bromcresol green or >37g/L with bromcresol purple); and access 
(that is, use of an arteriovenous fistula). The commenter noted that 
patient risk for hospitalization and/or death increases, according to 
their studies, with each unmet target (component) of the CPM index.
    Response: We appreciate this recommendation. Measures development 
is already underway in the areas the commenter recommends such as 
vascular access measures. Technical Expert Panels (TEP) were convened 
in Spring 2010 to begin development of these additional measures, and 
subsequent to these initial TEPs, more work on measures development 
will take place. As stated above, we intend to fully test all measures 
before proposing to adopt them for the QIP in order to assure that they 
are reliable indicators of the quality of care and feasible for data 
collection. Because measures we are adopting at this time are limited 
to data available on ESRD claims, we would not have the specificity 
needed to calculate the composite measures presented by the commenter. 
However, we will continue to consider and evaluate component measures 
such as those suggested by the commenter as more data resources become 
available.
    Comment: One commenter wrote that CMS must understand and create a 
category for mortality rates within long term care hospital (LTCH) 
settings separate from outpatient clinics and other home dialysis 
settings. Commenters stated that a facility may have greater than 50 
percent of its patients with an end of life care option, such as 
hospice, when such patients can

[[Page 49188]]

no longer care for themselves and are thus compromised on many levels. 
Commenters stated that the other 50 percent of patients may be in LTCH 
rehabilitation settings and are admitted only a short time, but come to 
the facility after a lengthy hospitalization in a compromised condition 
that in many cases includes life threatening morbidity.
    Response: We appreciate the recommendation. For the initial year of 
the QIP, we have decided to limit the measures to the Anemia Management 
and the Dialysis Adequacy Measures because they go to the core of ESRD 
patient care, are feasible to collect, and reliably reflect the quality 
of patient care. However, as we evaluate and refine the mortality 
measures currently used for the DFC, these issues will be considered.
    Comment: Two commenters recommended that there should be measures 
of fluid balance (overload) in the measure set.
    Response: Appropriate and effective fluid management reduces the 
risk of congestive heart failure, hospitalizations and premature death, 
and therefore we believe that measures of fluid management are 
important for evaluating another aspect of ESRD patient care. We are in 
the process of developing additional quality measures for possible use 
in future years of the QIP and will be researching the feasibility of 
including fluid balance as a measure.
    Comment: One commenter recommended that the QIP should include 
measures of treatments, laboratory testing, medications and other 
clinical care services included in the new bundled payment to evaluate 
potential impact on patient care (for example, phosphate binders for 
mineral metabolism).
    Response: The selection of the anemia management measures 
(Hemoglobin Less Than 10 g/dL and Hemoglobin More Than 12 g/dL) and the 
Hemodialysis Adequacy Measure (URR) was driven by what is required in 
section 153(c) of MIPPA, as well as the limitations of complete 
facility-level data currently available to us. Patient outcomes are a 
key focus of the ESRD QIP. Therefore, we are developing or identifying 
performance measures that will assess the quality of care delivered to 
the ESRD patients under the bundled payment. For example, we are 
currently developing measures of bone mineral metabolism, an important 
clinical issue with ESRD patients. Implementation of the ESRD bundled 
payment system may have the impact of providers/facilities decreasing 
use of medications used to treat clinical conditions associated with 
the appropriate management of bone mineral metabolism therefore 
measures to address these issues are important.
    Comment: One commenter recommended an approach to monitoring 
quality by analyzing the drug utilization data that providers/
facilities report on Part B claims submitted for Medicare payment. It 
was further recommended that CMS continue to collect information on the 
volume and use of drugs and other services included in the broader 
bundled ESRD payment.
    Response: We will monitor drug utilization data to the extent that 
reliable data is available. However, we note that the linkage between 
drug utilization patterns and patient quality outcomes needs further 
exploration. Therefore, we are in the process of identifying possible 
quality measures related to drug utilization and identifying pertinent 
drug utilization data sources for potential use in future years of the 
QIP.
    Comment: One commenter suggested that CMS develop quality measures 
that use a real-time system for reporting rates of hospitalization, 
emergency department use, and mortality for the dialysis population. 
The commenter further suggested that such information could help CMS 
and researchers monitor unintended effects of the new bundled payment 
method.
    Response: We agree that real-time data would be beneficial for 
tracking in a timely manner, clinical outcomes and the quality of care 
being delivered, and that more timely access to data would further 
advance the goals of the QIP to improve the quality of care delivered 
to ESRD patients. While this type of data source is not currently 
available, we plan to have a comprehensive monitoring strategy in place 
that will provide the necessary information to evaluate the quality of 
care being delivered to Medicare patients with ESRD as the bundled 
payment system is implemented. Along with the development of additional 
measures, we are seeking data sources that will allow for more timely 
assessment and reporting of the data.
    Comment: Two commenters requested that CMS add venous access flow 
surveillance to the measure set. One of the commenters offered that, in 
addition to the three measures proposed in the ESRD QIP conceptual 
model, vascular access surveillance metrics be added to include metrics 
for: (1) Assessment of patient condition; (2) treatment interventions; 
and (3) thrombotic events. Commenters recommended use of electronic 
surveillance devices for venous access flow monitoring.
    Response: We appreciate the comment and agree that the development 
of venous access monitoring strategies and the development of measures 
are important for optimizing outcomes within the ESRD population 
because decreased venous access flow has implications for 
hospitalizations, potential stroke and other adverse patient outcomes. 
We are dedicated to the ongoing process of developing additional 
quality measures, refining existing quality measures and identifying 
complete and accurate data sources for use in future years of QIP.
    Comment: One commenter recommended the development and use of a 
list of ``Never Events'' in the ESRD QIP.
    Response: We appreciate the recommendation because these types of 
events are ones that are avoidable. We will consider the potential 
development and use of sentinel events (never events)--in future years 
of the ESRD QIP.
    Comment: A commenter requested that CMS act with all due speed to 
ensure that quality of care for vulnerable patients may be measured and 
facilities may be held accountable.
    Response: We agree that monitoring the quality of care for 
vulnerable populations under the QIP is critical. A program monitoring 
and evaluation program is being developed to track impact on vulnerable 
populations and will be addressed in future rulemaking. The current 
measures, to the extent that relevant data are available (for example, 
socio-demographics), will be evaluated for potential disparities in 
future years. Data on the socio-demographics of the ESRD population 
might be collected from patient, facility/provider enrollment forms; 
however, we would need to ensure that data analysis methodologies in 
use would be able to accurately identify these populations and monitor 
effectively.
    Comment: One commenter urged CMS to verify that all quality data 
aggregated through the ESRD Clinical Performance Measurement Project 
and used to calculate the QIP performance measures is case-mix and 
severity adjusted; further, the commenter asked that special 
consideration be given for hospital-based units.
    Response: We acknowledge that some patients may present additional 
challenges for the treatment of anemia and achieving adequate dialysis 
because of existing co-morbid conditions, but we do not believe that 
the anemia management or dialysis adequacy measures should be risk-
adjusted for the

[[Page 49189]]

