[Federal Register Volume 83, Number 139 (Thursday, July 19, 2018)]
[Proposed Rules]
[Pages 34304-34415]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-14986]



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Vol. 83

Thursday,

No. 139

July 19, 2018

Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services





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42 CFR Parts 413 and 414





Medicare Program; End-Stage Renal Disease Prospective Payment System, 
Payment for Renal Dialysis Services Furnished to Individuals With Acute 
Kidney Injury, End-Stage Renal Disease Quality Incentive Program, 
Durable Medical Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) 
Competitive Bidding Program (CBP) and Fee Schedule Amounts, and 
Technical Amendments To Correct Existing Regulations Related to the CBP 
for Certain DMEPOS; Proposed Rule

  Federal Register / Vol. 83 , No. 139 / Thursday, July 19, 2018 / 
Proposed Rules  

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 413 and 414

[CMS-1691-P]
RIN 0938-AT28


Medicare Program; End-Stage Renal Disease Prospective Payment 
System, Payment for Renal Dialysis Services Furnished to Individuals 
With Acute Kidney Injury, End-Stage Renal Disease Quality Incentive 
Program, Durable Medical Equipment, Prosthetics, Orthotics and Supplies 
(DMEPOS) Competitive Bidding Program (CBP) and Fee Schedule Amounts, 
and Technical Amendments To Correct Existing Regulations Related to the 
CBP for Certain DMEPOS

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would update and make revisions to the End-
Stage Renal Disease (ESRD) Prospective Payment System (PPS) for 
calendar year (CY) 2019. This rule also proposes to update the payment 
rate for renal dialysis services furnished by an ESRD facility to 
individuals with acute kidney injury (AKI). In addition, it proposes a 
rebasing of the ESRD market basket for CY 2019. This proposed rule also 
proposes to update requirements for the ESRD Quality Incentive Program 
(QIP), and to make technical amendments to correct existing regulations 
related to the CBP for certain DMEPOS. Finally, this proposed rule 
proposes changes to bidding and pricing methodologies under the Durable 
Medical Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) 
competitive bidding program (CBP); adjustments to DMEPOS Fee Schedule 
amounts using information from competitive bidding for items furnished 
from January 1, 2019 through December 31, 2020; new payment classes for 
oxygen and oxygen equipment and a new methodology for ensuring that new 
payment classes for oxygen and oxygen equipment are budget neutral; 
payment rules for multi-function ventilators or ventilators that 
perform functions of other durable medical equipment (DME); and payment 
methodology revisions for mail order items furnished in the Northern 
Mariana Islands. This rule also includes a request for information 
related to establishing fee schedule amounts for new DMEPOS items and 
services. It also includes Requests for Information on promoting 
interoperability and electronic healthcare information exchange, and 
improving beneficiary access to dialysis facility and DMEPOS charge 
information.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on September 10, 
2018.

ADDRESSES: In commenting, please refer to file code CMS-1691-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    Comments, including mass comment submissions, must be submitted in 
one of the following three ways (please choose only one of the ways 
listed):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the ``Submit a 
comment'' instructions.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-1691-P, P.O. Box, 8010, 
Baltimore, MD 21244-8010.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-1691-P, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: 
    [email protected], for issues related to the ESRD PPS and 
coverage and payment for renal dialysis services furnished to 
individuals with AKI.
    Delia Houseal, (410) 786-2724, for issues related to the ESRD QIP.
    [email protected], for issues related to DMEPOS payment policy.
    Julia Howard, (410) 786-8645, for issues related to DMEPOS CBP 
technical amendments only.

SUPPLEMENTARY INFORMATION: 
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following 
website as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that website to 
view public comments.

Electronic Access

    This Federal Register document is also available from the Federal 
Register online database through Federal Digital System (FDsys), a 
service of the United States Government Printing Office. This database 
can be accessed via the internet at http://www.gpo.gov/fdsys/.

Table of Contents

    To assist readers in referencing sections contained in this 
preamble, we are providing a Table of Contents. Some of the issues 
discussed in this preamble affect the payment policies, but do not 
require changes to the regulations in the Code of Federal Regulations 
(CFR).

I. Executive Summary
    A. Purpose
    1. End-Stage Renal Disease (ESRD) Prospective Payment System 
(PPS)
    2. Coverage and Payment for Renal Dialysis Services Furnished to 
Individuals With Acute Kidney Injury (AKI)
    3. End-Stage Renal Disease (ESRD) Quality Incentive Program 
(QIP)
    4. Changes to the DMEPOS Competitive Bidding Program and Fee 
Schedule Payment Rules
    B. Summary of the Major Provisions
    1. ESRD PPS
    2. Payment for Renal Dialysis Services Furnished to Individuals 
With AKI
    3. ESRD QIP
    4. Changes to the DMEPOS Competitive Bidding Program and Fee 
Schedule Payment Rules
    C. Summary of Cost and Benefits
    1. Impacts of the Proposed ESRD PPS
    2. Impacts of the Proposed Payment for Renal Dialysis Services 
Furnished to Individuals With AKI
    3. Impacts of the Proposed ESRD QIP
    4. Impacts of the Proposed Changes to the DMEPOS Competitive 
Bidding Program and Fee Schedule Payment Rules
II. Calendar Year (CY) 2019 End-Stage Renal Disease (ESRD) 
Prospective Payment System (PPS)
    A. Background
    B. Provisions of the Proposed Rule
    C. Solicitation for Information on Transplant and Modality 
Requirements
III. CY 2019 Payment for Renal Dialysis Services Furnished to 
Individuals With Acute Kidney Injury (AKI)
    A. Background
    B. Annual Payment Rate Update for CY 2019
IV. End-Stage Renal Disease Quality Incentive Program (ESRD QIP)
    A. Background
    B. Proposed Update to Requirements Beginning With the PY 2021 
ESRD QIP
    C. Proposed Requirements for the PY 2022 ESRD QIP
    D. Proposed Requirements Beginning With the PY 2024 ESRD QIP

[[Page 34305]]

V. Changes to the Durable Medical Equipment, Prosthetics, Orthotics, 
and Supplies (DMEPOS) Competitive Bidding Program (CBP)
    A. Background
    B. Current Method for Submitting Bids and Selecting Winners
    C. Current Method for Establishing SPAs
    D. Provisions of the Proposed Rule
VI. Adjustments to DMEPOS Fee Schedule Amounts Based on Information 
From the DMEPOS CBP
    A. Background
    B. Current Issues
    C. Provisions of the Proposed Rule
VII. New Payment Classes for Oxygen and Oxygen Equipment and 
Methodology for Ensuring Annual Budget Neutrality of the New Classes
    A. Background
    B. Provisions of the Proposed Rule
VIII. Payment for Multi-Function Ventilators
    A. Background
    B. Current Issues
    C. Provisions of the Proposed Rule
IX. Including the Northern Mariana Islands in Future National Mail 
Order CBPs
    A. Background
    B. Current Issues
    C. Provisions of the Proposed Rule
X. Request for Information on the Gap-Filling Process for 
Establishing Fees for New DMEPOS Items
XI. DMEPOS CBP Technical Amendments
    A. Background
    B. Proposed Technical Amendments
XII. Burden Reduction on Comorbidities
    A. Background
    B. Proposed Documentation Requirements
XIII. Requests for Information
    A. Request for Information on Promoting Interoperability and 
Electronic Healthcare Information Exchange Through Possible 
Revisions to the CMS Patient Health and Safety Requirements for 
Hospitals and Other Medicare- and Medicaid-Participating Providers 
and Suppliers
    B. Request for Information on Price Transparency: Improving 
Beneficiary Access to Provider and Supplier Charge Information
XIV. Collection of Information Requirements
XV. Response to Comments
XVI. Economic Analyses
    A. Regulatory Impact Analysis
    B. Detailed Economic Analysis
    C. Accounting Statement
XVII. Regulatory Flexibility Act Analysis
XVIII. Unfunded Mandates Reform Act Analysis
XIX. Federalism Analysis
XX. Reducing Regulation and Controlling Regulatory Costs
XXI. Congressional Review Act
XXII. Files Available to the Public via the Internet
Regulations Text

I. Executive Summary

A. Purpose

1. End-Stage Renal Disease (ESRD) Prospective Payment System (PPS)
    On January 1, 2011, we implemented the End-Stage Renal Disease 
(ESRD) Prospective Payment System (PPS), a case-mix adjusted, bundled 
PPS for renal dialysis services furnished by ESRD facilities as 
required by section 1881(b)(14) of the Social Security Act (the Act), 
as added by section 153(b) of the Medicare Improvements for Patients 
and Providers Act of 2008 (MIPPA). Section 1881(b)(14)(F) of the Act, 
as added by section 153(b) of MIPPA, and amended by section 3401(h) of 
the Patient Protection and Affordable Care Act (the Affordable Care 
Act) (Pub. L. 111-148), established that beginning calendar year (CY) 
2012, and each subsequent year, the Secretary of the Department of 
Health and Human Services (the Secretary) shall annually increase 
payment amounts by an ESRD market basket increase factor, reduced by 
the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) 
of the Act. This rule proposes updates and revisions to the ESRD PPS 
for CY 2019.
2. Coverage and Payment for Renal Dialysis Services Furnished to 
Individuals With Acute Kidney Injury (AKI)
    On June 29, 2015, the President signed the Trade Preferences 
Extension Act of 2015 (TPEA) (Pub. L. 114-27). Section 808(a) of TPEA 
amended section 1861(s)(2)(F) of the Act to provide coverage for renal 
dialysis services furnished on or after January 1, 2017, by a renal 
dialysis facility or a provider of services paid under section 
1881(b)(14) of the Act to an individual with acute kidney injury (AKI). 
Section 808(b) of the TPEA amended section 1834 of the Act by adding a 
new subsection (r) that provides for payment for renal dialysis 
services furnished by renal dialysis facilities or providers of 
services paid under section 1881(b)(14) of the Act to individuals with 
AKI at the ESRD PPS base rate beginning January 1, 2017. This rule 
proposes to update the AKI payment rate for CY 2019.
3. End-Stage Renal Disease Quality Incentive Program (ESRD QIP)
    The End-Stage Renal Disease Quality Incentive Program (ESRD QIP) is 
authorized under section 1881(h) of the Social Security Act (the Act), 
and is the most recent step in fostering improved patient outcomes by 
establishing incentives for dialysis facilities to meet or exceed 
performance standards established by the Centers for Medicare & 
Medicaid Services (CMS). This proposed rule proposes a number of 
updates for the ESRD QIP.
4. Changes to the DMEPOS Competitive Bidding Program and Fee Schedule 
Payment Rules
    i. Changes to the Durable Medical Equipment, Prosthetics, 
Orthotics, and Supplies (DMEPOS) Competitive Bidding Program (CBP): 
This rule proposes to revise the DMEPOS CBP by implementing lead item 
pricing based on maximum winning bid amounts.
    ii. Adjustments to DMEPOS Fee Schedule Amounts Based on Information 
from the DMEPOS CBP: This rule proposes transitional fee schedule 
adjustments for DMEPOS items and services furnished on or after January 
1, 2019 in areas that are currently CBAs and in areas that are 
currently not CBAs. Altogether, this rule proposes three different fee 
schedule adjustment methodologies depending on the area in which the 
items and services are furnished: (1) One fee schedule adjustment 
methodology for DME items and services furnished on or after January 1, 
2019, in areas that are currently CBAs, in the event of a gap in the 
CBP; (2) another fee schedule adjustment methodology for items and 
services furnished from January 1, 2019, through December 31, 2020, in 
areas that are currently not CBAs, are not rural areas, and are located 
in the contiguous United States (U.S.); and (3) another fee schedule 
adjustment methodology for items and services furnished from January 1, 
2019, through December 31, 2020, in areas that are currently not CBAs 
and are either rural areas or non-contiguous areas.
    iii. New Payment Classes for Oxygen and Oxygen Equipment and 
Methodology for Ensuring Annual Budget Neutrality of the New Classes: 
We are proposing to establish new, separate payment classes for 
portable gaseous oxygen equipment, portable liquid oxygen equipment, 
and high flow portable liquid oxygen contents. We are also proposing to 
establish a new methodology for ensuring that all new payment classes 
for oxygen and oxygen equipment are budget neutral in accordance with 
section 1834(a)(9)(D)(ii) of the Act.
    iv. Payment for Multi-Function Ventilators: This rule proposes to 
establish new rules to address payment for certain ventilators that are 
subject to the payment rules at section 1834(a)(3) of the Act but also 
perform the functions of other items of durable medical equipment (DME) 
that are subject to payment rules other than those at section 
1834(a)(3) of the Act.
    v. Including the Northern Mariana Islands in Future National Mail 
Order CBPs: This rule proposes to amend

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Sec.  414.210(g)(7) to indicate that beginning on or after the date 
that contracts take effect for a national mail order competitive 
bidding program that includes the Northern Mariana Islands, the fee 
schedule adjustment methodology under this paragraph would no longer 
apply.

B. Summary of the Major Provisions

1. ESRD PPS
     Update to the ESRD PPS base rate for CY 2019: The proposed 
CY 2019 ESRD PPS base rate is $235.82. This proposed amount reflects a 
productivity-adjusted market basket increase as required by section 
1881(b)(14)(F)(i)(I) of the Act (1.5 percent), and application of the 
wage index budget-neutrality adjustment factor (0.999833), equaling 
$235.82 ($232.37 x 1.0150 x 0.999833 = $235.82).
     Annual update to the wage index: We adjust wage indices on 
an annual basis using the most current hospital wage data and the 
latest core-based statistical area (CBSA) delineations to account for 
differing wage levels in areas in which ESRD facilities are located. 
For CY 2019, we propose to increase the wage index floor, for areas 
with wage index values below the floor, to 0.5000 and are proposing to 
update the wage index values to the latest available data.
     Update to the outlier policy: We are proposing to update 
the outlier policy using the most current data, as well as update the 
outlier services fixed-dollar loss (FDL) amounts for adult and 
pediatric patients and Medicare Allowable Payment (MAP) amounts for 
adult and pediatric patients for CY 2019 using CY 2017 claims data. 
Based on the use of the latest available data, the proposed FDL amount 
for pediatric beneficiaries would increase from $47.79 to $47.88 and 
the MAP amount would decrease from $37.31 to $35.62, as compared to CY 
2018 values. For adult beneficiaries, the proposed FDL amount would 
decrease from $77.54 to $69.73 and the MAP amount would decrease from 
$42.41 to $40.25. The 1 percent target for outlier payments was not 
achieved in CY 2017. Outlier payments represented approximately 0.8 
percent of total payments rather than 1.0 percent. We believe using CY 
2017 claims data to update the outlier MAP and FDL amounts for CY 2019 
would increase payments for ESRD beneficiaries requiring higher 
resource utilization in accordance with a 1 percent outlier percentage. 
We are also soliciting comment on whether we should expand the outlier 
policy to include composite rate drugs and supplies.
     Update to the Drug Designation Process: We are proposing 
to update and revise our designation process and expand the 
transitional drug add-on payment adjustment (TDAPA) to all new drugs, 
not just those in new functional categories, and change the basis of 
determining the TDAPA from pricing methodologies under section 1847A of 
the Act, (which includes ASP +6) to ASP +0.
     Update to the Low-Volume Payment Adjustment: We are 
proposing revisions to the low-volume payment adjustment regulations to 
allow for more flexibility with regard to attestation dates and cost 
reporting requirements, as well as updating the requirements for 
eligibility with respect to certain changes of ownership.
2. Payment for Renal Dialysis Services Furnished to Individuals With 
AKI
    We are proposing to update the AKI payment rate for CY 2019. The 
proposed CY 2019 payment rate is $235.82, which is the same as the base 
rate proposed under the ESRD PPS for CY 2019.
3. ESRD QIP
    This proposed rule proposes a number of new requirements for the 
ESRD QIP beginning with PY 2021, including the following:
     We are proposing to update the ESRD QIP's measure removal 
criteria, which we now refer to as ``factors'', so that they are more 
closely aligned with the measure removal factors we have adopted, or 
proposed to adopt for other quality reporting and pay for performance 
programs, as well as the priorities we have adopted as part of the 
Meaningful Measures Initiative.
     We are proposing to remove four measures: Healthcare 
Personnel Influenza Vaccination, Pain Assessment and Follow-Up, Anemia 
Management, and Serum Phosphorus. Removal of these measures would align 
the ESRD QIP measure set more closely with the priorities we have 
adopted as part of our Meaningful Measures Initiative.
     We are proposing to make several changes to the domains 
and domain weights that we use for purposes of our scoring methodology 
to more closely align the ESRD QIP with the priorities we have adopted 
as part of our Meaningful Measures Initiative. We are proposing to 
remove the Reporting Domain from the Program and to move each reporting 
measure currently in that domain (and not being proposed for removal) 
to another domain that is better aligned with the focus area of that 
measure. Additionally, we are proposing that the Patient and Family 
Engagement/Care Coordination Subdomain and the Clinical Care Subdomain, 
both of which are currently subdomains in the Clinical Measure Domain, 
would become their own domains. As a result, the ESRD QIP would be 
scored using four domains instead of three. Furthermore, we are 
proposing new domain and measure weights that better align with the 
priority areas we have adopted as part of our Meaningful Measures 
Initiative.
     We are proposing to update our policy governing when newly 
opened facilities must start reporting ESRD QIP data. The proposed 
policy would require facilities to begin reporting ESRD QIP data 
beginning with the month that begins 4 months after the month during 
which the CMS Certification Number (CCN) becomes effective (for 
example, a facility with a CCN effective date of January 15th would be 
required to begin reporting ESRD QIP data collected in May). The 
proposed policy would provide facilities with a longer time period than 
they are given now to learn how to properly report ESRD QIP data.
     We are proposing to increase the number of facilities that 
we select for validation under the National Healthcare Safety Network 
(NHSN) data validation study from 35 to 150 facilities, and to increase 
the number of records that each selected facility must submit to 20 
records for each of the first 2 quarters of CY 2019 (for a total of 40 
records). This proposal would improve the overall accuracy of the 
study.
     We are proposing to convert the current Consolidated Renal 
Operations in a Web-Enabled Network (CROWNWeb) data validation study 
into a permanent program requirement using the methodology we first 
adopted for PY 2016 because an analysis demonstrated that this 
methodology produced reliable validation results. We are also proposing 
that the 10 point deduction for failure to comply with the data 
request, which was first adopted for PY 2017, would become a permanent 
program requirement.
    This proposed rule also proposes a number of new requirements for 
the ESRD QIP beginning with PY 2022, including the following:
     We are proposing to adopt the Percentage of Prevalent 
Patients Waitlisted (PPPW) Measure and to place it in the proposed Care 
Coordination Measure Domain (NQF #2988).
     We are proposing to adopt the Medication Reconciliation 
for Patients Receiving Care at Dialysis Facilities (MedRec) Measure 
(NQF #2988) and to place it in the Safety Measure Domain.

[[Page 34307]]

     We are proposing to increase the number of facilities that 
we select for validation under the NHSN data validation study from 150 
to 300 facilities. This proposal would further improve the overall 
accuracy of the study.
    This proposed rule also proposes to set forth new requirements for 
the ESRD QIP beginning with PY 2024, including the following:
     We are proposing to adopt the Standardized First Kidney 
Transplant Waitlist Ratio for Incident Dialysis Patients (SWR) Measure 
and to place it within the proposed Patient and Family Engagement/Care 
Coordination Domain as a second measure in the proposed Transplant 
measure topic.
    Finally, we are proposing to codify in our regulations several 
previously finalized requirements for the ESRD QIP by revising Sec.  
413.177 and adopting a new Sec.  413.178.
4. Changes to the DMEPOS Competitive Bidding Program and Fee Schedule 
Payment Rules
    i. Changes to the Durable Medical Equipment, Prosthetics, 
Orthotics, and Supplies (DMEPOS) Competitive Bidding Program (CBP): We 
are proposing to revise the DMEPOS CBP by implementing lead item 
pricing based on maximum winning bid amounts. We are proposing to 
revise the definition of bid to mean an offer to furnish an item or 
items for a particular price and time period that includes, where 
appropriate, any services that are directly related to the furnishing 
of the item or items. We are proposing to revise the definition of 
composite bid to mean the bid submitted by the supplier for the lead 
item in the product category. We are proposing to revise the definition 
of lead item to mean the item in a product category with multiple items 
with the highest total nationwide Medicare allowed charges of any item 
in the product category prior to each competition.
    ii. Adjustments to DMEPOS Fee Schedule Amounts Based on Information 
from the DMEPOS CBP: We are proposing transitional fee schedule 
adjustments for DMEPOS items and services furnished on or after January 
1, 2019 in areas that are currently CBAs and in areas that are 
currently not CBAs. Altogether, this rule proposes three different fee 
schedule adjustment methodologies depending on the area in which the 
items and services are furnished: (1) One fee schedule adjustment 
methodology for DME items and services furnished on or after January 1, 
2019, in areas that are currently CBAs, in the event of a gap in the 
CBP; (2) another fee schedule adjustment methodology for items and 
services furnished from January 1, 2019, through December 31, 2020, in 
areas that are currently not CBAs, are not rural areas, and are located 
in the contiguous United States (U.S.); and (3) another fee schedule 
adjustment methodology for items and services furnished from January 1, 
2019, through December 31, 2020, in areas that are currently not CBAs 
and are either rural areas or non-contiguous areas.
    iii. New Payment Classes for Oxygen and Oxygen Equipment and 
Methodology for Ensuring Annual Budget Neutrality of the New Classes: 
We are proposing to establish new, separate payment classes for 
portable gaseous oxygen equipment, portable liquid oxygen equipment, 
and high flow portable liquid oxygen contents. We are also proposing to 
establish a new methodology for ensuring that all new payment classes 
for oxygen and oxygen equipment are budget neutral in accordance with 
section 1834(a)(9)(D)(ii) of the Act.
    iv. Payment for Multi-Function Ventilators: We are proposing to 
establish new rules to address payment for certain ventilators that are 
subject to the payment rules at section 1834(a)(3) of the Act but also 
perform the functions of other items of durable medical equipment (DME) 
that are subject to payment rules other than those at section 
1834(a)(3) of the Act.
    v. Including the Northern Mariana Islands in Future National Mail 
Order CBPs: We intend to include the Northern Mariana Islands under 
national mail order competitive bidding programs that become effective 
on or after January 1, 2019, so we are proposing to amend Sec.  
414.210(g)(7) to indicate that beginning on or after the date that 
contracts take effect for a national mail order competitive bidding 
program that includes the Northern Mariana Islands, the fee schedule 
adjustment methodology under this paragraph would no longer apply.

C. Summary of Costs and Benefits

    In section XVI of this proposed rule, we set forth a detailed 
analysis of the impacts that the proposed changes would have on 
affected entities and beneficiaries. The impacts include the following:
1. Impacts of the Proposed ESRD PPS
    The impact chart in section XV of this proposed rule displays the 
estimated change in payments to ESRD facilities in CY 2019 compared to 
estimated payments in CY 2018. The overall impact of the proposed CY 
2019 changes is projected to be a 1.7 percent increase in payments. 
Hospital-based ESRD facilities have an estimated 1.8 percent increase 
in payments compared with freestanding facilities with an estimated 1.7 
percent increase.
    We estimate that the aggregate ESRD PPS expenditures would increase 
by approximately $220 million in CY 2019 compared to CY 2018. This 
reflects a $190 million increase from the payment rate update and a $30 
million increase due to the updates to the outlier threshold amounts. 
As a result of the projected 1.7 percent overall payment increase, we 
estimate that there would be an increase in beneficiary co-insurance 
payments of 1.7 percent in CY 2019, which translates to approximately 
$60 million.
2. Impacts of the Proposed Payment for Renal Dialysis Services 
Furnished to Individuals With AKI
    The impact chart in section XVI of this proposed rule displays the 
estimated change in proposed payments to ESRD facilities in CY 2019 
compared to estimated payments in CY 2018. The overall impact of the 
proposed CY 2019 changes is projected to be a 1.5 percent increase in 
payments. Hospital-based ESRD facilities and freestanding facilities 
both have an estimated 1.5 percent increase in payments.
    We estimate that the aggregate payments made to ESRD facilities for 
renal dialysis services furnished to AKI patients at the proposed CY 
2019 ESRD PPS base rate would increase by less than $1 million in CY 
2019 compared to CY 2018.
3. Impacts of the Proposed ESRD QIP
    We estimate that the overall economic impact of the ESRD QIP would 
be approximately $219 million in PY 2021. The $219 million figure for 
PY 2021 includes costs associated with the collection of information 
requirements, which we estimate would be approximately $181 million. 
For PY 2022, we estimate that ESRD facilities would experience an 
overall economic impact of approximately $240 million as a result of 
the PY 2022 ESRD QIP. The $240 million figure for PY 2022 includes 
costs associated with the collection of information requirements, which 
we estimate would be approximately $202 million. Our proposal to add 
the SWR measure to the ESRD QIP measure set in PY 2024 would not result 
in additional costs associated with the collection of information 
requirements because the measure does not use data reported to 
CROWNWeb.

[[Page 34308]]

4. Impacts of the Proposed Changes to the DMEPOS Competitive Bidding 
Program and Fee Schedule Payment Rules
i. Changes to the Durable Medical Equipment, Prosthetics, Orthotics, 
and Supplies (DMEPOS) Competitive Bidding Program (CBP)
    This rule proposes to base single payment amounts on the maximum 
winning bid and to implement lead item pricing in the Medicare DMEPOS 
Competitive Bidding Program. The impacts of the rule are estimated by 
rounding to the nearer 5 million dollars and are expected to cost $10 
million in Medicare benefit payments for the 5-year period beginning 
January 1, 2019 and ending September 30, 2023. The impacts on 
beneficiary cost sharing is roughly $3 million over this 5-year period. 
The Medicaid impacts for cost sharing for the beneficiaries enrolled in 
the Medicare Part B and Medicaid programs for the federal and state 
portions are assumed to both be $0 million.
ii. Adjustments to DMEPOS Fee Schedule Amounts Based on Information 
From the DMEPOS CBP
    This rule proposes transitional fee schedule adjustments for DMEPOS 
items and services furnished in areas that are currently CBAs and in 
areas currently not CBAs on or after January 1, 2019. Altogether, this 
rule proposes three different fee schedule adjustment methodologies 
depending on the area in which the items and services are furnished: 
(1) One fee schedule adjustment methodology for DME items and services 
furnished on or after January 1, 2019, in areas that are currently 
CBAs, in the event of a gap in the CBP; (2) another fee schedule 
adjustment methodology for items and services furnished from January 1, 
2019, through December 31, 2020, in areas that are currently not CBAs, 
are not rural areas, and are located in the contiguous United States 
(U.S.); and (3) another fee schedule adjustment methodology for items 
and services furnished from January 1, 2019, through December 31, 2020, 
in areas that are currently not CBAs and are either rural areas or non-
contiguous areas.
    The estimated impacts for this part of the rule are calculated 
against a baseline that assumes payments for items furnished in CBAs 
and non-CBAs are made consistent with the rules in place as of January 
1, 2018, which establish payment for items furnished in CBAs based on 
fee schedule amounts fully adjusted in accordance with current 
regulations at 42 CFR 414.210(g). The impacts are expected to cost 
$1,050 million dollars in Medicare benefit payments and $260 million 
dollars in Medicare beneficiary cost sharing for the 2-year period 
beginning January 1, 2019 and ending December 31, 2020. The Medicaid 
impacts for cost sharing for the beneficiaries enrolled in the Medicare 
Part B and Medicaid programs for the federal and state portions are 
assumed to be $45 million dollars and $30 million dollars, 
respectively. Section 503 of the Consolidated Appropriations Act of 
2016 and section 5002 of the Cures Act, added section 1903(i)(27) to 
the Act, which prohibits federal Medicaid reimbursement to states for 
certain DME expenditures that are, in the aggregate, in excess of what 
Medicare would have paid for such items. The requirement took effect 
January 1, 2018. We note that the costs for the Medicaid program and 
beneficiaries could be higher depending on how many state agencies 
adopt the higher Medicare adjusted fee schedule amounts for rural areas 
for use in paying claims under the Medicaid program. We are not able to 
quantify this impact.
iii. New Payment Classes for Oxygen and Oxygen Equipment and 
Methodology for Ensuring Annual Budget Neutrality of the New Classes
    This rule proposes to establish new payment classes for oxygen and 
oxygen equipment and is estimated to be budget neutral to the Medicare 
program and its beneficiaries.
iv. Payment for Multi-Function Ventilators
    This rule proposes to establish new rules to address payment for 
certain ventilators that are subject to the payment rules at section 
1834(a)(3) of the Act but also perform the functions of other items of 
durable medical equipment (DME) that are subject to payment rules other 
than those at section 1834(a)(3) of the Act. The impacts are estimated 
by rounding to the nearer 5 million dollars and are expected to cost 
$15 million in Medicare benefit payments and $0 million in Medicare 
beneficiary cost sharing for the 5-year period beginning January 1, 
2019 and ending September 30, 2023. The Medicaid impacts for cost 
sharing for the beneficiaries enrolled in the Medicare Part B and 
Medicaid programs for the federal and state portions are assumed to 
both be $0 million.
v. Including the Northern Mariana Islands in Future National Mail Order 
CBPs
    This change would not have a fiscal impact.

II. Calendar Year (CY) 2019 End-Stage Renal Disease (ESRD) Prospective 
Payment System (PPS)

A. Background

1. Statutory Background
    On January 1, 2011, we implemented the End-Stage Renal Disease 
(ESRD) Prospective Payment System (PPS), a case-mix adjusted bundled 
PPS for renal dialysis services furnished by ESRD facilities, as 
required by section 1881(b)(14) of the Social Security Act (the Act), 
as added by section 153(b) of the Medicare Improvements for Patients 
and Providers Act of 2008 (MIPPA). Section 1881(b)(14)(F) of the Act, 
as added by section 153(b) of MIPPA and amended by section 3401(h) of 
the Patient Protection and Affordable Care Act (the Affordable Care 
Act), established that beginning with calendar year (CY) 2012, and each 
subsequent year, the Secretary of the Department of Health and Human 
Services (the Secretary) shall annually increase payment amounts by an 
ESRD market basket increase factor, reduced by the productivity 
adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act.
    Section 632 of the American Taxpayer Relief Act of 2012 (ATRA) 
(Pub. L. 112-240) included several provisions that apply to the ESRD 
PPS. Section 632(a) of ATRA added section 1881(b)(14)(I) to the Act, 
which required the Secretary, by comparing per patient utilization data 
from 2007 with such data from 2012, to reduce the single payment for 
renal dialysis services furnished on or after January 1, 2014 to 
reflect the Secretary's estimate of the change in the utilization of 
ESRD-related drugs and biologicals (excluding oral-only ESRD-related 
drugs). Consistent with this requirement, in the CY 2014 ESRD PPS final 
rule we finalized $29.93 as the total drug utilization reduction and 
finalized a policy to implement the amount over a 3- to 4-year 
transition period (78 FR 72161 through 72170).
    Section 632(b) of ATRA prohibited the Secretary from paying for 
oral-only ESRD-related drugs and biologicals under the ESRD PPS prior 
to January 1, 2016. And section 632(c) of ATRA required the Secretary, 
by no later than January 1, 2016, to analyze the case-mix payment 
adjustments under section 1881(b)(14)(D)(i) of the Act and make 
appropriate revisions to those adjustments.

[[Page 34309]]

    On April 1, 2014, the Protecting Access to Medicare Act of 2014 
(PAMA) (Pub. L. 113-93) was enacted. Section 217 of PAMA included 
several provisions that apply to the ESRD PPS. Specifically, sections 
217(b)(1) and (2) of PAMA amended sections 1881(b)(14)(F) and (I) of 
the Act and replaced the drug utilization adjustment that was finalized 
in the CY 2014 ESRD PPS final rule (78 FR 72161 through 72170) with 
specific provisions that dictated the market basket update for CY 2015 
(0.0 percent) and how the market basket should be reduced in CY 2016 
through CY 2018.
    Section 217(a)(1) of PAMA amended section 632(b)(1) of ATRA to 
provide that the Secretary may not pay for oral-only ESRD-related drugs 
under the ESRD PPS prior to January 1, 2024. Section 217(a)(2) of PAMA 
further amended section 632(b)(1) of ATRA by requiring that in 
establishing payment for oral-only drugs under the ESRD PPS, the 
Secretary must use data from the most recent year available. Section 
217(c) of PAMA provided that as part of the CY 2016 ESRD PPS 
rulemaking, the Secretary shall establish a process for (1) determining 
when a product is no longer an oral-only drug; and (2) including new 
injectable and intravenous products into the ESRD PPS bundled payment.
    Finally, on December 19, 2014, the President signed the Stephen 
Beck, Jr., Achieving a Better Life Experience Act of 2014 (ABLE) (Pub. 
L. 113-295). Section 204 of ABLE amended section 632(b)(1) of ATRA, as 
amended by section 217(a)(1) of PAMA, to provide that payment for oral-
only renal dialysis services cannot be made under the ESRD PPS bundled 
payment prior to January 1, 2025.
2. System for Payment of Renal Dialysis Services
    Under the ESRD PPS, a single, per-treatment payment is made to an 
ESRD facility for all of the renal dialysis services defined in section 
1881(b)(14)(B) of the Act and furnished to individuals for the 
treatment of ESRD in the ESRD facility or in a patient's home. We have 
codified our definitions of renal dialysis services at 42 CFR 413.171, 
which is in 42 CFR part 413, subpart H, along with other ESRD PPS 
payment policies. The ESRD PPS base rate is adjusted for 
characteristics of both adult and pediatric patients and accounts for 
patient case-mix variability. The adult case-mix adjusters include five 
categories of age, body surface area, low body mass index, onset of 
dialysis, four comorbidity categories, and pediatric patient-level 
adjusters consisting of two age categories and two dialysis modalities 
(Sec.  413.235(a) and (b)).
    The ESRD PPS provides for three facility-level adjustments. The 
first payment adjustment accounts for ESRD facilities furnishing a low 
volume of dialysis treatments (Sec.  413.232). The second adjustment 
reflects differences in area wage levels developed from core based 
statistical areas (CBSAs) (Sec.  413.231). The third payment adjustment 
accounts for ESRD facilities furnishing renal dialysis services in a 
rural area (Sec.  413.233).
    The ESRD PPS provides a training add-on for home and self-dialysis 
modalities (Sec.  413.235(c)) and an additional payment for high cost 
outliers due to unusual variations in the type or amount of medically 
necessary care when applicable (Sec.  413.237).
    The ESRD PPS also provides for a transitional drug add-on payment 
adjustment (TDAPA) to pay for a new injectable or intravenous product 
that is not considered included in the ESRD PPS bundled payment, 
meaning a product that is used to treat or manage a condition for which 
there is not an existing ESRD PPS functional category (Sec.  413.234). 
The ESRD PPS functional categories represent distinct groupings of 
drugs or biologicals, as determined by CMS, whose end action effect is 
the treatment or management of a condition or conditions associated 
with ESRD. New injectable or intravenous products that are not included 
in a functional category in the ESRD PPS base rate are paid for using 
the TDAPA for a minimum of 2 years, until sufficient claims data for 
rate setting analysis are available. At that point, utilization would 
be reviewed and the ESRD PPS base rate modified, if appropriate, to 
account for these products. The TDAPA is based on pricing methodologies 
under section 1847A of the Act (Sec.  413.234(c)).
3. Updates to the ESRD PPS
    Policy changes to the ESRD PPS are proposed and finalized annually 
in the Federal Register. The CY 2011 ESRD PPS final rule was published 
on August 12, 2010 in the Federal Register (75 FR 49030 through 49214). 
That rule implemented the ESRD PPS beginning on January 1, 2011 in 
accordance with section 1881(b)(14) of the Act, as added by section 
153(b) of MIPPA, over a 4-year transition period. Since the 
implementation of the ESRD PPS, we have published annual rules to make 
routine updates, policy changes, and clarifications.
    On November 1, 2017, we published a final rule in the Federal 
Register titled, ``Medicare Program; End-Stage Renal Disease 
Prospective Payment System, Payment for Renal Dialysis Services 
Furnished to Individuals With Acute Kidney Injury, and End-Stage Renal 
Disease Quality Incentive Program'' (82 FR 50738 through 50797) 
(hereinafter referred to as the CY 2018 ESRD PPS final rule). In that 
rule, we updated the ESRD PPS base rate for CY 2018, the wage index, 
and the outlier policy, and pricing outlier drugs. For further detailed 
information regarding these updates, see 82 FR 50738.