ESRD population. The specifications for these measures may be found in 
the Dialysis Facility Report instructions and descriptions. Patients 
with hemoglobin <5 g/dL and >20 g/dL are excluded from the measured 
population as are patients who are less than 18 years of age. Further, 
to be included in the measurement population (for both anemia 
management and dialysis adequacy) patients must have received dialysis 
for at least 90 days and have had four claims submitted. Additionally, 
these claims must indicate the use of erythropoiesis-stimulating agents 
(ESAs) for at least 90 days. These exclusions and inclusions from the 
measurement population act to adjust the measures for certain patient 
aspects. However, regardless of the type of unit or patient acuity, all 
patients should receive the appropriate level of care.
    Comment: One commenter noted that, because nursing home patients 
have a higher patient acuity, the national standards may not be 
achievable by these facilities, resulting in unfair payment reductions.
    Response: We agree that this patient population may have multiple 
co-morbid conditions that make achieving the national standard 
difficult. However, given the practice guidelines recommended for all 
ESRD patients, we would expect a majority of ESRD patients in nursing 
homes to meet or exceed the national average.
    Comment: One commenter noted that by using Kt/V in the CPM program 
and URR in the QIP, Medicare is targeting the mortality rates from a 
model that was developed over thirty years ago that has also proven no 
more predictive of morbidity and mortality than patient self-reported 
physical and mental functioning scores. The commenter recommended that 
CMS consider mix adjusted physical and mental functioning scores from 
patient self-report data and expect dialysis providers to improve the 
scores that indicate higher risk of hospitalization or death.
    Response: We will consider this comment as we develop new measures 
for use in the QIP in the future. We agree that there are challenges 
related to different levels of patient acuity within the ESRD 
population that may have an impact on morbidity and mortality beyond 
URR. Even though these measures are not risk-adjusted, the 
specifications for the three measures we are finalizing provide 
exclusions that act as a level of risk-adjustment. Exclusions remove 
from the denominator a population with a higher than normal severity of 
illness or have conditions that prevent them for receiving ``normal'' 
treatment and therefore, may unfairly impact on performance measurement 
scores.
    Comment: One commenter noted that the quality baseline year should 
be aligned with the payment baseline year for calculating the payment 
rate. The commenter recommended that to prevent ``gaming'' the agency 
should provide clear and unambiguous requirements surrounding the 
manner and timing of laboratory measurements (that is, when during the 
dialysis process laboratory samples are collected for analysis).
    Response: The baseline year for performance measurement the 
commenter referred to is the performance period for the QIP payment 
consequence year 2012 which is being proposed in the QIP proposed rule 
published on August 12, 2010 in the Federal Register. Currently, ESRD 
claims provide the only complete set of facility level quality data to 
support the existing measures. With regard to the timing of laboratory 
testing (time of specimen collection on day of patient visit), KDOQI 
provides guidelines for the timing of laboratory testing. The 
guidelines may be accessed at: http://www.kidney.org/professionals/kdoqi/pdf/12-50-0210_JAG_DCP_Guidelines-HD_Oct06_SectionA_ofC.pdf. We support the KDOQI guidelines and measure specifications 
which provide the parameters for the timing of testing. Additionally, 
there will be monitoring and evaluation of the QIP to track and, where, 
necessary, take action to prevent ``gaming'' of data.
    Comment: One commenter voiced concern that the three proposed 
measures may not be an accurate reflection of the quality of care. The 
commenter further stated that the proper goal for the anemia management 
measures (Hemoglobin Less Than 10 g/dL and Hemoglobin Greater Than 12 
g/dL) and the Dialysis Adequacy Measure (URR) may change over time, and 
that having the measures written in regulations may make it difficult 
to update to new standards. The commenter also offered that the skill 
of dialysis staff (measured through turnover rates) may be a better 
measure of quality of care and that measures of importance to patients 
(for example, dialysis-induced hypotension) should be used rather than 
measures such as urea kinetics.
    Response: The selection of the proposed measures was driven by what 
is required in section 153(c) of MIPPA 2008 as well as the limitations 
of the complete facility-level data currently available to us. In 
addition, appropriate anemia management and providing adequate dialysis 
are important to the assessment of care provided to the ESRD population 
because these measures evaluate the core clinical issues for ESRD 
patients especially those on in-center hemodialysis. However, we are in 
the process of developing additional quality measures and identifying 
data sources for use in future years of QIP. Lastly, we acknowledge 
that the skill of a facility's staff can have an impact on the quality 
of care provided to dialysis patients and look forward to gathering 
more evidenced-based information that we can use to develop appropriate 
and valid measures in this area.
    Comment: One commenter recommended that, for measures related to 
immunization and vascular access, a one-month, end-of-year value should 
be considered since these facility outcomes are cumulative.
    Response: We are in the process of considering additional quality 
measures and potentially including measures of immunization and 
vascular access. We will consider the validity of using a one-month, 
end of the year value as these measures are developed and tested.
    Comment: One commenter voiced concern that the two-year lag between 
data collection for the performance measures and measure reporting will 
not allow for facilities to be measured on improvements that may occur 
during that lag time. The commenter recommended that the QIP measures 
use Elab data as a source of more current data.
    Response: We are seeking data sources that will allow for more 
timely assessment and reporting of the data in future years of QIP. We 
are working towards the timely assessment and reporting of data sources 
that will close the two-year lag in the data. However, we will use the 
data collection methodology used by the DFC since 2001 for the first 
year of the QIP.
    Comment: One commenter suggested that facilities and providers be 
rewarded for proactive, real-time monitoring of plasma water volume, 
vascular compartment refilling and use of techniques that assure 
optimal fluid volume management.
    Response: MIPPA section 153(c) does not grant us the authority to 
reward providers/facilities on their performance. At most, the statute 
allows us to provide full ESRD payments to providers/facilities that 
satisfy the QIP. We view quality as the standard of care that all 
provider/facilities should strive for and not as an extra that needs to 
be rewarded. The ESRD QIP will provide those providers/facilities that 
meet or exceed the performance standard full ESRD payment. With regard 
to the

[[Page 49190]]

commenter's suggestion to measure plasma water volume, vascular 
compartment refilling and use of techniques assuming optimal fluid 
volume management, this is an area that experts in the renal community 
are currently evaluating in the ESRD population because of poor fluid 
management's implications for hospitalizations, development of 
congestive heart failure and other avoidable adverse events.
    Comment: One commenter requested a detailed outline of the process 
for measure development.
    Response: We use a standardized process for developing measures 
which can be found at: http://www.cms.hhs.gov/QualityInitiativesGenInfo/downloads/QualityMeasuresDevelopmentOverview.pdf. Tested measures are then 
submitted to the NQF for endorsement.
    After careful consideration of the comments, we have decided that 
for the QIP payment consequence year 2012, we are finalizing the three 
proposed measures; the two anemia management measures (Hemoglobin Less 
Than 10 g/dL and Hemoglobin More Than 12 g/dL) and the Dialysis 
Adequacy Measure (Urea Reduction Rate (URR) >=65 percent) as proposed 
with one change. As described above, we will not include ESRD patients 
less than 18 years of age in the measure calculation of the two anemia 
management measures (Hemoglobin Less Than 10 g/dL and Hemoglobin More 
Than 12 g/dL).

III. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 30-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We solicited public comment on each of these issues for the 
following sections of this document that contain information collection 
requirements (ICRs):

A. ICRs Regarding a Low-volume adjustment. (Sec.  413.232(f))

    As discussed in section VIII.A.2.b. of the proposed rule (74 FR 
49975), to receive the low-volume adjustment, we proposed that an ESRD 
facility must provide an attestation to the Medicare administrative 
contractor or fiscal intermediary that it has met the criteria to 
qualify as a low-volume facility. The Medicare administrative 
contractor or fiscal intermediary would verify the ESRD facility's 
attestation of their low-volume status using the ESRD facility's final-
settled cost reports.
    In the proposed rule, we indicated that the burden associated with 
the requirement would be the time and effort necessary for an ESRD 
facility attesting as a low-volume facility to develop an attestation 
and submit it to the Medicare administrative contractor or fiscal 
intermediary (74 FR 50016). In the 2006 data analysis conducted by our 
contractor, UM-KECC, 489 ESRD facilities were identified as below the 
low-volume threshold of 3,000 treatments per year. Of these 488 
facilities, 166 met the additional low-volume criteria as specified in 
Sec.  413.232 of this proposed rule. We estimated that it would require 
an administrative staff member from each low-volume facility 5 minutes 
to develop the attestation and a negligible amount of time to submit it 
to the Medicare administrative contractor or fiscal intermediary (74 FR 
50016). We further estimated several dozen additional ESRD facilities 
may meet the criteria of a low-volume facility prior to implementation 
of the ESRD PPS and therefore, we rounded the total number of estimated 
low-volume facilities to 200 (74 FR 50016). Therefore, we estimated 
that the total initial ESRD facility burden would be 16.6 hours (74 FR 
50017).
    We did not receive any public comments related to this information 
collection. However, as discussed in section II.F.4. of this final 
rule, we are finalizing a threshold of 4,000 instead of 3,000 
treatments. Therefore, we identified 857 ESRD facilities as below the 
updated low-volume threshold of 4,000 treatments per year. Of these 857 
facilities, 351 meet the low-volume criteria specified in Sec.  413.232 
of this final rule. We continue to believe that the estimated 
administrative staff time burden of 5 minutes to develop the 
attestation and a negligible amount of time to submit it to the FI/MAC 
is appropriate. Therefore, we are finalizing our estimated 
administrative staff time burden of 5 minutes per facility. We estimate 
several dozen additional ESRD facilities may meet the criteria of a 
low-volume facility based on the 4,000 treatment threshold prior to 
implementation of the ESRD PPS and therefore, we rounded the total 
number of estimated low-volume facilities to 400. Therefore, we are 
finalizing the total initial ESRD facility burden to be 33.2 hours.

B. ICRs Regarding Transition Period (Sec.  413.239)

    As discussed in section XIII.A. of the proposed rule, prior to 
January 1, 2011, an ESRD facility may make a one-time election to be 
excluded from the four-year transition to the ESRD PPS (74 FR 50003). 
That is, a facility may elect to be paid entirely based on the proposed 
ESRD PPS beginning January 1, 2011. Under proposed Sec.  413.239(b), an 
ESRD facility may make a one-time election to be paid for items and 
services provided during transition based on 100 percent of the payment 
amount determined under Sec.  413.215 of this part, rather than based 
on the payment amount determined under paragraph (a) of this section. 
The section specified that such election must be submitted to the 
facility's FI/MAC no later than November 1, 2010.
    We estimated in the proposed rule that it would require an 
accountant or financial management staff member from each of the 4,921 
ESRD facilities 1 hour to simulate average aggregate payments under the 
proposed ESRD PPS and compare them to average aggregate payments under 
the current basic case-mix adjusted composite payment system, for a 
total of 4,921 hours (74 FR 50016). In addition, for those facilities 
electing to be excluded from the four-year transition, we estimated 
that the burden associated with the requirement in proposed Sec.  
413.239(b) would be the time and effort necessary to develop an 
election and submit it to the FI/MAC (74 FR 50016). We estimated that 
it would require an administrative staff member from each facility 15 
minutes to develop the notice and a negligible amount of time to submit 
it. We estimated that 36 percent of the estimated 4,921 ESRD 
facilities, or 1,794 ESRD facilities, would make the election no later 
than November 1, 2010. Therefore, we estimated that the total one-time 
ESRD facility burden would be 448.5 hours (74 FR 50017).
    The comments pertaining to this information collection, the updated 
facility data included in the impact analysis and our responses are set 
forth below.

[[Page 49191]]

    Comment: One commenter pointed out that we projected that it would 
take one hour per patient, per month for billing costs related to the 
proposed ESRD PPS. The commenter indicated that facilities should be 
compensated for the administrative costs associated with implementing 
the new payment system including the additional billing related ESRD 
PPS costs. The commenter further believed that one hour was an 
insufficient amount of time for this task.
    Response: The one-hour timeframe to which the commenter referred 
pertained to the time that would be spent by ESRD facilities in making 
a determination to opt out of the 4-year ESRD PPS transition. 
Specifically, we estimated that each ESRD facility would spend one hour 
simulating average aggregate payments under the proposed ESRD PPS as 
compared to the average aggregate payments under the current basic 
case-mix adjusted composite payment system. With regard to the comment 
that ESRD facilities should be compensated for billing costs associated 
with the ESRD PPS and that the projected one-hour timeframe is 
insufficient to account for their per patient per month billing costs, 
we note that we computed the ESRD PPS base rate using ESRD facility 
2007 costs updated to 2011 which include billing costs. As discussed in 
more detail in section II.K.2. of this final rule, we have not made 
significant changes to the current billing requirements. Under the ESRD 
PPS, facilities will continue to identify the renal dialysis items and 
services they furnish as well as other non-renal related services for 
each day of service. The only new additional reporting is related to 
the use of oral equivalents of injectable drugs. Thus, we believe that 
the ESRD PPS base rate adequately accounts for providers' billing 
costs.
    Comment: One commenter indicated that they have exceeded the 
estimated 1-hour timeframe for deciding whether to opt out of the 
transition and stated that they have spent hundreds of hours attempting 
to assess the bundle's impact on their 14 facilities.
    Response: We believe that the impact of the final ESRD PPS will be 
easier for ESRD facilities to assess than the proposed system because 
we are not implementing oral-only ESRD drugs effective January 1, 2011 
and the final ESRD PPS has fewer adjustments. However, we disagree that 
the analysis will take ESRD facilities hundreds of hours to complete. 
We believe that ESRD facilities have been aware of and planning for the 
ESRD PPS for several years and have gained insight as to the factors 
that will go into their decisions regarding the transition. However, 
based on the public comments, we believe it is more appropriate to 
estimate two hours for an ESRD facility to complete an analysis of the 
significant changes made to the ESRD PPS in this final rule and 
determine whether to opt out of the ESRD PPS transition.
    As reflected in section IV.B. of this final rule, there are 4,951 
ESRD facilities. We have increased the number of hours necessary to 
simulate average aggregate payments under the current basic case-mix 
adjusted composite payment system from one hour to two hours, for a 
total of 9,902 hours. We are finalizing the estimated administrative 
staff member burden at 15 minutes per facility to develop and submit 
the election notice to elect to be excluded from the transition. We are 
finalizing that 43 percent of the estimated 4,951 ESRD facilities (or 
2,120 ESRD facilities), will make the election no later than November 
1, 2010. Therefore, we are finalizing the total one-time ESRD facility 
burden to be 530 hours. The final collection of information burden 
hours are indicated below in Table 34.
[GRAPHIC] [TIFF OMITTED] TR12AU10.042

    We have submitted a copy of this final rule to OMB for its review 
and approval of the aforementioned information collection requirements.

IV. Regulatory Impact Analysis

A. Overall Impact

    We have examined the impacts of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), the 
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), 
section 1102(b) of the Social Security Act, section 202 of the Unfunded 
Mandates Reform Act of 1995 (Pub. L. 104-4), Executive Order 13132 on 
Federalism (August 4, 1999), and the Congressional Review Act (5 U.S.C. 
804(2)).
    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). A regulatory impact 
analysis (RIA) must be prepared for major rules with economically 
significant effects ($100 million or more in any 1 year). This final 
rule is an economically significant rule because we estimate that the 
requirement under section 1881(b)(14)(A)(ii) of the Act--that the 
estimated total payments for renal dialysis services in CY 2011 equal 
98 percent of the estimated total payments that would have been made if 
the ESRD PPS were not implemented--equates to an approximate $200 
million decrease in payments to ESRD facilities in CY 2011. In 
addition, given this estimated impact, this final rule also is a major 
rule under the Congressional Review Act. Accordingly, we have prepared 
a RIA that to the best of our ability presents the costs and benefits 
of the final rule. We requested comments on the economic analysis.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses if a rule has a significant impact on a substantial 
number of small entities. For purposes of the RFA, approximately 22 
percent of ESRD dialysis facilities are considered small entities 
according to the Small Business Administration's size standards, which 
considers small businesses those dialysis facilities having total 
Medicare

[[Page 49192]]

revenues of $34.5 million or less in any 1 year, and 19 percent of 
dialysis facilities are nonprofit organizations. For more information 
on SBA's size standards, see the Small Business Administration's Web 
site at http://sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf
    (Kidney Dialysis Centers are listed as 621492 with a size standard 
of $34.5 million). For purposes of the RFA, we estimate that 
approximately 22 percent of ESRD facilities are small entities as that 
term is used in the RFA (which includes small businesses, nonprofit 
organizations, and small governmental jurisdictions). This amount is 
based on the number of ESRD facilities shown in the ownership category 
in the impact Table 35. Using the definitions in this ownership 
category, we consider the 614 facilities that are independent and the 
470 facilities that are shown as hospital-based to be small entities. 
The ESRD facilities that are owned and operated by large dialysis 
organizations (LDOs) and regional chains would have total revenues more 
than $34.5 million in any year when the total revenues for all 
locations are combined for each business (individual LDO or regional 
chain). Overall, a hospital based ESRD facility (as defined by 
ownership type) is estimated to receive a 1.7 percent increase in 
payments under the new ESRD PPS for 2011. An independent facility (as 
defined by ownership type) is estimated to receive a -0.3 percent 
decrease in payments under the ESRD PPS for 2011. Therefore, the 
Secretary has determined that this final rule will not have a 
significant economic impact on a substantial number of small entities.
    The claims data we use to estimate payments to ESRD facilities in 
this RFA and RIA does not identify which dialysis facilities are part 
of an LDO, regional chain, or other type of ownership. As each 
individual dialysis facility has its own provider number and bills 
Medicare using this number. Therefore, in previous RFAs and RIAs 
presented in proposed and final rules that updated to the basic case-
mix adjusted composite payment system, we considered each ESRD to be a 
small entity for purposes of the RFA. However, we conducted a special 
analysis for this final rule that enabled us to identify the ESRD 
facilities that are part of an LDO or regional chain. The results of 
this analysis are presented in the type of ownership category of impact 
Table 35.
    We do not believe ESRD facilities are operated by small government 
entities such as counties or towns with populations 50,000 or less and 
therefore, they are not enumerated or included in this final RFA. 
Individuals and States are not included in the definition of a small 
entity.
    In addition, section 1102(b) of the Act requires us 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. Any 
such regulatory impact analysis must conform to the provisions of 
section 604 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 100 beds. We do not 
believe this final rule has a significant impact on operations of a 
substantial number of small rural hospitals because most dialysis 
facilities are freestanding. While there are 187 rural hospital-based 
dialysis facilities, we do not know how many of them are based at 
hospitals with fewer than 100 beds. However, overall, the 187 rural 
hospital-based dialysis facilities will experience an estimated 4.4 
percent increase in payments. As a result, this rule will not have a 
significant impact on small rural hospitals. Therefore, the Secretary 
has determined that this final rule will not have a significant impact 
on the operations of a substantial number of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year $100 
million in 1995 dollars, updated annually for inflation. In 2010, that 
threshold is approximately $135 million. While dialysis facilities will 
be paid approximately $200 million less, we do not believe that this 
rule includes any mandates that would impose spending costs on State, 
local, or tribal governments in the aggregate, or by the private 
sector, of $133 million.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule and subsequent 
final rule that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. We do not believe this final rule will have a substantial 
direct effect on State or local governments, preempt State law, or 
otherwise have Federalism implications.
Payment for ESRD Bad Debt
    The changes to the ESRD bad debt payment in this final rule are not 
changes to the existing ESRD bad debt payment methodology and, 
therefore, there is no impact on ESRD payments from implementing the 
Rule of Construction described in Section 153(a)(4) of MIPPA and 
described elsewhere in this final rule.

B. Anticipated Effects

1. Effects on ESRD Facilities
    To understand the impact of the changes affecting payments to 
different categories of ESRD facilities, it is necessary to compare 
estimated payments in CY 2011 under the current basic case-mix adjusted 
composite payment system (current payments) to estimated payments in CY 
2011 under the final ESRD PPS, including payments to ESRD facilities 
paid a blended rate under the transition (new payments). To estimate 
the impact among various classes of ESRD facilities, it is imperative 
that the estimates of current payments and new payments contain similar 
inputs. Therefore, we simulated payments only for those ESRD facilities 
that we are able to calculate both current payments and new payments.
    ESRD providers were grouped into the categories based on 
characteristics provided in the Online Survey and Certification and 
Reporting (OSCAR) file and the most recent cost report data from the 
Healthcare Cost Report Information System (HCRIS). We also used the 
June 2008 update of CY 2007 National Claims History file as a basis for 
Medicare dialysis treatments and separately billable drugs and 
biologicals.
    Table 35 shows the impact of the ESRD PPS compared to current 
payments to ESRD facilities under the basic case-mix composite payment 
system, including all separately billable items. Column A of impact 
Table 35 indicates the number of ESRD facilities for each impact 
category and column B indicates the number of dialysis treatments (in 
millions).

[[Page 49193]]

[GRAPHIC] [TIFF OMITTED] TR12AU10.043


[[Page 49194]]