B. Provisions of the Proposed Rule

1. Drug Designation Process
a. Protecting Access to Medicare Act of 2014
    Section 217(c) of PAMA requires the Secretary to implement a drug 
designation process for: (1) Determining when a product is no longer an 
oral-only drug; and (2) including new injectable and intravenous 
products into the bundled payment under such system. Therefore, in the 
CY 2016 ESRD PPS final rule (80 FR 69013 through 69027), we finalized a 
process that allows us to recognize when an oral-only renal dialysis 
service drug or biological is no longer oral only and a process to 
include new injectable and intravenous products into the ESRD PPS 
bundled payment, and when appropriate, modify the ESRD PPS payment 
amount.
    In accordance with section 217(c)(1) of PAMA, we established Sec.  
413.234(d), which provides that an oral-only drug is no longer 
considered oral-only if an injectable or other form of administration 
of the oral-only drug is approved by the Food and Drug Administration 
(FDA). Additionally, in accordance with section 217(c)(2) of PAMA, we 
codified the drug designation process at Sec.  413.234(b). As discussed 
in the CY 2016 ESRD PPS final rule (80 FR 69017 through 69022), 
effective January 1, 2016, if a new injectable or intravenous product 
is used to treat or manage a condition for which there is an ESRD PPS 
functional category, the new injectable or intravenous product is 
considered included in the ESRD PPS bundled payment and no separate 
payment is available. The new injectable or intravenous product 
qualifies as an outlier service. The ESRD bundled market basket updates 
the PPS base rate annually and accounts for price changes of the drugs 
and biologicals reflected in the base rate.
    As we discuss in Sec.  413.234(b)(2), if the new injectable or 
intravenous product is used to treat or manage a condition for which 
there is not an

[[Page 34310]]

ESRD PPS functional category, the new injectable or intravenous product 
is not considered included in the ESRD PPS bundled payment and the drug 
is evaluated. First, an existing ESRD PPS functional category is 
revised or a new ESRD PPS functional category is added for the 
condition that the new injectable or intravenous product is used to 
treat or manage. Next, the new injectable or intravenous product is 
paid for using the transitional drug add-on payment adjustment (TDAPA). 
Then, the new injectable or intravenous product is added to the ESRD 
PPS bundled payment following payment of the TDAPA.
    Under Sec.  413.234(c), the TDAPA is based on pricing methodologies 
under section 1847A of the Act and is paid until sufficient claims data 
for rate setting analysis for the new injectable or intravenous product 
are available, but not for less than 2 years. During the time a new 
injectable or intravenous product is eligible for the TDAPA, it is not 
eligible as an outlier service. Following payment of the TDAPA, the 
ESRD PPS base rate would be modified, if appropriate, to account for 
the new injectable or intravenous product in the ESRD PPS bundled 
payment.
b. Renal Dialysis Drugs and Biologicals Reflected in the Base Rate 
(ESRD PPS Functional Categories)
    As discussed above, in the CY 2016 ESRD PPS final rule (80 FR 
69024), we finalized the drug designation process as being dependent 
upon the functional categories, consistent with our policy since the 
implementation of the PPS in 2011. We provide a detailed discussion (80 
FR 69013 through 69015) on how we accounted for renal dialysis drugs 
and biologicals in the ESRD PPS base rate since its implementation on 
January 1, 2011. In the CY 2011 ESRD PPS final rule (75 FR 49044 
through 49053) we explained that in order to identify drugs and 
biologicals that are used for the treatment of ESRD and therefore meet 
the definition of renal dialysis services (defined at Sec.  413.171) 
that would be included in the ESRD PPS base rate, we performed an 
extensive analysis of Medicare payments for Part B drugs and 
biologicals billed on ESRD claims and evaluated each drug and 
biological to identify its category by indication or mode of action. 
Categorizing drugs and biologicals on the basis of drug action allows 
us to determine which categories (and therefore, the drugs and 
biologicals within the categories) would be considered used for the 
treatment of ESRD (75 FR 49047). We grouped the injectable and 
intravenous drugs and biologicals into functional categories based on 
their action (80 FR 69014). This was done with the purpose of adding 
new drugs or biologicals with the same functions to the ESRD PPS 
bundled payment as expeditiously as possible after the drugs become 
commercially available so that beneficiaries have access to them. We 
finalized the definition of an ESRD PPS functional category in Sec.  
413.234(a) as a distinct grouping of drugs or biologicals, as 
determined by CMS, whose end action effect is the treatment or 
management of a condition or conditions associated with ESRD.
    Using the functional categorization approach, we established 
categories of drugs and biologicals that are not considered used for 
the treatment of ESRD, categories of drugs and biologicals that are 
always considered used for the treatment of ESRD, and categories of 
drugs and biologicals that may be used for the treatment of ESRD but 
are also commonly used to treat other conditions (75 FR 49049 through 
49051). The drugs and biologicals that were identified as not used for 
the treatment of ESRD were not considered renal dialysis services and 
were not included in computing the base rate. The functional categories 
of drugs and biologicals that are not included in the base rate can be 
found in the CY 2011 ESRD PPS final rule (75 FR 49049). The functional 
categories of drugs and biologicals that were always and may be 
considered used for the treatment of ESRD were considered renal 
dialysis services and were included in computing the base rate. 
Subsequent to the CY 2011 discussion about the always and may be 
functional categories (75 FR 49050 through 49051), we also discussed 
these categories in the CY 2016 ESRD PPS final rule (80 FR 69015 
through 69018) and clarified the medical conditions or symptoms that 
indicate the drugs are used for the treatment of ESRD. See Table 1.

                                     Table 1--ESRD PPS Functional Categories
----------------------------------------------------------------------------------------------------------------
                           Category                                        Rationale for association
----------------------------------------------------------------------------------------------------------------
Access Management............................................  Drugs used to ensure access by removing clots
                                                                from grafts, reverse anticoagulation if too much
                                                                medication is given, and provide anesthetic for
                                                                access placement.
Anemia Management............................................  Drugs used to stimulate red blood cell production
                                                                and/or treat or prevent anemia. This category
                                                                includes ESAs as well as iron.
Bone and Mineral Metabolism..................................  Drugs used to prevent/treat bone disease
                                                                secondary to dialysis. This category includes
                                                                phosphate binders and calcimimetics.
Cellular Management..........................................  Drugs used for deficiencies of naturally
                                                                occurring substances needed for cellular
                                                                management. This category includes
                                                                levocarnitine.
Antiemetic...................................................  Used to prevent or treat nausea and vomiting
                                                                related to dialysis. Excludes antiemetics used
                                                                for purposes unrelated to dialysis, such as
                                                                those used in conjunction with chemotherapy as
                                                                these are covered under a separate benefit
                                                                category.
Anti-infectives..............................................  Used to treat vascular access-related and
                                                                peritonitis infections. May include
                                                                antibacterial and antifungal drugs.
Antipruritic.................................................  Drugs in this classification have multiple
                                                                clinical indications. Use within an ESRD
                                                                functional category includes treatment for
                                                                itching related to dialysis.
Anxiolytic...................................................  Drugs in this classification have multiple
                                                                actions. Use within an ESRD functional category
                                                                includes treatment of restless leg syndrome
                                                                related to dialysis.
Excess Fluid Management......................................  Drug/fluids used to treat fluid excess/overload.
Fluid and Electrolyte Management Including Volume Expanders..  Intravenous drugs/fluids used to treat fluid and
                                                                electrolyte needs.
Pain Management..............................................  Drugs used to treat vascular access site pain and
                                                                to treat pain medication overdose, when the
                                                                overdose is related to medication provided to
                                                                treat vascular access site pain.
----------------------------------------------------------------------------------------------------------------


[[Page 34311]]

    In computing the ESRD PPS base rate, we used the payments in 2007 
for drugs and biologicals included in the always functional categories, 
that is, the injectable forms (previously covered under Part B) and 
oral or other forms of administration (previously covered under Part D) 
(75 FR 49050). For the oral or other forms of administration for those 
drugs that are always considered used for the treatment of ESRD, we 
determined that there were oral or other forms of injectable drugs only 
for the bone and mineral metabolism and cellular management categories. 
Therefore, we included the payments made under Part D for oral vitamin 
D (calcitriol, doxercalciferol and paricalcitol) and oral levocarnitine 
in our computation of the base rate (75 FR 49042).
    In the CY 2011 ESRD PPS final rule (75 FR 49050 through 49051), we 
explained that drugs and biologicals that may be used for the treatment 
of ESRD may also be commonly used to treat other conditions. We used 
the payments made under Part B in 2007 for these drugs in computing the 
ESRD PPS base rate, which only included payments made for the 
injectable version of the drugs. We excluded the Part D payments for 
the oral (or other form of administration) substitutes of the drugs and 
biologicals described above because they were not furnished or billed 
by ESRD facilities or furnished in conjunction with dialysis treatments 
(75 FR 49051). For those reasons, we presumed that these drugs and 
biologicals that were paid under Part D were prescribed for reasons 
other than for the treatment of ESRD. However, we noted that if these 
drugs and biologicals paid under Part D are furnished by an ESRD 
facility for the treatment of ESRD, they would be considered renal 
dialysis services and not be billed or paid under Part D.
    Table 19 of the CY 2011 ESRD PPS final rule (75 FR 49075) provides 
the Medicare allowable payments for all of the components of the ESRD 
PPS base rate for CY 2007, inflated to CY 2009, including payments for 
drugs and biologicals and the amount each contributed to the base rate, 
except for the oral-only renal dialysis drugs where payment under the 
ESRD PPS has been delayed. A list of the specific Part B drugs and 
biologicals that were included in the final ESRD PPS base rate is 
located in Table C of the Appendix of the CY 2011 ESRD PPS final rule 
(75 FR 49205 through 49209). A list of the former Part D drugs that 
were included in the final ESRD PPS base rate is located in Table D of 
the Appendix of that rule (75 FR 49210). As discussed in section II.3.d 
of this proposed rule, the ESRD PPS base rate is updated annually by 
the ESRD bundled (ESRDB) market basket.
c. Section 1847A of the Social Security Act (the Act) and Average Sales 
Price (ASP) Methodology Under the ESRD PPS
    In the CY 2005 Physician Fee Schedule (PFS) final rule, published 
on November 15, 2004 (69 FR 66299 through 66302) in the Federal 
Register, we discussed that section 303(c) of the Medicare Prescription 
Drug, Improvement, and Modernization Act of 2003 (MMA) added section 
1847A to the Act and established the Average Sales Price (ASP) 
methodology for certain drugs and biologicals not paid on a cost or 
prospective payment basis furnished on or after January 1, 2005. The 
ASP methodology is based on quarterly data submitted to CMS by drug 
manufacturers. The ASP amount is based on the manufacturer's sales to 
all purchasers (with certain exceptions) net of all manufacturer 
rebates, discounts, and price concessions. Sales that are nominal in 
amount are exempted from the ASP calculation, as are sales excluded 
from the determination of ``best price'' in the Medicaid drug rebate 
program. Each drug with a healthcare common procedure coding system 
(HCPCS) code has a separately calculated ASP. To allow time to submit 
and calculate these data, the ASP is updated with a two-quarter lag.\1\
---------------------------------------------------------------------------

    \1\ Sheingold, S., Marchetti-Bowick, E., Nguyen, N., Yabrof, 
K.R. (2016, March). Medicare Part B Drugs: Pricing and Incentives. 
Retrieved from https://aspe.hhs.gov/system/files/pdf/187581/PartBDrug.pdf.
---------------------------------------------------------------------------

    Section 1847A(b)(1)(A) of the Act requires that the Medicare 
payment allowance for a multiple source drug included within the same 
HCPCS code be equal to 106 percent of the ASP for the HCPCS code. 
Section 1847A(b)(1)(B) of the Act also requires that the Medicare 
payment allowance for a single source drug HCPCS code be equal to the 
lesser of 106 percent of the ASP for the HCPCS code or 106 percent of 
the wholesale acquisition cost (WAC) of the HCPCS code.
    Section 1847A(c)(4) of the Act further provides a payment 
methodology in cases were the ASP is unavailable. Specifically Pub. 
100-04, Chapter 17, section 20 (https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/downloads/;clm104c17.pdf) titled ``Payment 
Allowance Limit for Drugs and Biologicals Not Paid on a Cost or 
Prospective Payment Basis'', provides guidance on how Medicare Part B 
pays for drugs and biologicals under section 1847A of the Act and notes 
that, in the case of a drug or biological during an initial period (not 
to exceed a full calendar quarter) in which data on the prices for 
sales for the drug or biological are not sufficiently available from 
the manufacturer to compute an average sales price for the drug or 
biological, the Secretary may determine the amount payable under this 
section for the drug or biological based on--the wholesale acquisition 
cost; or the methodologies in effect under this part on November 1, 
2003, to determine payment amounts for drugs or biologicals. This 
publication provides guidance on how Medicare Part B pays for drugs and 
biologicals under section 1847A of the Act.
    In the CY 2018 ESRD PPS final rule (82 FR 50742 through 50743), we 
discussed how we have used the ASP methodology since the implementation 
of the ESRD PPS when pricing ESRD-related drugs and biologicals 
previously paid separately under Part B (prior to the ESRD PPS) for 
purposes of ESRD PPS policies or calculations. We adopted Sec.  
413.234(c), which requires that the TDAPA is based on the pricing 
methodologies available under section 1847A of the Act (including 106 
percent of ASP). We also use such pricing methodologies for new and 
existing injectable drugs or biologicals that qualify as an outlier 
service.
d. Proposed Revision to the Drug Designation Process Regulation
    As noted above, in prior rulemakings we addressed how new drugs and 
biologicals are implemented under the ESRD PPS and how we have 
accounted for renal dialysis drugs and biologicals in the ESRD PPS base 
rate since its implementation on January 1, 2011. Accordingly, the drug 
designation process we finalized is dependent upon the functional 
categories we developed and is consistent with the policy we have 
followed since the inception of the ESRD PPS. However, since PAMA only 
required the Secretary to establish a process for including new 
injectable and intravenous drugs and biologicals, such new products 
were the primary focus of the regulation we adopted at Sec.  413.234, 
rather than codifying our full policy for other renal dialysis drugs, 
such as drugs and biologicals with other forms of administration, 
including, oral, that by law are included under the ESRD PPS (though 
oral-only renal dialysis drugs are required to remain outside of the 
ESRD PPS bundle until CY 2025).
    In this proposed rule, we propose to revise the drug designation 
process regulations at Sec.  413.234 to reflect that the process 
applies for all new renal

[[Page 34312]]

dialysis drugs and biologicals that are approved regardless of the form 
or route of administration, that is, new injectable, intravenous, oral, 
or other route of administration, or dosage form. We note that for 
purposes of the ESRD PPS drug designation process, use of the term form 
of administration is used interchangeably with route of administration. 
We are proposing these revisions so that the regulation reflects our 
long standing policy for all new renal dialysis drugs and biologicals, 
regardless of the form or route of administration, with the exception 
of oral-only drugs. Specifically, we propose to replace the definition 
of ``new injectable or intravenous product'' at Sec.  413.234(a), ``an 
injectable, intravenous, oral or other form or route of administration 
drug or biological that is used to treat or manage a condition(s) 
associated with ESRD,'' with a definition for ``new renal dialysis drug 
or biological,'' to encompass the broader scope of the drug designation 
process. Under this definition, a new renal dialysis drug or biological 
``must be approved by the Food and Drug Administration (FDA) on or 
after January 1, 2019 under section 505 of the Federal Food, Drug, and 
Cosmetic Act or section 351 of the Public Health Service Act, 
commercially available, have an HCPCS application submitted in 
accordance with the official HCPCS Level II coding procedures, and 
designated by CMS as a renal dialysis service under Sec.  413.171. 
Oral-only drugs or biologicals are excluded until January 1, 2025.''
    In our proposal to replace the definition of ``new injectable or 
intravenous product'' in Sec.  413.234(a) with the proposed definition 
of ``new renal dialysis drug or biological,'' we have included the 
clause, ``have an HCPCS application submitted in accordance with the 
official HCPCS Level II coding procedures.'' We note that this would be 
a change from the existing policy of requiring that the new product be 
assigned an HCPCS code. We are proposing that new renal dialysis 
injectable or intravenous products are no longer required to be 
assigned an HCPCS code before the TDAPA can apply, instead we would 
require that an application has been submitted in accordance with the 
Level II HCPCS coding procedures. This would allow the application of 
the TDAPA to the ESRD PPS base rate to happen more quickly than under 
our current process wherein a lag that occurs when a drug or biological 
is approved but is waiting for the issuance of a code. Information 
regarding the HCPCS process is available on the CMS website at https://www.cms.gov/Medicare/;Coding/MedHCPCSGenInfo/
Application_Form_and_Instructions.html.
    This proposed definition would also address prior concerns that we 
narrowly defined ``new'' in the context of the functional categories 
(that is, the drug designation process primarily addresses ``new'' 
drugs that fall outside of the functional categories for purposes of 
being newly categorized and eligible for the TDAPA). As noted in 
section II.B.1.f of this proposed rule, even though we are maintaining 
the functional categories to determine whether or not to potentially 
adjust or modify the ESRD PPS base rate (that is, those renal dialysis 
drugs and biologicals that do not fall within an existing category), we 
are proposing to expand the TDAPA policy based on whether the renal 
dialysis drug or biological is new, that is, any renal dialysis drug or 
biological newly approved on or after January 1, 2019.
    We solicit comment on the proposed revisions to Sec.  413.234(a), 
(b), and (c).
e. Basis for Expansion of the TDAPA Eligibility Criteria
    In the CY 2016 ESRD PPS final rule (80 FR 69017 through 69024), we 
acknowledged that there are unique situations identified by the 
commenters during that rulemaking regarding the eligibility criteria 
for the TDAPA. For example, commenters stated that they believed the 
drug designation process was excessive, could hinder innovation, 
prevent new treatment options from entering the marketplace, and CMS 
should contemplate the cost of new drugs and biologicals that fall 
within the functional categories. In the following paragraphs we have 
summarized key concerns commenters have raised. We indicated in the CY 
2016 ESRD PPS final rule that we anticipated addressing these 
situations in future rulemaking and stated that we planned to consider 
the issues of ESRD facility resource use, supporting novel therapies, 
and balancing the risk of including new drugs for both CMS and the 
dialysis facilities.
    In the CY 2016 ESRD PPS final rule (80 FR 69017 through 69024), 
commenters seemed concerned about the cost of new drugs that fit into 
the functional categories, rather than the process of adding new drugs 
to existing categories.
    In the CY 2016 ESRD PPS final rule (80 FR 69020), a drug 
manufacturer suggested that in order to promote access to new therapies 
and encourage innovation in ESRD care, the TDAPA should apply to all 
new drugs not just those drugs that are used to treat or manage a 
condition for which we have not adopted a functional category. They 
pointed out that the functional categories are very comprehensive and 
capture every known condition related to ESRD. They indicated that 
under the proposed approach, CMS would make no additional payment 
regardless of whether the drug has a novel mechanism of action, new FDA 
approval, or other distinguishing characteristics and argued that such 
distinguishing characteristics provided rationale for additional 
payment. The commenter believed the CMS proposal sent conflicting 
messages to manufacturers about the importance of developing new 
treatments for this underserved patient population.
    An organization of home dialysis patients commented (80 FR 69022) 
with a similar concern, noting that the functional categories are too 
broad and could prevent people on dialysis from receiving needed care, 
and be detrimental to innovation. The commenter stated that in the 
future there could be a new medication to help with fluid management 
but patients would be shut out of ever having the option for a new 
fluid management therapy since there is an existing functional category 
for excess fluid management and therefore, these drugs are considered 
to be included in the base rate. Therefore, we believe the commenter 
meant that drug manufacturers would be less likely to develop a new 
fluid management drug knowing it would never qualify for additional 
payment under the ESRD PPS. The commenter asked that CMS provide 
additional payment for new drugs that fit into the functional 
categories in order to incentivize new medications to come to market 
and to ensure they have the opportunity for better care, choices and 
treatment.
    A national dialysis patient advocacy organization explained (80 FR 
69021) that if new products are immediately added to the bundle without 
additional payment it would curtail innovation in treatments for people 
on dialysis. They believed clinicians should have the ability to 
evaluate the appropriate use of a new product and its effect on patient 
outcomes, and that the proposed rule did not allow for this. The 
commenter explained that Kidney Disease Improving Global Outcomes 
(KDIGO) and Kidney Disease Outcomes Quality Initiative (KDOQI) 
guidelines are often updated when evidence of improved therapies on 
patient outcomes are made available and that this rigorous and 
evidence-based process is extremely important in guiding widespread

[[Page 34313]]

treatment decisions in nephrology. The commenter expressed concern that 
under the proposed rule, reimbursement and contracting arrangements 
could instead dictate utilization of a product before real world 
evidence on patient outcomes is ever generated.
    The comments we received for the drug designation process in the CY 
2016 ESRD PPS rulemaking (80 FR 69017 through 69024) indicated that 
commenters were also concerned about the cost of the new drugs and 
biologicals, and in particular, new drugs and biologicals that fall 
within the functional categories, and therefore, considered by CMS to 
be reflected in the ESRD PPS base rate.
    A national dialysis organization strongly urged (80 FR 69017) CMS 
to adopt the same process for all new drugs and biologicals (as opposed 
to only those that do not fall within a functional category) unless 
they are substantially the same as drugs or biologicals currently paid 
for under the ESRD PPS payment rate. For new drugs or biologicals that 
are substantially the same as drugs or biologicals currently paid under 
the ESRD PPS, the organization supported incorporating them into the 
PPS on a case-by-case basis using notice-and-comment rulemaking and 
foregoing the transition period if it can be shown that the PPS rate is 
adequate to cover the cost of the drug or biological. The organization 
believed if the rate is inadequate to cover the cost of the new drug 
then the TDAPA should apply. An LDO stated that, if implemented, the 
proposed process could jeopardize patient access to drugs that are 
clinically superior to existing drugs in the same functional category. 
For example, the commenter stated, if a new substantially more 
expensive anemia management drug is released and is clinically proven 
to be more effective than the current standard of care under the 
proposed rule, the ESRD PPS base rate would remain stagnant. They 
continued that it is not reasonable for CMS to expect that all dialysis 
facilities would incur frequent and substantial losses in order to 
furnish the more expensive, albeit more clinically effective, drug.
    A dialysis organization and a professional association asked (80 FR 
69019) that CMS consider a pass-through payment, meaning Medicare 
payment in addition to the ESRD PPS base rate for all new drugs that 
are considered truly new. They recommended a rate of 106 percent of 
ASP, minus the portion of the ESRD PPS base rate that CMS determines is 
attributable to the category of drugs that corresponds to a truly new 
drug. An LDO stated (80 FR 69020) that defining new drugs requires 
special consideration of cost. They suggested a similar approach by 
stating that rather than comparing the cost of the new drug to the ESRD 
PPS base rate, we should compare it to the cost of the existing drugs 
in the same CMS-defined ``mode of action'' category. In such a case, a 
drug might qualify for payment of the TDAPA on the basis that its cost 
per unit or dosage exceeds a specified percentage (for example 150 
percent) of the average cost per unit or dosage of the top three most 
common drugs in the same category (based on utilization data). This 
comparison would demonstrate that the amount allocated to that category 
in the ESRD PPS base rate is insufficient to cover the cost of the new 
drug.
    Other commenters referred (80 FR 69020) to pathways in other 
payment systems that provide payment for new drugs and biologicals to 
account for their associated costs. For example, the Outpatient 
Prospective Payment System (OPPS) provides a pass-through payment and 
the Inpatient Prospective Payment System (IPPS) provides a new 
technology add-on payment. Commenters indicated (80 FR 69020) that we 
should decouple the TDAPA from the functional categories and provide 
the additional payment for all new injectable and intravenous drugs and 
biologicals and oral equivalents for 2 to 3 years, similar to the IPPS 
or the OPPS.
f. Proposed Expansion of the TDAPA Eligibility Criteria
    We continue to believe that the drug designation process does not 
prevent ESRD facilities from furnishing available medically necessary 
drugs and biologicals to ESRD beneficiaries. Additionally, our position 
has been that payment is adequate to ESRD facilities to furnish new 
drugs and biologicals that fall within existing ESRD PPS functional 
categories. The per treatment payment amount is a patient and facility 
level adjusted base rate plus any applicable adjustments, such as 
training or outlier. Finally, the ESRD PPS includes the ESRDB market 
basket, which updates the PPS base rate annually for input price 
changes for providing renal dialysis services and accounts for price 
changes of the drugs and biologicals that are reflected in the ESRD PPS 
base rate (80 FR 69019). However, in the CY 2016 ESRD PPS final rule, 
we also acknowledged that the outlier policy would not fully cover the 
cost of furnishing a new drug (80 FR 69021) and that newer drugs may be 
more costly. Consequently, due to the reasons detailed in the following 
paragraphs, we are reconsidering our previous policy on the drug 
designation policy.
    We recognize the unique situations identified by the commenters 
discussed in section II.B.1.e of this proposed rule, and how they are 
impacted by the eligibility criteria for the TDAPA. Concerns regarding 
inadequate payment for renal dialysis services and hindrance of high-
value innovation, among others, are important issues that we 
contemplate while determining appropriate payment policies. 
Additionally, subsequent to the issuance of the CY 2016 ESRD PPS final 
rule, we continue to hear concerns that the drug designation process is 
restrictive in nature; and receive requests from the dialysis industry 
and stakeholders that we reconsider the applicability of the TDAPA.
    We acknowledge that ESRD facilities have unique circumstances with 
regard to implementing new drugs and biologicals into their standards 
of care. For example, when new drugs are introduced to the market, ESRD 
facilities need to analyze their budget and engage in contractual 
agreements to accommodate the new therapies into their care plans. 
Newly launched drugs and biologicals can be unpredictable with regard 
to their uptake and pricing which makes these decisions challenging for 
ESRD facilities. Furthermore, practitioners should have the ability to 
evaluate the appropriate use of a new product and its effect on patient 
outcomes. We agree that this uptake period would be best supported by 
the TDAPA pathway because it would help facilities transition/test new 
drugs and biologicals in their businesses under the ESRD PPS. The TDAPA 
provides flexibility and targets payment for the use of new renal 
dialysis drugs and biologicals during the period when a product is new 
to the market so that we can evaluate if resource use can be aligned 
with payment. As explained in section II.B.1.b of this proposed rule, 
the ESRD PPS base rate includes dollars allocated for drugs and 
biologicals that fall within a functional category, but those dollars 
may not directly address the total resource use associated with the 
newly launched drugs trying to compete in the renal dialysis market.
    We believe that we need to be conscious of ESRD facility resource 
use and the financial barriers that may be preventing uptake of 
innovative new drugs and biologicals that, while are already accessible 
to them, may be under-prescribed because the new drugs are priced 
higher than currently utilized drugs (as argued by commenters).

[[Page 34314]]

Therefore, beginning January 1, 2019, we are proposing to add Sec.  
413.234(b)(1)(i), (ii) and revise Sec.  413.234(c) to reflect that the 
TDAPA, under the authority of section 1881(b)(14)(D)(iv) of the Act, 
would apply to all new renal dialysis injectable or intravenous 
products, oral equivalents, and other forms of administration drugs and 
biologicals, regardless of whether or not they fall within a functional 
category. New renal dialysis drugs and biologicals that do not fall 
within an existing functional category would continue to be paid under 
the TDAPA and the ESRD PPS base rate would be modified, if appropriate, 
to reflect the new functional category. We are revising Sec.  
413.234(b)(2)(ii) and Sec.  413.234(c)(2), removing Sec.  
413.234(c)(3), and adding Sec.  413.234(c)(2)(i) to reflect that we 
would continue to provide the TDAPA, collect sufficient data, and 
modify the ESRD PPS base rate, if appropriate, for these new drugs and 
biologicals that do not fall within an existing functional category.
    We propose to revise Sec.  413.234(c)(1) to reflect that for new 
renal dialysis drugs and biologicals that fall within a functional 
category, the TDAPA would apply for only 2 years. While we are not 
collecting claims data for purposes of analyzing utilization to result 
in a change to the base rate, we would still monitor renal dialysis 
service utilization for trends and believe that this timeframe is 
adequate for payment. We believe that 2 years is a sufficient timeframe 
for facilities to set up system modifications, and adjust business 
practices so that there is seamless access to these new drugs within 
the ESRD PPS base rate. In addition, when we implement policy changes 
whereby facilities need to adjust their system modifications or 
protocols, we have provided a transition period. We believe that this 
2-year timeframe is similar in that facilities are making changes to 
their systems and care plan to incorporate the new renal dialysis drugs 
and biologicals into their standards of care and this could be 
supported by a transition period. Also, the TDAPA for 2 years would 
address the stakeholders concerns regarding additional payment to 
account for higher cost of more innovative drugs that perhaps may not 
be adequately captured by the dollars allocated in the ESRD PPS base 
rate. That is, this transitional payment would give the new renal 
dialysis drugs and biologicals a foothold in the market so that when 
the timeframe is complete, they are able to compete with the existing 
drugs and biologicals under the outlier policy, if applicable. Meaning, 
once the timeframe is complete, drugs would then qualify as outlier 
services, if applicable, and the facility would no longer receive the 
TDAPA for any one particular drug. Instead, in the outlier policy 
space, there is a level playing field where drugs could gain market 
share by offering the best practicable combination of price and 
quality. We believe that the proposed timeframe is long enough to be 
meaningful but not too long as to improperly incentivize high cost 
items without more value, for example, substitutions of those drugs 
that already exist in the functional category.
    We note that this proposal would increase Medicare expenditures, 
which would result in increases to ESRD beneficiary cost sharing, since 
we have not previously provided the TDAPA for new renal dialysis drugs 
and biologicals in the past. It is our understanding that there are new 
drugs and biologicals in the pipelines, for example, we are aware that 
there are new drugs that would fall within the anemia management, bone 
and mineral, and pain management categories. We would continue to 
monitor the use of the TDAPA and carefully evaluate the new renal 
dialysis drugs and biologicals that qualify. We would address any 
concerns through future refinements to the TDAPA policy.
    We are also proposing that when a new renal dialysis drug or 
biological falls within an existing functional category at the end of 
the TDAPA period we would not modify the ESRD PPS base rate, but at the 
end of the 2 years, as consistent with the existing outlier policy, the 
drug would be eligible for outlier payment. However, as discussed in 
section II.B.1.h of this proposed rule, if the new renal dialysis drug 
or biological is considered to be a composite rate drug, it would not 
be eligible for an outlier payment. The intent of the TDAPA for these 
drugs is to provide a transition period for the unique circumstances 
experienced by ESRD facilities and to allow time for the uptake of the 
new drug. We do not believe that it would be appropriate to add dollars 
to the ESRD PPS base rate for new renal dialysis drugs and biologicals 
that fall within existing functional categories and that doing such 
would be in conflict with the fundamental principles of a PPS. Under a 
PPS, Medicare makes payments based on a predetermined, fixed amount 
that reflects the average patient and the facility retains the profit 
or suffers a loss resulting from the difference between the payment 
rate and the facility's cost which creates an incentive for cost 
control. It is not the intent of a PPS to add dollars to the base 
whenever something new is made available. We believe this proposal, 
that is, no modification to the base rate at the end of the TDAPA 
period for new renal dialysis drugs and biologicals that fall within an 
existing functional category would maintain the overall goal of a 
bundled PPS, that is, the limitation of applying the TDAPA would not 
undermine the bundle since there is no permanent adjustment to the base 
rate. This proposal would also strike a balance of maintaining the 
existing functional category scheme of the drug designation process and 
not adding dollars to the ESRD PPS base rate when the base rate may 
already reflect costs associated with such services, while still 
promoting high-value innovation and allowing facilities to adjust or 
factor in new drugs through a short-term transitional payment. We are 
proposing to add Sec.  413.234(c)(1)(i) to reflect that when a new 
renal dialysis drug or biological falls within an existing functional 
category at the end of the TDAPA period, we would not modify the ESRD 
PPS base rate. We solicit comment on this proposal.
    We are proposing to operationalize this proposed policy no later 
than January 1, 2020. This deadline would provide us with the 
appropriate time to prepare the necessary changes to our claims 
processing systems.
    We solicit comment on the proposal to revise Sec.  413.234(c) and 
(c)(1) to reflect that the TDAPA would apply for all new renal dialysis 
drugs and biologicals regardless of whether they fall within a 
functional category. Then, for new renal dialysis drug or biological 
that falls within an existing functional category, that payment would 
apply for 2 years and there would be no modification to the ESRD PPS 
base rate. We are also soliciting comment on the appropriateness of the 
2-year timeframe for the TDAPA for new renal dialysis drugs and 
biologicals that fall within existing functional categories.
g. Proposed Basis of Payment for the TDAPA
    Currently, under Sec.  413.234(c), the TDAPA is based on pricing 
methodologies under section 1847A of the Act, including 106 percent of 
ASP (ASP+6). If we adopt the proposals discussed in section II.B.1.f of 
this proposed rule using the same pricing methodologies, Medicare 
expenditures would increase, which would result in increases of cost 
sharing for ESRD beneficiaries, since we have not previously provided 
the TDAPA for all new renal dialysis drugs and biologicals in the past.