[GRAPHIC] [TIFF OMITTED] TR12AU10.044

    Section 1881(b)(14)(E)(ii) of the Act provides all ESRD facilities 
with the option to make a one-time election to be excluded from the 
transition from the current payment system to the ESRD PPS. Electing to 
be excluded from the 4-year transition means that the ESRD facility 
receives payments for renal dialysis services provided on or after 
January 1, 2011, based on 100 percent of the payment rate under the 
final ESRD PPS, rather than a blended rate based in part on the payment 
rate under the current payment system and in part on the payment rate 
under the ESRD PPS.
    In order to estimate which ESRD facilities would and would not 
elect to opt out of the transition and receive payment based on 100 
percent of the payment amount under the ESRD PPS, we estimated both the 
aggregate payments for each ESRD facility under the ESRD PPS (based on 
100 percent of the payment amount under ESRD PPS) and payments in the 
first year of the transition (based on a blend of 25 percent of 
payments under the ESRD PPS and 75 percent of payments under the 
current basic case-mix adjusted composite payment system). We then 
assume that facilities that would receive higher aggregate payments 
under the ESRD PPS would elect to be paid based on 100 percent of the 
payment amount under the ESRD PPS, and facilities that would receive 
higher aggregate payments under the first year of the transition (based 
on a blend of 25 percent of payments under the ESRD PPS and 75 percent 
of payments under the current basic case-mix adjusted composite payment 
system) will elect to be paid under the transition. Based on these 
assumptions, we are estimating that 43 percent of ESRD facilities would 
choose to be excluded from the transition and we estimate that 57 
percent of ESRD facilities would choose to be paid the blended rate 
under the transition.
    Additionally, in accordance with section 1881(b)(14)(E)(iii) of the 
Act and as described in section VII.E of this final rule, we intend to 
apply a transition budget-neutrality adjustment factor to all payments. 
The purpose of this factor is to make the estimated total payments 
under the ESRD PPS equal the estimated total payments that would have 
been made if there had been no transition. We estimate this factor to 
be 0.969. Since the same factor would be applied to all payments, 
including the blended payment rates under the transition, the effect of 
the transition budget neutrality adjustment factor is the same for all 
impact categories.
    The overall effect of the final ESRD PPS, in the first year of the 
transition, is shown in column C. This effect is determined by 
comparing total estimated payments under the ESRD PPS, which includes 
blended payments and payments that are computed using our assumption 
that 43 percent of ESRD facilities would elect to be paid 100 percent 
ESRD PPS and 57 percent of ESRD facilities would elect to go through 
the transition. These payments have also been adjusted to reflect the 
transition budget neutrality adjustment factor. Total payments are then 
compared to payments that would have been made to facilities for renal 
dialysis services provided during CY 2011 under the basic case-mix 
adjusted composite payment system plus items and services separately 
billable under Title XVIII, including ESRD-related Part D drugs.
    In column C, the aggregate impact on all facilities is a 2.0 
percent reduction in payments, which reflects the statutory 98 percent 
budget neutrality provision. Hospital-based ESRD providers of services 
show a 1.8 percent increase because as a group they receive higher 
payments under the ESRD PPS than they would receive under the current 
system. We believe that the model used to create the ESRD PPS 
adjustment factors more accurately predicts costs for this provider 
category. Facilities with less than 4,000 treatments show a 5.4 percent 
increase in payments under the ESRD PPS because many of these 
facilities are eligible to receive the low-volume adjustment, which is 
a 18.9 percent adjustment per treatment. As with hospital-based ESRD 
providers of services, we believe that the model more accurately 
predicts costs for this category. Facilities that chose to retain a 
composite rate exception in the current system will have an 11.3 
percent increase in payments under the ESRD PPS. This may be explained 
by the fact that the current basic case-mix adjusted composite payment 
system does not completely account for their higher costs and that the 
ESRD PPS more accurately accounts for the higher costs of these 
facilities as a group. The largest decrease in payments under the ESRD 
PPS is for facilities in the South Atlantic census region which will 
experience a 4.1 percent decrease. We believe this decrease is a result 
of the current over usage of separately billable drugs.
    Column D shows the effect if all ESRD facilities were paid 100 
percent of the ESRD PPS. In this column, we are showing a hypothetical 
effect, as the statute provides for a 4-year transition to a fully 
implemented ESRD PPS. We show this column as a comparison to column C, 
in order to show how each impact category would have been effected if 
the ESRD PPS had been fully implemented in 2011. In column D, the 
overall effect for all facilities in aggregate is a 2.0 percent 
reduction, which reflects the statutory 98 percent budget neutrality 
provision. As with column C, we see the same categories of ESRD 
facilities most impacted by the ESRD PPS. However, in column D the 
changes are generally more pronounced as those providers do not have 
the mitigating effect of the transition. Since column D shows the 
hypothetical effect if all ESRD facilities were to be paid 100 percent 
of the ESRD PPS in the first year of the transition, there would be no 
need for a transition budget neutrality adjustment to account for the 
cost of the ESRD PPS transition. Therefore, we did not apply the 
transition budget neutrality factor to column D.
    We believe that the comparison of columns C and D shows that the 
statutory option to transition does

[[Page 49195]]

provide a more gradual affect for provider categories that receive 
lower payments under the ESRD PPS, as well as the effect of the 
transition budget neutrality factor. Generally, providers that do well 
under the ESRD PPS show larger increases in column D compared to column 
C because column D does not reflect the transition budget neutrality 
adjustment. However, many provider categories include a combination of 
providers that are estimated to receive higher payments under the ESRD 
PPS and providers that are estimated to receive lower payments under 
the ESRD PPS. We believe the comparison of columns C and D also shows 
that application of the transition budget neutrality factor to all 
payments does not penalize any one group, but rather it evenly 
distributes the effect of this transition budget neutrality factor 
among all provider types.
2. Effects on Other Providers
    Under the expanded bundle in the ESRD PPS, other provider types 
such as laboratories, DME suppliers, and pharmacies would have to seek 
payment from ESRD facilities rather than Medicare. This is because 
under the ESRD PPS, Medicare is paying ESRD facilities one combined 
payment for services that may have been separately paid by Medicare in 
the past. We noted that other provider types noted above may continue 
to provide certain ESRD-related serves; however, beginning January 1, 
2011, they may no longer bill Medicare directly and instead must seek 
payment from ESRD facilities.
3. Effects on the Medicare and Medicaid Programs
    We estimate that Medicare spending (total Medicare program 
payments) for ESRD facilities in 2011 will be approximately $8.0 
billion. This estimate is based on various price update factors 
discussed in section II.E.2. of this final rule. In addition, we 
estimate that there will be an increase in fee-for-service Medicare 
beneficiary enrollment of 3.6 percent in CY 2011. Consistent with the 
requirement for 98 percent budget neutrality in the initial year of 
implementation, we intend for estimated aggregate payments under the 
ESRD PPS to equal 98 percent of the estimated aggregate payments that 
would have been made if the ESRD PPS were not implemented. Our 
methodology for estimating payment for purposes of the budget 
neutrality calculation uses the best available data.
4. Effects on Medicare Beneficiaries
    The principal effect of the ESRD PPS on beneficiaries is that 
implementation of the system will change beneficiary financial 
liability for co-insurance. Under the current basic case-mix adjusted 
composite payment system, beneficiaries pay 20 percent of the basic 
case-mix adjusted payment amount plus 20 percent of ESRD-related 
separately billable drugs; however they do not pay co-insurance on 
separately billable laboratory tests. Under the ESRD PPS, beneficiaries 
will be responsible for paying 20 percent of the ESRD PPS payment 
amount or blended payment amount for patients treated in facilities 
that choose the ESRD PPS transition. As the beneficiary will be 
responsible for the co-insurance on the laboratory tests, we estimate 
they will have a 1.2 percent increase in their payments. Additional 
information regarding beneficiary co-insurance is in section II.K.1.b. 
of this final rule.

C. Alternatives Considered

    In developing this final rule, we considered a number of 
alternatives. We considered other adjustments, including race, 
modality, and site of service. We considered alternative adjustments to 
explain variation in cost and resource usage among patients and ESRD 
facilities. For example, we considered alternatives in the outlier 
policy, such as outlier percentages of 1.5, 2, 2.5, to 3 percent, 
rather than the 1 percentage policy. We also considered a monthly 
payment, but instead are finalizing a per treatment payment.
    The statute requires a low-volume adjustment of at least 10 percent 
and an outlier policy. However, the statute did provide the Secretary 
with discretion in defining low-volume facilities and establishing the 
details of the outlier policy. Throughout this final rule, we discuss 
our rationale for the policy decisions we have made for each adjustment 
that we are finalizing. Although we have discretion on some of the 
adjustments we are finalizing, there is no impact on the aggregate 
amount of spending in the first year of the ESRD PPS (CY 2011) because 
we have standardized the base rate. The base rate is standardized to 
account for the overall positive effect of the case-mix and other 
adjustments.

D. Accounting Statement and Table

    Whenever a rule is considered a significant rule under Executive 
Order 12866, we are required to develop an Accounting Statement showing 
the classification of the expenditures associated with the provisions 
of this final rule.
    Table 36, below provides our best estimate of the decrease in CY 
2011 Medicare payments under the ESRD PPS as a result of the changes 
presented in this final rule based on the best available data. The 
expenditures are classified as a transfer to the Federal Government of 
$230 million dollars (or as a savings to the Medicare Program) and as a 
transfer to provider from the beneficiaries of $30 million.
[GRAPHIC] [TIFF OMITTED] TR12AU10.045

    We received the following comments regarding the impact of the 
proposed rule on small dialysis organizations and independent dialysis 
facilities.
    Comment: One commenter stated that CMS should include within the 
RFA, an analysis of the impact of the compliance requirements of the 
proposed rule on SDOs and an analysis of options for

[[Page 49196]]