[[Page 34315]]

    The TDAPA is a payment adjustment under the ESRD PPS and is not 
intended to be a mechanism for payment for new drugs and biologicals 
under Medicare Part B, and under section 1881(b)(14)(D)(iv) of the Act, 
we believe it may not be appropriate to base the TDAPA strictly on 
section 1847A of the Act methodologies. For this proposed rule, we 
considered options for basing payment under the TDAPA, for example, 
maintaining the policy as is and facility cost of acquiring drugs and 
biologicals. We found that the while ASP could encourage certain 
unintended consequences (discussed below), it continues to be the best 
data available since it is commonly used to facilitate Medicare payment 
across care settings and, as described in section II.B.1.c, is based on 
the manufacturer's sales to all purchasers (with certain exceptions) 
net of all manufacturer rebates, discounts, and price concessions.
    Further, since the implementation of section 1847A of the Act, 
stakeholders and executive policy advisors have analyzed this section 
of the statute and issued their respective critiques on the purpose of 
the ASP add-on percentage. On March 8, 2016, the Assistant Secretary 
for Planning and Evaluation (ASPE) issued an Issue Brief titled, 
``Medicare Part B Drugs: Pricing and Incentives'' (https://aspe.hhs.gov/system/files/pdf/;187581/PartBDrug.pdf). In this brief 
ASPE touches on several concerns they have about the ASP methodology. 
Two of those concerns regard the economic incentives of cost and value. 
ASPE noted that the ASP methodology for Part B drugs falls short of 
providing value based incentives in several ways. Specifically, they 
noted physicians can often choose between several similar drugs for 
treating a patient and although the current system may encourage 
providers and suppliers to pursue the lowest price for drugs that are 
multiple source, payment based on drug specific ASP provides little 
incentive to make choices among the therapeutic options with an eye 
towards value and choose among the lowest price among all drugs 
available to effectively treat a patient. Rationale for the 6 percent 
add-on has been to cover administrative and overhead costs, but such 
costs are not proportional to the price of the drug. The fixed 6 
percent of ASP provides a larger ``add-on'' for higher priced drugs 
than for lower priced drugs, resulting in increased profit margins for 
the physicians' office and hospitals creating a perverse incentive to 
choose the high priced drugs as opposed to lower priced alternatives of 
similar effectiveness.
    In MedPAC's June 2015 Report to Congress (http://medpac.gov/docs/default-source/reports/june-2015-report-to-the-congress-medicare-and-the-health-care-delivery-system.pdf), MedPAC provides discussion around 
the meaning of the 6 percent that is added to the ASP and provides 
their opinion on its purpose. In their report, they state ``There is no 
consensus on the original intent of the 6 percent add-on to ASP. A 
number of rationales have been suggested by various stakeholders. Some 
suggest that the 6 percent is intended to cover drug storage and 
handling costs. Others contend that the 6 percent is intended to 
maintain access to drugs for smaller practices and other purchasers who 
may pay above average prices for the drugs. Another view is that the 
add-on to ASP was intended to cover factors that may create a gap 
between the manufacturers' reported ASP and the average purchase price 
across providers (for example, prompt-pay discounts). Another rationale 
for the percentage add-on may be to provide protection for providers 
when price increases occur and the payment rate has not yet caught 
up.''
    Finally, with regard to acquisition costs in a 2006 Report to 
Congress titled, ``Sales of Drugs and Biologicals to Large Volume 
Producers (https://www.cms.gov/Research-Statistics-Data-and-Systems/
;Statistics-Trends-and-Reports/Reports/Downloads/LVP_RTC_2_09_06.pdf), 
the Secretary was tasked to submit a Report to Congress (RTC) to 
include recommendations as to whether sales to large volume purchasers 
should be excluded from the computation of manufacturer's ASP. The 
contractor made extensive efforts to collect and analyze data regarding 
large volume drug purchasers. They were unable to obtain data on ASP by 
type of purchaser from the drug manufacturers, and were unable to 
determine net acquisition costs. The sensitive and proprietary nature 
of prescription drug pricing data made it extremely difficult to obtain 
the data necessary for the report. Given that ASP was designed to 
broadly reflect market prices without data on net acquisition cost, it 
is not possible to accurately analyze the impact of large volume 
purchasers on overall ASP. In 2018, we remain unable to obtain 
contractual information regarding drug pricing and ESRD PPS, which is 
especially pertinent since the dialysis stage is dominated by two large 
dialysis organizations who administer drugs and biologicals to the 
majority of ESRD beneficiaries.
    To balance the price controls inherent in any PPS we believe that 
we need to take all of these issues into consideration to revise the 
basis for TDAPA payment. We are, and will continue to be, conscious of 
ESRD facility resource use and recognize the financial barriers that 
may be preventing uptake of innovative new drugs and biologicals. 
Therefore, we are proposing to revise Sec.  413.234(c) under the 
authority of section 1881(b)(14)(D)(iv) of the Act, to reflect that we 
would base the TDAPA payments on 100 percent of ASP (ASP+0) instead of 
the pricing methodologies available under section 1847A of the Act 
(which includes ASP+6).
    This proposal applies to new renal dialysis drugs and biologicals 
that fall within an existing functional category and to those that do 
not fall within an existing functional category. We believe that ASP+0 
is a reasonable basis for payment for the TDAPA for new renal dialysis 
drugs and biologicals that fall within an existing functional category 
because there are already dollars in the per treatment base rate for a 
new drug's respective category. We also believe that ASP+0 is a 
reasonable basis for payment for the TDAPA for new renal dialysis drugs 
and biologicals that do not fall within the existing functional 
category because the ESRD PPS base rate has dollars built in for 
administrative complexities and overhead costs for drugs and 
biologicals. We note that there is no clear statement from Congress as 
to why the payment allowance is required to be 106 percent of ASP 
(ASP+6) as opposed to any other value from 101 to 105 percent, and, as 
MedPAC discussed in their June 2015 report, there is no consensus 
amongst stakeholders.
    We further believe that moving from pricing methodologies available 
under section 1847A of the Act, (which includes ASP+6) to ASP+0 for all 
new renal dialysis drugs and biologicals regardless of whether they 
fall within an ESRD PPS functional category strikes a balance between 
the increase to Medicare expenditures (subsequently increasing 
beneficiary coinsurance) and stakeholder concerns discussed in section 
II.B.1.e of this proposed rule. That is, we propose to provide the 
TDAPA for new drugs that are within an existing functional category, 
which is an expansion from the existing policy. This proposal would 
also aim to promote innovation and bring more high-value drugs to 
market. This proposal would further address concerns about 
incentivizing use of high cost drugs in ESRD facilities, also discussed 
in section II.B.1.e of this proposed rule. We

[[Page 34316]]

solicit comment on the proposal to revise Sec.  413.234(c) to reflect 
that we would base the TDAPA payments on ASP+0. While we propose to 
change the basis of payment for the TDAPA from pricing methodologies 
available under section 1847A of the Act, (which includes ASP+6) to 
ASP+0, we are also soliciting comment on other add-on percentages to 
the ASP amount, that is, ASP+1 to 6 percent for commenters to explain 
why it may be appropriate to have a higher percentage.
    There are times when the ASP is not available. For example, when a 
new drug or biological is brought to the market, sales data is not 
sufficiently available for the manufacturer to compute an ASP. 
Therefore, when the ASP is not available, we propose that the TDAPA 
payment would be based on 100 percent of Wholesale Acquisition Cost 
(WAC) and, when WAC is not available, the TDAPA payment would be based 
on the drug manufacturer's invoice. We solicit comment on this 
proposal.
    We note that this proposal to use ASP+0 as the basis for the TDAPA 
payments, if adopted, would apply prospectively to new drugs and 
biologicals as of January 1, 2019. Currently, calcimimetics are 
eligible for the TDAPA and payment for both the injectable and oral 
versions are based on pricing methodologies under section 1847A of the 
Act. This proposal would not affect calcimimetics, which would continue 
to be eligible for the TDAPA payment based on ASP+6.
h. Drug Designation Process for Composite Rate Drugs and Biologicals
    In the CY 2016 ESRD PPS final rule, we did not discuss composite 
rate drugs and biologicals explicitly in context of the drug 
designation process. Composite rate services are discussed in the CY 
2011 ESRD PPS final rule (75 FR 49036, 49078 through 49079) and are 
identified as renal dialysis services in Sec.  413.171 and under 
section 1847(b)(14)(B) of the Act. Prior to the implementation of the 
ESRD PPS, certain drugs used in furnishing outpatient maintenance 
dialysis treatments were considered composite rate drugs and not billed 
separately. Composite rate drug and biological policies are discussed 
in Pub. 100-02, chapter 11, section 20.3.F (https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/downloads/bp102c11.pdf). This 
manual lists the drugs and fluids considered in the composite rate 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, and 
verapamil. 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 
ESRD PPS.
    We used the composite rate payments made under Part B in 2007 for 
dialysis in computing the ESRD PPS base rate. These are identified on 
Table 19 of the CY 2011 ESRD PPS final rule (75 FR 49075) as 
``Composite Rate Services''. In addition, we note that under Sec.  
413.237, composite rate drugs and biologicals are not permitted to be 
considered for an outlier payment. The outlier policy is discussed in 
section II.B.3.c of this proposed rule.
    Composite rate drugs and biologicals were also grouped into 
functional categories during the drug categorization for the CY 2011 
ESRD PPS final rule (75 FR 49044 through 49053). For example, heparin 
is a composite rate drug and falls within the Access Management 
category. However, these functional categories exclude certain 
composite rate items given that certain drugs and biologicals formerly 
paid for under the composite rate were those that were routinely given 
during the time of the patient's dialysis and not always specifically 
for the treatment of their ESRD. For example, an antihypertensive 
composite rate drug that falls within the Cardiac Management category, 
which is not an ESRD PPS functional category, is not considered to be 
furnished for the treatment of ESRD and therefore, not included under 
the ESRD PPS.
    In light of our proposal to expand the drug designation process and 
the TDAPA, we also propose, under the authority of section 
1881(b)(14)(D)(iv) of the Act, that it extend to composite rate drugs 
and biologicals that are furnished for the treatment of ESRD. 
Specifically, beginning January 1, 2019, we propose that if a new renal 
dialysis drug or biological as defined in the proposed revision at 
Sec.  413.234(a) is considered to be a composite rate drug or 
biological and falls within an ESRD PPS functional category, it would 
be eligible for the TDAPA. We note that composite rate drugs and 
biologicals that are not considered to be furnished for the treatment 
of ESRD, and therefore, are not included in the ESRD PPS, would not be 
eligible for the TDAPA, for example, antihypertensives. We believe that 
the same unique consideration for innovation and cost exists for drugs 
that are considered composite rate drugs. That is, the ESRD PPS base 
rate dollars allocated for these types of drugs may not directly 
address the costs associated with drugs in this category when they are 
newly launched and are finding their place in the market. Accordingly, 
we propose that the expanded drug designation process and the TDAPA 
policy we proposed in section II.B.1.f of this proposed rule, including 
the proposed changes to Sec.  413.234, would be applicable to composite 
rate drugs, with one exception. Under our proposal, new composite rate 
drugs would not be subject to outlier payments following the period 
that the TDAPA applies, since we are not proposing to change the 
current outlier policy under Sec.  413.237, which does not apply to 
composite rate drugs. We are, however, soliciting comments on whether 
we should consider applying our outlier policy to composite rate drugs 
in the future (see section II.B.3.c of this proposed rule). We would 
continue to monitor the use of the TDAPA and carefully evaluate the new 
renal dialysis drugs and biologicals that qualify. We would address any 
concerns through future refinements to the TDAPA policy.
    We solicit comment on the proposal to recognize composite rate 
drugs and biologicals in the same manner as drugs that were formerly 
separately paid under Part B when furnished for the treatment of ESRD 
for purposes of the proposed revisions to the drug designation process 
and eligibility for the TDAPA.
2. Low-Volume Payment Adjustment (LVPA) Revision
a. Background
    As required by section 1881(b)(14)(D)(iii) of the Act, the ESRD PPS 
includes a payment adjustment that reflects the extent to which costs 
incurred by low-volume facilities in furnishing renal dialysis services 
exceed the costs incurred by other facilities furnishing such services. 
We have established a low-volume payment adjustment (LVPA) factor of 
23.9 percent for ESRD facilities that meet the definition of a low-
volume facility. Under Sec.  413.232(b), a low-volume facility is an 
ESRD facility that, based on the submitted documentation--(1) Furnished 
less than 4,000 treatments in each of the 3 cost reporting years (based 
on as-filed or final settled 12-consecutive month cost reports, 
whichever is most recent) preceding the payment year; and (2) Has not 
opened, closed, or received a new provider number due to a change in 
ownership in the 3 cost reporting years (based on as-filed or final 
settled 12-consecutive month cost reports, whichever is most recent) 
preceding the payment year.

[[Page 34317]]

Under Sec.  413.232(c), for purposes of determining the number of 
treatments furnished by the ESRD facility, the number of treatments 
considered furnished by the ESRD facility equals the aggregate number 
of treatments furnished by the ESRD facility and the number of 
treatments furnished by other ESRD facilities that are both under 
common ownership with, and 5 road miles or less from, the ESRD facility 
in question.
    For purposes of determining eligibility for the LVPA, 
``treatments'' means total hemodialysis (HD) equivalent treatments 
(Medicare and non-Medicare as well as ESRD and non-ESRD). For 
peritoneal dialysis (PD) patients, 1 week of PD is considered 
equivalent to 3 HD treatments. As noted, we base eligibility on the 3 
years preceding the payment year and those years are based on cost 
reporting periods. Specifically, under Sec.  413.232(g), the ESRD 
facility's cost reports for the periods ending in the 3 years preceding 
the payment year must report costs for 12-consecutive months (76 FR 
70237).
    In order to receive the LVPA under the ESRD PPS, an ESRD facility 
must submit a written attestation statement to its Medicare 
Administrative Contractor (MAC) confirming that it meets all of the 
requirements specified Sec.  413.232 and qualifies as a low-volume ESRD 
facility. Section 413.232(e) imposes a yearly November 1 deadline for 
attestation submissions. This timeframe provides 60 days for a MAC to 
verify that an ESRD facility meets the LVPA eligibility criteria (76 FR 
70236). Further information regarding the administration of the LVPA is 
provided in the Medicare Benefit Policy Manual, CMS Pub. 100-02, 
Chapter 11, section 60.B.1.
b. Revisions to the LVPA Requirements and Regulations
    We have heard from stakeholders that low-volume facilities rely on 
the low-volume adjustment and loss of the adjustment could result in 
beneficiary access issues. Specifically, stakeholders expressed concern 
that the eligibility criteria in the LVPA regulations are very explicit 
and leave little room for flexibility in certain circumstances. For 
example, in the CY 2017 ESRD PPS final rule (81 FR 77863), a commenter 
suggested refinements to the definition of a low-volume facility to 
address the rare change of ownership (CHOW) instance wherein the new 
owner accepts the Medicare agreement but the ownership change results 
in a new provider number because of a facility's type reclassification. 
The commenter explained that in this example, due to the issuance of a 
new Medicare provider billing number or provider transaction access 
number (PTAN) when the facility's type is reclassified, this facility 
would be deemed ineligible for the LVPA since our policy requires new 
Medicare provider billing numbers qualify for the LVPA, which takes 3 
years. We also discovered that facilities that change their fiscal year 
without going through a CHOW become ineligible for the adjustment. 
Finally, stakeholders also communicated that the strict enforcement of 
the attestation deadline without exception should be reevaluated since 
missing the deadline results in the facility losing the LVPA and their 
payments are significantly reduced. Thus, in order to be responsive to 
stakeholders and increase flexibility with regard to eligibility for 
the LVPA, we are proposing to make changes to the LVPA regulation at 
Sec.  413.232.
    The first proposed revision concerns the assignment of a PTAN when 
a facility undergoes a CHOW as described in 42 CFR 489.18. A facility 
is ineligible under Sec.  413.232(b)(2) and (g)(2) for the LVPA for 3 
years if it goes through a CHOW that results in a new PTAN. In response 
to a comment we received during the CY 2011 ESRD PPS rulemaking (75 FR 
49123), we explained that we believe that a 3-year waiting period 
serves as a safeguard against facilities establishing new facilities 
that are purposefully small. We also explained that we structured our 
analysis of the ESRD PPS by looking across data for 3 years as we 
believe that the 3-year timeframe provided us with a sufficient span of 
time to view consistency in business operations.
    However, as we mentioned above, we have heard from stakeholders 
that this policy unfairly impacts facilities that undergo a CHOW that 
results in a change in facility type (for example, the facility type 
changes from hospital-based to freestanding). Under this scenario, as 
discussed in the Medicare State Operations Manual, Pub. 100-07, Chapter 
3, Section 3210.4C (https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/downloads/som107c03.pdf) and the Medicare Program 
Integrity Manual, Pub. 100-08, Chapter 15, Section 15.7.7.1 (https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/pim83c15.pdf), CMS requires the issuance of a new CMS Certification 
Number (CCN) and provider agreement, which may lead to the issuance of 
a new PTAN, even if the new owner has accepted assignment of the 
existing Medicare provider agreement, that is, the new owner accepts 
the previous owner's assets and liabilities.
    We agree with the stakeholders that the language in the regulation 
regarding PTAN status could restrict LVPA eligibility to an otherwise 
qualified ESRD facility from receiving the adjustment for 3 years, 
until the new PTAN qualifies for the adjustment. We recognize that 
there are technicalities regarding the assignment of a PTAN that could 
cause substantive impacts with eligibility for the LVPA that were not 
contemplated at the time the regulation was established. The intent of 
the LVPA has always been that if an ESRD facility undergoes a CHOW 
wherein the new owner accepts assignment of the existing Medicare 
provider agreement that they should continue to be eligible for the 
LVPA since this indicates a consistency in business operations.
    We are proposing to expand the definition of a low-volume facility 
in Sec.  413.232(b)(2) to include CHOWs where the new owner accepts 
assignment of the existing Medicare provider agreement and a new PTAN 
is issued due to a change in facility type. This proposal does not 
extend to CHOWs where a new PTAN is issued for any other reason. We 
solicit comment on the proposal to revise the language at Sec.  
413.232(b)(2) to reflect that ESRD facilities can meet the definition 
of a low-volume facility when they have a CHOW that results in a new 
PTAN due to a change in facility type but accepts assignment of the 
existing Medicare provider agreement. We are also proposing to amend 
Sec.  413.232(g)(2), which governs the determination of LVPA 
eligibility, to recognize the proposed expansion of the low-volume 
facility definition to allow for PTAN changes when the facility type 
changes as a result of CHOW. We solicit comment on this proposal.
    We are also proposing to allow for an extraordinary circumstance 
exception to the November 1 attestation deadline under Sec.  
413.232(e). We agree with the stakeholders that there could be 
unforeseeable factors that contribute to a delay in the submission of 
the attestation and we would not want to prevent an otherwise qualified 
ESRD facility from receiving the adjustment. For example, while a 
failure to timely submit the attestation because of poor communication 
between a facility and its respective MAC, or because a facility 
forgets to send the attestation to the MAC, would not constitute 
extraordinary circumstances; a natural disaster could, because such an 
event is unforeseeable and extraordinary, which may understandably 
delay the timely submission of the attestation. We expect

[[Page 34318]]

extraordinary exceptions to be rare and the determination of 
acceptability would be made on a case-by-case basis. We have heard from 
stakeholders that they have lost eligibility for the LVPA due to 
extraordinary circumstances, such as natural disasters, that prevented 
them from submitting their attestation by the deadline. In those types 
of instances, we believe an exception to the attestation deadline could 
be warranted. Therefore, we are proposing to add a clause in Sec.  
413.232(e) to recognize an exception to the filing deadline for 
extraordinary circumstances. In order to request an extraordinary 
circumstance exception, we also propose that the facility would need to 
submit a narrative explaining the rationale for the exception to their 
MAC. We would evaluate and review the narrative to determine if an 
exception is justified, and such a determination would be final, with 
no appeal. We solicit comment on the proposal to revise the language at 
Sec.  413.232(e) to reflect that CMS would allow an exception to the 
attestation deadline of November 1 for extraordinary circumstances, if 
determined appropriate.
    In addition, we are also proposing to allow ESRD facilities that 
change their fiscal year-end for cost reporting purposes outside of a 
CHOW to qualify for the LVPA if they otherwise meet the LVPA 
eligibility criteria. Under Sec.  413.24(f)(3), facilities are able to 
change their cost reporting period when they request a change in 
writing from their MAC and meet specific criteria for approval. 
However, the current LVPA regulation at Sec.  413.232(g)(2)(ii) does 
not technically address requirements for changing cost reporting 
periods except as a result of a CHOW, which has prohibited facilities 
from receiving the LVPA if they make a business decision to adjust 
their cost reporting period, which could interfere with the normal 
course of business. We recognize that there are business decisions an 
ESRD facility could make with regard to cost reporting periods that 
could substantively impact eligibility for the LVPA that we did not 
contemplate at the time the regulation was adopted. Specifically, there 
could be reasons why a cost report does not span 12-consecutive months. 
We did not intend for an ESRD facility to lose their LVPA eligibility 
simply because they made a decision to change their cost reporting 
period. The requirement that cost reports span 12-consecutive months 
was to bring a measure of consistent business operations.
    We are proposing to add a new paragraph (3) to Sec.  413.232(g) to 
provide direction for MACs in verifying the number of treatments when a 
change in a cost reporting period is approved. When this occurs, we 
propose that MACs would combine the two non-standard cost reporting 
periods of less than 12 months to equal a full 12-consecutive month 
period or combine the two non-standard cost reporting periods that in 
combination may exceed 12-consecutive months and prorate the data to 
equal a full 12-consecutive month period. This proposal does not impact 
or change requirements for reporting, as established by the MACs, or 
those set forth in Sec.  413.24(f)(3). We solicit comment on the 
proposal to add proposed Sec.  413.232(g)(3) to change the information 
and cost report timeframes MACs would review to determine LVPA 
eligibility. This would apply to ESRD facilities that change their cost 
reporting year for purposes outside of a CHOW to qualify for the LVPA, 
provided they otherwise meet the LVPA eligibility criteria for the 
purposes of allowing the ESRD facility to continue to receive the 
adjustment.
    Finally, we are proposing two additional changes to correct and 
further clarify the LVPA regulation. The first would correct a cross-
reference in Sec.  413.232(b) by changing ``paragraph (h)'' to 
``paragraph (g)''. This error is the result of prior changes we made to 
the regulation when we deleted other paragraphs, but did not update the 
reference accordingly. The second proposed revision, which we are 
making to Sec.  413.232(c)(2), would clarify that the reference to 
miles, are road miles. CMS recognizes that the current designation of 
miles under the regulation may not be specific enough and could cause 
confusion, and we have issued guidance (Medicare Benefit Policy Manual, 
Pub. L. 100-02, Chapter 11, Section 60) addressing road miles. 
Accordingly, we are proposing clarifying edits to Sec.  413.232(c)(2).
3. Proposed CY 2019 ESRD PPS Update
a. ESRD Bundled (ESRDB) Market Basket and Labor-Related Share
i. Proposed Rebasing of the ESRDB Market Basket
    In accordance with section 1881(b)(14)(F)(i) of the Act, as added 
by section 153(b) of MIPPA and amended by section 3401(h) of the 
Affordable Care Act, beginning in 2012, the ESRD PPS payment amounts 
are required to be annually increased by an ESRD market basket increase 
factor and reduced by the productivity adjustment described in section 
1886(b)(3)(B)(xi)(II) of the Act. The application of the productivity 
adjustment may result in the increase factor being less than 0.0 for a 
year and may result in payment rates for a year being less than the 
payment rates for the preceding year. The statute also 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.
    As required under section 1881(b)(14)(F)(i) of the Act, CMS 
developed an all-inclusive ESRD Bundled (ESRDB) input price index (75 
FR 49151 through 49162) and subsequently revised and rebased the ESRDB 
input price index in the CY 2015 ESRD PPS final rule (79 FR 66129 
through 66136). Effective for CY 2019, we are proposing to rebase the 
ESRDB market basket to a base year of CY 2016.
    Although ``market basket'' technically describes the mix of goods 
and services used for ESRD treatment, 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 a market 
basket. Accordingly, the term ``ESRDB market basket,'' as used in this 
document, refers to the ESRDB input price index.
    The ESRDB market basket is a fixed-weight, Laspeyres-type price 
index. A Laspeyres-type price index measures the change in price, over 
time, of the same mix of goods and services purchased in the base 
period. Any changes in the quantity or mix of goods and services (that 
is, intensity) purchased over time are not measured.
    The index is constructed in three steps. First, a base period is 
selected (in this proposed rule, we are proposing to use 2016 as the 
base period) and total base period expenditures are estimated for a set 
of mutually exclusive and exhaustive spending categories, with the 
proportion of total costs that each category represents being 
calculated. These proportions are called ``cost weights'' or 
``expenditure weights.'' Second, each expenditure category is matched 
to an appropriate price or wage variable, referred to as a ``price 
proxy''. In almost every instance, these price proxies are derived from 
publicly available statistical series that are published on a 
consistent schedule (preferably at least on a quarterly basis). 
Finally, the expenditure weight for each cost category is multiplied by 
the level of its respective price proxy. The sum of these products 
(that is, the expenditure weights multiplied by their price index 
levels) for all cost categories yields the composite index level of the 
market basket in a given period. Repeating this step for other periods 
produces a series of market basket levels over time.

[[Page 34319]]

Dividing an index level for a given period by an index level for an 
earlier period produces a rate of growth in the input price index over 
that timeframe.
    As noted above, the market basket is described as a fixed-weight 
index because it represents the change in price over time of a constant 
mix (quantity and intensity) of goods and services purchased to provide 
ESRD services. The effects on total expenditures resulting from changes 
in the mix of goods and services purchased subsequent to the base 
period are not measured. For example, an ESRD facility hiring more 
nurses to accommodate the needs of patients would increase the volume 
of goods and services purchased by the ESRD facility, but would not be 
factored into the price change measured by a fixed-weight ESRD market 
basket. Only when the index is rebased would changes in the quantity 
and intensity be captured, with those changes being reflected in the 
cost weights. Therefore, we rebase the market basket periodically so 
that the cost weights reflect changes between base periods in the mix 
of goods and services that ESRD facilities purchase to furnish ESRD 
treatment.
    We are proposing to use CY 2016 as the base year for the proposed 
rebased ESRDB market basket cost weights. The cost weights for this 
proposed ESRDB market basket are based on the cost report data for 
independent ESRD facilities. We refer to the market basket as a CY 
market basket because the base period for all price proxies and weights 
are set to CY 2016 (that is, the average index level for CY 2016 is 
equal to 100). The major source data for the proposed ESRDB market 
basket is the 2016 Medicare cost reports (MCRs) (Form CMS-265-11), 
supplemented with 2012 data from the United States (U.S.) Census 
Bureau's Services Annual Survey (SAS) inflated to 2016 levels. The 2012 
SAS data is the most recent year of detailed expense data published by 
the Census Bureau for North American International Classification 
System (NAICS) Code 621492: Kidney Dialysis Centers. We also are 
proposing to use May 2016 Bureau of Labor Statistics (BLS) Occupational 
Employment Statistics data to estimate the weights for the Wages and 
Salaries and Employee Benefits occupational blends. We provide more 
detail on our methodology below.
    The terms ``rebasing'' and ``revising,'' while often used 
interchangeably, actually denote different activities. The term 
``rebasing'' means moving the base year for the structure of costs of 
an input price index (that is, in this exercise, we are proposing to 
move the base year cost structure from CY 2012 to CY 2016) without 
making any other major changes to the methodology. The term 
``revising'' means changing data sources, cost categories, and/or price 
proxies used in the input price index. For CY 2019, we are proposing to 
rebase the ESRD market basket to reflect the 2016 cost structure of 
ESRD facilities. We are not proposing to revise the index; that is, we 
are not proposing to make any changes to the cost categories or price 
proxies used in the index.
    We selected CY 2016 as the new base year because 2016 is the most 
recent year for which relatively complete MCR data are available. In 
developing the proposed market basket, we reviewed ESRD expenditure 
data from ESRD MCRs (CMS Form 265-11) for 2016 for each freestanding 
ESRD facility that reported expenses and payments. The 2016 MCRs are 
those ESRD facilities whose cost reporting period began on or after 
October 1, 2015 and before October 1, 2016. Of the 2016 MCRs, 
approximately 88 percent of freestanding ESRD facilities had a begin 
date on January 1, 2016, approximately 6 percent had a begin date prior 
to January 1, 2016, and approximately 6 percent had a begin date after 
January 1, 2016. Using this methodology allowed our sample to include 
ESRDs with varying cost report years including, but not limited to, the 
federal fiscal or CY.
    We propose to maintain our policy of using data from freestanding 
ESRD facilities (which account for over 90 percent of total ESRD 
facilities) because freestanding ESRD data reflect the actual cost 
structure faced by the ESRD facility itself. In contrast, expense data 
for a hospital-based ESRD reflect the allocation of overhead from the 
entire institution.
    We developed cost category weights for the proposed 2016-based 
ESRDB market basket in two stages. First, we derived base year cost 
weights for nine major categories (Wages and Salaries, Employee 
Benefits, Pharmaceuticals, Supplies, Lab Services, Housekeeping and 
Operations, Administrative and General, Capital-Related Building and 
Fixtures, and Capital-Related Machinery) from the ESRD MCRs. Second, we 
are proposing to divide the Administrative and General cost category 
into further detail using 2012 U.S. Census Bureau Services Annual 
Survey (SAS) data for the industry Kidney Dialysis Centers NAICS 621492 
inflated to 2016 levels. We apply the estimated 2016 distributions from 
the SAS data to the 2016 Administrative and General cost weight to 
yield the more detailed 2016 cost weights in the proposed market 
basket. This is similar to the methodology we used to break the 
Administrative and General costs into more detail for the 2012-based 
ESRDB market basket (79 FR 40217 through 40221). The only difference is 
that for this proposed rebasing because SAS data is not available after 
2012 we inflated the 2012 expense levels to 2016 dollars using 
appropriate price proxies and applied this expense distribution to the 
Administrative and General cost weight for 2016.
    We are proposing to include a total of 20 detailed cost categories 
for the proposed 2016-based ESRDB market basket, which is the same 
number of cost categories as the 2012-based ESRDB market basket. We are 
proposing to continue to assume that 87 percent of Professional Fees 
and 46 percent of capital costs are labor-related costs and would be 
included in the proposed labor-related share. A more thorough 
discussion of our proposals is provided below.
a. Cost Category Weights
    Using Worksheets A and B from the 2016 MCRs, we first computed cost 
shares for nine major expenditure categories: Wages and Salaries, 
Employee Benefits, Pharmaceuticals, Supplies, Lab Services, 
Housekeeping and Operations, Administrative and General, Capital-
Related Building and Equipment, and Capital-Related Machinery. Edits 
were applied to include only cost reports that had total costs greater 
than zero. Total costs as reported on the MCR include those costs 
reimbursable under the ESRD bundled payment system. For example, we 
excluded expenses related to vaccine costs from total expenditures 
since these are not reimbursable under the ESRD bundled payment.
    In order to reduce potential distortions from outliers in the 
calculation of the individual cost weights for the major expenditure 
categories for each cost category, values less than the 5th percentile 
or greater than the 95th percentile were excluded from the major cost 
weight computations. The proposed data set, after removing cost reports 
with total costs equal to or less than zero and excluding outliers, 
included information from approximately 5,700 independent ESRD 
facilities' cost reports from an available pool of 6,410 cost reports.
    Table 2 presents the proposed 2016-based ESRDB and 2012-based ESRDB 
market basket major cost weights as derived directly from the MCR data.

[[Page 34320]]



   Table 2--Proposed 2016-Based ESRDB Market Basket Major Cost Weights
               Derived From the Medicare Cost Report Data
------------------------------------------------------------------------
                                          Proposed  2016-   2012-based
                                           based  ESRDB    ESRDB market
              Cost category                market basket      basket
                                             (percent)       (percent)
------------------------------------------------------------------------
Wages and Salaries......................            32.6            31.8
Employee Benefits.......................             7.0             6.6
Pharmaceuticals.........................            12.4            16.5
Supplies................................            10.4            10.1
Lab Services............................             2.2             1.5
Housekeeping and Operations.............             3.9             3.8
Administrative and General..............            18.4            17.4
Capital-related Building and Fixed                   9.2             8.4
 Equipment..............................
Capital-related Machinery...............             3.8             3.9
------------------------------------------------------------------------
Note: Totals may not sum to 100.0 percent due to rounding.