regulatory relief. Other commenters expressed concern about the 
increase in administrative costs that will occur due to implementing 
the infrastructure to collect information to support the case-mix 
adjusters, specifically the co-morbidity adjustments.
    Response: As discussed throughout this preamble, we have made 
numerous changes to the proposed ESRD PPS in response to public 
comments and further analysis. The principle change we have made that 
reduces the burden on ESRD facilities is to delay implementation of 
oral-only ESRD-related drugs currently paid under Part D. The inclusion 
of ESRD-related oral drugs is limited and should have minimal impact. 
We believe that many ESRD facilities already have contractual 
arrangements with a pharmacy to obtain Part B injectable drugs. Thus, 
we believe the inclusion of a limited number of oral drugs will not 
pose a significant burden on any ESRD facilities.
    Many of the other adjustments reflect the adjustments in the 
current basic case-mix adjusted composite payment system (that is, age, 
BSA, and BMI) and therefore, should not pose new burden on ESRD 
facilities. In addition, we have not made significant changes in the 
information that ESRD facilities will be required to report on claims 
in order to be eligible for payment adjustments. The only new billing 
requirement is that facilities will be required to line item report 
ESRD-related oral drugs currently covered under Part D. Consistent with 
the policy under the current basic case-mix adjusted composite payment 
system, ESRD facilities will have to report non-ESRD-related services 
(that is, services that are not renal dialysis services) and the 
appropriate modifier on their claims in order to receive payment for 
these services outside the ESRD PPS payment. We have reduced the number 
of co-morbidity adjustment factors and limited the number of acute co-
morbidity diagnostic categories which will minimize the effort needed 
to track and report co-morbid medical conditions that would be eligible 
for an adjustment.
    Comment: Several commenters did not agree with the impacts provided 
in the proposed rule. One commenter conducted an independent analysis 
and asserted that LDOs were more likely than other dialysis providers 
to serve patients disadvantaged by poverty. While the commenter 
believes this finding would support a case-mix adjuster to better 
compensate LDOs for disproportionately servicing areas of high poverty, 
the commenter urged CMS to avoid implementing a case mix adjuster that 
is based on facility type. Other commenters indicated that CMS lacks 
the authority to adjust payments to facilities based on whether they 
are owned by a dialysis organization of a particular size. The 
commenters indicated that distinguishing facilities based on ownership 
status would be an unprecedented extension of CMS' authority to 
determine Medicare payments. One commenter stated that creating a 
tiered reimbursement on the basis of facility size or ownership type 
would create incentives for centers to pursue or retain a certain 
ownership status to receive higher reimbursement.
    Other commenters advocated for an adjustment that would apply to 
small independent and hospital-based facilities, asserting that these 
providers have higher costs and lower margins than LDOs. One commenter 
disputed a finding by MedPAC that the spread in Medicare margin for 
LDOs compared to small dialysis organizations (SDOs) is about 6 percent 
and stated that SDOs are incurring even further losses from Medicare, 
maybe 3 percent more per treatment.
    One commenter suggested that we revise the facility-level 
adjustments or develop a new case-mix adjustment to account for the 
administrative and financial burden for SDOs. Other commenters stated 
that the SDOs do not have the economies of scale and resources to 
implement the ESRD PPS and, therefore, will be forced to provide 
substandard care or close. The commenters expressed concern that 
competition allows patient choice and access to care and that we should 
support small businesses and work to ``level the playing field for 
providers of all sizes.''
    Response: We have not provided a facility-level adjustment to 
reflect the size of the chain of dialysis facilities with which an ESRD 
facility is affiliated because our analysis does not indicate that such 
adjustments are warranted. In the final impact table (Table 35), 
facilities that are part of LDOs are projected to experience a -3.0 
percent decrease in payment under the PPS compared to what they would 
have received in the absence of the PPS; medium-sized dialysis 
organizations (which are captured under the heading regional chains) 
are projected to experience a -0.9 percent decrease; SDOs are projected 
to experience a -0.3 percent decrease; and hospital-based facilities 
are projected to experience a 1.7 percent increase. Given that the 
impact percentages include the -2.0 percent decrease mandated by 
section 1881(b)(14)(A)(ii) of the Act, we do not believe these 
projected impacts indicate a need for adjustments based on the size of 
the facility or chain organization.
    In addition, although there may currently be differences in the 
spread in Medicare margin for LDOs compared to small dialysis 
organizations (SDOs), the estimate indicated by the commenter is based 
upon the current basic case-mix adjusted composite payment system. As 
stated above, our analysis based on the payment adjustments in this 
final rule indicate that SDOs are projected do better under the ESRD 
PPS than larger organizations. We will be monitoring the effects of the 
ESRD PPS and will consider the commenters' suggestions as we refine the 
ESRD PPS.
    With regard to the need for an adjustment for SDOs due to the 
administrative and financial burden of the ESRD PPS, we believe the 
decision to delay the implementation of oral-only Part D drugs under 
the ESRD PPS until after the transition as discussed in section II.A.3. 
of this final rule and the reduction in the number of co-morbidity 
adjustments described in section II.F.3. of this final rule will reduce 
substantially the administrative and financial burden on all ESRD 
facilities, including SDOs.
    Comment: Many commenters stated that SDOs provide essential 
services to ESRD beneficiaries and requested that we take steps to 
ensure the survival of small ESRD facilities, thus preserving 
beneficiary choice. Commenters identified additional services such as 
dressing changes, staple removal and other basic nursing related tasks 
that small and independent ESRD facilities provide to patients who 
reside in remote areas to alleviate some of the burden associated with 
traveling to multiple healthcare providers for the provision of basic 
services. Commenters asserted that the calculations and adjusting of 
the base rate have reduced it to a value that will not allow SDOs and 
independents to survive. The commenters believed that the closure of 
these facilities would compromise beneficiary access to life sustaining 
dialysis and other basic services. The commenters stated that a higher 
base rate and fewer adjusters would be more beneficial to the SDOs and 
MDOs.
    Response: We agree that ESRD facilities located in remote areas 
provide essential services to their patients and are interested in 
preserving beneficiary choice and access in these areas. As discussed 
further in sections II.F.3. and 4. of this final rule, we are 
finalizing a more targeted set of payment adjustments and reducing the 
standardization factor that is applied to the base rate. As a result, 
as discussed in section II.E.3. of this final rule, the

[[Page 49197]]

adjusted base rate has increased from $198.64 in the proposed rule to 
$229.63.
    Comment: One commenter believed that section 150(d)(iv) of MIPPA 
provides CMS with the authority to make an annual update to account for 
the cost differential of ESRD facilities that do not qualify for the 
low-volume adjustment. This commenter further stated that such an 
adjustment would balance the incentives for efficiency and budget 
neutrality with the needs of patient care and a more competitive 
marketplace.
    Response: We believe the commenter is referring to section 
1881(b)(14)(D)(iv) of the Act which provides authority for other 
payment adjustments. Although we have the authority to establish other 
payment adjustments, we do not believe creating adjustments to create a 
more competitive marketplace is an appropriate use of this authority.
    Comment: Several commenters did not believe that the market basket 
update would address the low margins for SDOs especially in the context 
of a two percent reduction in payments under the bundle. The commenters 
believed that at baseline, the SDO payments would be reduced while many 
of the cost inputs would continue to increase from inflation resulting 
in further reduction in SDOs' margins. The commenters asserted that 
SDOs have less room than other facilities to adjust under the PPS. 
These commenters concluded that even with new systems and processes in 
place, the adjustments that the SDOs will receive under the proposed 
ESRD PPS may not be sufficient to cover the additional costs and 
burdens of the ESRD PPS.
    Response: As we indicated previously, the final impact analysis 
does not indicate that an adjustment for SDOs is warranted. In 
addition, to the extent facilities affiliated with SDOs expect to 
receive financial benefits from the ESRD PPS transition, that option is 
available to them.
    Comment: Several commenters stated that they did not believe that 
the proposed facility adjustments and outlier policy adequately 
addresses the many needs of isolated essential facilities.
    Response: We disagree with these commenters as the final impact 
analysis shows that all rural facilities (including those facilities 
that received IEF exceptions) would see only a slight decrease under 
the ESRD PPS in 2011 (-2.1 percent decrease). The impact on those few 
facilities that received a composite rate exception as isolated 
essential facilities is expected to be positive as those facilities are 
projected to receive an increase in payment over the current composite 
payment system.
    Comment: One commenter stated that certain drugs used in the 
treatment of ESRD, particularly ESAs, have no competition within their 
drug class because they represent a manufacturer's monopoly. Because of 
the lack of competitive bidding, the commenter maintained that rural 
ESRD facilities would not be able to compete in price due to their 
smaller buying power compared to the larger chains. The commenter 
recommended an adjustment factor for small rural facilities to address 
this disadvantage.
    Response: We do not believe that we should provide a special 
subsidy to facilities based on size or ownership because of a perceived 
disadvantage in buying power. We point out that facilities that believe 
that they are at a competitive disadvantage in purchasing required 
drugs or supplies due to size or location have the option of forming 
purchasing consortia in order to leverage their ability to buy products 
at discounted rates. In addition, in this final rule we have provided 
for a low-volume adjustment for qualifying ESRD facilities that furnish 
a small number of treatments and meet other requirements in order to 
preserve access to dialysis care, where operational costs due to 
economies of scale might otherwise jeopardize that access. Finally, we 
note that the impact analysis does not show that small or rural ESRD 
facilities are particularly disadvantaged under the new system.

E. Conclusion

    The impact analysis shows an overall decrease in payments to all 
ESRD facilities for renal dialysis services of 2.0 percent. This is 
because of the statutory requirement that payments under the ESRD PPS 
in 2011 equal 98 percent of what ESRD facilities would have received 
were the ESRD PPS not implemented (or 98 percent of payments to ESRD 
facilities under the current payment system).
    The analysis above, together with the remainder of this preamble, 
provides an initial Regulatory Flexibility Analysis. The analysis 
above, together with the remainder of this preamble, provides a 
Regulatory Impact Analysis.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects

42 CFR Part 410

    Health facilities, Health professions, Kidney diseases, 
Laboratories, Medicare, Reporting and recordkeeping requirements, Rural 
areas, X-rays.

42 CFR Part 413

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

42 CFR Part 414

    Administrative practice and procedure, Health facilities, Health 
professions, Kidney diseases, Medicare, Reporting and recordkeeping 
requirements.


0
For reasons stated in the preamble of this document, the Centers for 
Medicare & Medicaid Services amends 42 CFR Chapter IV as follows:

PART 410--SUPPLEMENTARY MEDICAL INSURANCE (SMI) BENEFITS

Subpart B--Medical and Other Health Services

0
1. The authority citation for part 410 is revised to read as follows:

    Authority: Secs. 1102, 1834, 1871, 1881, and 1893 of the Social 
Security Act (42 U.S.C. 1302. 1395m, 1395hh, and 1395ddd.


0
2. Section 410.50 is amended by revising paragraph (a) to read as 
follows:


Sec.  410.50  Institutional dialysis services and supplies: Scope and 
conditions.

* * * * *
    (a) All services, items, supplies, and equipment necessary to 
perform dialysis and drugs medically necessary and the treatment of the 
patient for ESRD and, as of January 1, 2011, renal dialysis services as 
defined in Sec.  413.171 of this chapter.
* * * * *

PART 413--PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR 
END-STAGE RENAL DISEASE SERVICES; OPTIONAL PROSPECTIVELY DETERMINED 
PAYMENT RATES FOR SKILLED NURSING FACILITIES

0
3. The authority citation for part 413 continues to read as follows:

    Authority: Secs. 1102, 1812(d), 1814(b), 1815, 1833(a), (i), and 
(n), 1861(v), 1871, 1881, 1883, and 1886 of the Social Security Act 
(42 U.S.C. 1302, 1395d(d), 1395f(b), 1395(g), 1395I(a), (i), and 
(n), 1395x(v), 1395hh, 1395rr, 1395tt, and 1395ww); and sec. 124 of 
Public Law 106-113 (133 stat. 1501A-332)

[[Page 49198]]

Subpart F--Specific Categories of Costs

0
4. Section 413.89 is amended by adding a new paragraph (h)(3) to read 
as follows:


Sec.  413.89  Bad debts, charity, and courtesy allowances.