    We are proposing to disaggregate certain major cost categories 
developed from the MCRs into more detail to more accurately reflect 
ESRD facility costs. Those categories include: Benefits, Professional 
fees, Telephone, Utilities, and All Other Goods and Services. We 
describe below how the initially computed categories and weights from 
the cost reports were modified to yield the proposed 2016 ESRDB market 
basket expenditure categories and weights presented in this proposed 
rule.
Wages and Salaries
    The proposed Wages and Salaries cost weight is comprised of direct 
patient care wages and salaries and non-direct patient care wages and 
salaries. Direct patient care wages and salaries for 2016 was derived 
from Worksheet B, column 5, lines 8 through 17 of the MCR. Non-direct 
patient care wages and salaries includes all other wages and salaries 
costs for non-health workers and physicians, which we are proposing to 
derive using the following steps:
    Step 1: To capture the salary costs associated with non-direct 
patient care cost centers, we calculated salary percentages for non-
direct patient care from Worksheet A of the MCR. The estimated ratios 
were calculated as the ratio of salary costs (Worksheet A, columns 1 
and 2) to total costs (Worksheet A, column 4). The salary percentages 
were calculated for seven distinct cost centers: `Operations and 
Maintenance' combined with `Machinery & Rental & Maintenance' (line 3 
and 6), Housekeeping (line 4), Employee Health and Wellness (EH&W) 
Benefits for Direct Patient Care (line 8), Supplies (line 9), 
Laboratory (line 10), Administrative & General (line 11), and 
Pharmaceuticals (line 12).
    Step 2: We then multiplied the salary percentages computed in step 
1 by the total costs for each corresponding reimbursable costs center 
totals as reported on Worksheet B. The Worksheet B totals were based on 
the sum of reimbursable costs reported on lines 8 through 17. For 
example, the salary percentage for Supplies (as measured by line 9 on 
Worksheet A) was applied to the total expenses for the Supplies cost 
center (the sum of costs reported on Worksheet B, column 7, lines 8 
through 17). This provided us with an estimate of Non-Direct Patient 
Care Wages and Salaries.
    Step 3: The estimated Wages and Salaries for each of the cost 
centers on Worksheet B derived in step 2 were subsequently summed and 
added to the direct patient care wages and salaries costs.
    Step 4: The estimated non-direct patient care wages and salaries 
(see step 2) were then subtracted from their respective cost categories 
to avoid double-counting their values in the total costs.
    Using this methodology, we derive a proposed Wages and Salaries 
cost weight of 32.6 percent, reflecting an estimated direct patient 
care wages and salaries cost weight of 25.1 percent and non-direct 
patient care wages and salaries cost weight of 7.5 percent, as seen in 
Table 3.
    The final adjustment made to this category is to include Contract 
Labor costs. These costs appear on the MCR; however, they are embedded 
in the Other Costs from the trial balance reported on Worksheet A, 
Column 3 and cannot be disentangled using the MCRs. To avoid double 
counting of these expenses, we propose to remove the estimated cost 
weight for the contract labor costs from the Administrative and General 
category (where we believe the majority of the contract labor costs 
would be reported) to the Wages and Salaries category. We are proposing 
to use data from the SAS (2012 data inflated to 2016), which reported 
2.3 percent of total expenses were spent on contract labor costs. We 
allocated 80 percent of that contract labor cost weight to Wages and 
Salaries. At the same time, we subtracted that same amount from 
Administrative and General, where the majority of contract labor 
expenses would likely be reported on the MCR. The 80 percent figure 
that was used was determined by taking salaries as a percentage of 
total compensation (excluding contract labor) from the 2016 MCR data. 
This is the same method that was used to allocate contract labor costs 
to the Wages and Salaries cost category for the 2012-based ESRDB market 
basket.
    The resulting proposed cost weight for Wages and Salaries increases 
to 34.5 percent when contract labor wages are added. The calculation of 
the proposed Wages and Salaries cost weight for the 2016-based ESRDB 
market basket is shown in Table 3 along with the similar calculation 
for the 2012-based ESRDB market basket.

[[Page 34321]]



                Table 3--Proposed 2016 and 2012 ESRD Wages and Salaries Cost Weight Determination
----------------------------------------------------------------------------------------------------------------
                                                 Proposed 2016     2012 cost
                  Components                      cost weight       weight                   Source
                                                   (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Wages and Salaries Direct Patient Care........            25.1            23.2  MCR.
Wages and Salaries Non-direct Patient Care....             7.5             8.6  MCR.
Contract Labor (Wages)........................             1.9             1.8  80% of SAS Contract Labor
                                                                                 weight.
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
    Total Wages and Salaries..................            34.5            33.7  ................................
----------------------------------------------------------------------------------------------------------------

Employee Benefits
    The Employee Benefits cost weight was derived from the MCR data for 
direct patient care and supplemented with data from the SAS (2012 data 
inflated to 2016) to account for non-direct patient care Employee 
Benefits. The MCR data only reflects Employee Benefit costs associated 
with health and wellness; that is, it does not reflect retirement 
benefits.
    In order to reflect the benefits related to non-direct patient care 
for employee health and wellness, we estimated the impact on the 
benefit weight using SAS. Unlike the MCR, data from the SAS benefits 
share includes expenses related to the retirement and pension benefits. 
In order to be consistent with the cost report definitions we do not 
want to include the costs associated with retirement and pension 
benefits in the cost share weights. These costs are relatively small 
compared to the costs for the health-related benefits, accounting for 
only 2.7 percent of the total benefits costs as reported on the SAS. 
Incorporating the SAS data produced an Employee Benefits (both direct 
patient care and non-direct patient care) weight that was 1.6 
percentage points higher (8.6 vs. 7.0) than the Employee Benefits 
weight for direct patient care calculated directly from the MCR. To 
avoid double-counting and to ensure all of the market basket weights 
still totaled 100 percent, we removed this additional 1.6 percentage 
points for Non-Direct Patient Care Employee Benefits from the 
Administrative and General cost category (where we believe the majority 
of the contract labor costs would be reported).
    The final adjustment made to this category is to include contract 
labor benefit costs. Once again, these costs appear on the MCR; 
however, they are embedded in the Other Costs from the trial balance 
reported on Worksheet A, Column 3 and cannot be disentangled using the 
MCR data. Identical to our methodology above for allocating Contract 
Labor Costs to Wages and Benefits, we applied 20 percent of total 
Contract Labor Costs, as estimated using the SAS, to the Benefits cost 
weight calculated from the cost reports. The 20 percent figure was 
determined by taking benefits as a percentage of total compensation 
(excluding contract labor) from the 2016 MCR data. The resulting cost 
weight for Employee Benefits increases to 9.1 percent when contract 
labor benefits are added. This is the same method that was used to 
allocate contract labor costs to the Benefits cost category for the 
2012-based ESRDB market basket.
    The Table 4 compares the 2012-based Benefits cost share derivation 
as detailed in the CY 2015 ESRD proposed rule (79 FR 40218) to the 
proposed 2016-based Benefits cost share derivation.

                Table 4--Proposed 2016 and 2012 ESRD Employee Benefits Cost Weight Determination
----------------------------------------------------------------------------------------------------------------
                                                 Proposed 2016     2012 cost
                  Components                      cost weight       weight                   Source
                                                   (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Employee Benefits Direct Patient Care.........             7.0             6.6  MCR.
Employee Benefits Non-direct Patient Care.....             1.6             1.8  SAS.
Contract Labor (Benefits).....................             0.5             0.5  20% of SAS Contract Labor
                                                                                 weight.
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
    Total Employee Benefits...................             9.1             8.8  ................................
----------------------------------------------------------------------------------------------------------------

Pharmaceuticals
    The proposed 2016-based ESRDB market basket includes expenditures 
for all drugs, including formerly separately billable drugs and ESRD-
related drugs that were covered under Medicare Part D before the ESRD 
PPS was implemented. We calculated a Pharmaceutical cost weight from 
the following cost centers on Worksheet B, the sum of lines 8 through 
17, for the following columns: 11 ``Drugs Included in Composite Rate''; 
12 ``Erythropoiesis stimulating agents (ESAs)''; 13 ``ESRD-Related 
Drugs''. We also added the drug expenses reported on line 5 column 10 
``Non-ESRD related drugs''. The Non-ESRD related drugs would include 
drugs and biologicals administered during dialysis for non-ESRD related 
conditions as well as oral-only drugs. Since these are costs to the 
facility for providing ESRD treatment to the patient, we propose to 
continue to include them in the Pharmaceutical cost weight. Section 
1842(o)(1)(A)(iv) of the Act requires that influenza, pneumococcal, and 
hepatitis B vaccines described in paragraph (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 vaccines are not reimbursable 
under the ESRD PPS, we exclude them from the proposed 2016-based ESRDB 
market basket.
    Finally, to avoid double-counting, the weight for the 
Pharmaceuticals category was reduced to exclude the estimated share of 
Non-Direct Patient Care Wages and Salaries associated with the 
applicable pharmaceutical cost centers referenced above. This resulted 
in a proposed ESRDB market basket weight for Pharmaceuticals of 12.4 
percent. ESA expenditures accounted for 10.0 percentage points of the 
proposed Pharmaceuticals cost weight, and All

[[Page 34322]]

Other Drugs accounted for the remaining 2.4 percentage points.
    The Pharmaceutical cost weight decreased 4.1 percentage point from 
the 2012-based ESRD market basket to the proposed 2016-based ESRD 
market basket (16.5 percent to 12.4 percent). Most providers 
experienced a decrease in their Pharmaceutical cost weight since 2012. 
One provider in particular, a major dialysis provider, experienced a 
significant pharmaceutical cost weight decline in 2016. This provider's 
decline has an effect on the overall Pharmaceutical cost weight in the 
proposed 2016-based ESRDB market basket. We wish to note that the 
provider's decline in the pharmaceutical cost weight was found across 
the board in all states where the provider has facilities. Given this, 
we are proposing to include this provider's decline in our market 
basket results treating it as a `real' change in relative 
pharmaceutical costs. We are not proposing to use an alternative 
methodology, such as averaging cost weights from multiple years, as 
proposed for Lab Services.
Supplies
    We calculated the Supplies cost weight using the costs reported in 
the Supplies cost center (Worksheet B, line 5 and the sum of lines 8 
through 17, column 7) of the MCR. To avoid double-counting, the 
Supplies costs were reduced to exclude the estimated share of Non-
Direct patient care Wages and Salaries associated with this cost 
center. The resulting proposed 2016-based ESRDB market basket weight 
for Supplies is 10.4 percent, about the same as the weight for the 
2012-based ESRDB market basket.
Lab Services
    We calculated the Lab Services cost weight using the costs reported 
in the Laboratory cost center (Worksheet B, line 5 and the sum of line 
8 through 17, column 8) of the MCR. To avoid double-counting, the Lab 
Services costs were reduced to exclude the estimated share of Non-
Direct Patient Care Wages and Salaries associated with this cost 
center. The proposed 2016-based ESRDB market basket weight for Lab 
Services is estimated at 2.2 percent.
    The 2016 Lab Services expenses reported for a main chain provider 
were significantly lower than those reported in the 3 years prior 
(2013-2015) and lower than the 2016 Lab Services weight for all other 
providers. We believe the lower costs were based on a correction to the 
way that this chain is billing for these services, an assumption that 
is supported by the findings of a January 2016 Health and Human 
Services Office of the Inspector General (OIG) Report.\2\ Because the 
recent reported costs from this chain reflect these unique 
circumstances, we propose to take a 2-year average of Lab Services 
costs for 2015 and 2016 for this chain in order to smooth out the year-
to-year volatility. This approach results in a Lab cost weight for this 
chain that is higher than it was in 2012, which is then added to the 
2016 Lab Services costs for all other providers, where the cost weight 
was similar in 2012 and 2016. As a result, the overall Lab Services 
cost weight increased 0.7 percentage points from the 2012-based ESRDB 
market basket to the proposed 2016-based ESRD market basket.
---------------------------------------------------------------------------

    \2\ Review of Medicare Payments for Laboratory Tests Billed with 
an AY Modifier by Total Renal Laboratories, Inc.; https://oig.hhs.gov/oas/reports/region1/11400505.pdf.
---------------------------------------------------------------------------

Housekeeping and Operations
    We calculated the Housekeeping and Operations cost weight using the 
costs reported on Worksheet A, lines 3 and 4, column 8, of the MCR. To 
avoid double-counting, the weight for the Housekeeping and Operations 
category was reduced to exclude the estimated share of Non-Direct 
Patient Care Waged and Salaries associated with this cost center. These 
costs were divided by total costs to derive a proposed 2016-based ESRDB 
market basket weight for Housekeeping and Operations of 3.9 percent.
Capital
    We developed a proposed market basket weight for the Capital 
category using data from Worksheet B of the MCRs. Capital-related costs 
include depreciation and lease expenses for buildings, fixtures and 
movable equipment, property taxes, insurance costs, the costs of 
capital improvements, and maintenance expense for buildings, fixtures, 
and machinery. Because Housekeeping and Operations and Maintenance 
costs are included in the Worksheet B cost center for Capital-Related 
costs (Worksheet B, column 2), we excluded the costs for these two 
categories and developed a separate expenditure category for 
Housekeeping and Operations, as detailed above. Similar to the 
methodology used for other market basket cost categories with a 
salaries component, we computed a share for non-direct patient care 
Wages and Salaries and Benefits associated with the Capital-related 
cost centers. We used Worksheet B to develop two capital-related cost 
categories: (1) Buildings and Fixtures (Worksheet B, the sum of lines 8 
through 17, column 2 less housekeeping & operations as derived from 
expenses reported on Worksheet A (see above)), and (2) Machinery 
(Worksheet B, the sum of lines 8 through 17, column 4). We reasoned 
this delineation was particularly important given the critical role 
played by dialysis machines. Likewise, because price changes associated 
with Buildings and Equipment could move differently than those 
associated with Machinery, we continue to believe that two capital-
related cost categories are appropriate. The resulting proposed 2016-
based ESRDB market basket weights for Capital-related Buildings and 
Fixtures and Capital-related Machinery are 9.2 and 3.8 percent, 
respectively.
Administrative and General
    We computed the proportion of total Administrative and General 
expenditures using the Administrative and General cost center data from 
Worksheet B, the sum of lines 8 through 17, (column 9) of the MCRs. 
Additionally, we remove contract labor from this cost category and 
apportion these costs to the Wages and Salaries and Employee Benefits 
cost weights. Similar to other expenditure category adjustments, we 
then reduced the computed weight to exclude Wages and Salaries and 
Benefits associated with the Administrative and General cost center for 
Non-direct Patient Care as estimated from the SAS data. The resulting 
Administrative and General cost weight is 14.5 percent.
    We are proposing to further disaggregate the Administrative and 
General cost weight to derive detailed cost weights for Electricity, 
Natural Gas, Water and Sewerage, Telephone, Professional Fees, and All 
Other Goods and Services. These detailed cost weights are derived by 
inflating the detailed 2012 SAS data forward to 2016 by applying the 
annual price changes from the respective price proxies to the 
appropriate market basket cost categories that are obtained from the 
2012 SAS data. We repeat this practice for each year to 2016. We then 
calculate the cost shares that each cost category represents of the 
2012 data inflated to 2016. These resulting 2016 cost shares were 
applied to the Administrative and General cost weight derived from the 
MCR (net of contract labor and additional benefits) to obtain the 
detailed cost weights for the proposed 2016-based ESRD market basket. 
This method is similar to the method used for the 2012-based ESRDB 
market basket.
    Table 5 lists all of the cost categories and cost weights in the 
proposed 2016-

[[Page 34323]]

based ESRDB market basket compared to the 2012-based ESRDB market 
basket.

 Table 5--Comparison of the Proposed 2016-Based and the 2012-Based ESRDB
                Market Basket Cost Categories and Weights
------------------------------------------------------------------------
                                           Proposed 2016     2012 cost
       Proposed 2016 cost category         cost weights       weights
                                             (percent)       (percent)
------------------------------------------------------------------------
Total...................................           100.0           100.0
Compensation............................            43.6            42.5
    Wages and Salaries..................            34.5            33.7
    Employee Benefits...................             9.1             8.8
Utilities...............................             2.0             1.8
    Electricity.........................             1.1             1.0
    Natural Gas.........................             0.1             0.1
    Water and Sewerage..................             0.8             0.8
Medical Materials and Supplies..........            24.9            28.1
    Pharmaceuticals.....................            12.4            16.5
        ESAs............................            10.0            12.9
        Other Drugs (except ESAs).......             2.4             3.6
    Supplies............................            10.4            10.1
    Lab Services........................             2.2             1.5
All Other Goods and Services............            16.4            15.3
    Telephone & Internet Services.......             0.5             0.5
    Housekeeping and Operations.........             3.9             3.8
    Professional Fees...................             0.7             0.6
    All Other Goods and Services........            11.3            10.4
Capital Costs...........................            13.0            12.2
    Capital Related-Building and                     9.2             8.4
     Fixtures...........................
    Capital Related-Machinery...........             3.8             3.9
------------------------------------------------------------------------
Note: The cost weights are calculated using three decimal places. For
  presentational purposes, we are displaying one decimal and, therefore,
  the detail may not add to the total due to rounding.

b. Proposed Price Proxies for the 2016-Based ESRDB Market Basket
    After developing the cost weights for the proposed 2016-based ESRDB 
market basket, we are proposing to select the most appropriate wage and 
price proxies currently available to represent the rate of price change 
for each expenditure category. We based the proposed price proxies on 
Bureau of Labor Statistics (BLS) data and group them into one of the 
following BLS categories:
    (1) Employment Cost Indexes. Employment Cost Indexes (ECIs) measure 
the rate of change in employment wage rates and employer costs for 
employee benefits per hour worked. These indexes are fixed-weight 
indexes and strictly measure the change in wage rates and employee 
benefits per hour. ECIs are superior to Average Hourly Earnings (AHE) 
as price proxies for input price indexes because they are not affected 
by shifts in occupation or industry mix, and because they measure pure 
price change and are available by both occupational group and by 
industry. The industry ECIs are based on the NAICS and the occupational 
ECIs are based on the Standard Occupational Classification System 
(SOC).
    (2) Producer Price Indexes. Producer Price Indexes (PPIs) measure 
price changes for goods sold in other than retail markets. PPIs are 
used when the purchases of goods or services are made at the wholesale 
level.
    (3) Consumer Price Indexes. Consumer Price Indexes (CPIs) measure 
change in the prices of final goods and services bought by consumers. 
CPIs are only used when the purchases are similar to those of retail 
consumers rather than purchases at the wholesale level, or if no 
appropriate PPIs were available.
    We evaluated the price proxies using the criteria of reliability, 
timeliness, availability, and relevance:
    Reliability. Reliability indicates that the index is based on valid 
statistical methods and has low sampling variability. Widely accepted 
statistical methods ensure that the data were collected and aggregated 
in a way that can be replicated. Low sampling variability is desirable 
because it indicates that the sample reflects the typical members of 
the population. (Sampling variability is variation that occurs by 
chance because only a sample was surveyed rather than the entire 
population.)
    Timeliness. Timeliness implies that the proxy is published 
regularly, preferably at least once a quarter. The market baskets are 
updated quarterly, and therefore, it is important for the underlying 
price proxies to be up-to-date, reflecting the most recent data 
available. We believe that using proxies that are published regularly 
(at least quarterly, whenever possible) helps to ensure that we are 
using the most recent data available to update the market basket. We 
strive to use publications that are disseminated frequently, because we 
believe that this is an optimal way to stay abreast of the most current 
data available.
    Availability. Availability means that the proxy is publicly 
available. We prefer that our proxies are publicly available because 
this helps to ensure that our market basket updates are as transparent 
to the public as possible. In addition, this enables the public to be 
able to obtain the price proxy data on a regular basis.
    Relevance. Relevance means that the proxy is applicable and 
representative of the cost category weight to which it is applied. The 
CPIs, PPIs, and ECIs that we have selected to propose in this provision 
meet these criteria. Therefore, we believe that they continue to be the 
best measure of price changes for the cost categories to which they 
would be applied.
    Table 7 lists all price proxies for the proposed 2016-based ESRDB 
market

[[Page 34324]]

basket. We note that we are proposing to use the same proxies as those 
used in the 2012-based ESRDB market basket. Below is a detailed 
explanation of the price proxies used for each cost category weight.
Wages and Salaries
    We are proposing to continue using a blend of ECIs to proxy the 
Wages and Salaries cost weight in the proposed 2016-based ESRDB market 
basket, and to continue using four occupational categories and 
associated ECIs based on full-time equivalents (FTE) data from ESRD 
MCRs and ECIs from BLS. We calculated occupation weights for the 
blended Wages and Salaries price proxy using 2016 FTE data from the MCR 
data and associated 2016 Average Mean Wage data from the Bureau of 
Labor Statistics' Occupational Employment Statistics. This is similar 
to the methodology used in the 2012-based ESRDB market basket to derive 
these occupational wages and salaries categories.
Health Related
    We are proposing to continue using the ECI for Wages and Salaries 
for All Civilian Workers in Hospitals (BLS series code 
#CIU1026220000000I) as the price proxy for health-related occupations. 
Of the two health-related ECIs that we considered (``Hospitals'' and 
``Health Care and Social Assistance''), the wage distribution within 
the Hospital NAICS sector (622) is more closely related to the wage 
distribution of ESRD facilities than it is to the wage distribution of 
the Health Care and Social Assistance NAICS sector (62).
    The Wages and Salaries--Health Related subcategory weight within 
the Wages and Salaries cost category accounts for 79.9 percent of total 
Wages and Salaries in 2016. The ESRD Medicare Cost Report FTE 
categories used to define the Wages and Salaries--Health Related 
subcategory include ``Physicians,'' ``Registered Nurses,'' ``Licensed 
Practical Nurses,'' ``Nurses' Aides,'' ``Technicians,'' and 
``Dieticians''.
Management
    We are proposing to continue using the ECI for Wages and Salaries 
for Private Industry Workers in Management, Business, and Financial 
(BLS series code #CIU2020000110000I). We believe this ECI is the most 
appropriate price proxy to measure the wages and salaries price growth 
of management personnel at ESRD facilities.
    The Wages and Salaries--Management subcategory weight within the 
Wages and Salaries cost category is 6.7 percent in 2016. The ESRD 
Medicare Cost Report FTE category used to define the Wages and 
Salaries--Management subcategory is ``Management.''
Administrative
    We are proposing to continue using the ECI for Wages and Salaries 
for Private Industry Workers in Office and Administrative Support (BLS 
series code #CIU2020000220000I). We believe this ECI is the most 
appropriate price proxy to measure the wages and salaries price growth 
of administrative support personnel at ESRD facilities.
    The Wages and Salaries--Administrative subcategory weight within 
the Wages and Salaries cost category is 7.7 percent in 2016. The ESRD 
MCR FTE category used to define the Wages and Salaries--Administrative 
subcategory is ``Administrative.''
Services
    We propose using the ECI for Wages and Salaries for Private 
Industry Workers in Service Occupations (BLS series code 
#CIU2020000300000I). We believe this ECI is the most appropriate price 
proxy to measure the wages and salaries price growth of all other non-
health related, non-management, and non-administrative service support 
personnel at ESRD facilities.
    The Services subcategory weight within the Wages and Salaries cost 
category is 5.7 percent in 2016. The ESRD Medicare Cost Report FTE 
categories used to define the Wages and Salaries--Services subcategory 
are ``Social Workers'' and ``Other.''
    Table 6 lists the four ECI series and the corresponding weights 
used to construct the proposed ECI blend for Wages and Salaries 
compared to the 2012-based weights for the subcategories. We believe 
this ECI blend is the most appropriate price proxy to measure the 
growth of wages and salaries faced by ESRD facilities.

    Table 6--Proposed ECI Blend for Wages and Salaries in the Proposed 2016-Based and 2012-Based ESRDB Market
                                                     Baskets
----------------------------------------------------------------------------------------------------------------
                                                                                   Proposed 2016
               Cost category                              ECI series                  weight        2012 Weight
                                                                                     (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Health Related.............................  ECI for Wages and Salaries for All             79.9            79.0
                                              Civilian Workers in Hospitals.
Management.................................  ECI for Wages and Salaries for                  6.7             8.0
                                              Private Industry Workers in
                                              Management, Business, and
                                              Financial.
Administrative.............................  ECI for Wages and Salaries for                  7.7             7.0
                                              Private Industry Workers in Office
                                              and Administrative Support.
Services...................................  ECI for Wages and Salaries for                  5.7             6.0
                                              Private Industry Workers in
                                              Service Occupations.
----------------------------------------------------------------------------------------------------------------

Employee Benefits
    We are proposing to continue using an ECI blend for Employee 
Benefits in the proposed 2016-based ESRDB market basket where the 
components match those of the proposed Wage and Salaries ECI blend. The 
proposed occupation weights for the blended Benefits price proxy are 
the same as those proposed for the wages and salaries price proxy blend 
as shown in Table 5. BLS does not publish ECI for Benefits price 
proxies for each Wage and Salary ECI; however, where these series are 
not published, they can be derived by using the ECI for Total 
Compensation and the relative importance of wages and salaries with 
total compensation as published by BLS for each detailed ECI 
occupational index.
Health Related
    We are proposing to continue using the ECI for Benefits for All 
Civilian Workers in Hospitals to measure price growth of this 
subcategory. This is calculated using the ECI for Total Compensation 
for All Civilian Workers in Hospitals (BLS series code 
#CIU1016220000000I) and the relative importance of Wages and Salaries 
within Total Compensation as

[[Page 34325]]

published by BLS. We believe this constructed ECI series is technically 
appropriate for the reason stated above in the Wages and Salaries price 
proxy section.
Management
    We are proposing to continue using the ECI for Benefits for Private 
Industry Workers in Management, Business, and Financial to measure 
price growth of this subcategory. This ECI is calculated using the ECI 
for Total Compensation for Private Industry Workers in Management, 
Business, and Financial (BLS series code #CIU2010000110000I) and the 
relative importance of wages and salaries within total compensation. We 
believe this constructed ECI series is technically appropriate for the 
reason stated above in the Wages and Salaries price proxy section.
Administrative
    We are proposing to continue using the ECI for Benefits for Private 
Industry Workers in Office and Administrative Support to measure price 
growth of this subcategory. This ECI is calculated using the ECI for 
Total Compensation for Private Industry Workers in Office and 
Administrative Support (BLS series code #CIU2010000220000I) and the 
relative importance of Wages and Salaries within Total Compensation. We 
believe this constructed ECI series is technically appropriate for the 
reason stated above in the wages and salaries price proxy section.
Services
    We are proposing to continue using the ECI for Total Benefits for 
Private Industry Workers in Service Occupations (BLS series code 
#CIU2030000300000I) to measure price growth of this subcategory. We 
believe this ECI series is technically appropriate for the reason 
stated above in the Wages and Salaries price proxy section
    We feel the proposed benefits ECI blend continues to be the most 
appropriate price proxy to measure the growth of benefits prices faced 
by ESRD facilities. Table 7 lists the four ECI series and the 
corresponding weights used to construct the proposed benefits ECI 
blend.

     Table 7--Proposed ECI Blend for Benefits in the Proposed 2016-Based and 2012-Based ESRDB Market Baskets
----------------------------------------------------------------------------------------------------------------
                                                                                   Proposed 2016
               Cost category                              ECI series                  weight        2012 Weight
                                                                                     (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Health Related.............................  ECI for Benefits for All Civilian              79.9            79.0
                                              Workers in Hospitals.
Management.................................  ECI for Benefits for Private                    6.7             8.0
                                              Industry Workers in Management,
                                              Business, and Financial.
Administrative.............................  ECI for Benefits for Private                    7.7             7.0
                                              Industry Workers in Office and
                                              Administrative Support.
Services...................................  ECI for Benefits for Private                    5.7             6.0
                                              Industry Workers in Service
                                              Occupations.
----------------------------------------------------------------------------------------------------------------

Electricity
    We propose to continue using the PPI Commodity for Commercial 
Electric Power (BLS series code #WPU0542) to measure the price growth 
of this cost category.
Natural Gas
    We propose to continue using the PPI Commodity for Commercial 
Natural Gas (BLS series code #WPU0552) to measure the price growth of 
this cost category.
Water and Sewerage
    We propose to continue using the CPI U.S. city average for Water 
and Sewerage Maintenance (BLS series code #CUUR0000SEHG01) to measure 
the price growth of this cost category.
Pharmaceuticals
    We propose to continue using the PPI Commodity for Biological 
Products, Excluding Diagnostic, for Human Use (which we will abbreviate 
as PPI-BPHU) (BLS series code #WPU063719) as the price proxy for the 
ESA drugs in the market basket. We propose to continue using the PPI 
Commodity for Vitamin, Nutrient, and Hematinic Preparations (which we 
will abbreviate as PPI-VNHP) (BLS series code #WPU063807) for all other 
drugs included in the bundle other than ESAs.
    The PPI-BPHU measures the price change of prescription biologics, 
and ESAs would be captured within this index, if they are included in 
the PPI sample. Since the PPI relies on confidentiality with respect to 
the companies and drugs/biologicals included in the sample, we do not 
know if these drugs are indeed reflected in this price index. However, 
we believe the PPI-BPHU is an appropriate proxy to use because although 
ESAs may be a small part of the fuller category of biological products, 
we can examine whether the price increases for the ESA drugs are 
similar to the drugs included in the PPI-BPHU. We did this by comparing 
the historical price changes in the PPI-BPHU and the ASP for ESAs and 
found the cumulative growth to be consistent over the past 4 years. We 
will continue to monitor the trends in the prices for ESA drugs as 
measured by other price data sources to ensure that the PPI-BPHU is 
still an appropriate price proxy.
    Additionally, since the non-ESA drugs used in the treatment of ESRD 
are mainly vitamins and nutrients, we believe that the PPI-VNHP 
continues to be the best available proxy for these types of drugs. 
While this index does include over-the-counter drugs as well as 
prescription drugs, a comparison of trends in the prices for non-ESA 
drugs shows similar growth to the proposed PPI-VNHP.
Supplies
    We propose to continue using the PPI Commodity for Surgical and 
Medical Instruments (BLS series code #WPU1562) to measure the price 
growth of this cost category.
Lab Services
    We propose to continue using the PPI Industry for Medical 
Laboratories (BLS series code #PCU621511621511) to measure the price 
growth of this cost category.
Telephone Service
    We propose to continue using the CPI U.S. city average for 
Telephone Services (BLS series code #CUUR0000SEED) to measure the price 
growth of this cost category.
Housekeeping and Operations
    We propose to continue using the PPI Commodity for Cleaning and 
Building Maintenance Services (BLS series code #WPU49) to measure the 
price growth of this cost category.

[[Page 34326]]

Professional Fees
    We propose to continue using the ECI for Total Compensation for 
Private Industry Workers in Professional and Related (BLS series code # 
CIU2010000120000I) to measure the price growth of this cost category.
All Other Goods and Services
    We propose to continue using the PPI Commodity for Final demand--
Finished Goods Less Foods and Energy (BLS series code #WPUFD4131) to 
measure the price growth of this cost category.
Capital-Related Building and Equipment
    We propose to continue using the PPI Industry for Lessors of 
Nonresidential Buildings (BLS series code #PCU531120531120) to measure 
the price growth of this cost category.
Capital-Related Machinery
    We propose to continue using the PPI Commodity for Electrical 
Machinery and Equipment (BLS series code #WPU117) to measure the price 
growth of this cost category.
    Table 8 shows all the proposed price proxies and cost weights for 
the proposed 2016-based ESRDB Market Basket.

Table 8--Proposed Price Proxies and Associated Cost Weights for the 2016-
                        Based ESRDB Market Basket
------------------------------------------------------------------------
                                                           Proposed 2016
         Cost category                 Price proxy          cost weight
------------------------------------------------------------------------
Total ESRDB market basket......  .......................           100.0
Compensation...................  .......................            43.6
    Wages and Salaries.........  .......................            34.5
        Health-related.........  ECI for Wages and                  27.6
                                  Salaries for All
                                  Civilian Workers in
                                  Hospitals.
        Management.............  ECI for Wages and                   2.3
                                  Salaries for Private
                                  Industry Workers in
                                  Management, Business,
                                  and Financial.
        Administrative.........  ECI for Wages and                   2.7
                                  Salaries for Private
                                  Industry Workers in
                                  Office and
                                  Administrative Support.
        Services...............  ECI for Wages and                   2.0
                                  Salaries for Private
                                  Industry Workers in
                                  Service Occupations.
    Employee Benefits..........  .......................             9.1
        Health-related.........  ECI for Total Benefits              7.3
                                  for All Civilian
                                  workers in Hospitals.
        Management.............  ECI for Total Benefits              0.6
                                  for Private Industry
                                  workers in Management,
                                  Business, and
                                  Financial.
        Administrative.........  ECI for Total Benefits              0.7
                                  for Private Industry
                                  workers in Office and
                                  Administrative Support.
        Services...............  ECI for Total Benefits              0.5
                                  for Private Industry
                                  workers in Service
                                  Occupations.
Utilities......................  .......................             2.0
    Electricity................  PPI Commodity for                   1.1
                                  Commercial Electric
                                  Power.
    Natural Gas................  PPI Commodity for                   0.1
                                  Commercial Natural Gas.
    Water and Sewerage.........  CPI-U for Water and                 0.8
                                  Sewerage Maintenance.
Medical Materials and Supplies.  .......................            24.9
    Pharmaceuticals............  .......................            12.4
        ESAs...................  PPI Commodity for                  10.0
                                  Biological Products,
                                  Excluding Diagnostics,
                                  for Human Use.
        Other Drugs............  PPI Commodity for                   2.4
                                  Vitamin, Nutrient, and
                                  Hematinic Preparations.
    Supplies...................  PPI Commodity for                  10.4
                                  Surgical and Medical
                                  Instruments.
    Lab Services...............  PPI Industry for                    2.2
                                  Medical Laboratories.
All Other Goods and Services...  .......................            16.4
    Telephone Service..........  CPI-U for Telephone                 0.5
                                  Services.
    Housekeeping and Operations  PPI Commodity for                   3.9
                                  Cleaning and Building
                                  Maintenance Services.
    Professional Fees..........  ECI for Total                       0.7
                                  Compensation for
                                  Private Industry
                                  Workers in
                                  Professional and
                                  Related.
    All Other Goods and          PPI for Final demand--             11.3
     Services.                    Finished Goods less
                                  Foods and Energy.
Capital Costs..................  .......................            13.0
    Capital Related Building     PPI Industry for                    9.2
     and Equipment.               Lessors of
                                  Nonresidential
                                  Buildings.
    Capital Related Machinery..  PPI Commodity for                   3.8
                                  Electrical Machinery
                                  and Equipment.
------------------------------------------------------------------------
Note: The cost weights are calculated using three decimal places. For
  presentational purposes, we are displaying one decimal and therefore,
  the detail may not add to the total due to rounding.

ii. Proposed CY 2019 ESRD Market Basket Update, Adjusted for 
Multifactor Productivity
    Under section 1881(b)(14)(F) of the Act, beginning in CY 2012, ESRD 
PPS payment amounts shall be annually increased by an ESRD market 
basket percentage increase factor reduced by the productivity 
adjustment. We propose to use the 2016-based ESRDB market basket as 
described in this proposed rule to compute the CY 2019 ESRDB market 
basket increase factor and labor-related share. Consistent with 
historical practice, we estimate the ESRDB market basket update based 
on IHS Global Inc.'s (IGI) forecast using the most recently available 
data. IGI is a nationally recognized economic and financial forecasting 
firm that contracts with CMS to forecast the components of the market 
baskets.
a. Market Basket Update
    Using this methodology and the IGI forecast for the first quarter 
of 2018 of the proposed 2016-based ESRDB market basket (with historical 
data through the fourth quarter of 2017), and consistent with our 
historical practice of estimating market basket increases based on the 
best available data, the proposed CY 2019 ESRDB market basket increase 
factor is 2.2 percent.
b. Multifactor Productivity (MFP)
    Under section 1881(b)(14)(F)(i) of the Act, as amended by section 
3401(h) of the Affordable Care Act, for CY 2012 and each subsequent 
year, the ESRD market basket percentage increase factor shall be 
reduced by the productivity

[[Page 34327]]

adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act. The 
multifactor productivity (MFP) is derived by subtracting the 
contribution of labor and capital input growth from output growth. The 
detailed methodology for deriving the MFP projection was finalized in 
the CY 2012 ESRD PPS final rule (76 FR 70232 through 70235). The most 
up-to-date MFP projection methodology is available on the CMS website 
at http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketResearch.html. 
We are not proposing any changes to the methodology for the projection 
of the MFP adjustment.
    Using IGI's first quarter 2018 forecast, the proposed MFP 
adjustment for CY 2019 (the 10-year moving average of MFP for the 
period ending CY 2019) is projected to be 0.7 percent.
c. Market Basket Update Adjusted for Multifactor Productivity (MFP)
    As a result of these provisions, the proposed CY 2019 ESRD market 
basket increase is 1.5 percent. This market basket increase is 
calculated by starting with the proposed 2016-based ESRDB market basket 
percentage increase factor of 2.2 percent for CY 2019, and reducing it 
by the MFP adjustment (the 10-year moving average of MFP for the period 
ending CY 2019) of 0.7 percentage point. We are also proposing that if 
more recent data are subsequently available (for example, a more recent 
estimate of the market basket increase or MFP adjustment), we would use 
such data to determine the market basket increase and MFP adjustment in 
the CY 2019 ESRD PPS final rule.
    The CY 2019 ESRDB increase factor would be the same if we used the 
2012-based ESRDB market basket. That is, the CY 2019 ESRDB market 
basket increase factor is 2.2 percent using the 2012-based ESRDB market 
basket. Table 9 shows the increase factors under the proposed 2016-
based ESRDB and 2012-based ESRDB market basket.

  Table 9--Historical and Projected Increase Factors Under the Proposed
              2016-Based and 2012-Based ESRDB Market Basket
------------------------------------------------------------------------
                                          Proposed 2016-    2012-Based
           Calendar year  (CY)              Based ESRDB    ESRDB market
                                           market basket      basket
------------------------------------------------------------------------
Historical Data:
    CY 2015.............................             2.0             2.2
    CY 2016.............................             1.9             2.0
    CY 2017.............................             1.4             1.3
Forecast:
    CY 2018.............................             1.9             1.9
    CY 2019.............................             2.2             2.2
------------------------------------------------------------------------
Source: IHS Global Inc. 1st quarter 2018 forecast with historical data
  through 4th quarter 2017.

iii. Proposed Labor-Related Share for ESRD PPS
    We define the labor-related share (LRS) as those expenses that are 
labor-intensive and vary with, or are influenced by, the local labor 
market. 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 
Capital from a given market basket.
    We propose to use the proposed 2016-based ESRDB market basket cost 
weights to determine the proposed labor-related share for ESRD 
facilities. Therefore, effective for CY 2019, we are proposing a labor-
related share of 52.3 percent, slightly higher than the current 50.673 
percent that was based on the 2012-based ESRD market basket, as shown 
in Table 10 below. We propose to move the labor-related share to a one 
decimal level of precision rather than the three decimal level of 
precision used previously. CMS is migrating all payment system labor-
related shares to a one decimal level of precision. These figures 
represent the sum of Wages and Salaries, Benefits, Housekeeping and 
Operations, 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). We used the 
same methodology for the 2012-based ESRD market basket.

Table 10--Proposed CY 2019 Labor-Related Share and CY 2018 Labor-Related
                                  Share
------------------------------------------------------------------------
                                            Proposed CY
                                             2019 ESRD     CY 2018 ESRD
              Cost category                labor-related   labor-related
                                               share           share
------------------------------------------------------------------------
Wages and salaries......................            34.5          33.650
Employee Benefits.......................             9.1           8.847
Housekeeping and Operations.............             3.9           3.785
Professional Fees (Labor-Related).......             0.6           0.537
Capital Labor-Related...................             4.2           3.854
                                         -------------------------------
    Total Labor-Related Share...........            52.3          50.673
------------------------------------------------------------------------

    The labor-related share for Professional Fees reflects the 
proportion of ESRD facilities' professional fees expenses that we 
believe vary with local labor market (87 percent). We conducted a 
survey of ESRD facilities in

[[Page 34328]]

2008 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. Thus, we are proposing to include 87 
percent of the cost weight for Professional Fees in the labor-related 
share (87 percent is the same percentage as used in prior years).
    The labor-related share for capital-related expenses reflects the 
proportion of ESRD facilities' capital-related expenses that we believe 
varies with local labor market wages (46 percent of ESRD facilities' 
Capital-related Building and Equipment expenses). 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).
b. The Proposed CY 2019 ESRD PPS Wage Indices
i. Annual Update of the Wage Index
    Section 1881(b)(14)(D)(iv)(II) of the Act provides that the ESRD 
PPS may include a geographic wage index payment adjustment, such as the 
index referred to in section 1881(b)(12)(D) of the Act, as the 
Secretary determines to be appropriate. In the CY 2011 ESRD PPS final 
rule (75 FR 49200), we finalized an adjustment for wages at Sec.  
413.231. Specifically, 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 which reflects the relative level of 
hospital wages and wage-related costs in the geographic area in which 
the ESRD facility is located. We use the Office of Management and 
Budget's (OMB's) CBSA-based geographic area designations to define 
urban and rural areas and their corresponding wage index values (75 FR 
49117). OMB publishes bulletins regarding CBSA changes, including 
changes to CBSA numbers and titles. The bulletins are available online 
at https://www.whitehouse.gov/omb/bulletins/.
    For CY 2019, we would update the wage indices to account for 
updated wage levels in areas in which ESRD facilities are located using 
our existing methodology. We use the most recent pre-floor, pre-
reclassified hospital wage data collected annually under the inpatient 
PPS. The ESRD PPS wage index values 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. The proposed CY 2019 wage index values 
for urban areas are listed in Addendum A (Wage Indices for Urban Areas) 
and the proposed CY 2019 wage index values for rural areas are listed 
in Addendum B (Wage Indices for Rural Areas). Addenda A and B are 
located on the CMS Web site at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ESRDpayment/End-Stage-Renal-Disease-ESRD-Payment-Regulations-and-Notices.html.
    We have also adopted methodologies for calculating wage index 
values for ESRD facilities that are located in urban and rural areas 
where there is no hospital data. For a full discussion, see CY 2011 and 
CY 2012 ESRD PPS final rules at 75 FR 49116 through 49117 and 76 FR 
70239 through 70241, respectively. For urban areas with no hospital 
data, we compute the average wage index value of all urban areas within 
the state and use that value as the wage index. For rural areas with no 
hospital data, we compute the wage index using the average wage index 
values from all contiguous CBSAs to represent a reasonable proxy for 
that rural area. We apply the statewide urban average based on the 
average of all urban areas within the state to Hinesville-Fort Stewart, 
Georgia (78 FR 72173), and we apply the wage index for Guam to American 
Samoa and the Northern Mariana Islands (78 FR 72172). A wage index 
floor value is applied under the ESRD PPS as a substitute wage index 
for areas with very low wage index values. Currently, all areas with 
wage index values that fall below the floor are located in Puerto Rico. 
However, the wage index floor value is applicable for any area that may 
fall below the floor.
    In the CY 2011 ESRD PPS final rule (75 FR 49116 through 49117), we 
finalized a decision to reduce the wage index floor by 0.05 for each of 
the remaining years of the ESRD PPS transition, that is, until CY 2014. 
We applied a 0.05 reduction to the wage index floor for CYs 2012 and 
2013, resulting in a wage index floor of 0.5500 and 0.5000, 
respectively (CY 2012 ESRD PPS final rule, 76 FR 70241). We continued 
to apply and reduce the wage index floor by 0.05 in CY 2013 (77 FR 
67459 through 67461). Although we only intended to provide a wage index 
floor during the 4-year transition in the CY 2014 ESRD PPS final rule 
(78 FR 72173), we decided to continue to apply the wage index floor and 
reduce it by 0.05 per year for CY 2014 and for CY 2015.
    In the CY 2016 ESRD PPS final rule (80 FR 69006 through 69008), 
however, we decided to maintain a wage index floor of 0.4000, rather 
than further reduce the floor by 0.05. We needed more time to study the 
wage indices that are reported for Puerto Rico to assess the 
appropriateness of discontinuing the wage index floor (80 FR 69006).
    In the CY 2017 proposed rule (81 FR 42817), we presented the 
findings from analyses of ESRD facility cost report and claims data 
submitted by facilities located in Puerto Rico and mainland facilities. 
We solicited public comments on the wage index for CBSAs in Puerto Rico 
as part of our continuing effort to determine an appropriate policy. We 
did not propose to change the wage index floor for CBSAs in Puerto 
Rico, but we requested public comments in which stakeholders could 
provide useful input for consideration in future decision-making. 
Specifically, we solicited comment on the suggestions that were 
submitted in the CY 2016 ESRD PPS final rule (80 FR 69007). After 
considering the public comments we received regarding the wage index 
floor, we finalized a wage index floor of 0.4000 in the CY 2017 ESRD 
PPS final rule (81 FR 77858).
    In the CY 2018 final rule (82 FR 50747), we finalized a policy to 
permanently maintain the wage index floor of 0.4000, because we 
believed it was appropriate and provided additional payment support to 
the lowest wage areas. It also obviated the need for an additional 
budget-neutrality adjustment that would reduce the ESRD PPS base rate, 
beyond the adjustment needed to reflect updated hospital wage data, in 
order to maintain budget neutrality for wage index updates.
ii. Wage Index Floor for CY 2019 and Subsequent Years
    For CY 2019 and subsequent years, we are proposing to increase the 
wage

[[Page 34329]]

index floor to 0.5. This wage floor increase is responsive to 
stakeholder comments, safeguards access to care in areas at the lowest 
end of the current wage index distribution, and is supported by data, 
as discussed below, which supports a higher wage index floor. 
Stakeholders, particularly those located in Puerto Rico, have expressed 
the adverse impact the low wage index floor value has on a facility, 
such as closure and the resulting impact on access to care. Also, 
natural disasters (for example, hurricanes, floods) common to this 
geographic area can cause significant infrastructure issues, create 
limited resources, and create conditions that may accelerate kidney 
failure in patients predisposed to chronic kidney disease, all of which 
have a significant impact on renal dialysis services. These negative 
effects of natural disasters on the local economy impact wages and 
salaries. For example, there is the potential of the outmigration of 
qualified staff that would cause a facility the need to change their 
hiring practices or increase the wages that they would otherwise pay 
had their not been a natural disaster.
    In response to the CY 2018 ESRD proposed rule, commenters described 
the economic and healthcare crisis in Puerto Rico and recommended that 
CMS use the U.S. Virgin Islands wage index for payment rate 
calculations in Puerto Rico as a proxy for CY 2018.
    Commenters indicated that the primary issue is that Puerto Rico 
hospitals report comparatively lower wages that are not adjusted for 
occupational mix and, as indicated in the CY 2017 ESRD PPS proposed 
rule (81 FR 42817), in Puerto Rico, only registered nurses (RNs) can 
provide dialysis therapy in the outpatient setting. This staffing 
variable artificially lowers the reportable index values even though 
the actual costs of dialysis service wages in Puerto Rico are much 
higher than the data CMS is relying upon. In addition, several 
commenters stated that non-labor costs, including utilities and 
shipping costs and the CY 2015 change in the labor-share based on the 
rebased and revised ESRDB market basket compound the issue even 
further.
    One organization stated that it does not believe maintaining the 
current wage index for Puerto Rico for CY 2018 is enough to offset the 
poor economic conditions, high operational costs and epidemiologic 
burden of ESRD on the island.
    Since we did not propose to change the wage index floor or 
otherwise change the wage indexes for Puerto Rico, we maintained the 
wage index floor of 0.4000 for CY 2018. We noted that the current wage 
index floor and labor-related share have been in effect since CY 2015 
and neither the floor nor the labor share has been reduced since then. 
More importantly, the wage index is solely intended to reflect 
differences in labor costs and not to account for non-labor cost 
differences, such as utilities or shipping costs (82 FR 50747).
    With regard to staffing in Puerto Rico facilities, we noted that 
ESRD facilities there utilize RNs similarly to ESRD facilities on the 
mainland, that is, facilities utilize dialysis technicians and aides to 
provide dialysis services with oversight by an RN and that hourly wages 
for RNs and dialysis support staff were approximately half of those 
salaries in mainland ESRD facilities. For those reasons, we do not 
agree that the hospital-reported data is unreliable, and we believe 
using that data is more appropriate than applying the wage index value 
for the Virgin Islands where salaries are considerably higher.
    Even though we did not propose a change in the wage index floor for 
CY 2018, we continued to analyze the cost of furnishing dialysis care 
in Puerto Rico, staffing in Puerto Rico ESRD facilities and hospital 
wage data. While we found the analyses to be inconclusive for the 
CY2018 ESRD PPS final rule (82 FR 50746), in light of the recent 
natural disasters that profoundly impacted delivery of ESRD care in 
Puerto Rico, we revisited the analyses and concluded that we should 
propose a new wage index floor. We conducted various analyses to test 
the reasonableness of the current wage index floor value of 0.4000. The 
details of these analyses and our proposal are provided below.
a. Analysis of Puerto Rico Cost Reports
    We performed an analysis using cost reports and wage information 
specific to Puerto Rico from the BLS (https://www.bls.gov/oes/2015/may/oes_pr.htm). The analysis used data from cost reports for freestanding 
facilities and hospital-based facilities in Puerto Rico for CYs 2013 
through 2015 are as follows:
     The analysis utilized data from cost reports for 
freestanding facilities and for hospital-based facilities. Note that 
the available variables differ between these two sources. For 
freestanding facilities, data were obtained regarding treatment counts, 
costs, salaries, benefits, and FTEs by labor category. For hospital-
based facilities, a more limited set of variables are available for 
treatment counts and FTEs.
     We annualized cost report data for each facility in order 
to create one cost report record per facility per calendar. If cost 
report forms were submitted at a non-calendar-year cycle, multiple cost 
report records were proportionated and combined in order to create an 
annualized cost report record.
     We calculated weighted means across all facilities for 
each variable. The means were weighted by treatment counts, where 
facilities with more treatment counts contributed more to the value of 
the overall mean.
    Using this data, we calculated alternative wage indices for Puerto 
Rico that combined labor quantities (FTEs) from cost reports with BLS 
wage information to create two regular Laspeyres price indexes. The 
Laspeyres index can be thought of as a price index in which there are 
two prices for goods (prices for labor FTEs in Puerto Rico and the 
mainland U.S.), where the distribution of goods (labor share of FTEs) 
is held constant (across Puerto Rico and the U.S.). The first index 
used quantity weights from the overall U.S. use of labor inputs. The 
second index used quantity weights from the PR use of labor inputs.
    The alternative wage indices derived from the analysis indicate 
that Puerto Rico's wage index likely lies between 0.5100 and 0.5500. 
Both of these values are above the current wage index floor and suggest 
that the current 0.4000 wage index floor may be too low.
b. Statistical Analysis of the Distribution of the Wage Index
    We also performed a statistical outlier analysis to identify the 
upper and lower boundaries of the distribution of the current wage 
index values and remove outlier values at the edges of the 
distribution.
    In the general sense, an outlier is an observation that lies an 
abnormal distance from other values in a population. In this case, the 
population of values is the various wage indices within the CY 2019 
wage index. The lower and upper quartiles (the 25th and 75th 
percentiles) are also used. The lower quartile is Q1 and the upper 
quartile is Q3. The difference (Q3-Q1) is called the interquartile 
range (IQR). The IQR is used in calculating the inner and outer fences 
of a data set. The inner fences are needed for identifying mild outlier 
values in the edges of the distribution of a data set. Any values in 
the data set that are outside of the inner fences are identified as an 
outlier. The standard multiplying value for identifying the inner 
fences is 1.5.
    First, we identified the Q1 and Q3 quartiles of the CY 2018 wage 
index, which are as follows: Q1 = 0.8303 and Q3 = 0.9881. Next, we 
identified the

[[Page 34330]]

IQR: IQR = 0.9881-0.8303 = 0.578. Finally, we identified the inner 
fence values as shown below.

Lower inner fence: Q1-1.5 * IQR = 0.8303-(1.5 x 0.1578) = 0.5936
Upper inner fence: Q3 + 1.5 * IQR = .881 + (1.5 x 0.1578) = 1.2248

    This statistical outlier analysis demonstrates that any wage index 
values less than 0.5936 are considered outlier values, and 0.5936 as 
the lower boundary also may suggest that the current wage index floor 
could be appropriately reset at a higher level.
    Based on these analyses, we are proposing a wage index floor of 
0.5000. We believe this increase from the current 0.4000 wage index 
floor value minimizes the impact to the base rate while providing 
increased payment to areas that need it. We considered the various wage 
index floor values based on our analyses. While the statistical 
analysis supports our decision to propose a higher wage index floor, 
the cost report analysis is more definitive as it is based on reported 
wages using an alternative data source. As a result, we considered wage 
index floor values between 0.4000 and 0.5500 and are proposing 0.5000 
in an effort to strike a balance between providing additional payments 
to affected areas while minimizing the impact on the base rate. We 
believe the proposed 25 percent increase from the current 0.4000 value 
would help to address stakeholder requests for a higher wage index 
floor, minimize patient access issues, and would have a lower impact to 
the base rate than if we proposed a higher wage index floor value.
    The wage index floor directly affects the base rate and currently, 
only rural Puerto Rico and four urban CBSAs in Puerto Rico receive the 
wage index floor of 0.4000. The next lowest wage index is in the 
Wheeling, West Virginia CBSA with a value of 0.6599. Under this 
proposal, all CBSAs in Puerto Rico would receive the wage index floor 
of 0.5000. Though the proposed wage index value currently affects CBSAs 
in Puerto Rico, we note that, consistent with our established policy, 
any CBSA that falls below the floor would be eligible to receive the 
floor. We solicit comment on the proposal to increase the wage index 
floor from 0.4000 to 0.5000 for CY 2019 and beyond.
iii. Application of the Wage Index Under the ESRD PPS
    A facility's wage index is applied to the labor-related share of 
the ESRD PPS base rate. In section II.B.3.b of this proposed rule, we 
are proposing the labor-related share of 52.3 percent, which is based 
on the proposed 2016-based ESRDB market basket. Thus, for CY 2019, the 
labor-related share to which a facility's wage index would be applied 
is 52.3 percent.
iv. New Urban Core-Based Statistical Area (CBSA)
    On August 15, 2017, OMB issued OMB Bulletin No. 17-01, which 
provided updates to and superseded OMB Bulletin No. 15-01 that was 
issued on July 15, 2015. The attachments to OMB Bulletin No. 17-01 
provide detailed information on the update to statistical areas since 
July 15, 2015, and are based on the application of the 2010 Standards 
for Delineating Metropolitan and Micropolitan Statistical Areas to the 
U.S. Census Bureau population estimates for July 1, 2014 and July 1, 
2015. In OMB Bulletin No. 17-01, OMB announced that one Micropolitan 
Statistical Area now qualifies as a Metropolitan Statistical Area. The 
new urban CBSA is as follows:
     Twin Falls, Idaho (CBSA 46300). This CBSA is comprised of 
the principal city of Twin Falls, Idaho in Jerome County, Idaho and 
Twin Falls County, Idaho.
    The OMB bulletin is available on the OMB Web site at https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/bulletins/2017/b-17-01.pdf. We did not have sufficient time to include this change in the 
computation of the proposed CY 2019 wage index, rate setting, and 
Addenda associated with this proposed rule. This new CBSA may affect 
the budget neutrality factors and wage indexes, depending on the impact 
of the overall payments of the hospital located in this new CBSA. In 
this proposed rule, we are providing an estimate of this new area's 
wage index based on the average hourly wage, unadjusted for 
occupational mix, for new CBSA 46300 and the national average hourly 
wages from the wage data for the proposed CY 2019 wage index. 
Currently, provider 130002 is the only hospital located in Twin Falls 
County, Idaho, and there are no hospitals located in Jerome County, 
Idaho. Thus, the proposed wage index for CBSA 46300 is calculated using 
the average hourly wage data for one provider (provider 130002).
    Taking the estimated unadjusted average hourly wage of 
$35.833564813 of the new CBSA 46300 and dividing by the national 
average hourly wage of $42.990625267 results in the proposed estimated 
wage index of 0.8335 for CBSA 46300.
    In the final rule, we would incorporate this change into the final 
CY 2019 ESRD PPS wage index, rate setting and Addenda associated with 
the final rule. Thus, for CY 2019, we would use the OMB delineations 
that were adopted beginning with CY 2015 to calculate the area wage 
indexes, with updates as reflected in OMB Bulletin Nos. 13-01, 15-01, 
and 17-01.
c. Proposed CY 2019 Update to the Outlier Policy
    Section 1881(b)(14)(D)(ii) of the Act requires that the ESRD PPS 
include a payment adjustment for high cost outliers due to unusual 
variations in the type or amount of medically necessary care, including 
variability in the amount of erythropoiesis stimulating agents (ESAs) 
necessary for anemia management. Some examples of the patient 
conditions that may be reflective of higher facility costs when 
furnishing dialysis care would be frailty, obesity, and comorbidities, 
such as cancer. The ESRD PPS recognizes high cost patients, and we have 
codified the outlier policy and our methodology for calculating outlier 
payments at Sec.  413.237. The policy provides that the following ESRD 
outlier items and services are included in the ESRD PPS bundle: (1) 
ESRD-related drugs and biologicals that were or would have been, prior 
to January 1, 2011, separately billable under Medicare Part B; (2) 
ESRD-related laboratory tests that were or would have been, prior to 
January 1, 2011, separately billable under Medicare Part B; (3) 
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 (4) renal dialysis 
services drugs that were or would have been, prior to January 1, 2011, 
covered under Medicare Part D, including ESRD-related oral-only drugs 
effective January 1, 2025.
    In the CY 2011 ESRD PPS final rule (75 FR 49142), we stated that 
for purposes of determining whether an ESRD facility would be eligible 
for an outlier payment, it would be necessary for the facility to 
identify the actual ESRD outlier services furnished to the patient by 
line item (that is, date of service) on the monthly claim. Renal 
dialysis drugs, laboratory tests, and medical/surgical supplies that 
are recognized as outlier services were originally specified in 
Attachment 3 of Change Request 7064, Transmittal 2033 issued August 20, 
2010, rescinded and replaced by Transmittal 2094, dated November 17, 
2010. Transmittal 2094 identified additional drugs and laboratory tests 
that may also be eligible for ESRD outlier payment. Transmittal 2094 
was rescinded and replaced by

[[Page 34331]]

Transmittal 2134, dated January 14, 2011, which was issued to correct 
the subject on the Transmittal page and made no other changes.
    Furthermore, we use administrative issuances and guidance to 
continually update the renal dialysis service items available for 
outlier payment via our quarterly update CMS Change Requests, when 
applicable. We use this separate guidance to identify renal dialysis 
service drugs that were or would have been covered under Medicare Part 
D for outlier eligibility purposes and in order to provide unit prices 
for calculating imputed outlier services. In addition, we also identify 
through our monitoring efforts items and services that are either 
incorrectly being identified as eligible outlier services or any new 
items and services that may require an update to the list of renal 
dialysis items and services that qualify as outlier services, which are 
made through administrative issuances.
    Under Sec.  413.237, an ESRD facility is eligible for an outlier 
payment if its actual or imputed MAP amount per treatment for ESRD 
outlier services exceeds a threshold. The MAP amount represents the 
average incurred amount per treatment for services that were or would 
have been considered separately billable services prior to January 1, 
2011. The threshold is equal to the ESRD facility's predicted ESRD 
outlier services MAP amount per treatment (which is case-mix adjusted 
and described below) plus the fixed-dollar loss (FDL) amount. In 
accordance with Sec.  413.237(c) of our regulations, facilities are 
paid 80 percent of the per treatment amount by which the imputed MAP 
amount for outlier services (that is, the actual incurred amount) 
exceeds this threshold. ESRD facilities are eligible to receive outlier 
payments for treating both adult and pediatric dialysis patients.
    In the CY 2011 ESRD PPS final rule and at Sec.  413.220(b)(4), 
using 2007 data, we established the outlier percentage, which is used 
to reduce the per treatment base rate to account for the proportion of 
the estimated total payments under the ESRD PPS that are outlier 
payments, at 1.0 percent of total payments (75 FR 49142 through 49143). 
We also established the FDL amounts that are added to the predicted 
outlier services MAP amounts. The outlier services MAP amounts and FDL 
amounts are different for adult and pediatric patients due to 
differences in the utilization of separately billable services among 
adult and pediatric patients (75 FR 49140). As we explained in the CY 
2011 ESRD PPS final rule (75 FR 49138 through 49139), the predicted 
outlier services MAP amounts for a patient are determined by 
multiplying the adjusted average outlier services MAP amount by the 
product of the patient-specific case-mix adjusters applicable using the 
outlier services payment multipliers developed from the regression 
analysis to compute the payment adjustments.
    For CY 2019, we propose that the outlier services MAP amounts and 
FDL amounts would be derived from claims data from CY 2017. Because we 
believe that any adjustments made to the MAP amounts under the ESRD PPS 
should be based upon the most recent data year available in order to 
best predict any future outlier payments, we propose the outlier 
thresholds for CY 2019 would be based on utilization of renal dialysis 
items and services furnished under the ESRD PPS in CY 2017. We 
recognize that the utilization of ESAs and other outlier services have 
continued to decline under the ESRD PPS, and that we have lowered the 
MAP amounts and FDL amounts every year under the ESRD PPS.
    In the CY 2018 ESRD PPS final rule (82 FR 50748), we stated that 
based on the CY 2016 claims data, outlier payments represented 
approximately 0.78 percent of total payments. For this proposed rule, 
as discussed below, CY 2017 claims data show outlier payments 
represented approximately 0.80 percent of total payments.
i. CY 2019 Update to the Outlier Services Medicare Allowable Payment 
(MAP) Amounts and Fixed Dollar Loss (FDL) Amounts
    For CY 2019, we propose to update the outlier services MAP amounts 
and FDL amounts to reflect the utilization of outlier services reported 
on 2017 claims. For this proposed rule, the outlier services MAP 
amounts and FDL amounts were updated using 2017 claims data. The impact 
of this update is shown in Table 11, which compares the outlier 
services MAP amounts and FDL amounts used for the outlier policy in CY 
2017 with the updated proposed estimates for this rule. The estimates 
for the proposed CY 2019 outlier policy, which are included in Column 
II of Table 11, were inflation adjusted to reflect projected 2019 
prices for outlier services.

               Table 11--Outlier Policy: Impact of Using Updated Data To Define the Outlier Policy
----------------------------------------------------------------------------------------------------------------
                                                   Column I Final outlier policy    Column II Proposed outlier
                                                    for CY 2018 (based on 2016     policy for CY 2019 (based on
                                                  data, price inflated to 2018)*   2017 data, price  inflated to
                                                 --------------------------------              2019)
                                                                                 -------------------------------
                                                      Age <18        Age >=18         Age <18        Age >=18
----------------------------------------------------------------------------------------------------------------
Average outlier services MAP amount per                    37.41           44.27           34.33           41.97
 treatment......................................
Adjustments.....................................  ..............  ..............  ..............  ..............
Standardization for outlier services............          1.0177          0.9774          1.0588          0.9786
MIPPA reduction.................................            0.98            0.98            0.98            0.98
Adjusted average outlier services MAP amount....          $37.31          $42.41          $35.62          $40.25
Fixed-dollar loss amount that is added to the             $47.79          $77.54          $47.88          $69.73
 predicted MAP to determine the outlier
 threshold......................................
Patient-months qualifying for outlier payment...            9.0%            7.4%            9.2%            8.0%
----------------------------------------------------------------------------------------------------------------
* Note that Column I was obtained from Column II of Table 1 from the CY 2018 ESRD PPS final rule (82 FR 50749).

    As demonstrated in Table 11, the estimated FDL amount per treatment 
that determines the CY 2019 outlier threshold amount for adults (Column 
II; $69.73) is lower than that used for the CY 2018 outlier policy 
(Column I; $77.54). The lower threshold is accompanied by a decrease in 
the adjusted average MAP for outlier services from $42.41 to $40.25. 
For pediatric patients, there is a slight increase in the FDL amount 
from $47.79 to $47.88. There is a corresponding decrease in the 
adjusted average MAP

[[Page 34332]]

for outlier services among pediatric patients, from $37.31 to $35.62.
    We estimate that the percentage of patient months qualifying for 
outlier payments in CY 2019 will be 8.0 percent for adult patients and 
9.2 percent for pediatric patients, based on the 2017 claims data. The 
pediatric outlier MAP and FDL amounts continue to be lower for 
pediatric patients than adults due to the continued lower use of 
outlier services (primarily reflecting lower use of ESAs and other 
injectable drugs).
ii. Outlier Percentage
    In the CY 2011 ESRD PPS final rule (75 FR 49081) and under Sec.  
413.220(b)(4), we reduced the per treatment base rate by 1 percent to 
account for the proportion of the estimated total payments under the 
ESRD PPS that are outlier payments as described in Sec.  413.237. Based 
on the 2017 claims, outlier payments represented approximately 0.80 
percent of total payments, slightly below the 1 percent target due to 
declines in the use of outlier services. Recalibration of the 
thresholds using 2017 data is expected to result in aggregate outlier 
payments close to the 1 percent target in CY 2019. We believe the 
update to the outlier MAP and FDL amounts for CY 2019 would increase 
payments for ESRD beneficiaries requiring higher resource utilization 
and move us closer to meeting our 1 percent outlier policy because we 
are using more current data for computing the MAP and FDL which is more 
in line with current outlier services utilization rates. We note that 
recalibration of the FDL amounts in this proposed rule would result in 
no change in payments to ESRD facilities for beneficiaries with renal 
dialysis items and services that are not eligible for outlier payments, 
but would increase payments to ESRD facilities for beneficiaries with 
renal dialysis items and services that are eligible for outlier 
payments, as well as co-insurance obligations for beneficiaries with 
renal dialysis services eligible for outlier payments.
iii. Solicitation on the Expansion of the Outlier Policy
    Currently, former separately payable Part B drugs, laboratory 
services, and supplies are eligible for the outlier payment. In the 
interest of promoting innovation, ensuring appropriate payment for all 
drugs and biologicals, and as a complement to the TDAPA proposals, we 
are soliciting comment on whether we should expand the outlier policy 
to include composite rate drugs and supplies. With the proposed 
expansion to the drug designation process discussed in section II.B.1.f 
of this proposed rule, such expansion of the outlier policy could 
promote appropriate payment for composite rate drugs once the TDAPA 
period has ended. Additionally, with regard to composite rate supplies, 
an expansion of the outlier policy could promote use of new innovative 
devices or items that would otherwise be considered in the bundled 
payment. If commenters believe such an approach is appropriate, we are 
requesting they provide input on how we would effectuate such a shift 
in policy. For example, the reporting of these services may be 
challenging since they have never been reported on ESRD claims 
previously. We are particularly interested in feedback about how such 
items might work under the existing outlier framework or whether 
specific changes to the policy to accommodate such items are needed. We 
will consider all comments and address by making proposals, if 
appropriate, in future rulemaking.
d. Proposed Impacts to the CY 2019 ESRD PPS Base Rate
i. ESRD PPS Base Rate
    In the CY 2011 ESRD PPS final rule (75 FR 49071 through 49083), we 
established the methodology for calculating the ESRD PPS per-treatment 
base rate, that is, ESRD PPS base rate, and the determination of the 
per-treatment payment amount, which are codified at Sec.  413.220 and 
Sec.  413.230. The CY 2011 ESRD PPS final rule also provides a detailed 
discussion of the methodology used to calculate the ESRD PPS base rate 
and the computation of factors used to adjust the ESRD PPS 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, 
respectively. Specifically, the ESRD PPS base rate was developed from 
CY 2007 claims (that is, the lowest per patient utilization year as 
required by section 1881(b)(14)(A)(ii) of the Act), updated to CY 2011, 
and represented the average per treatment MAP for composite rate and 
separately billable services. In accordance with section 1881(b)(14)(D) 
of the Act and our regulation at Sec.  413.230, per-treatment payment 
amount is the sum of the ESRD PPS base rate, adjusted for the patient 
specific case-mix adjustments, applicable facility adjustments, 
geographic differences in area wage levels using an area wage index, 
and any applicable outlier payment and training adjustment add-on.
ii. Annual Payment Rate Update for CY 2019
    We are proposing an ESRD PPS base rate for CY 2019 of $235.82. This 
update reflects several factors, described in more detail as follows:
     Market Basket Increase: Section 1881(b)(14)(F)(i)(I) of 
the Act provides that, beginning in 2012, the ESRD PPS payment amounts 
are required to be annually increased by the ESRD market basket 
percentage increase factor. The latest CY 2019 projection for the 
proposed ESRDB market basket is 2.2 percent. In CY 2019, this amount 
must be reduced by the productivity adjustment described in section 
1886(b)(3)(B)(xi)(II) of the Act, as required by section 
1881(b)(14)(F)(i)(II) of the Act. As discussed above, the proposed MFP 
adjustment for CY 2019 is 0.7 percent, thus yielding a proposed update 
to the base rate of 1.5 percent for CY 2019. Therefore, the proposed 
ESRD PPS base rate for CY 2019 before application of the wage index 
budget-neutrality adjustment factor would be $235.86 ($232.37 x 1.0150 
= $235.86).
     Wage Index Budget-Neutrality Adjustment Factor: We compute 
a wage index budget-neutrality adjustment factor that is applied to the 
ESRD PPS base rate. For CY 2019, we are not proposing any changes to 
the methodology used to calculate this factor, which is described in 
detail in the CY 2014 ESRD PPS final rule (78 FR 72174). We computed 
the proposed CY 2019 wage index budget-neutrality adjustment factor 
using treatment counts from the 2017 claims and facility-specific CY 
2018 payment rates to estimate the total dollar amount that each ESRD 
facility would have received in CY 2018. The total of these payments 
became the target amount of expenditures for all ESRD facilities for CY 
2019. Next, we computed the estimated dollar amount that would have 
been paid for the same ESRD facilities using the ESRD wage index for CY 
2019. The total of these payments becomes the new CY 2019 amount of 
wage-adjusted expenditures for all ESRD facilities. The wage index 
budget-neutrality factor is calculated as the target amount divided by 
the new CY 2019 amount. When we multiplied the wage index budget-
neutrality factor by the applicable CY 2019 estimated payments, 
aggregate payments to ESRD facilities would remain budget neutral when 
compared to the target amount of expenditures. That is, the wage index 
budget-neutrality adjustment factor ensures that wage index adjustments 
do not increase or decrease aggregate

[[Page 34333]]

Medicare payments with respect to changes in wage index updates.
    The CY 2019 proposed wage index budget-neutrality adjustment factor 
is 0.999833. This application would yield a CY 2019 ESRD PPS proposed 
base rate of $235.82 ($235.75 x 0.999833 = $235.82).
    In summary, we are proposing a CY 2019 ESRD PPS base rate of 
$235.82. This amount reflects a proposed market basket increase of 1.5 
percent and the proposed CY 2019 wage index budget-neutrality 
adjustment factor of 0.999833.