* * * * *
    (h) * * *
    (3) ESRD facilities--
    (i) Limitation on bad debt. The amount of ESRD facility bad debts 
otherwise treated as allowable costs described in Sec.  413.178.
    (ii) Exception. Bad debts arising from covered services paid under 
a reasonable charge-based methodology or a fee schedule are not 
reimbursable under the program. Additional exceptions for ESRD bad debt 
payments are described in Sec.  413.178(d).

Subpart H--Payment for End-Stage Renal Disease (ESRD) Services and 
Organ Procurement Costs


0
5. Section 413.170 is amended by revising the introductory text, 
paragraph (a) and paragraph (b) to read as follows:


Sec.  413.170  Scope.

    This subpart implements sections 1881(b)(2), (b)(4), (b)(7), and 
(b)(12) through (b)(14) of the Act by--
    (a) Setting forth the principles and authorities under which CMS is 
authorized to establish a prospective payment system for outpatient 
maintenance dialysis services in or under the supervision of an ESRD 
facility that meets the conditions of coverage in part 494 of this 
chapter and as defined in Sec.  413.171(c).
    (b) Providing procedures and criteria under which a pediatric ESRD 
facility (an ESRD facility with at least a 50 percent pediatric patient 
mix as specified in Sec.  413.184 of this subpart) may receive an 
exception to its prospective payment rate prior to January 1, 2011; and
* * * * *


0
6. Section 413.171 is added to read as follows:


Sec.  413.171  Definitions.

    For purposes of this subpart, the following definitions apply:
    Base rate. The average payment amount per-treatment, standardized 
to remove the effects of case-mix and area wage levels and further 
reduced for budget neutrality and the outlier percentage. The base rate 
is the amount to which the patient-specific case-mix adjustments and 
any ESRD facility adjustments, if applicable, are applied.
    Composite Rate Services. Items and services used in the provision 
of outpatient maintenance dialysis for the treatment of ESRD and 
included in the composite payment system established under section 
1881(b)(7) and the basic case-mix adjusted composite payment system 
established under section 1881(b)(12) of the Act.
    ESRD facility. An ESRD facility is an independent facility or a 
hospital-based provider of services (as described in Sec.  413.174(b) 
and (c) of this chapter), including facilities that have a self-care 
dialysis unit that furnish only self-dialysis services as defined in 
Sec.  494.10 of this chapter and meets the supervision requirements 
described in part 494 of this chapter, and that furnishes institutional 
dialysis services and supplies under Sec.  410.50 and Sec.  410.52 of 
this chapter.
    New ESRD facility. A new ESRD facility is an ESRD facility (as 
defined above) that is certified for Medicare participation on or after 
January 1, 2011.
    Pediatric ESRD Patient. A pediatric ESRD patient is defined as an 
individual less than 18 years of age who is receiving renal dialysis 
services.
    Renal dialysis services. Effective January 1, 2011, the following 
items and services are considered ``renal dialysis services,'' and paid 
under the ESRD prospective payment system under section 1881(b)(14) of 
the Act:
    (1) Items and services included in the composite rate for renal 
dialysis services as of December 31, 2010;
    (2) Erythropoiesis stimulating agents and any oral form of such 
agents that are furnished to individuals for the treatment of ESRD;
    (3) Other drugs and biologicals that are furnished to individuals 
for the treatment of ESRD and for which payment was (prior to January 
1, 2011) made separately under Title XVIII of the Act (including drugs 
and biologicals with only an oral form),
    (4) Diagnostic laboratory tests and other items and services not 
described in paragraph (1) of this definition that are furnished to 
individuals for the treatment of ESRD.
    (5) Renal dialysis services do not include those services that are 
not essential for the delivery of maintenance dialysis.
    Separately billable items and services. Items and services used in 
the provision of outpatient maintenance dialysis for the treatment of 
individuals with ESRD that were or would have been, prior to January 1, 
2011, separately payable under Title XVIII of the Act and not included 
in the payment systems established under section 1881(b)(7) and section 
1881(b)(12) of the Act.
0
7. Section 413.172 is amended by revising paragraph (a), paragraph (b), 
and paragraph (b)(1) to read as follows:


Sec.  413.172  Principles of prospective payment.

    (a) Payment for renal dialysis services as defined in Sec.  413.171 
and home dialysis services as defined in Sec.  413.217 of this chapter 
are based on payment rates set prospectively by CMS.
    (b) All approved ESRD facilities must accept the prospective 
payment rates established by CMS as payment in full for covered renal 
dialysis services as defined in Sec.  413.171 or home dialysis 
services. Approved ESRD facility means--
    (1) Any independent ESRD facility or hospital-based provider of 
services (as defined in Sec.  413.174(b) and Sec.  413.174(c) of this 
part) that has been approved by CMS to participate in Medicare as an 
ESRD supplier; or
* * * * *

0
8. Section 413.174 is amended as follows:
0
a. By revising paragraph (a).
0
b. By revising paragraphs (f) introductory text, (f)(3), and (f)(4).
0
c. By adding a new paragraphs (f)(5) and (f)(6). The revisions and 
additions read as follows:


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

    (a) Establishment of rates. CMS establishes prospective payment 
rates for ESRD facilities using a methodology that--
    (1) Differentiates between hospital-based providers of services and 
independent ESRD facilities for items and services furnished prior to 
January 1, 2009;
    (2) Does not differentiate between hospital-based providers of 
services and independent ESRD facilities for items and services 
furnished on or after January 1, 2009; and
    (3) Requires the labor share be based on the labor share otherwise 
applied to independent ESRD facilities when applying the geographic 
index to hospital-based ESRD providers of services, on or after January 
1, 2009.
* * * * *
    (f) Additional payment for separately billable drugs and 
biologicals. Prior to January 1, 2011, CMS makes additional payment 
directly to an ESRD facility for certain ESRD-related drugs and 
biologicals furnished to ESRD patients.
* * * * *
    (3) For drugs furnished prior to January 1, 2006, payment is made 
to hospital-based ESRD providers of services on a reasonable cost 
basis.

[[Page 49199]]

Effective January 1, 2006, and prior to January 1, 2011, payment for 
drugs furnished by a hospital-based ESRD provider of service is based 
on the methodology specified in Sec.  414.904 of this chapter.
    (4) For drugs furnished prior to January 1, 2006, payment is made 
to independent ESRD facilities based on the methodology specified in 
Sec.  405.517 of this chapter. Effective January 1, 2006, and prior to 
January 1, 2011, payment for drugs and biological furnished by 
independent ESRD facilities is based on the methodology specified in 
Sec.  414.904 of this chapter.
    (5) Effective January 1, 2011, except as provided below, payment to 
an ESRD facility for renal dialysis service drugs and biologicals as 
defined in Sec.  413.171, furnished to ESRD patients on or after 
January 1, 2011 is incorporated within the prospective payment system 
rates established by CMS in Sec.  413.230 and separate payment will no 
longer be provided.
    (6) Effective January 1, 2014, payment to an ESRD facility for 
renal dialysis service drugs and biologicals with only an oral form 
furnished to ESRD patients is incorporated within the prospective 
payment system rates established by CMS in Sec.  413.230 and separate 
payment will no longer be provided.

0
9. Section 413.176 is revised to read as follows:


Sec.  413.176  Amount of payments.

    For items and services, for which payment is made under section 
1881(b)(7), section 1881(b)(12), and section 1881(b)(14) of the Act:
    (a) If the beneficiary has incurred the full deductible applicable 
under Part B of Medicare before the dialysis treatment, Medicare pays 
the ESRD facility 80 percent of its prospective rate.
    (b) If the beneficiary has not incurred the full deductible 
applicable under Part B of Medicare before the dialysis treatment, CMS 
subtracts the amount applicable to the deductible from the ESRD 
facility's prospective rate and pays the facility 80 percent of the 
remainder, if any.

0
10. Section 413.178 is amended by revising paragraph (d) to read as 
follows:


Sec.  413.178  Bad debts.

* * * * *
    (d) Exceptions. (1) Bad debts arising from covered ESRD services 
paid under a reasonable charge-based methodology or a fee schedule are 
not reimbursable under the program.
    (2) For services furnished on or after January 1, 2011, bad debts 
arising from covered ESRD items or services that, prior to January 1, 
2011 were paid under a reasonable charge-based methodology or a fee 
schedule, including but not limited to drugs, laboratory tests, and 
supplies are not reimbursable under the program.

0
11. Section 413.180 is amended by adding a new paragraph (l) to read as 
follows.

Sec.  413.180  Procedures for requesting exceptions to payment rates.

* * * * *
    (l) Periods of exceptions. (1) Prior to December 31, 2000, an ESRD 
facility may receive an exception to its composite payment rate for 
isolated essential facilities, self dialysis training costs, atypical 
service intensity (patient mix) and pediatric facilities.
    (2) Effective December 31, 2000, an ESRD facility not subject to 
paragraph (l)(3), is no longer granted any new exception to the 
composite payment rate as defined in Sec.  413.180(1).
    (3) Effective April 1, 2004 through September 27, 2004, and on an 
annual basis, an ESRD facility with at least 50 percent pediatric 
patient mix as specified in Sec.  413.184 of this part, that did not 
have an exception rate in effect as of October 1, 2002, may apply for 
an exception to its composite payment rate.
    (4) For ESRD facilities that are paid a blended rate for renal 
dialysis services provided during the transition described in Sec.  
413.239 of this part, any existing exceptions for isolated essential 
facilities, self dialysis training costs, atypical service intensity 
(patient mix) and pediatric facilities are used as the payment amount 
in place of the composite rate, and will be terminated for ESRD 
services furnished on or after January 1, 2014.
    (5) For ESRD facilities that, in accordance with Sec.  413.239(b) 
of this part, elect to be paid for renal dialysis services provided 
during the transition based on 100 percent of the payment amount 
determined under Sec.  413.220, any existing exceptions for isolated 
essential facilities, self dialysis training costs, atypical service 
intensity (patient mix) and pediatric facilities are terminated for 
ESRD services furnished on or after January 1, 2011.

0
12. Section 413.195 is added to read as follows:


Sec.  413.195  Limitation on Review.

    Administrative or judicial review under section 1869 of the Act, 
section 1878 of the Act, or otherwise of the following is prohibited: 
The determination of payment amounts under section 1881(b)(14)(A) of 
the Act, the establishment of an appropriate unit of payment under 
section 1881(b)(14)(C) of the Act, the identification of renal dialysis 
services included in the bundled payment, the adjustments under section 
1881(b)(14)(D) of the Act, the application of the phase-in under 
section 1881(b)(14)(E) of the Act, and the establishment of the market 
basket percentage increase factors under section 1881(b)(14)(F) of the 
Act.

0
13. Section 413.196 is amended by adding new paragraphs (c) and (d) to 
read as follows:


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

* * * * *
    (c) Effective for items and services furnished on or after January 
1, 2011 and before January 1, 2012, CMS adjusts the composite rate 
portion of the basic case-mix adjusted composite payment system 
described in Sec.  413.220 by the ESRD bundled market basket percentage 
increase factor.
    (d) Effective for items and services furnished on or after January 
1, 2012, CMS updates on an annual basis the following:
    (1) The per-treatment base rate and the composite rate portion of 
the basic case-mix adjusted composite payment system described in Sec.  
413.220 by the ESRD bundled market basket percentage increase factor 
minus a productivity adjustment factor.
    (2) The wage index using the most current hospital wage data.
    (3) The fixed dollar loss amount as defined in Sec.  413.237 of 
this part to ensure that outlier payments continue to be 1.0 percent of 
total payments to ESRD facilities.

0
14. Section 413.210 is added to subpart H to read as follows:


Sec.  413.210  Conditions for payment under the end-stage renal disease 
(ESRD) prospective payment system.

    Except as noted in Sec.  413.174(f), items and services furnished 
on or after January 1, 2011, under section 1881(b)(14)(A) of the Act 
and as identified in Sec.  413.217 of this part, are paid under the 
ESRD prospective payment system described in Sec.  413.215 through 
Sec.  413.235 of this part.
    (a) Qualifications for payment. To qualify for payment, ESRD 
facilities must meet the conditions for coverage in part 494 of this 
chapter.
    (b) Payment for items and services. CMS will not pay any entity or 
supplier other than the ESRD facility for covered items and services 
furnished to a Medicare beneficiary. The ESRD facility must furnish all 
covered items and

[[Page 49200]]

services defined in Sec.  413.217 of this part either directly or under 
arrangements.

0
15. Section 413.215 is added to subpart H to read as follows:


Sec.  413.215  Basis of payment.

    (a) Except as otherwise provided under Sec.  413.235 or Sec.  
413.174(f) of this part, effective January 1, 2011, ESRD facilities 
receive a predetermined per treatment payment amount described in Sec.  
413.230 of this part, for renal dialysis services, specified under 
section 1881(b)(14) of the Act and as defined in Sec.  413.217 of this 
part, furnished to Medicare Part B fee-for-service beneficiaries.
    (b) In addition to the per-treatment payment amount, as described 
in Sec.  413.215(a) of this part, the ESRD facility may receive payment 
for bad debts of Medicare beneficiaries as specified in Sec.  413.178 
of this part.

0
16. Section 413.217 is added to subpart H to read as follows:


Sec.  413.217  Items and services included in the ESRD prospective 
payment system.

    The following items and services are included in the ESRD 
prospective payment system effective January 1, 2011:
    (a) Renal dialysis services as defined in Sec.  413.171; and
    (b) Home dialysis services, support, and equipment as identified in 
Sec.  410.52 of this chapter.

0
17. Section 413.220 is added to subpart H to read as follows:


Sec.  413.220   Methodology for calculating the per-treatment base rate 
under the ESRD prospective payment system effective January 1, 2011.

    (a) Data sources. The methodology for determining the per treatment 
base rate under the ESRD prospective payment system utilized:
    (1) Medicare data available to estimate the average cost and 
payments for renal dialysis services.
    (2) ESRD facility cost report data capturing the average cost per 
treatment.
    (3) The lowest per patient utilization calendar year as identified 
from Medicare claims is calendar year 2007.
    (4) Wage index values used to adjust for geographic wage levels 
described in Sec.  413.231 of this part.
    (5) An adjustment factor to account for the most recent estimate of 
increases in the prices of an appropriate market basket of goods and 
services provided by ESRD facilities.
    (b) Determining the per treatment base rate for calendar year 2011. 
Except as noted in Sec.  413.174(f), the ESRD prospective payment 
system combines payments for the composite rate items and services as 
defined in Sec.  413.171 of this part and the items and services that, 
prior to January 1, 2011, were separately billable items and services, 
as defined in Sec.  413.171 of this part, into a single per treatment 
base rate developed from 2007 claims data. The steps to calculating the 
per-treatment base rate for 2011 are as follows:
    (1) Per patient utilization in CY 2007, 2008, or 2009. CMS removes 
the effects of enrollment and price growth from total expenditures for 
2007, 2008 or 2009 to determine the year with the lowest per patient 
utilization.
    (2) Update of per treatment base rate to 2011. CMS updates the per-
treatment base rate under the ESRD prospective payment system in order 
to reflect estimated per treatment costs in 2011.
    (3) Standardization. CMS applies a reduction factor to the per 
treatment base rate to reflect estimated increases resulting from the 
facility-level and patient-level adjustments applicable to the case as 
described in Sec.  413.231 through Sec.  413.235 of this part.
    (4) Outlier percentage. CMS reduces the per treatment base rate by 
1 percent to account for the proportion of the estimated total payments 
under the ESRD prospective payment system that are outlier payments as 
described in Sec.  413.237 of this part.
    (5) Budget neutrality. CMS adjusts the per treatment base rate so 
that the aggregate payments in 2011 are estimated to be 98 percent of 
the amount that would have been made under title XVIII of the Social 
Security Act if the ESRD prospective payment system described in 
section 1881(b)(14) of the Act were not implemented.
    (6) First 4 Years of the ESRD prospective payment system. During 
the first 4 years of ESRD prospective payment system (January 1, 2011 
to December 31, 2013), CMS adjusts the per-treatment base rate in 
accordance with Sec.  413.239(d).

0
18. Section 413.230 is added to subpart H to read as follows:


Sec.  413.230  Determining the per treatment payment amount.

    The per-treatment payment amount is the sum of:
    (a) The per treatment base rate established in Sec.  413.220, 
adjusted for wages as described in Sec.  413.231, and adjusted for 
facility-level and patient-level characteristics described in Sec.  
413.232 and Sec.  413.235 of this part;
    (b) Any outlier payment under Sec.  413.237; and
    (c) Any training adjustment add-on under Sec.  414.335(b).

0
19. Section 413.231 is added to subpart H to read as follows:


Sec.  413.231   Adjustment for wages.

    (a) CMS adjusts the labor-related portion of the base rate to 
account for geographic differences in the area wage levels using an 
appropriate wage index (established by CMS) which reflects the relative 
level of hospital wages and wage-related costs in the geographic area 
in which the ESRD facility is located.
    (b) The application of the wage index is made on the basis of the 
location of the ESRD facility in an urban or rural area as defined in 
this paragraph (b).
    (1) Urban area means a Metropolitan Statistical Area or a 
Metropolitan division (in the case where a Metropolitan Statistical 
Area is divided into Metropolitan Divisions), as defined by OMB.
    (2) Rural area means any area outside an urban area.

0
20. Section 413.232 is added to subpart H to read as follows:


Sec.  413.232  Low-volume adjustment.

    (a) CMS adjusts the base rate for low-volume ESRD facilities, as 
defined in paragraph (b) of this section.
    (b) Definition of low-volume facility. A low-volume facility is an 
ESRD facility that:
    (1) Furnished less than 4,000 treatments in each of the 3 years 
preceding the payment year; and
    (2) Has not opened, closed, or had a change in ownership in the 3 
years preceding the payment year.
    (c) For the purpose of determining the number of treatments under 
paragraph (b)(1) of this section, the number of treatments considered 
furnished by the ESRD facility shall equal the aggregate number of 
treatments furnished by the ESRD facility and the number of treatments 
furnished by other ESRD facilities that are both:
    (1) Under common ownership with, and
    (2) 25 miles or less from the ESRD facility in question.
    (d) The determination under paragraph (c) of this section does not 
apply to an ESRD facility that was in existence and certified for 
Medicare participation prior January 1, 2011.
    (e) Common ownership means the same individual, individuals, 
entity, or entities, directly, or indirectly, own 5 percent or more of 
each ESRD facility.
    (f) To receive the low-volume adjustment, an ESRD facility must 
provide an attestation statement to their Medicare administrative 
contractor that the facility has met all the criteria as established in 
paragraphs (a), (b), (c), and (d) of this section.

[[Page 49201]]

    (g) The low-volume adjustment applies only for dialysis treatments 
provided to adults (18 years or older).

0
21. Section 413.235 is added to subpart H to read as follows:


Sec.  413.235  Patient-level adjustments.

    Adjustments to the per-treatment base rate may be made to account 
for variation in case-mix. These adjustments reflect patient 
characteristics that result in higher costs for ESRD facilities.
    (a) CMS adjusts the per treatment base rate for adults to account 
for patient age, body surface area, low body mass index, onset of 
dialysis (new patient), and co-morbidities, as specified by CMS.
    (b) CMS adjusts the per treatment base rate for pediatric patients 
in accordance with section 1881(b)(14) (D)(iv)(I) of the Act, to 
account for patient age and treatment modality.
    (c) CMS provides a wage-adjusted add-on per treatment adjustment 
for home and self-dialysis training.