C. Solicitation for Information on Transplant and Modality Requirements

    When an individual is faced with failing kidneys, life-extending 
treatment is available. The most common treatment is dialysis, but the 
best treatment is receiving a kidney transplant from a living or 
deceased donor. Dialysis, either HD or PD, can sustain life by removing 
impurities and extra fluids but cannot do either job as consistently or 
efficiently as a functioning kidney. Dialysis also carries risks of its 
own, including anemia, bone disease, hypotension, hypertension, heart 
disease, muscle cramps, itching, fluid overload, nerve damage, 
depression, and infection. Timely transplantation, despite requiring a 
major surgery and ongoing medication, offers recipients a longer, 
higher quality of life, without the ongoing risks of dialysis. 
Unfortunately, the number of people waiting for healthy donor kidneys 
far exceeds the number of available organs. In 2015, the most recent 
year for which complete data is available, 18,805 kidney transplants 
were performed in the U.S., while over 80,000 individuals remained on 
waiting lists (https://www.usrds.org/2017/view/v2_06.aspx). That same 
year, there were 124,114 newly reported cases of ESRD and over 703,243 
prevalent cases of ESRD (https://www.usrds.org/2017/view/v2_01.aspx).
    In recognition of the superiority of transplantation but the need 
for dialysis, CMS has required for nearly 10 years that Medicare-
certified dialysis facilities evaluate all patients for transplant 
suitability and make appropriate referrals to local transplant centers 
(73 FR 20370). Specifically, dialysis facilities must:
     Inform every patient about all treatment modalities, 
including transplantation (Sec.  494.70(a)(7)).
     Evaluate every patient for suitability for a 
transplantation referral (Sec.  494.80(b)(10)).
     Document any basis for non-referral in the patient's 
medical record (Sec.  494.80(b)(10)).
     Develop plans for pursuing transplantation for every 
patient who is a transplant referral candidate (Sec.  
494.90(a)(7)(ii)).
     Track the results of each kidney transplant center 
referral (Sec.  494.90(c)(1)).
     Monitor the status of any facility patients who are on the 
transplant waitlist (Sec.  494.90(c)(2)).
     Communicate with the transplant center regarding patient 
transplant status at least annually, and when there is a change in 
transplant candidate status (Sec.  494.90(c)(3)).
     Educate patients, family members, or caregivers or both 
about transplantation, as established in a patient's plan of care 
(Sec.  494.90(d)).
    Despite these requirements, the percentage of prevalent dialysis 
patients wait-listed for a kidney has recently declined (https://www.usrds.org/2017/view/v2_06.aspx, Figure 6.2), meaning that fewer 
people have the opportunity to be matched with a donor kidney. Some 
individuals do receive kidneys directly from suitable friends or family 
members, but still must be placed on the waiting list. Organ 
Procurement and Transplantation Network (OPTN) policy requires that all 
transplant recipients, including recipients of organs from living 
donors, be registered and added to the OPTN waiting list. Until a 
dialysis patient is referred to a transplant center, he or she is not 
able to be placed on the waiting list, and is ineligible to receive a 
kidney. While dialysis facilities have no control over the total supply 
of kidneys made available for transplantation, transplantation 
education, referral, and waitlist tracking are appropriate and 
necessary services for them to furnish. Unfortunately, there are 
performance gaps and disparities between dialysis facilities in 
providing these services.\3\ Therefore, as discussed in section 
IV.C.1.a. of section IV ``End-Stage Renal Disease Quality Incentive 
Program (ESRD QIP)'' of this proposed rule, we are proposing a 
reporting measure under the ESRD QIP that would track the percentage of 
patients at each dialysis facility who are on the kidney or kidney-
pancreas transplant waiting list. We are also soliciting input on other 
ways to increase kidney transplant referrals and improve the tracking 
process for patients on the waitlist:
---------------------------------------------------------------------------

    \3\ R.E. Patzer, L. Plantinga, J. Krisher, S.O. Pastan, 
``Dialysis facility and network factors associated with low kidney 
transplantation rates among U.S. dialysis facilities,'' American 
Journal of Transplantation, 2014 Jul; 14(7):1562-72; and Sudeshna 
Paul, Laura C. Plantinga, Stephen O. Pastan, Jennifer C. Gander, 
Sumit Mohan, and Rachel E. Patzer, ``Standardized Transplantation 
Referral Ratio to Assess Performance of Transplant Referral among 
Dialysis Facilities,'' Clinical Journal of the American Society of 
Nephrology, January 2018.
---------------------------------------------------------------------------

     Are there ways to ensure facilities are meeting the 
Conditions for Coverage (CfC) requirements, in addition to the survey 
process?
     Are the current dialysis facility CfC requirements 
addressing transplantation support services adequately, or should 
additional requirements be considered?
    We welcome your input.
    With regard to other treatment for failed kidneys, HD performed in 
an outpatient dialysis center is most common, followed by HD performed 
at home, and PD (almost always performed at home). Just as we are 
concerned about disparities in access to transplantation, we are also 
concerned about disparities in access to dialysis modality options. 
Although ESRD disproportionately affects racial and ethnic minority 
patients, minority individuals are far less likely to be treated with 
home dialysis than white patients.\4\ Home dialysis modalities 
necessitate a higher level of self-care than in-center care, and are 
not appropriate for or desired by every dialysis patient. We are 
concerned, however that not all dialysis patients are aware of, or 
given the opportunity to learn about, home modalities or their 
benefits--primarily greater independence and flexibility. Individuals 
performing home dialysis treatments are able to schedule their 
treatments at times most convenient for them, allowing them to 
coordinate with family and work schedules, and eliminate the need for 
thrice weekly transportation to and from a dialysis facility. The 
transportation savings are especially valuable to rural individuals, 
who might have to travel hours each week for regular treatments in a 
facility.
---------------------------------------------------------------------------

    \4\ Mehrotra, R., Soohoo, M., Rivara, M.B., Himmelfarb, J., 
Cheung, A.K., Arah, O.A., Nissenson, A.R., Ravel, V., Streja, E., 
Kuttykrishnan, S., Katz, R., Molnar, M., Kalantar-Zadeh, K., 
``Racial and Ethnic Disparities in Use of and Outcomes with Home 
Dialysis in the United States,'' Journal of the American Society of 
Nephrology December 10, 2015.
---------------------------------------------------------------------------

    We take this opportunity to remind dialysis facilities of their 
responsibilities regarding modality education and options. Some 
dialysis facilities do not support home modalities, but all facilities 
are required to make appropriate referrals if a patient elects to 
pursue home treatments. Specifically, dialysis facilities must:
     Inform every patient about all treatment modalities, 
including transplantation, home dialysis modalities (home HD, 
intermittent PD, continuous ambulatory PD, continuous

[[Page 34334]]

cycling PD), and in-facility HD (Sec.  494.70(a)(7)).
     Ensure all patients are provided access to resource 
information for dialysis modalities not offered by the facility, 
including information about alternative scheduling options for working 
patients (Sec.  494.70(a)(7)).
     Assess every patient's abilities, interests, preferences, 
and goals, including the desired level of participation in the dialysis 
care process; the preferred modality (hemodialysis or peritoneal 
dialysis), and setting, (for example, home dialysis), and the patient's 
expectations for care outcomes (Sec.  494.80(a)(9)).
     Identify a plan for every patient's home dialysis or 
explain why the patient is not a candidate for home dialysis (Sec.  
494.90(a)(7)(i)).
     Provide education and training, as applicable, to patients 
and family members or caregivers or both, in aspects of the dialysis 
experience, dialysis management, infection prevention and personal 
care, home dialysis and self-care, quality of life, rehabilitation, 
transplantation, and the benefits and risks of various vascular access 
types (Sec.  494.90(d)).
    Persons with failed kidneys often begin dialysis with no prior 
exposure to nephrology care or knowledge of treatment options. The 
practitioners and professionals who care for them are best suited to 
provide the necessary information to support informed, shared decision-
making. Patient education is not a one-time incident, but an ongoing 
aspect of all health care services and settings. We welcome your 
suggestions on ways to ensure that dialysis facilities are meeting 
these obligations, and to ensure equal access to dialysis modalities.

III. CY 2019 Payment for Renal Dialysis Services Furnished to 
Individuals With Acute Kidney Injury (AKI)

A. Background

    The Trade Preferences Extension Act of 2015 (TPEA), Public Law 114-
27, was enacted on June 29, 2015, and amended the Act to provide 
coverage and payment for dialysis furnished by an ESRD facility to an 
individual with acute kidney injury (AKI). Specifically, section 808(a) 
of the TPEA amended section 1861(s)(2)(F) of the Act to provide 
coverage for renal dialysis services furnished on or after January 1, 
2017, by a renal dialysis facility or a provider of services paid under 
section 1881(b)(14) of the Act to an individual with AKI. Section 
808(b) of the TPEA amended section 1834 of the Act by adding a new 
paragraph (r) to provide payment, beginning January 1, 2017, for renal 
dialysis services furnished by renal dialysis facilities or providers 
of services paid under section 1881(b)(14) of the Act to individuals 
with AKI at the ESRD PPS base rate, as adjusted by any applicable 
geographic adjustment applied under section 1881(b)(14)(D)(iv)(II) of 
the Act and adjusted (on a budget neutral basis for payments under 
section 1834(r) of the Act) by any other adjustment factor under 
section 1881(b)(14)(D) of the Act that the Secretary elects.
    In the CY 2017 ESRD PPS final rule, we finalized several coverage 
and payment policies in order to implement subsection (r) of section 
1834 of the Act and the amendments to section 1881(s)(2)(F) of the Act, 
including the payment rate for AKI dialysis (81 FR 77866 through 77872, 
and 77965). We interpret section 1834(r)(1) of the Act as requiring the 
amount of payment for AKI dialysis services to be the base rate for 
renal dialysis services determined for a year under the ESRD base rate 
as set forth in Sec.  413.220, updated by the ESRD bundled market 
basket percentage increase factor minus a productivity adjustment as 
set forth in Sec.  413.196(d)(1), adjusted for wages as set forth in 
Sec.  413.231, and adjusted by any other amounts deemed appropriate by 
the Secretary under Sec.  413.373. We codified this policy in Sec.  
413.372 (81 FR 77965).

B. Annual Payment Rate Update for CY 2019

1. CY 2019 AKI Dialysis Payment Rate
    The payment rate for AKI dialysis is the ESRD PPS base rate 
determined for a year under section 1881(b)(14) of the Act, which is 
the finalized ESRD PPS base rate, including market basket adjustments, 
wage adjustments and any other discretionary adjustments, for such 
year. We note that ESRD facilities have the ability to bill Medicare 
for non-renal dialysis items and services and receive separate payment 
in addition to the payment rate for AKI dialysis.
    As discussed in section II.B.3.d of this proposed rule, the CY 2019 
proposed ESRD PPS base rate is $235.82, which reflects the proposed 
ESRD bundled market basket and multifactor productivity adjustment. 
Accordingly, we are proposing a CY 2019 per treatment payment rate of 
$235.82 for renal dialysis services furnished by ESRD facilities to 
individuals with AKI. This payment rate is further adjusted by the wage 
index as discussed below.
2. Geographic Adjustment Factor
    Under section 1834(r)(1) of the Act and Sec.  413.372, the amount 
of payment for AKI dialysis services is the base rate for renal 
dialysis services determined for a year under section 1881(b)(14) of 
the Act (updated by the ESRD bundled market basket and multifactor 
productivity adjustment), as adjusted by any applicable geographic 
adjustment factor applied under section 1881(b)(14)(D)(iv)(II) of the 
Act. Accordingly, we apply the same wage index under Sec.  413.231 that 
is used under the ESRD PPS and discussed in section II.B.3.f of this 
proposed rule. The AKI dialysis payment rate is adjusted by the wage 
index for a particular ESRD facility in the same way that the ESRD PPS 
base rate is adjusted by the wage index for that facility (81 FR 
77868). Specifically, we apply the wage index to the labor-related 
share of the ESRD PPS base rate that we utilize for AKI dialysis to 
compute the wage adjusted per-treatment AKI dialysis payment rate. As 
stated above, we are proposing a CY 2019 AKI dialysis payment rate of 
$235.82, adjusted by the ESRD facility's wage index.

IV. End-Stage Renal Disease Quality Incentive Program (ESRD QIP)

A. Background

    For a detailed discussion of the ESRD QIP's background and history, 
including a description of the Program's authorizing statute and the 
policies that we have adopted in previous final rules, we refer readers 
to the calendar year (CY) 2018 ESRD Prospective Payment System (PPS) 
final rule (82 FR 50756 through 50757).
1. Improving Patient Outcomes and Reducing Burden Through the 
Meaningful Measures Initiative
    Regulatory reform and reducing regulatory burden are high 
priorities for the Centers for Medicare & Medicaid Services (CMS). To 
reduce the regulatory burden on the healthcare industry, lower health 
care costs, and enhance patient care, in October 2017, we launched the 
Meaningful Measures Initiative.\5\ This initiative is one component of 
our agency-wide Patients Over Paperwork Initiative,\6\ which is aimed 
at evaluating and streamlining

[[Page 34335]]

regulations with a goal to reduce unnecessary cost and burden, increase 
efficiencies, and improve beneficiary experience. The Meaningful 
Measures Initiative is aimed at identifying the highest priority areas 
for quality measurement and quality improvement in order to assess the 
core quality of care issues that are most vital to advancing our work 
to improve patient outcomes. The Meaningful Measures Initiative 
represents a new approach to quality measures that will foster 
operational efficiencies and will reduce costs, including collection 
and reporting burden, while producing quality measurement that is more 
focused on meaningful outcomes.
---------------------------------------------------------------------------

    \5\ Meaningful Measures webpage: https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityInitiativesGenInfo/MMF/General-info-Sub-Page.html.
    \6\ Remarks by Administrator Seema Verma at the Health Care 
Payment Learning and Action Network (LAN) Fall Summit, as prepared 
for delivery on October 30, 2017. Available at: https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2017-Fact-Sheet-items/2017-10-30.html.
---------------------------------------------------------------------------

    The Meaningful Measures Initiative has the following objectives:
     Address high-impact measure areas that safeguard public 
health;
     Patient-centered and meaningful to patients;
     Outcome-based where possible;
     Fulfill each program's statutory requirements;
     Minimize the level of burden for health care providers 
(for example, through a preference for EHR-based measures where 
possible, such as electronic clinical quality measures);
     Significant opportunity for improvement;
     Address measure needs for population based payment through 
alternative payment models; and
     Align across programs and/or with other payers.
    In order to achieve these objectives, we have identified 19 
Meaningful Measures areas and mapped them to six overarching quality 
priorities as shown in Table 12.

   Table 12--Quality Priority Associated With Meaningful Measure Areas
------------------------------------------------------------------------
            Quality priority                 Meaningful measure area
------------------------------------------------------------------------
Making Care Safer by Reducing Harm       Healthcare-Associated
 Caused in the Delivery of Care.          Infections.
                                         Preventable Healthcare Harm.
Strengthen Person and Family Engagement  Care is Personalized and
 as Partners in Their Care.               Aligned with Patient's Goals.
                                         End of Life Care According to
                                          Preferences.
                                         Patient's Experience of Care.
                                         Patient Reported Functional
                                          Outcomes.
Promote Effective Communication and      Medication Management.
 Coordination of Care.                   Admissions and Readmissions to
                                          Hospitals.
                                         Transfer of Health Information
                                          and Interoperability.
Promote Effective Prevention and         Preventive Care.
 Treatment of Chronic Disease.           Management of Chronic
                                          Conditions.
                                         Prevention, Treatment, and
                                          Management of Mental Health.
                                         Prevention and Treatment of
                                          Opioid and Substance Use
                                          Disorders.
                                         Risk Adjusted Mortality.
Work with Communities to Promote Best    Equity of Care.
 Practices of Healthy Living.            Community Engagement.
Make Care Affordable...................  Appropriate Use of Healthcare.
                                         Patient-focused Episode of
                                          Care.
                                         Risk Adjusted Total Cost of
                                          Care.
------------------------------------------------------------------------

    By including Meaningful Measures in our programs, we believe that 
we can also address the following cross-cutting measure criteria:
     Eliminating disparities;
     Tracking measurable outcomes and impact;
     Safeguarding public health;
     Achieving cost savings;
     Improving access for rural communities; and
     Reducing burden.
    We believe that the Meaningful Measures Initiative will improve 
outcomes for patients, their families, and health care providers while 
reducing burden and costs for clinicians and providers as well as 
promoting operational efficiencies.
2. Accounting for Social Risk Factors in the ESRD QIP
    In the fiscal year (FY) 2018 Inpatient Prospective Payment System 
(IPPS)/Long-Term Care Hospital Prospective Payment System (LTCH PPS) 
final rule (82 FR 38237 through 38239), we discussed the importance of 
improving beneficiary outcomes including reducing health disparities. 
We also discussed our commitment to ensuring that medically complex 
patients, as well as those with social risk factors, receive excellent 
care. We discussed how studies show that social risk factors, such as 
being near or below the poverty level as determined by the Department 
of Health and Human Services, belonging to a racial or ethnic minority 
group, or living with a disability, can be associated with poor health 
outcomes and how some of this disparity is related to the quality of 
health care.\7\ Among our core objectives, we aim to improve health 
outcomes, attain health equity for all beneficiaries, and ensure that 
complex patients as well as those with social risk factors receive 
excellent care. Within this context, reports by the Office of the 
Assistant Secretary for Planning and Evaluation (ASPE) and the National 
Academy of Medicine have examined the influence of social risk factors 
in CMS value-based purchasing (VBP) programs.\8\ As we noted in the FY 
2018 IPPS/LTCH PPS final rule (82 FR 38237), ASPE's report to Congress 
found that, in the context of VBP programs, dual eligibility was the 
most powerful predictor of poor health care outcomes among those social 
risk factors that they examined and tested. In addition, as we noted in 
the FY 2018 IPPS/LTCH PPS final rule (82 FR 38237), the National 
Quality Forum (NQF) undertook a 2-year trial period in which certain 
new measures and measures undergoing maintenance review have been 
assessed to determine if risk adjustment for social risk factors is 
appropriate for these

[[Page 34336]]

measures.\9\ The trial period ended in April 2017 and a final report is 
available at: http://www.qualityforum.org/SES_Trial_Period.aspx. The 
trial concluded that ``measures with a conceptual basis for adjustment 
generally did not demonstrate an empirical relationship'' between 
social risk factors and the outcomes measured. This discrepancy may be 
explained in part by the methods used for adjustment and the limited 
availability of robust data on social risk factors. NQF has extended 
the socioeconomic status (SES) trial,\10\ allowing further examination 
of social risk factors in outcome measures.
---------------------------------------------------------------------------

    \7\ See, for example, United States Department of Health and 
Human Services. ``Healthy People 2020: Disparities. 2014.'' 
Available at: http://www.healthypeople.gov/2020/about/foundation-health-measures/Disparities; or National Academies of Sciences, 
Engineering, and Medicine. Accounting for Social Risk Factors in 
Medicare Payment: Identifying Social Risk Factors. Washington, DC: 
National Academies of Sciences, Engineering, and Medicine 2016.
    \8\ Department of Health and Human Services Office of the 
Assistant Secretary for Planning and Evaluation (ASPE), ``Report to 
Congress: Social Risk Factors and Performance Under Medicare's 
Value-Based Purchasing Programs.'' December 2016. Available at: 
https://aspe.hhs.gov/pdf-report/report-congress-social-risk-factors-and-performance-under-medicares-value-based-purchasing-programs.
    \9\ Available at: http://www.qualityforum.org/SES_Trial_Period.aspx.
    \10\ Available at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=86357.
---------------------------------------------------------------------------

    In the FY 2018 IPPS/LTCH PPS and CY 2018 ESRD PPS proposed rules 
for our quality reporting and VBP programs, we solicited feedback on 
which social risk factors provide the most valuable information to 
stakeholders and the methodology for illuminating differences in 
outcomes rates among patient groups within a hospital or provider that 
would also allow for a comparison of those differences, or disparities, 
across providers. Feedback we received across our quality reporting 
programs included encouraging CMS to explore whether factors that could 
be used to stratify or risk adjust the measures (beyond dual 
eligibility); considering the full range of differences in patient 
backgrounds that might affect outcomes; exploring risk adjustment 
approaches; and offering careful consideration of what type of 
information display would be most useful to the public.
    We also sought public comment on confidential reporting and future 
public reporting of some of our measures stratified by patient dual 
eligibility. In general, commenters noted that stratified measures 
could serve as tools for hospitals to identify gaps in outcomes for 
different groups of patients, improve the quality of health care for 
all patients, and empower consumers to make informed decisions about 
health care. Commenters encouraged us to stratify measures by other 
social risk factors such as age, income, and educational attainment. 
With regard to VBP programs, commenters also cautioned to balance fair 
and equitable payment while avoiding payment penalties that mask health 
disparities or discouraging the provision of care to more medically 
complex patients. Commenters also noted that VBP program measure 
selection, domain weighting, performance scoring, and payment 
methodology must account for social risk.
    As a next step, CMS is considering options to improve health 
disparities among patient groups within and across hospitals by 
increasing the transparency of disparities as shown by quality 
measures. We also are considering how this work applies to other CMS 
quality programs in the future. We refer readers to the FY 2018 IPPS/
LTCH PPS final rule (82 FR 38403 through 38409) for more details, where 
we discuss the potential stratification of certain Hospital Inpatient 
Quality Reporting (IQR) Program outcome measures. Furthermore, we 
continue to consider options to address equity and disparities in our 
value-based purchasing programs.
    We plan to continue working with ASPE, the public, and other key 
stakeholders on this important issue to identify policy solutions that 
achieve the goals of attaining health equity for all beneficiaries and 
minimizing unintended consequences.
3. Proposal To Update Regulation Text for the ESRD QIP
    We are proposing to codify a number of previously adopted 
requirements for the ESRD QIP in our regulations by revising Sec.  
413.177 and adopting a new Sec.  413.178. Codification of these 
requirements would make it easier for the public to locate these 
requirements. Proposed Sec.  413.178 would codify the following:
     Definitions of key terms used in the ESRD QIP;
     Rules for determining the applicability of the ESRD QIP to 
facilities, including new facilities;
     Measure selection;
     Rules governing performance scoring, including how we 
calculate the total performance score;
     Our process for making ESRD QIP performance information 
available to the public; and
     The limitation on administrative and judicial review.
    Revised Sec.  413.177(a) would codify that an ESRD facility that 
does not earn enough points under the ESRD QIP to meet or exceed the 
minimum total performance score established for a payment year would 
receive up to a 2 percent reduction to its otherwise applicable payment 
amount under the ESRD PPS for renal dialysis services furnished during 
that payment year.
    We welcome public comments on the proposed regulation text.

B. Proposed Update to Requirements Beginning With the PY 2021 ESRD QIP

1. Proposal To Update the PY 2021 Measure Set
    In this proposed rule, we are proposing to refine and update the 
criteria for removing measures from the ESRD QIP measure set, and for 
consistency with the terminology we are adopting for other CMS quality 
reporting and value-based purchasing programs, we now refer to these 
criteria as factors. We are also proposing to remove four of the 
reporting measures that we previously finalized for the PY 2021 ESRD 
QIP measure set. Table 13 summarizes the proposed revisions to the PY 
2021 ESRD QIP measure set, and we discuss the measure removal proposals 
in section IV.B.1.c of this proposed rule.

  Table 13--Proposed Revisions to the Previously Finalized PY 2021 ESRD
                             QIP Measure Set
------------------------------------------------------------------------
                                                             Measure
             NQF #                 Measure title and    continuing in PY
                                      description             2021
------------------------------------------------------------------------
0258..........................  In-Center Hemodialysis  Yes.
                                 Consumer Assessment
                                 of Healthcare
                                 Providers and Systems
                                 (ICH CAHPS) Survey
                                 Administration, a
                                 clinical measure.
                                Measure assesses
                                 patients' self-
                                 reported experience
                                 of care through
                                 percentage of patient
                                 responses to multiple
                                 testing tools.
2496..........................  Standardized            Yes.
                                 Readmission Ratio
                                 (SRR), a clinical
                                 measure.
                                Ratio of the number of
                                 observed unplanned 30-
                                 day hospital
                                 readmissions to the
                                 number of expected
                                 unplanned 30-day
                                 readmissions.

[[Page 34337]]

 
2979..........................  Standardized            Yes.
                                 Transfusion Ratio
                                 (STrR), a clinical
                                 measure.
                                Risk-adjusted TrR for
                                 all adult Medicare
                                 dialysis patients..
                                Number of observed
                                 eligible red blood
                                 cell transfusion
                                 events occurring in
                                 patients dialyzing at
                                 a facility to the
                                 number of eligible
                                 transfusions that
                                 would be expected.
N/A...........................  A measure of dialysis   Yes.
                                 adequacy where K is
                                 dialyzer clearance, t
                                 is dialysis time, and
                                 V is total body water
                                 volume (Kt/V)
                                 Dialysis Adequacy
                                 Comprehensive, a
                                 clinical measure.
                                Percentage of all
                                 patient months for
                                 patients whose
                                 delivered dose of
                                 dialysis (either
                                 hemodialysis or
                                 peritoneal dialysis)
                                 met the specified
                                 threshold during the
                                 reporting period.
2977..........................  Hemodialysis Vascular   Yes.
                                 Access: Standardized
                                 Fistula Rate clinical
                                 measure.
                                Measures the use of an
                                 AV fistula as the
                                 sole means of
                                 vascular access as of
                                 the last hemodialysis
                                 treatment session of
                                 the month.
2978..........................  Hemodialysis Vascular   Yes.
                                 Access: Long-Term
                                 Catheter Rate
                                 clinical measure.
                                Measures the use of a
                                 catheter continuously
                                 for 3 months or
                                 longer as of the last
                                 hemodialysis
                                 treatment session of
                                 the month.
1454..........................  Hypercalcemia, a        Yes.
                                 clinical measure.
                                Proportion of patient-
                                 months with 3-month
                                 rolling average of
                                 total uncorrected
                                 serum or plasma
                                 calcium greater than
                                 10.2 mg/dL.
1463 *........................  Standardized            Yes.
                                 Hospitalization Ratio
                                 (SHR), a clinical
                                 measure.
                                Risk-adjusted SHR of
                                 the number of
                                 observed
                                 hospitalizations to
                                 the number of
                                 expected
                                 hospitalizations.
0255..........................  Serum Phosphorus, a     Proposed for
                                 reporting measure.      Removal.
                                 Percentage of all
                                 adult (>=18 years of
                                 age) peritoneal
                                 dialysis and
                                 hemodialysis patients
                                 included in the
                                 sample for analysis
                                 with serum of plasma
                                 phosphorus measured
                                 at least once within
                                 month.
N/A...........................  Anemia Management       Proposed for
                                 Reporting, a            Removal.
                                 reporting measure.
                                 Number of months for
                                 which facility
                                 reports
                                 erythropoiesis-
                                 stimulating agent
                                 (ESA) dosage (as
                                 applicable) and
                                 hemoglobin/hematocrit
                                 for each Medicare
                                 patient, at least
                                 once per month.
Based on NQF #0420............  Pain Assessment and     Proposed for
                                 Follow-Up, a            Removal.
                                 reporting measure.
                                 Facility reports in
                                 CROWNWeb one of six
                                 conditions for each
                                 qualifying patient
                                 once before August 1
                                 of the performance
                                 period and once
                                 before February 1 of
                                 the year following
                                 the performance
                                 period.
Based on NQF #0418............  Clinical Depression     Yes.
                                 Screening and Follow-
                                 Up, a reporting
                                 measure.
                                Facility reports in
                                 CROWNWeb one of six
                                 conditions for each
                                 qualifying patient
                                 treated during
                                 performance period.
Based on NQF #0431............  National Healthcare     Proposed for
                                 Safety Network (NHSN)   Removal.
                                 Healthcare Personnel
                                 Influenza
                                 Vaccination, a
                                 reporting measure.
                                 Facility submits
                                 Healthcare Personnel
                                 Influenza Vaccination
                                 Summary Report to the
                                 Centers for Disease
                                 Control and
                                 Prevention's (CDC's)
                                 NHSN system,
                                 according to the
                                 specifications of the
                                 Healthcare, Personnel
                                 Safety Component
                                 Protocol by May 15 of
                                 the performance
                                 period.
N/A...........................  Ultrafiltration Rate,   Yes.
                                 a reporting measure.
                                Number of months for
                                 which a facility
                                 reports elements
                                 required for
                                 ultrafiltration rates
                                 for each qualifying
                                 patient.
Based on NQF #1460............  NHSN Bloodstream        Yes.
                                 Infection (BSI) in
                                 Hemodialysis
                                 Patients, a clinical
                                 measure.
                                The Standardized
                                 Infection Ratio (SIR)
                                 of BSIs will be
                                 calculated among
                                 patients receiving
                                 hemodialysis at
                                 outpatient
                                 hemodialysis centers.
N/A...........................  NHSN Dialysis Event     Yes.
                                 reporting measure.
                                Number of months for
                                 which facility
                                 reports NHSN Dialysis
                                 Event data to CDC.
------------------------------------------------------------------------

a. Proposal To Refine and Update the Factors Used for ESRD QIP Measure 
Removal
    Under our current policy, we consider an ESRD QIP measure for 
removal or replacement if: (1) Measure performance among the majority 
of ESRD facilities is so high and unvarying that meaningful 
distinctions in improvements or performance can no longer be made; (2) 
performance or improvement on a measure does not result in better or 
the intended patient outcomes; (3) a measure no longer aligns with 
current clinical guidelines or practice; (4) a more broadly applicable 
(across settings, populations, or conditions) measure for the topic 
becomes available; (5) a measure that is more proximal in time to 
desired patient outcomes for the particular topic becomes available; 
(6) a measure that is more strongly associated with desired patient 
outcomes for the particular topic becomes available; or (7) collection 
or public reporting of a measure leads to negative or unintended 
consequences (77 FR 67475). In the CY

[[Page 34338]]

2015 ESRD PPS final rule, we adopted statistical criteria for 
determining whether a clinical measure is topped out, and adopted a 
policy under which we could retain an otherwise topped-out measure if 
we determined that its continued inclusion in the ESRD QIP measure set 
would address the unique needs of a specific subset of the ESRD 
population (79 FR 66174). In the CY 2013 ESRD PPS final rule (77 FR 
67475), we finalized that we would generally remove an ESRD QIP measure 
using notice and comment rulemaking, unless we determined that the 
continued collection of data on the measure raised patient safety 
concerns. In that case, we stated that we would promptly remove the 
measure and publish the justification for the removal in the Federal 
Register during the next rulemaking cycle. In addition, we stated that 
we would immediately notify ESRD facilities and the public through the 
usual communication channels, including listening sessions, memos, 
email notification, and Web postings.
    In order to align with terminology we are adopting for use across a 
number of quality reporting and pay for performance programs, we will 
now refer to these criteria as ``factors'' rather than ``criteria.'' We 
are also proposing to update these measure removal factors so that they 
are more closely aligned with the factors we have adopted or proposed 
to adopt for other quality reporting and pay for performance programs, 
as well as the priorities we have adopted as part of our Meaningful 
Measures Initiative. Specifically, we are proposing to combine current 
Factors 4 and 5 (proposed new Factor 4), and we are proposing to adjust 
the numbering of subsequent factors to account for this change. We are 
also proposing to add a new factor for measures where it is not 
feasible to implement the measure specifications; we would refer to 
this new factor as Factor 7. Proposed Factors 1 through 7 are as 
follows:
     Factor 1. Measure performance among the majority of ESRD 
facilities is so high and unvarying that meaningful distinctions in 
improvements or performance can no longer be made (for example, the 
measure is topped-out).
     Factor 2. Performance or improvement on a measure does not 
result in better or the intended patient outcomes.
     Factor 3. A measure no longer aligns with current clinical 
guidelines or practice.
     Factor 4. A more broadly applicable (across settings, 
populations, or conditions) measure for the topic or a measure that is 
more proximal in time to desired patient outcomes for the particular 
topic becomes available.
     Factor 5. A measure that is more strongly associated with 
desired patient outcomes for the particular topic becomes available.
     Factor 6. Collection or public reporting of a measure 
leads to negative or unintended consequences.
     Factor 7. It is not feasible to implement the measure 
specifications.
    We believe these proposed updates would better ensure that we use a 
consistent approach across our quality reporting and value-based 
purchasing programs when considering measures for removal, and that 
they reflect the considerations we have long used when evaluating 
measures for removal from the ESRD QIP. However, even if one or more of 
the measure removal factors applies, we might nonetheless choose to 
retain the measure for certain specified reasons. Examples of such 
instances could include when a particular measure addresses a gap in 
quality that is so significant that removing the measure could result 
in poor quality, or in the event that a given measure is statutorily 
required. Furthermore, consistent with other quality reporting 
programs, we propose to apply these factors on a case-by-case basis.
    We welcome comment on these proposals.
b. Proposed New Measure Removal Factor
    In this proposed rule, we are proposing to adopt an additional 
factor to consider when evaluating measures for removal from the ESRD 
QIP measure set: Factor 8, the costs associated with a measure outweigh 
the benefit of its continued use in the Program.
    As we discuss in section IV.A.1 of this proposed rule, with respect 
to our new ``Meaningful Measures Initiative,'' we are engaging in 
efforts to ensure that the ESRD QIP measure set continues to promote 
improved health outcomes for beneficiaries while minimizing the overall 
costs associated with the Program. We believe these costs are 
multifaceted and include not only the burden associated with reporting, 
but also the costs associated with implementing and maintaining the 
Program. We have identified several different types of costs, 
including, but not limited to: (1) Provider, supplier and clinician 
information collection burden and related cost and burden associated 
with the submission/reporting of quality measures to CMS; (2) provider, 
supplier and clinician cost associated with complying with other 
quality programmatic requirements; (3) provider, supplier and clinician 
cost associated with participating in multiple quality programs, and 
tracking multiple similar or duplicative measures within or across 
those programs; (4) CMS cost associated with the Program oversight of 
the measure, including measure maintenance and public display; and (5) 
provider, supplier and clinician cost associated with compliance with 
other federal and/or state regulations (if applicable). For example, it 
may be needlessly costly and/or of limited benefit to retain or 
maintain a measure which our analyses show no longer meaningfully 
supports Program objectives (for example, informing beneficiary 
choice). It may also be costly for health care providers to track 
confidential feedback preview reports and publicly reported information 
on a measure where we use the measure in more than one Program. CMS may 
also have to expend unnecessary resources to maintain the 
specifications for the measure, as well as the tools needed to collect, 
validate, analyze, and publicly report the measure data. Furthermore, 
beneficiaries may find it confusing to see public reporting on the same 
measure in different Programs.
    When these costs outweigh the evidence supporting the continued use 
of a measure in the ESRD QIP, we believe it may be appropriate to 
remove the measure from the Program. Although we recognize that one of 
the main goals of the ESRD QIP is to improve beneficiary outcomes by 
incentivizing health care providers to focus on specific care issues 
and making public data related to those issues, we also recognize that 
those goals can have limited utility where, for example, the publicly 
reported data are of limited use because they cannot be easily 
interpreted by beneficiaries to influence their choice of providers. In 
these cases, removing the measure from the ESRD QIP may better 
accommodate the costs of Program administration and compliance without 
sacrificing improved health outcomes and beneficiary choice.
    We are proposing that we would remove measures based on this factor 
on a case-by-case basis. We might, for example, decide to retain a 
measure that is burdensome for health care providers to report if we 
conclude that the benefit to beneficiaries justifies the reporting 
burden. Our goal is to move the Program forward in the least burdensome 
manner possible, while maintaining an appropriately sized set of 
meaningful quality measures and continuing to incentivize improvement 
in the quality of care provided to patients.