0
22. Section 413.237 is added to subpart H to read as follows:


Sec.  413.237  Outliers.

    (a) The following definitions apply to this section.
    (1) ESRD outlier services are the following items and services that 
are included in the ESRD PPS bundle: (i) ESRD-related drugs and 
biologicals that were or would have been, prior to January 1, 2011, 
separately billable under Medicare Part B;
    (ii) ESRD-related laboratory tests that were or would have been, 
prior to January 1, 2011, separately billable under Medicare Part B;
    (iii) Medical/surgical supplies, including syringes, used to 
administer ESRD-related drugs that were or would have been, prior to 
January 1, 2011, separately billable under Medicare Part B; and
    (iv) Renal dialysis service drugs that were or would have been, 
prior to January 1, 2011, covered under Medicare Part D, excluding 
ESRD-related oral-only drugs effective January 1, 2014.
    (2) Adult predicted ESRD outlier services Medicare allowable 
payment (MAP) amount means the predicted per-treatment case-mix 
adjusted amount for ESRD outlier services furnished to an adult 
beneficiary by an ESRD facility.
    (3) Pediatric predicted ESRD outlier services Medicare allowable 
payment (MAP) amount means the predicted per-treatment case-mix 
adjusted amount for ESRD outlier services furnished to a pediatric 
beneficiary by an ESRD facility.
    (4) Adult fixed dollar loss amount is the amount by which an ESRD 
facility's imputed per-treatment MAP amount for furnishing ESRD outlier 
services to an adult beneficiary must exceed the adult predicted ESRD 
outlier services MAP amount to be eligible for an outlier payment.
    (5) Pediatric fixed dollar loss amount is the amount by which an 
ESRD facility's imputed per-treatment MAP amount for furnishing ESRD 
outlier services to a pediatric beneficiary must exceed the pediatric 
predicted ESRD outlier services MAP amount to be eligible for an 
outlier payment.
    (6) Outlier Percentage: This term has the meaning set forth in 
Sec.  413.220(b)(4).
    (b) Eligibility for outlier payments.
    (1) Adult beneficiaries. An ESRD facility will receive an outlier 
payment for a treatment furnished to an adult beneficiary if the ESRD 
facility's per-treatment imputed MAP amount for ESRD outlier services 
exceeds the adult predicted ESRD outlier services MAP amount plus the 
adult fixed dollar loss amount. To calculate the ESRD facility's per-
treatment imputed MAP amount for an adult beneficiary, CMS divides the 
ESRD facility's monthly imputed MAP amount of providing ESRD outlier 
services to the adult beneficiary by the number of dialysis treatments 
furnished to the adult beneficiary in the relevant month. A beneficiary 
is considered an adult beneficiary if the beneficiary is 18 years old 
or older.
    (2) Pediatric beneficiaries. An ESRD facility will receive an 
outlier payment for a treatment furnished to a pediatric beneficiary if 
the ESRD facility's per-treatment imputed MAP amount for ESRD outlier 
services exceeds the pediatric predicted ESRD outlier services MAP 
amount plus the pediatric fixed dollar loss amount. To calculate the 
ESRD facility's per-treatment imputed MAP amount for a pediatric 
beneficiary, CMS divides the ESRD facility's monthly imputed MAP amount 
of providing ESRD outlier services to the pediatric beneficiary by the 
number of dialysis treatments furnished to the pediatric beneficiary in 
the relevant month. A beneficiary is considered a pediatric beneficiary 
if the beneficiary is under 18 years old.
    (c) Outlier payment amount: CMS pays 80 percent of the difference 
between:
    (1) The ESRD facility's per-treatment imputed MAP amount for the 
ESRD outlier services, and
    (2) The adult or pediatric predicted ESRD outlier services MAP 
amount plus the adult or pediatric fixed dollar loss amount, as 
applicable.

0
23. Section 413.239 is added to subpart H to read as follows:


Sec.  413.239  Transition period.

    (a) Duration of transition period and composition of the blended 
transition payment. ESRD facilities not electing under paragraph (b) of 
this section to be paid based on the payment amount determined under 
Sec.  413.230 of this part, will be paid a per-treatment payment amount 
for renal dialysis services (as defined in Sec.  413.171 of this part) 
and home dialysis, provided during the transition as follows--
    (1) For services provided on and after January 1, 2011 through 
December 31, 2011, a blended rate equal to the sum of:
    (i) 75 percent of the payment amount determined under the ESRD 
payment methodology in effect prior to January 1, 2011 in accordance 
with section 1881(b)(12) of the Act and items and services separately 
paid under Part B; and
    (ii) 25 percent of the payment amount determined in accordance with 
section 1881(b)(14) of the Act;
    (2) For services provided on and after January 1, 2012 through 
December 31, 2012, a blended rate equal to the sum of:
    (i) 50 percent of the payment amount determined under the ESRD 
payment methodology in effect prior to January 1, 2011 in accordance 
with section 1881(b)(12) of the Act and items and services separately 
paid under Part B; and
    (ii) 50 percent of the payment rate determined in accordance with 
section 1881(b)(14) of the Act;
    (3) For services provided on and after January 1, 2013 through 
December 31, 2013, a blended rate equal to the sum of:
    (i) 25 percent of the payment amount determined under the ESRD 
payment methodology in effect prior to January 1, 2011 in accordance 
with section 1881(b) (12) of the Act and items and services separately 
paid under Part B; and
    (ii) 75 percent of the payment amount determined in accordance with 
section 1881(b)(14) of the Act;
    (4) For services provided on and after January 1, 2014, 100 percent 
of the payment amount determined in accordance with section 1881(b)(14) 
of the Act.
    (b) One-time election. Except as provided in paragraph (b)(2) of 
this section, ESRD facilities may make a one-time election to be paid 
for renal dialysis services provided during the transition based on 100 
percent of the payment amount determined under Sec.  413.215 of this 
part, rather than based

[[Page 49202]]

on the payment amount determined under paragraph (a) of this section.
    (1) Except as provided in paragraph (b)(3) of this section, the 
election must be received by each ESRD facility's Medicare 
administrative contractor (MAC) by November 1, 2010. Requests received 
by the MAC after November 1, 2010, will not be accepted regardless of 
postmarks, or delivered dates. MACs will establish the manner in which 
an ESRD facility will indicate their intention to be excluded from the 
transition and paid entirely based on payment under the ESRD PPS. Once 
the election is made, it may not be rescinded.
    (2) If the ESRD facility fails to submit an election, or the ESRD 
facility's election is not received by their MAC by November 1, 2010, 
payments to the ESRD facility for items and services provided during 
the transition will be based on the payment amounts determined under 
paragraph (a) of this section.
    (3) ESRD facilities that become certified for Medicare 
participation and begin to provide renal dialysis services, as defined 
in Sec.  413.171 of this part, between November 1, 2010 and December 
31, 2010, must notify their designated MAC of their election choice at 
the time of enrollment.
    (c) Treatment of new ESRD facilities. For renal dialysis services 
as defined in Sec.  413.171, furnished during the transition period, 
new ESRD facilities as defined in Sec.  413.171, are paid based on the 
per-treatment payment amount determined under Sec.  413.215 of this 
part.
    (d) Transition budget-neutrality adjustment. During the transition, 
CMS adjusts all payments, including payments under this section, under 
the ESRD prospective payment system so that the estimated total amount 
of payment equals the estimated total amount of payments that would 
otherwise occur without such a transition.

0
24. Section 413.241 is added to subpart H to read as follows:


Sec.  413.241  Pharmacy arrangements.

    Effective January 1, 2011, an ESRD facility that enters into an 
arrangement with a pharmacy to furnish renal dialysis service drugs and 
biologicals must ensure that the pharmacy has the capability to provide 
all classes of renal dialysis service drugs and biologicals to patients 
in a timely manner.

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

0
25. The authority citation for part 414 continues to read as follows:

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

Subpart E--Determination of Reasonable Charges Under the ESRD 
Program

0
26. Section 414.330 is amended by--
0
A. Removing ``Sec.  413.170'' and adding in its place ``Sec.  413.210'' 
in paragraph (a)(1) and paragraph (b)(1).
0
B. Revising the heading of paragraph (a)(2).
0
C. Revising the heading of paragraph (b)(2).
0
D. Removing the paragraph heading and adding in its place new 
introductory text in paragraph (c).


Sec.  414.330  Payment for home dialysis equipment, supplies, and 
support services.

    (a) * * *
    (2) Exception for equipment and supplies furnished prior to January 
1, 2011. * * *
* * * * *
    (b) * * *
    (2) Exception for home support services furnished prior to January 
1, 2011. * * *
* * * * *
    (c) Payment limits for support services, equipment and supplies, 
and notification of changes to the payment limits apply prior to 
January 1, 2011 as follows:
* * * * *

0
27. Revise Sec.  414.335 to read as follows:


Sec.  414.335  Payment for EPO furnished to a home dialysis patient for 
use in the home.

    (a) Prior to January 1, 2011, payment for EPO used at home by a 
home dialysis patient is made only to either a Medicare approved ESRD 
facility or a supplier of home dialysis equipment and supplies. 
Effective January 1, 2011, payment for EPO used at home by a home 
dialysis patient is made only to a Medicare-approved ESRD facility in 
accordance with the per treatment payment as defined in Sec.  413.230.
    (b) After January 1, 2011, a home and self training amount is added 
to the per treatment base rate for adult and pediatric patients as 
defined in Sec.  413.230

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: July 15, 2010.
Donald M. Berwick,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: July 22, 2010.
Kathleen Sebelius,
 Secretary.

    Note: The following tables will not appear in the Code of 
Federal Regulations.

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[FR Doc. 2010-18466 Filed 7-26-10; 4:15 pm]
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