[[Page 34339]]

    We are inviting public comment on our proposal to adopt an 
additional measure removal factor, ``the costs associated with a 
measure outweigh the benefit of its continued use in the Program,'' 
beginning with PY 2021.
c. Proposed Removal of Four Reporting Measures
    We have undertaken efforts to review the existing ESRD QIP measure 
set in the context of the Meaningful Measures Initiative described in 
section IV.A.1 of this proposed rule. Based on that analysis and our 
evaluation of the Program's measures, we are proposing to remove four 
measures previously adopted for the ESRD QIP, starting with PY 2021. If 
these proposals are finalized, facilities would no longer be required 
to report data specific to these measures beginning with January 1, 
2019 dates of service. The four measures we are proposing to remove 
from the ESRD QIP measure set are:
     Healthcare Personnel Influenza Vaccination.
     Pain Assessment and Follow-Up.
     Anemia Management.
     Serum Phosphorus.
Proposed Removal of the Healthcare Personnel Influenza Vaccination 
Reporting Measure From the ESRD QIP Measure Set
    In the CY 2015 ESRD PPS final rule, we adopted the Healthcare 
Personnel Influenza Vaccination reporting measure in the ESRD QIP 
measure set beginning with PY 2018 because we recognize that influenza 
immunization is an important public health issue and that vaccinating 
healthcare personnel against influenza can help to protect healthcare 
personnel and their patients (79 FR 66206 through 66208). We continue 
to believe that the Healthcare Personnel Influenza Vaccination measure 
provides the benefit of protecting patients against influenza. However, 
our analysis of CY 2016 data indicates that ESRD facility performance 
on the measure was consistently high; 98 percent of ESRD facilities 
received the highest possible score on the measure (10 points) and the 
remaining 2 percent received no score on the measure because they did 
not report the required data. This finding indicates that influenza 
vaccination of healthcare personnel in ESRD facilities is a widespread 
practice and that there is little room for improvement on this measure. 
Accordingly, we are proposing to remove this measure from the ESRD QIP 
measure set beginning with PY 2021 under Factor 1 (measure performance 
among the majority of ESRD facilities is so high and unvarying that 
meaningful distinctions in improvements or performance can no longer be 
made).
Proposed Removal of the Pain Assessment and Follow-Up Reporting Measure 
From the ESRD QIP Measure Set
    In the CY 2015 ESRD PPS final rule, we adopted the Pain Assessment 
and Follow-Up reporting measure beginning with PY 2018 (79 FR 66203 
through 66206) because patients with ESRD frequently experience pain 
that has a debilitating impact on their daily lives, and research has 
shown a lack of effective pain management strategies in place in 
dialysis facilities. We continue to believe that effective pain 
management is an important component of the care received by ESRD 
patients. However, our analysis of CY 2016 data indicates that with 
respect to that year, 90 percent of ESRD facilities received the 
highest possible score on the measure (10 points) and 1 percent of ESRD 
facilities received no score on the measure. This finding indicates 
that documentation of pain management using a standardized tool, as 
well as documentation of a follow-up plan where pain is present, are 
widespread practices in ESRD facilities and that there is little room 
for improvement on the measure. Accordingly, we are proposing to remove 
this measure from the ESRD QIP measure set based on our proposed Factor 
1 (measure performance among the majority of ESRD facilities is so high 
and unvarying that meaningful distinctions in improvements or 
performance can no longer be made).
Proposed Removal of the Anemia Management Reporting Measure From the 
ESRD QIP Measure Set
    In the CY 2013 ESRD PPS final rule, we adopted the Anemia 
Management reporting measure beginning with the PY 2015 ESRD QIP (77 FR 
67491 through 67495) because we believe that it is important to monitor 
hemoglobin levels in patients to ensure that anemia is properly 
treated. Additionally, the measure's adoption fulfilled the statutory 
requirement at section 1881(h)(2)(A)(i) of the Act that the ESRD QIP 
include measures on anemia management that reflect labeling approved by 
the Food and Drug Administration (FDA) for such management. 
Additionally, in the CY 2015 ESRD PPS final rule (79 FR 66192 through 
66197), we adopted the NQF-endorsed Standardized Transfusion Ratio 
(STrR) measure beginning with PY 2018 to ensure that patients with ESRD 
are not negatively affected by underutilization of ESAs, with the 
result that these patients have lower achieved hemoglobin levels and 
more frequently need red-blood-cell transfusions. We stated that there 
is a strong association between achieved hemoglobin levels and 
subsequent transfusion events, and that facilities have a direct role 
in determining achieved hemoglobin as a result of their anemia 
management practices (79 FR 66194). We also noted that the STrR measure 
meets the requirement at section 1881(h)(2)(A)(i) of the Act for the 
ESRD QIP to adopt measures of anemia management that reflect the 
labeling approved by the Food and Drug Administration for such 
management.
    Our analysis of CY 2016 data indicates that ESRD facility 
performance on the Anemia Management reporting measure was consistently 
high; 96 percent of ESRD facilities received the highest possible score 
on the measure (10 points). This finding indicates that facility 
tracking of hemoglobin values and, as applicable, ESA dosages, is 
widely performed among ESRD facilities and that there is little room 
for improvement on the measure.
    We are therefore proposing to remove the Anemia Management 
reporting measure from the ESRD QIP measure set based on Factor 1 
(measure performance among the majority of ESRD facilities is so high 
and unvarying that meaningful distinctions in improvements or 
performance can no longer be made).
Proposed Removal of the Serum Phosphorus Reporting Measure From the 
ESRD QIP Measure Set
    In the CY 2014 ESRD PPS final rule, we adopted the Hypercalcemia 
measure beginning with the PY 2016 ESRD QIP (78 FR 72200 through 72203) 
as a measure of bone mineral metabolism. Specifically, this measure 
assesses the number of patients with uncorrected serum calcium greater 
than 10.2 mg/dL for a 3-month rolling average. In the CY 2017 ESRD PPS 
final rule (81 FR 77876 through 77879), we finalized two modifications 
to the measure's technical specifications, as recommended during the 
measure maintenance process at the NQF, beginning with PY 2019. First, 
we added plasma as an acceptable substrate in addition to serum 
calcium. Second, we amended the denominator definition to include 
patients regardless of whether any serum calcium values were reported 
at the facility during the 3-month study period. These changes ensure 
that, beginning with PY 2019, the measure aligns with the NQF-endorsed 
measure.
    In the CY 2017 ESRD PPS final rule, we adopted a second measure of 
bone

[[Page 34340]]

mineral metabolism, beginning with PY 2020: The Serum Phosphorus 
reporting measure (81 FR 77911 through 77912). This measure evaluates 
the extent to which facilities monitor and report patient phosphorus 
levels.
    While we consider both the Hypercalcemia measure and the Serum 
Phosphorus measure to be measures of bone mineral metabolism, the two 
measures track different minerals. Hypercalcemia measures calcium 
levels and Serum Phosphorus measures phosphorus levels. Numerous 
studies have associated disorders of mineral metabolism with morbidity, 
including fractures, cardiovascular disease, and mortality. Overt 
symptoms of these abnormalities often manifest in only the most extreme 
states of calcium-phosphorus dysregulation (81 FR 77911).
    As a result of the NQF's 2017 re-endorsement of the Hypercalcemia 
measure, as well as the Hypercalcemia measure's focus on clinical 
factors that are more directly under the facility's control, we now 
consider the Hypercalcemia measure to be a superior measure of bone 
mineral metabolism compared with Serum Phosphorus. In addition, of the 
two measures, the Hypercalcemia measure is more focused on outcomes; 
the Serum Phosphorus is a reporting measure while the Hypercalcemia 
measure is a clinical measure. Finally, the Hypercalcemia measure is an 
outcome-based measure specific to the conditions treated with oral-only 
drugs, which is a statutory requirement for the ESRD QIP measure set. 
Based on the limited benefit provided to the Program by the Serum 
Phosphorus measure as well as its reporting burden, we are proposing to 
remove the Serum Phosphorus reporting measure from the ESRD QIP measure 
set based on Factor 5 (that is, a measure that is more strongly 
associated with desired patient outcomes for the particular topic 
becomes available).
    We seek comments on these proposals. We note that we are not 
proposing any changes to the PY 2021 performance period or performance 
standards, and we refer readers to the CY ESRD PPS 2018 final rule (82 
FR 50778 through 50779) for a discussion of those policies.
2. Estimated Performance Standards, Achievement Thresholds, and 
Benchmarks for the PY 2021 ESRD QIP
    In the CY 2018 ESRD PPS final rule (82 FR 50763 through 50764) we 
finalized that for PY 2021, the performance standards, achievement 
thresholds, and benchmarks for the clinical measures would be set at 
the 50th, 15th, and 90th percentile, respectively, of national 
performance in CY 2017, because this would give us enough time to 
calculate and assign numerical values to those performance standards 
prior to the beginning of the performance period for that payment year. 
At this time, we do not have the necessary data to assign numerical 
values to those performance standards, achievement thresholds, and 
benchmarks because we do not yet have complete data from CY 2017. 
Nevertheless, we are able to estimate these numerical values based on 
the most recent data available. In Table 14, we have provided the 
estimated numerical values for all finalized PY 2021 ESRD QIP clinical 
measures, and we note that we have not proposed in this proposed rule 
to remove any of those measures. We will publish updated values for the 
clinical measures, using CY 2017 data that facilities submitted in the 
first part of CY 2018, in the CY 2019 ESRD PPS final rule.

  Table 14--Estimated Numerical Values for the Performance Standards for the PY 2021 ESRD QIP Clinical Measures
                                     Using the Most Recently Available Data
----------------------------------------------------------------------------------------------------------------
                                                                    Achievement                     Performance
                             Measure                                 threshold       Benchmark       standard
----------------------------------------------------------------------------------------------------------------
Vascular Access Type:
  Standardized Fistula Rate.....................................           0.518           0.752           0.628
  Long-Term Catheter Rate.......................................          19.23%           5.47%          12.02%
Kt/V Composite..................................................          91.09%          98.56%          95.64%
Hypercalcemia...................................................           2.41%           0.00%           0.86%
Standardized Transfusion Ratio..................................           1.683           0.200           0.846
Standardized Readmission Ratio..................................           1.273           0.630           0.998
NHSN BSI........................................................           1.598               0           0.740
SHR measure.....................................................           1.249           0.670           0.967
ICH CAHPS: Nephrologists' Communication and Caring..............          57.36%          78.09%          67.04%
ICH CAHPS: Quality of Dialysis Center Care and Operations.......          53.14%          71.52%          61.22%
ICH CAHPS: Providing Information to Patients....................          73.31%          86.83%          79.79%
ICH CAHPS: Overall Rating of Nephrologists......................          49.33%          76.57%          62.22%
ICH CAHPS: Overall Rating of Dialysis Center Staff..............          48.84%          77.42%          62.26%
ICH CAHPS: Overall Rating of the Dialysis Facility..............          52.24%          82.48%          66.82%
----------------------------------------------------------------------------------------------------------------
Data sources: VAT measures: 2016 CROWNWeb; SRR, STrR, SHR: 2016 Medicare claims; Kt/V: 2016 CROWNWeb;
  Hypercalcemia: 2016 CROWNWeb; NHSN: 2016 CDC, ICH CAHPS: CMS 2015 and 2016.

    In previous rulemaking, we have finalized that if final numerical 
values for the performance standard, achievement threshold, and/or 
benchmark are worse than they were for that measure in the previous 
year of the ESRD QIP, then we would substitute the previous year's 
performance standard, achievement threshold, and/or benchmark for that 
measure. In the CY 2017 ESRD PPS final rule, we finalized an update to 
that policy because in certain cases, it may be appropriate to re-
baseline the National Healthcare Safety Network (NHSN) Bloodstream 
Infection (BSI) clinical measure, such that expected infection rates 
are calculated on the basis of a more recent year's data (81 FR 77886). 
In such cases, numerical values assigned to performance standards may 
appear to decline, even though they represent higher standards for 
infection prevention. For PY 2021 and future payment years, we propose 
to continue use of this policy for the reasons explained above.
3. Proposed Change to the Scoring Methodology Previously Finalized for 
the PY 2021 ESRD QIP
    As described in section IV.A.1 of this proposed rule, CMS has 
established the Meaningful Measures Initiative to help

[[Page 34341]]

guide and focus measure development efforts across settings. In order 
to align the ESRD QIP more closely with the priorities of that 
initiative, we proposed in section IV.B.1.c of this proposed rule to 
remove four reporting measures from the ESRD QIP measure set, beginning 
with PY 2021. In this section, we are proposing to make changes to the 
measure domains and weights.
a. Proposed Revision To Measure Domains Beginning With the PY 2021 ESRD 
QIP
    To more closely align with the Meaningful Measures Initiative, we 
are proposing to eliminate the Reporting Domain and to reorganize the 
Clinical Domain into three distinct domains: Patient & Family 
Engagement Domain (currently part of the Patient and Family Engagement/
Care Coordination Subdomain), Care Coordination Domain (currently part 
of the Patient and Family Engagement/Care Coordination Subdomain), and 
Clinical Care Domain (currently the Clinical Care Subdomain). Adopting 
these topics as separate domains would result in a measure set that is 
more closely aligned with the priority areas in the Meaningful Measures 
Initiative. The proposed Clinical Care Domain would align with the 
Meaningful Measure Initiative priority to promote effective prevention 
and treatment of chronic disease. The proposed Patient & Family 
Engagement Domain would align with the Meaningful Measures Initiative 
priority to strengthen person and family engagement as partners in 
their care. The proposed Care Coordination Domain would align with the 
Meaningful Measures Initiative priority to promote effective 
communication and coordination of care. We are also proposing to 
continue use of the Patient Safety Domain. The Patient Safety Domain 
would align with the Meaningful Measures Initiative priority to make 
care safer by reducing harm caused in the delivery of care. We are also 
proposing to eliminate the Reporting Measure Domain from the ESRD QIP 
measure set, beginning in the PY 2021 Program, because there would no 
longer be any measures in that domain if our measure removal proposals 
in section IV.B.1.c of this proposed rule and our proposals in section 
IV.B.3.b of this proposed rule to reassign the Ultrafiltration Rate, 
and Clinical Depression Screening and Follow-Up Reporting measures to 
the Clinical Care Measure Domain and the Care Coordination Measure 
Domain, respectively, are finalized.
b. Proposed Revisions to the PY 2021 Domain and Measure Weights Used To 
Calculate the Total Performance Score (TPS)
    We are proposing to update the domain weights to reflect our 
proposed removal of the Reporting Domain and our proposed 
reorganization of the Clinical Domain into three distinct domains, as 
shown in Table 15. We believe that this proposed domain weighting best 
aligns the ESRD QIP's measure set with our preferred emphasis on 
clinical outcomes by assigning the two largest weights in the Program 
to the domains most focused on clinical outcomes (Clinical Care Domain 
and the Care Coordination Domain). Of those two domains, we are 
proposing to assign the Clinical Care Domain the highest weight because 
it contains the largest number of measures. We are proposing to assign 
the remaining two domains a smaller share of the total performance 
score (TPS) (both 15 percent) because they are more focused on measures 
of clinical processes and less on measures of patient outcomes. We 
continue to believe that the measures in the Patient & Family 
Engagement and Safety domains address important clinical topics, but we 
have concluded that placing more weighting on measures more directly 
tied to clinical outcomes is the most appropriate method to structure 
the ESRD QIP's measure domains.
    We are also proposing to adjust the PY 2021 measure weights that 
were finalized in the CY 2018 ESRD PPS final rule (82 FR 50781 through 
50783), as shown in Table 15. This proposal is also intended to reflect 
our preferred emphasis on weighting measures that directly impact 
clinical outcomes more heavily. We also took into consideration the 
degree to which a facility can influence a measure rate by assigning a 
higher weight to measures where a facility has greater influence 
compared to measures where a facility has less influence.

Table 15--Proposed Domain and Measure Weighting for the PY 2021 ESRD QIP
------------------------------------------------------------------------
                                                             Proposed
                                                          measure weight
       Proposed measures/ measure topics by domain         as percent of
                                                                TPS
------------------------------------------------------------------------
Patient & Family Engagement Measure Domain:
    ICH CAHPS measure...................................           15.00
                                                         ---------------
 
                                                                   15.00
Care Coordination Measure Domain:
    SRR measure.........................................           14.00
    SHR measure.........................................           14.00
    Clinical Depression and Follow-Up reporting measure.            2.00
                                                         ---------------
                                                                      30
Clinical Care Measure Domain:
    Kt/V Dialysis Adequacy Comprehensive measure........            6.00
    Vascular Access Type measure topic *................            6.00
    Hypercalcemia measure...............................            3.00
    STrR measure........................................           22.00
    Ultrafiltration Rate reporting measure..............            3.00
                                                         ---------------
                                                                      40
Safety Measure Domain:
    NHSN BSI measure....................................            9.00
    NHSN Dialysis Event reporting measure...............            6.00
                                                         ---------------
                                                                      15
------------------------------------------------------------------------
* The VAT Measure Topic is weighted for each facility based on the
  number of eligible patients for each of the two measures in the topic,
  with each measure score multiplied by the respective percentage of
  patients within the topic to reach a weighted topic score that will be
  unique for each facility (76 FR 70265, 70275).

    As shown in Table 15, we are proposing to decrease the weight of 
the following measures: In-Center Hemodialysis Consumer Assessment of 
Healthcare Providers and Systems (ICH CAHPS) measure (18.75 to 15 
percent), Kt/V Dialysis Adequacy Comprehensive measure (13.5 to 6 
percent), and Vascular Access Type (VAT) measure topic (13.5 to 6 
percent). We are also proposing to increase the weights of the 
following measures: Standardized Readmission Ratio (SRR) measure (11.25 
to 14 percent), Standardized Hospitalization Ratio (SHR) measure (8.25 
to 14 percent), Clinical Depression and Follow-Up measure (1.66 to 2 
percent), Hypercalcemia measure (1.5 to 3 percent), STrR measure (8.25 
to 22 percent), and Ultrafiltration reporting measure (1.66 to 3 
percent). We are proposing these changes to reflect our continued 
evaluation of the ESRD QIP's measures and their contribution to the TPS 
in light of the proposed domain structure and weights as well as the 
proposed removal of the four reporting

[[Page 34342]]

measures. We note that we are not proposing any changes to the two 
measures included in the Safety Measure Domain: NHSN BSI and NSHN 
Dialysis Event measures. We continue to believe that the Safety domain 
appropriately contains these two NHSN measures and we believe their 
assigned weights--9 percent and 6 percent respectively--reflect the 
importance that we place on measures of patient safety for the PY 2021 
ESRD QIP.
    We seek comment on our proposed domain and measure weighting 
proposals.
Proposals To Update the Eligibility Requirement for Receiving a TPS for 
a PY and Reassign Measure Weights
    In the CY 2017 ESRD PPS final rule (81 FR 77888 through 77889), we 
finalized that to be eligible to receive a TPS, a facility must be 
eligible to be scored on at least one measure in the Clinical Measure 
Domain and at least one measure in the Reporting Domain. We are 
proposing to revise this policy due to our proposed removal of the 
Reporting Domain from the ESRD QIP measure set and our proposal to 
increase the number of domains overall from three to four. We are 
proposing that to be eligible to receive a TPS, a facility must be 
eligible to be scored on at least one measure in any two out of the 
four domains in the ESRD QIP measure set. The proposed approach is 
consistent with our previously finalized policy because it would allow 
facilities to receive a TPS with as few as two measure scores. The 
proposed approach also enables us to maximize the number of facilities 
that can participate, while ensuring that ESRD facilities are scored on 
a sufficient number of measures to create a sufficiently-reliable TPS.
    Because of this proposed eligibility requirement to receive a TPS, 
we concluded that we must also consider how to reassign measure weights 
in those cases where facilities do not receive a score on every measure 
but receive scores on enough measures to receive a TPS. We considered 
two alternatives to address this issue: (1) Redistribute the weights of 
missing measures evenly across the remaining measures (that is, we 
would divide up the missing measure weights equally across the 
remaining measures), and (2) redistribute the weights of missing 
measures proportionately across the remaining measures, based on their 
weights as a percentage of TPS (that is, when dividing up missing 
measure weights, we would shift a larger share of the weights to 
measures with higher assigned weights; measures with lower weights 
would gain a smaller portion of the missing measure weights).
    While the first policy alternative is administratively simpler to 
implement, this option would not maintain the Meaningful Measures 
Initiative priorities in the measure weights as effectively, and 
therefore, we are proposing the second policy alternative. As discussed 
earlier, we are proposing an approach for reweighting the domains and 
measures in the ESRD QIP for PY 2021 based on the priorities identified 
in the Meaningful Measures Initiative. Under this approach, we are 
proposing to assign a higher weight to measures that focus on outcomes 
and a lower weight to measures that focus on clinical processes. If we 
adopted the first policy alternative, measures that we consider a lower 
priority would represent a much larger share of TPS relative to 
measures that we consider a higher priority, in situations where a 
facility is missing one or more measure scores. Under the second policy 
alternative, when a facility is not scored on a measure, the weight of 
lower priority measures relative to higher priority measures would be 
more consistent with the weights assigned to the complete measure set. 
We note that this proposal, if finalized, would be effective for PY 
2021; we use the PY 2022 measure set for the following example. If a 
facility was ineligible to receive a score on all of the measures in 
both the Clinical Care Measure Domain and the Safety Measure Domain in 
PY 2022, the weight of the Clinical Depression and Follow-Up Measure--
the lowest weighted measure remaining in the measure set would increase 
from 2.5 percent of the TPS to 13.5 percent of the TPS under the first 
policy alternative and would increase from 2.5 percent of the TPS to 
5.6 percent of the TPS under the second policy alternative. Under the 
same scenario, the weight of the ICH CAHPS measure--the highest 
weighted remaining in the measure set would increase from 15 percent to 
26 percent under the first policy alternative and would increase from 
15 percent to 33.33 percent under the second policy alternative.
    Therefore, based on these considerations, we are proposing that in 
cases where a facility does not receive a score on one or more measures 
but receives scores on enough measures to receive a TPS, we would 
redistribute the weights of any measures for which the facility does 
not receive a score to the remaining measures proportionately based on 
their measures weight as a percent of the TPS. This redistribution 
would occur across all measures, regardless of their domain, and would 
be effective beginning PY 2021. We have concluded that this policy 
would more effectively maintain the Meaningful Measure Initiative's 
priorities in the ESRD QIP's measure weights in situations where a 
facility does not receive a score on one or more measures. We believe 
that this proportional reweighting would ensure ESRD QIP TPSs are 
calculated in a fair and equitable manner.
    We seek comment on this proposal.
4. Proposed Update to the Requirement To Begin Reporting Data for the 
ESRD QIP
    In the CY 2013 ESRD PPS final rule, we finalized our current policy 
to begin counting the number of months in which a facility is open on 
the first day of the month after the facility's CMS Certification 
Number (CCN) Open Date (77 FR 67512 through 67513). In response to 
comments suggesting that facilities be required to begin reporting on 
the first day of the third month after its CCN Open Date, we agreed 
that a facility needs time to ensure that its systems are in place to 
report the data, and we adopted policies that would allow new 
facilities to be exempted from scoring on individual measures based on 
their CCN Open Date. Despite these policies, we have continued to 
receive feedback that new facilities need additional time to deploy 
their information systems and enroll in CROWNWeb and NHSN. This 
feedback was presented both through the rulemaking process (80 FR 
69066), and during the period in which facilities preview their scores. 
In response to this continued feedback, we have taken another look at 
our eligibility policies for new facilities, keeping in mind that 
program requirements have become more complex over time, and have 
concluded that our existing policy may not provide new facilities with 
sufficient time to enroll in CROWNWeb and the NHSN, or otherwise 
prepare to report the data needed for the ESRD QIP.
    Accordingly, for PY 2021 and beyond, we are proposing to update 
this policy. The proposed policy would require facilities to collect 
data for purposes of the ESRD QIP beginning with services furnished on 
the first day of the month that is 4 months after the month in which 
the CCN becomes effective. For example, if a facility has a CCN 
effective date of January 15, 2019, that facility would be required to 
begin collecting data for purposes of the ESRD QIP beginning with 
services furnished on May 1, 2019. The proposed policy would provide 
facilities with a longer time period than they are given now to

[[Page 34343]]

become familiar with the processes for collecting and reporting ESRD 
QIP data before those data are used for purposes of scoring. We believe 
this policy appropriately balances our desire to incentivize prompt 
participation in the ESRD QIP with the practical challenges facing new 
ESRD facilities as they begin operations.
    We welcome public comments on this proposal.
5. Estimated Payment Reduction for the PY 2021 ESRD QIP
    Under our current policy, a facility will not receive a payment 
reduction in connection with its performance under the PY 2021 ESRD QIP 
if it achieves a minimum TPS that is equal to or greater than the total 
of the points it would have received if: (1) It performs at the 
performance standard for each clinical measure; and (2) it receives the 
number of points for each reporting measure that corresponds to the 
50th percentile of facility performance on each of the PY 2019 
reporting measures (82 FR 50787 through 50788).
    We were unable to calculate a minimum a TPS for PY 2021 in the CY 
2018 ESRD PPS final rule because we were not yet able to calculate the 
performance standards for each of the clinical measures. We therefore 
stated in the CY 2018 ESRD PPS final rule (82 FR 50787 through 50788) 
that we would publish the minimum TPS for the PY 2021 ESRD QIP in the 
CY 2019 ESRD PPS final rule.
    Based on the estimated performance standards proposed in section 
IV.B.2 of this proposed rule, we estimate that a facility must meet or 
exceed a minimum TPS of 57 for PY 2021. For all of the clinical 
measures, these data come from CY 2017. We are proposing that a 
facility that achieves a TPS below the minimum TPS that we set for PY 
2021 would receive payment reduction based on the estimated TPS ranges 
indicated in Table 16.

  Table 16--Estimated Payment Reduction Scale for PY 2021 Based on the
                      Most Recently Available Data
------------------------------------------------------------------------
                 Total performance score                   Reduction (%)
------------------------------------------------------------------------
100-57..................................................               0
56-47...................................................             0.5
46-37...................................................             1.0
36-27...................................................             1.5
26-0....................................................             2.0
------------------------------------------------------------------------

    We intend to finalize the minimum TPS for PY 2021, as well as the 
payment reduction ranges for that PY, in the CY 2019 ESRD PPS final 
rule.
    We see comment on these proposals.
6. Data Validation Proposals for PY 2021 and Subsequent Years
    One of the critical elements of the ESRD QIP's success is ensuring 
that the data submitted to calculate measure scores and TPSs are 
accurate. The ESRD QIP currently includes two validation studies for 
this purpose: The CROWNWeb pilot data validation study (OMB Control 
Number 0938-1289) and the NHSN dialysis event validation study (OMB 
Control Number 0938-1340).
    Since the PY 2016 ESRD QIP, we have validated data submitted to 
CROWNWeb for each payment year by sampling no more than 10 records from 
300 randomly selected facilities (78 FR 72223 through 72224). In the CY 
2018 ESRD PPS final rule, we finalized that for PY 2020, we would 
continue validating these data using the same methodology, but also 
finalized that we would deduct 10 points from a facility's TPS for PY 
2020 if the facility was selected for validation but did not submit the 
requested records within 60 calendar days of receiving a request (82 FR 
50766 through 50767).
    Since we issued the CY 2018 ESRD PPS final rule, we have considered 
whether it is appropriate to continue to refer to this validation of 
CROWNWeb data as a study. We analyzed the CROWNWeb data that we used 
for purposes of the PY 2016 validation study to determine how reliable 
the current methodology is, and our analysis showed an overall match 
rate of 92.2 percent among the facilities selected for participation. 
Additionally, based on our statistical analyses, we have concluded that 
the validation study is well-powered when we sample 10 records per 
facility from 300 facilities, meaning that a validation study 
implemented with those sampling requirements will meet our needs when 
assessing the accuracy and completeness of facilities' CROWNWeb data 
submissions.
    This analysis indicates that our validation methodology produces 
reliable results and can be used to ensure that accurate ESRD QIP data 
are reported to CROWNWeb. Therefore, we are proposing to validate the 
CROWNWeb data submitted for the ESRD QIP, beginning with CY 2019 data 
submitted for PY 2021, using the methodology we first adopted for the 
PY 2016 ESRD QIP and updated for the PY 2020 ESRD QIP. Under this 
methodology, we would sample no more than 10 records from 300 randomly 
selected facilities each year, and we would deduct 10 points from a 
facility's TPS if the facility was selected for validation but did not 
submit the requested records.
    With respect to data submitted to the NSHN, we have been developing 
and testing a protocol for validating those data on a statistically 
relevant scale. For PY 2020, our methodology for this feasibility study 
is to randomly select 35 facilities and require that each of those 
facilities submit 10 patient records covering 2 quarters of data 
reported in CY 2018. Our selection process targets facilities for NHSN 
validation by identifying which facilities that are at risk for under-
reporting. For additional information on this methodology, we refer 
readers to the CY 2018 ESRD PPS final rule (82 FR 50766 through 50767).
    We have continued to work with the Centers for Disease Control and 
Prevention (CDC) to determine the most appropriate sample size for 
achieving reliable validation results through this NSHN dialysis event 
validation study. Based on recent statistical analyses conducted by the 
CDC, we have concluded that to achieve the most reliable results for a 
payment year, we would need to review approximately 6,072 charts 
submitted by 303 facilities. This sample size would produce results 
with a 95 percent confidence level and a 1 percent margin of error. 
Based on these results and our desire to ensure that dialysis event 
data reported to the NHSN for purposes of the ESRD QIP is accurate, we 
are proposing to increase the sample sizes used for the NHSN dialysis 
event validation study, over a 2 year period, to 300 facilities and 20 
records per quarter for each of the first 2 quarters of the CY for each 
facility selected to participate in the study.
    Specifically, for PY 2021, we are proposing to increase the number 
of facilities that we would select for validation to 150, and then for 
PY 2022, to increase that number to 300. With respect to the number of 
patient records that each selected facility would be required to submit 
to avoid a 10 point deduction to its TPS for that payment year, we are 
proposing that for both PY 2021 and PY 2022, each selected facility 
must submit 20 patient records per quarter for each of the first 2 
quarters of the CY, within 60 calendar days of receiving a request. We 
are also proposing to continue targeted validation.
    We seek comments on these proposals. We also seek comments on 
potential future policy proposals that would encourage accurate, 
comprehensive reporting to the NHSN, such as introducing a penalty for 
facilities that do not meet an established reporting or data accuracy 
threshold,

[[Page 34344]]

introducing a bonus for facilities that perform above an established 
reporting or data accuracy threshold, developing targeted education on 
NHSN reporting, or requiring that a facility selected for validation 
that does not meet an established reporting or data accuracy threshold 
be selected again the next year.

C. Proposed Requirements for the PY 2022 ESRD QIP

1. Proposed Continuing and New Measures for the PY 2022 ESRD QIP
    If our proposal to remove four measures beginning with the PY 2021 
ESRD QIP is finalized, the PY 2021 ESRD QIP measure set would have 12 
measures. In the CY 2013 ESRD PPS final rule, we finalized that once a 
quality measure is selected and finalized for the ESRD QIP through 
rulemaking, the measure would continue to remain part of the Program 
for all future years, unless we remove or replace it through rulemaking 
or notification (if the measure raises potential safety concerns) (77 
FR 67475). In addition to continuing all of the measures included in 
the PY 2021 ESRD QIP, we are proposing to adopt two new measures 
beginning with the PY 2022 ESRD QIP: Percentage of Prevalent Patients 
Waitlisted clinical measure and the Medication Reconciliation for 
Patients Receiving Care at Dialysis Facilities reporting measure.
a. Proposed Percentage of Prevalent Patients Waitlisted (PPPW) Clinical 
Measure
    We are proposing to add one new transplant clinical measure to the 
ESRD QIP measure set beginning with PY 2022: (1) Percentage of 
Prevalent Patients Waitlisted (PPPW). The proposed new PPPW measure 
would align the ESRD QIP more closely with a Meaningful Measures 
Initiative priority area--increased focus on effective communication 
and coordination. The proposed measure assesses the percentage of 
patients at each dialysis facility who were on the kidney or kidney-
pancreas transplant waitlist.
Background
    The benefits of kidney transplantation over dialysis as a modality 
for renal replacement therapy for patients with ESRD are well 
established. Although no clinical trials comparing the two have ever 
been done due to ethical considerations, a large number of 
observational studies have been conducted demonstrating improved 
survival and quality of life with kidney transplantation.\11\ Despite 
the benefits of kidney transplantation, the total number of transplants 
performed in the U.S. has stagnated since 2006.\12\ There is also wide 
variability in transplant rates across ESRD networks.\13\ Given the 
importance of kidney transplantation to patient survival and quality of 
life, as well as the variability in waitlist rates among facilities, a 
measure to encourage facilities to coordinate care with transplant 
centers to waitlist patients is warranted.
---------------------------------------------------------------------------

    \11\ Tonelli M, Wiebe N, Knoll G, et al. Systematic review: 
Kidney transplantation compared with dialysis in clinically relevant 
outcomes. American Journal of Transplantation 2011 Oct; 11(10): 
2093-2109.
    \12\ Schold JD, Buccini LD, Goldfarb DA, et al. Association 
between kidney transplant center performance and the survival 
benefit of transplantation versus dialysis. Clin J Am Soc Nephrol. 
2014 Oct 7; 9(10):1773-80.
    \13\ Patzer RE, Plantinga L, Krisher J, Pastan SO. Dialysis 
facility and network factors associated with low kidney 
transplantation rates among United States dialysis facilities. Am J 
Transplant. 2014 Jul; 14(7):1562-72.
---------------------------------------------------------------------------

    This measure emphasizes shared accountability between dialysis 
facilities and transplant centers.
Data Sources
    The proposed PPPW measure uses CROWNWeb data to calculate the 
denominator, including the risk adjustment and exclusions. The Organ 
Procurement and Transplant Network (OPTN) is the data source for the 
numerator (patients who are waitlisted.) The OPTN is a public-private 
partnership established by the National Organ Transplant Act in 1984. 
The private nonprofit organization, United Network for Organ Sharing 
(UNOS) handles administration of the waitlist under a contract with the 
federal government. The Nursing Home Minimum Dataset and Questions 17u 
and 22 on the Medical Evidence Form CMS-2728 are used to identify ESRD 
patients who were admitted to a skilled nursing facility (SNF) because 
those patients are excluded from the measure. A separate CMS file that 
contains final action claims submitted by hospice providers is used to 
identify ESRD patients who have been admitted to hospice because those 
patients are also excluded from the measure.
Outcome
    The PPPW measure tracks the percentage of patients attributed to 
each dialysis facility during a 12-month period who were on the kidney 
or kidney-pancreas transplant waitlist. The measure is a directly 
standardized percentage, in that each facility's percentage of kidney 
transplant patients on the kidney transplant waitlist is based on the 
number of patients one would expect to be waitlisted for a facility 
with patients of similar age and co-morbidities.
Cohort
    The PPPW measure includes ESRD patients who are under the age of 75 
on the last day of each month and who are attributed to the dialysis 
facility. We create a treatment history file using a combination of 
Medicare dialysis claims, the Medical Evidence Form CMS-2728, and data 
from CROWNWeb as the data source for the facility attribution. This 
file provides a complete history of the status, location, and dialysis 
treatment modality of an ESRD patient from the date of the first ESRD 
service until the patient dies or until the measurement period ends. 
For each patient, a new record is created each time he or she changes 
facility or treatment modality. Each record represents a time period 
associated with a specific modality and dialysis facility. Each 
patient-month is assigned to only one facility. A patient could be 
counted up to 12 times in a 12-month reporting period, and home 
dialysis is included.
Inclusion and Exclusion Criteria
    The PPPW measure excludes patients 75 years of age or older on the 
last day of each month. Additionally, patients who are admitted to a 
SNF or hospice during on the date that the monthly count takes place 
are excluded from the denominator for that month. An eligible monthly 
patient count takes place on the last day of each month during the 
performance period.
Risk Adjustment
    The PPPW measure is adjusted for patient age. The measure is a 
directly standardized percentage, in the sense that each facility's 
percentage of patients on the waitlist is adjusted to the national age 
distribution. Further information on the risk adjustment model can be 
found in the PPPW Methodology Report (https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/ESRDQIP/061_TechnicalSpecifications.html). We assume a logistic regression 
model for the probability that a prevalent patient is waitlisted.
2017 Measures Application Partnership Review
    We submitted the PPPW measure to the Measures Application 
Partnership in 2017 for consideration as part of the pre-rulemaking 
process, and Measures Application Partnership's final

[[Page 34345]]

recommendations may be found at http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=86972.
    The Measures Application Partnership expressed conditional support 
for the PPPW measure for inclusion in the ESRD QIP. The Measures 
Application Partnership acknowledged that the measure addresses an 
important quality gap in dialysis facilities, but discussed a number of 
factors that it believed should be balanced when implementing the 
measure. The Measures Application Partnership reiterated the critical 
need to help patients receive kidney transplants to improve their 
quality of life and reduce their risk of mortality. The Measures 
Application Partnership also noted that there are disparities in the 
receipt of kidney transplants and there is a need to incentivize 
dialysis facilities to educate patients about waitlisting processes and 
requirements. The Measures Application Partnership also acknowledged 
that a patient's suitability to be waitlisted may not be within the 
control of a dialysis facility or transplant centers. The Measures 
Application Partnership also noted the need to ensure that the measure 
is appropriately risk-adjusted and recommended that CMS explore whether 
it would be appropriate to adjustment the measure for social risk 
factors and proper risk model performance. The Measures Application 
Partnership conditionally supported the measure with the condition that 
CMS submit it to the NQF for consideration of endorsement. 
Specifically, the Measures Application Partnership recommended that 
this measure be reviewed by NQF's Scientific Methods Panel as well the 
Renal Standing Committee. The Measures Application Partnership 
recommended that as part of the endorsement process, the NQF examine 
the validity of the measure, particularly the risk adjustment model and 
if it appropriately accounts for social risk. Finally, the Measures 
Application Partnership noted the need for the Disparities Standing 
Committee to provide guidance on potential health equity concerns.
    In response to these recommendations, we have submitted the measure 
to the NQF for consideration of endorsement, and our understanding is 
that it will be evaluated by all of the committees that the Measures 
Application Partnership suggested. We note further that access to 
transplantation is a known area of disparity and has a known 
performance gap, and the Measures Application Partnership coordinating 
committee expressed strong support for the measure.
    For additional information on the Measures Application 
Partnership's evaluation of measures for the ESRD QIP, we refer readers 
to Measures Application Partnership's website at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=86972.
    Based on the benefits of kidney transplantation over dialysis as a 
modality for renal replacement therapy for patients with ESRD, and 
taking into account the Measures Application Partnership's conditional 
endorsement and our submission of the measure to the NQF for 
consideration of endorsement, we propose to adopt the PPPW measure 
beginning with the PY 2022 ESRD QIP. We note also that there are 
currently no NQF-endorsed transplant measures that we could have 
considered, and that we believe we should adopt this measure under 
section 1881(h)(2)(B)(ii) of the Act due to its clinical significance 
for the ESRD patient population.
    We welcome comments on this proposal.
b. Proposed New Medication Reconciliation for Patients Receiving Care 
at Dialysis Facilities (MedRec) Reporting Measure
    We are proposing to adopt the New Medication Reconciliation for 
Patients Receiving Care at Dialysis Facilities (MedRec) reporting 
measure for the ESRD QIP measure set, beginning with PY 2022. The 
MedRec measure assesses whether a facility has appropriately evaluated 
a patient's medications, an important safety concern for the ESRD 
patient population because those patients typically take a large number 
of medications. Inclusion of the MedRec measure in the ESRD QIP measure 
set would align with the Meaningful Measure Initiative priority area of 
making care safer by reducing harm caused by care delivery.
    Medication management is a critical safety issue for all patients, 
but especially for patients with ESRD, who are often prescribed 10 or 
more medications simultaneously, take an average of 17 to 25 doses per 
day, have numerous comorbid conditions, have multiple healthcare 
providers and prescribers, and undergo frequent medication regimen 
changes.\14\ Medication-related problems contribute significantly to 
the approximately $40 billion in public and private funds spent 
annually on ESRD care in the U.S.; for patients with chronic kidney 
disease alone, this figure is $10 billion.\15\ We believe that 
medication management practices focusing on medication documentation, 
review, and reconciliation could systematically identify and resolve 
medication-related problems, improve ESRD patient outcomes, and reduce 
total costs of care.
---------------------------------------------------------------------------

    \14\ Cardone KE, Bacchus S, Assimon MM, Pai AB, Manley HJ. 
Medication-related problems in CKD. Adv Chronic Kidney Dis. 
2010;17(5):404-412.
    \15\ Parker WM and Cardone KE. Medication Management Services in 
a Dialysis Center: Patient and Dialysis Staff Perspectives. Albany 
College of Pharmacy and Health Services. January 2015. Available at: 
http://www.acphs.edu. Accessed March 22, 2016.
---------------------------------------------------------------------------

Data Sources
    The proposed MedRec measure is calculated using administrative 
claims and electronic clinical data from CROWNWeb, and facility medical 
records. For additional information on the measure, we refer readers to 
the measure steward's website; the Kidney Care Quality Alliance (KCQA): 
http://kidneycarepartners.com/wp-content/uploads/2014/11/tbKCQA_NQFendorsedSpecs10-26-17.pdf. The KCQA is funded by Kidney Care 
Partners (KCP), a coalition of patient advocates, dialysis 
professionals, care providers, and manufacturers, and was established 
in 2005 as an independent organization for the purpose of developing 
quality measures for use in the dialysis setting of care.
Outcome
    The outcome of the MedRec measure is the provision of medication 
reconciliation services and their documentation by an eligible 
professional for patients attributed to dialysis facilities each month.
Cohort
    The MedRec measure includes all patients attributed to a dialysis 
facility during each month of the performance period. The numerator is 
the number of patient-months for which medication reconciliation was 
performed and documented by an eligible professional during the 
reporting period. The denominator statement is the total number of 
eligible patient-months for all patients attributed to a dialysis 
facility during the reporting period.
Inclusion and Exclusion Criteria
    The MedRec measure excludes in-center patients who receive less 
than 7 hemodialysis treatments in the facility during the reporting 
month.
Risk Adjustment
    The MedRec measure is not risk-adjusted because it is process 
measure.

[[Page 34346]]

2017 Measures Application Partnership Review
    We submitted the MedRec measure to the Measures Application 
Partnership in 2017 for consideration as part of the pre-rulemaking 
process, and the Measures Application Partnership addressed the measure 
in its February 2018 Hospital Workgroup report.\16\ The Measures 
Application Partnership supported the measure for the ESRD QIP, noting 
that the measure is NQF-endorsed and addresses both patient safety and 
care coordination. The Measures Application Partnership also noted that 
the topic of medication reconciliation is currently a gap area in the 
ESRD QIP's measure set and that the measure has broad support across 
stakeholders. The Measures Application Partnership emphasized that 
medication reconciliation is an important issue for ESRD patients who 
see multiple clinicians and may require numerous medications. The 
Measures Application Partnership noted that administration of the wrong 
medication can have grave consequences for an ESRD patient.
---------------------------------------------------------------------------

    \16\ Available at: https://www.qualityforum.org/Publications/2018/02/2018_Considerations_for_Implementing_Measures_Final_Report_-_Hospitals.aspx.
---------------------------------------------------------------------------

    For additional information on the Measures Application 
Partnership's evaluation of measures for the ESRD QIP, we refer readers 
to the Measures Application Partnership's website at: https://www.qualityforum.org/Setting_Priorities/Partnership/Measure_Applications_Partnership.aspx.
    We agree with the Measures Application Partnership's assessment 
that the MedRec measure is appropriate for the ESRD QIP because 
medication reconciliation is currently a gap area in the Program's 
measure set and is an important issue for ESRD patients who receive 
care from multiple clinicians and providers and may require numerous 
medications. ESRD patients can be significantly harmed by medication 
administration errors. We continue to believe that care coordination is 
a critical quality improvement topic. We therefore, propose to adopt 
the MedRec measure beginning with the PY 2022 ESRD QIP and to place the 
measure into the Patient Safety Domain. We note further that, as 
required by section 1881(h)(2)(B)(i) of the Act, CMS is required to use 
endorsed measures in the ESRD QIP unless the exception at section 
1881(h)(2)(B)(ii) of the Act applies. The MedRec measure is endorsed by 
NQF as #2988.
2. Proposed Performance Period for the PY 2022 ESRD QIP
    We propose to establish CY 2020 as the performance period for the 
PY 2022 ESRD QIP for all measures. We continue to believe that a 12-
month performance period provides us sufficiently reliable quality 
measure data for the ESRD QIP.
    We welcome comment on this proposal.
3. Proposed Performance Standards, Achievement Thresholds, and 
Benchmarks for the PY 2022 ESRD QIP and Subsequent Years
    Section 1881(h)(4)(A) of the Act provides that ``the Secretary 
shall establish performance standards with respect to measures elected 
. . . for a performance period with respect to a year.'' Section 
1881(h)(4)(B) of the Social Security Act (the Act) further provides 
that the ``performance standards . . . shall include levels of 
achievement and improvement, as determined appropriate by the 
Secretary.'' We use the performance standards to establish the minimum 
score a facility must achieve to avoid a Medicare payment reduction.
a. Proposed Performance Standards, Achievement Thresholds, and 
Benchmarks for Clinical Measures in the PY 2022 ESRD QIP
    For the same reasons stated in the CY 2013 ESRD PPS final rule (77 
FR 67500 through 76502), we are proposing for PY 2022 to set the 
performance standards, achievement thresholds, and benchmarks for the 
clinical measures (including the proposed PPPW measure) at the 50th, 
15th, and 90th percentile, respectively, of the national performance in 
CY 2018. We are also proposing to apply these performance standards to 
all clinical measures we use for the ESRD QIP in future payment years. 
We welcome comment on these proposals.
    At this time, we do not have the necessary data to assign numerical 
values to the proposed performance standards for the clinical measures 
because we do not yet have data from CY 2018 or the first period of CY 
2019. We intend to publish these numerical values, using data from CY 
2018 and the first portion of CY 2019, in the CY 2019 ESRD PPS final 
rule.
b. Proposed Performance Standards for the PY 2022 Reporting Measures
    In the CY 2016 ESRD PPS final rule, we finalized performance 
standards for the Screening for Clinical Depression and Follow-Up 
reporting measure (79 FR 66209). In the CY 2017 ESRD PPS final rule, we 
finalized performance standards for the Ultrafiltration Rate reporting 
measure (81 FR 77916) and the NHSN Dialysis Event reporting measure (81 
FR 77916). We propose to continue use of these performance standards 
for these reporting measures for the PY 2022 and future payment years.
    For the proposed MedRec reporting measure, we propose to set the 
performance standard for PY 2022 and future payment years as 
successfully reporting the following data elements for the measure to 
CROWNWeb, for each qualifying patient, on a monthly basis, during the 
performance period: (1) The date that the facility completed the 
medication reconciliation, (2) the type of clinician who completed the 
medication reconciliation, and (3) the name of the clinician.
    We welcome comments on these proposals.
4. Proposals for Scoring the PY 2022 ESRD QIP and Subsequent Years
a. Proposal To Score Facility Performance on Clinical Measures Based on 
Achievement
    In the CY 2014 ESRD PPS final rule, we finalized a policy for 
scoring performance on clinical measures based on achievement (78 FR 
72215). We propose to use this methodology for scoring achievement for 
each clinical measure, including the proposed PPPW measure, for the PY 
2022 ESRD QIP and for future program years.
b. Proposal To Score Facility Performance on Clinical Measures Based on 
Improvement
    In the CY 2014 ESRD PPS final rule, we finalized a policy for 
scoring performance on clinical measures based on improvement (78 FR 
72215 through 72216). For the PY 2022 ESRD QIP, we propose to continue 
that policy, defining the improvement threshold as the facility's 
performance on the measure during the baseline period (which for PY 
2022, would be CY 2019). The facility's improvement score would be 
calculated by comparing its performance on the measure during CY 2020 
(the proposed performance period) to the improvement threshold and 
benchmark. We also propose to use this same methodology for scoring the 
PPPW measure proposed in section IV.C.1.a of this proposed rule. 
Finally, we propose to continue this policy for subsequent years of the 
ESRD QIP.
c. Scoring Facility Performance on Reporting Measures
    In the CY 2015 ESRD PPS final rule, we finalized policies for 
scoring performance on the Clinical Depression

[[Page 34347]]

Screening and Follow-Up reporting measures in the ESRD QIP (79 FR 66210 
through 66211). In the CY 2017 ESRD PPS final rule, we finalized 
policies for scoring performance on the Ultrafiltration Rate reporting 
measure (81 FR 77917). We propose to continue use of these policies for 
the two continuing reporting measures for the PY 2022 ESRD QIP and 
subsequent years.
    For the PY 2022 ESRD QIP, we propose to score facilities with a CCN 
Open Date before January 1st of the performance period year (which, for 
the PY 2022 ESRD QIP, would be 2020) on the proposed MedRec measure 
using a formula similar to the one previously finalized for the 
Ultrafiltration Rate reporting measure (81 FR 77917):

((# patient-months successfully reporting data)/(# eligible patient-
months)*12)-2)

    As with the Ultrafiltration Rate reporting measure, we would round 
the result of this formula (with half rounded up) to generate a measure 
score from 0-10. We also propose to score facilities using this 
methodology for subsequent years of the ESRD QIP.
    We welcome public comment on all of these scoring proposals.
d. Scoring the ICH CAHPS Clinical Measure
    In the CY 2015 ESRD PPS final rule, we finalized a policy for 
scoring performance on the ICH CAHPS clinical measure based on both 
achievement and improvement (79 FR 66209 through 66210). We are 
proposing to use this scoring methodology for the PY 2022 ESRD QIP and 
subsequent years.
    We welcome comments on this scoring proposal.
5. Proposals for Weighting the Measure Domains, and for Weighting the 
TPS for PY 2022
    For PY 2022, we are proposing to continue use of the domain weights 
proposed for PY 2021 in section IV.B.3 of this proposed rule, and to 
update the individual measure weights in the Care Coordination Domain 
and Safety Domain to reflect the introduction of one new proposed 
measure in each of those domains. We are proposing to assign the 
proposed PPPW measure to the Care Coordination Domain, with a weight of 
4 percent of the TPS. To accommodate the addition of the PPPW measure 
to the Care Coordination Domain without having to adjust the domain's 
overall weight, we are proposing to reduce the weight of two continuing 
measures in the Care Coordination Domain as follows: The SRR measure 
from 14 to 12 percent and the SHR measure from 14 to 12 percent. We are 
proposing to assign the proposed MedRec measure to the Safety Domain, 
with a weight of 4 percent of the TPS (see Table 17). To accommodate 
the addition of the new MedRec measure to the Safety Domain without 
having to adjust the domain's overall weight, we are proposing to 
reduce the weight of two continuing measures in the Safety Domain as 
follows: The NHSN BSI clinical measure from 9 to 8 percent and the NHSN 
Dialysis Event measure from 6 to 3 percent. To assign these proposed 
measure weights, we used the same rationale as proposed for PY 2021.

Table 17--Proposed Revisions to Measure Weights for the PY 2022 ESRD QIP
------------------------------------------------------------------------
                                    Measure weight     Measure weight as
   Measures/measure topics by      within the domain    percent of TPS
            subdomain              (proposed for PY    (proposed for PY
                                         2022)               2022)
------------------------------------------------------------------------
                    CARE COORDINATION MEASURE DOMAIN
------------------------------------------------------------------------
SRR measure.....................  40.00%............  12.00%.
SHR measure.....................  40.00.............  12.00.
PPPW measure....................  13.33.............  4.00.
Clinical Depression and Follow-   6.67..............  2.00.
 Up reporting measure.
                                 ---------------------------------------
    TOTAL: CARE COORDINATION      100% of Care        30% of TPS.
     MEASURE DOMAIN.               Coordination
                                   Measure Domain.
------------------------------------------------------------------------
                          SAFETY MEASURE DOMAIN
------------------------------------------------------------------------
MedRec measure..................  26.67.............  4.00.
NHSN BSI clinical measure.......  53.33.............  8.00.
NHSN Dialysis Event reporting     20.00.............  3.00.
 measure.
                                 ---------------------------------------
    TOTAL: SAFETY MEASURE DOMAIN  100% of Safety      15% of TPS.
                                   Measure Domain.
------------------------------------------------------------------------

    In section IV.B.3.b of this proposed rule, we propose that to be 
eligible to receive a TPS, a facility must be eligible to be scored on 
at least one measure in two of the four measure domains. If that 
proposal is finalized, we would apply it to PY 2022 and subsequent 
payment years.
    We seek comments on these proposals.
6. Eligibility Proposals for the PY 2022 ESRD QIP and Subsequent 
Payment Years
    Our policy is to score facilities on clinical and reporting 
measures for which they have a minimum number of qualifying patients 
during the performance period (77 FR 67510 through 67512). We propose 
to continue use of these minimum data policies for the PY 2022 ESRD QIP 
measure set and in subsequent years. We are also proposing to use these 
same minimum data policies for the proposed PPPW measure and proposed 
MedRec measure for the PY 2022 ESRD QIP and subsequent years.
    We seek comment on these proposals.
7. Payment Reductions for the PY 2022 ESRD QIP
    Section 1881(h)(3)(A)(ii) of the Act requires the Secretary to 
ensure that the application of the scoring methodology results in an 
appropriate distribution across facilities, such that facilities 
achieving the lowest TPSs receive the largest payment reductions. For 
additional information on payment reduction policies, we refer readers 
to the CY 2018 ESRD PPS final rule (82 FR 50787 through 50788).
    Because we are not yet able to calculate the performance standards 
for each of the clinical measures, we are also not able to calculate a 
proposed minimum TPS at this time. In the CY 2020 ESRD PPS proposed 
rule, we will propose the minimum TPS, based on CY 2018 data.

[[Page 34348]]

D. Proposed Requirements Beginning With the PY 2024 ESRD QIP

1. Proposed New Standardized First Kidney Transplant Waitlist Ratio for 
Incident Dialysis Patients Clinical Measure
    We are proposing to add one new transplant measure to the ESRD QIP 
measure set beginning with PY 2024: Standardized First Kidney 
Transplant Waitlist Ratio for Incident Dialysis Patients (SWR). The 
proposed new SWR measure would align the ESRD QIP more closely with the 
Meaningful Measures Initiative priority area of increased focus on 
effective communication and coordination. The SWR Measure assesses the 
number of patients who are placed on the transplant waitlist or receive 
a living donor kidney within one year of the date when dialysis is 
initiated. We believe this measure would encourage facilities to more 
rapidly evaluate patients for transplant and coordinate the waitlisting 
of those patients.\17\ Because the proposed SWR measure is limited to 
patients in their first year of dialysis, it is more limited in scope 
than the proposed PPPW measure, which includes patients who have been 
on dialysis for longer than 1 year. We are proposing to introduce the 
SWR measure for PY 2024 rather than PY 2022 because the proposed SWR 
measure is calculated using 3 years of data.
---------------------------------------------------------------------------

    \17\ Meier-Kriesche, Herwig-Ulf, and Bruce Kaplan. ``Waiting 
time on dialysis as the strongest modifiable risk factor for renal 
transplant outcomes: A Paired Donor Kidney Analysis1.'' 
Transplantation 74.10 (2002): 1377-1381; Meier-Kriesche, H. U., 
Port, F. K., Ojo, A. O., Rudich, S. M., Hanson, J. A., Cibrik, D. 
M., Leichtman, A. B & Kaplan, B. (2000). Effect of waiting time on 
renal transplant outcome. Kidney international, 58(3), 1311-1317.
---------------------------------------------------------------------------

Data Sources
    The SWR Measure is calculated using administrative claims and 
electronic clinical data. CROWNWeb is the primary source used to 
attribute patients to dialysis facilities and dialysis claims are used 
as an additional source. Information regarding onset of ESRD, the first 
ESRD treatment date, death, and transplant is obtained from CROWNWeb 
(including the Medical Evidence Form CMS-2728 and the Death 
Notification Form CMS-2746) and Medicare claims, as well as the Organ 
Procurement and Transplant Network.
Outcome
    The SWR Measure tracks the number of incident patients attributed 
to the dialysis facility under the age of 75 listed on the kidney or 
kidney-pancreas transplant waitlist or who received living donor 
transplants within the first year of initiating dialysis. Similar to 
the PPPW measure, the SWR measure emphasizes shared accountability 
between dialysis facilities and transplant centers.
Cohort
    The SWR measure includes patients under the age of 75 and 
attributed to the dialysis facility using CROWNWeb data and Medicare 
claims who are listed on the kidney or kidney-pancreas transplant 
waitlist or who received living donor transplants within the first year 
of initiating dialysis. Patients are attributed to the dialysis 
facility listed on the Medical Evidence Form CMS-2728.
Inclusion and Exclusion Criteria
    The SWR measure excludes patients at the facility who were 75 years 
of age or older at initiation of dialysis and patients at the facility 
who were listed on the kidney or kidney-pancreas transplant waitlist 
prior to the start of dialysis. Additionally, patients who are admitted 
to a SNF or hospice at the time of initiation of dialysis are excluded.
Risk Adjustment
    The SWR measure is adjusted for incident comorbidities and age. 
Incident comorbidities were selected for adjustment into the SWR model 
based on demonstration of a higher associated mortality (hazard ratio 
above 1.0) and statistical significance (p-value in first year 
mortality model). More details about the risk adjustment model can be 
found in the SWR Methodology Report (https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/ESRDQIP/061_TechnicalSpecifications.html).
2017 Measures Application Partnership Review
    We submitted the SWR measure to the Measures Application 
Partnership in 2017 for consideration as part of the pre-rulemaking 
process.
    In its report (available on its website at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=86972), the Measures Application 
Partnership acknowledged that the SWR measure addresses an important 
quality gap for dialysis facilities and discussed a number of factors 
that it believed should be balanced when implementing the measure. The 
Measures Application Partnership reiterated the critical need to help 
patients receive kidney transplants to improve their quality of life 
and reduce their risk of mortality. The Measures Application 
Partnership also noted there are disparities in the receipt of kidney 
transplants and there is a need to incentivize dialysis facilities to 
educate patients about waitlist processes and requirements. The 
Measures Application Partnership also acknowledged concerns and public 
comment about the locus of control of the measure, where dialysis 
facilities may not be able to as adequately influence a patient's 
suitability to be waitlisted as well as the transplant center. The 
Measures Application Partnership also noted the need to ensure the 
measure is appropriately risk-adjusted and recommended the exploration 
of adjustment for social risk factors and proper risk model 
performance. The Measures Application Partnership ultimately 
conditionally supported the measure with the condition that it is 
submitted for NQF review and endorsement. Specifically, the Measures 
Application Partnership recommended that this measure be reviewed by 
the NQF Scientific Methods Panel as well the Renal Standing Committee. 
The Measures Application Partnership recommended the endorsement 
process examine the validity of the measure, particularly the risk 
adjustment model and if it appropriately accounts for social risk. 
Finally, the Measures Application Partnership noted the need for the 
Disparities Standing Committee to provide guidance on potential health 
equity concerns. Our understanding is that the NQF endorsement process 
covers all of the Measure Application Partnership's conditions, and we 
have submitted the measure for endorsement.
    For additional information on the Measures Application 
Partnership's evaluation of measures for the ESRD QIP, we refer readers 
to Measures Application Partnership's website at: http://www.qualityforum.org/WorkArea/linkit.aspx?LinkIdentifier=id&ItemID=86972.
    Based on the benefits of kidney transplantation over dialysis as a 
modality for renal replacement therapy for patients with ESRD, and 
taking into account the Measures Application Partnership's conditional 
endorsement and our submission of the measure for NQF endorsement, we 
propose to adopt the SWR measure beginning with the PY 2024 ESRD QIP. 
We also propose to place this measure in the Transplant Waitlist 
measure topic in the Care Coordination Domain, along with the PPPW 
measure proposed in section IV.C.1.a of this proposed rule, and to 
score the two measures accordingly as a measure topic. We note also 
that there are currently no NQF-endorsed

[[Page 34349]]

transplant measures that we could have considered, and we believe that 
we should adopt this measure under section 1881(h)(2)(B)(ii) of the Act 
due to its clinical significance for the ESRD patient population.
    We welcome comments on these proposals.
2. Proposed Performance Period for the SWR Measure
    Because the SWR measure is calculated using 36 months of data, we 
propose to establish a 36-month performance period for the proposed SWR 
measure. With respect to PY 2024 ESRD QIP, this period would be CY 2019 
through 2021. We believe that a 36-month performance period for the SWR 
measure would enable us to calculate sufficiently reliable measure data 
for the ESRD QIP.
a. Proposed Performance Standards, Achievement Thresholds, and 
Benchmarks for the SWR Measure in the PY 2024 ESRD QIP
    If our proposal in section IV.D.1 of this proposed rule is 
finalized, then we would score the proposed SWR measure using a 36-
month performance period for purposes of achievement and a 
corresponding 36-month baseline period for purposes of improvement. For 
the PY 2024 ESRD QIP, these periods would be CY 2017 through 2019 for 
achievement and CY 2018 through 2020 for improvement.
    At this time, we do not have the necessary data to assign numerical 
values to the performance standards for the SWR measure, because we do 
not yet have data from CY 2017 through CY 2020.

V. Changes to the Durable Medical Equipment, Prosthetics, Orthotics, 
and Supplies (DMEPOS) Competitive Bidding Program (CBP)

A. Background

    Section 1847(a) of the Social Security Act (the Act), as amended by 
section 302(b)(1) of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) (Pub. L. 108-173), requires the 
Secretary of the Department of Health and Human Services (the 
Secretary) to establish and implement competitive bidding programs in 
competitive bidding areas (CBAs) throughout the United States (U.S.) 
for contract award purposes for the furnishing of certain competitively 
priced DMEPOS items and services. The competitive bidding programs of 
the Medicare Durable Medical Equipment Prosthetics Orthotics and 
Supplies (DMEPOS) Competitive Bidding Program (CBP), mandated by 
section 1847(a) of the Act, are collectively referred to as ``DMEPOS 
CBP''. A final rule published on April 10, 2007 in the Federal 
Register, titled ``Competitive Acquisition for Certain DMEPOS and Other 
Issues'', (72 FR 17992), referred to as ``2007 DMEPOS final rule'', 
established competitive bidding programs for certain Medicare Part B 
covered items of DMEPOS throughout the U.S. The competitive bidding 
programs, which were phased in over several years, utilize bids 
submitted by DMEPOS suppliers to establish applicable payment amounts 
under Medicare Part B for certain DMEPOS items and services. Section 
1847(a)(2) of the Act describes the items and services subject to the 
DMEPOS CBP:
     Off-the-shelf (OTS) orthotics for which payment would 
otherwise be made under section 1834(h) of the Act.
     Enteral nutrients, equipment and supplies described in 
section 1842(s)(2)(D) of the Act.
     Certain DME and medical supplies, which are covered items 
(as defined in section 1834(a)(13) of the Act) for which payment would 
otherwise be made under section 1834(a) of the Act.
    The DMEPOS CBP was modeled after successful demonstration programs 
from the late 1990s and early 2000s, discussed in the proposed rule 
published on May 1, 2006 in the Federal Register, titled ``Competitive 
Acquisition for Certain Durable Medical Equipment, Prosthetics, 
Orthotics, and Supplies (DMEPOS) and Other Issues'' (71 FR 25654) 
referred to as ``2006 DMEPOS proposed rule''. We received substantial 
advice in the development of the DMEPOS CBP from the Program Advisory 
and Oversight Committee (PAOC), which was mandated through section 
1847(c) of the Act, as amended by section 302(b)(1) of the MMA, to 
establish a committee to provide advice to the Secretary with respect 
to the following functions:
     The implementation of the Medicare DMEPOS CBP.
     The establishment of financial standards for entities 
seeking contracts under the Medicare DMEPOS CBP, taking into account 
the needs of small providers.
     The establishment of requirements for collection of data 
for the efficient management of the Medicare DMEPOS CBP.
     The development of proposals for efficient interaction 
among manufacturers, providers of services, suppliers (as defined in 
section 1861(d) of the Act), and individuals.
     The establishment of quality standards for DMEPOS 
suppliers under section 1834(a)(20) of the Act.
    As authorized under section 1847(c)(2) of the Act, the PAOC members 
were appointed by the Secretary of the Department of Health and Human 
Services (the Secretary) and represented a broad mix of relevant 
industry, consumer, and government parties. The representatives had 
expertise in a variety of subject matter areas, including DMEPOS, 
competitive bidding methodologies and processes, and rural and urban 
marketplace dynamics.
    In the DMEPOS CBP, suppliers bid for contracts for furnishing 
multiple items and services, identified by Healthcare Common Procedure 
Coding System (HCPCS) codes, under several different product 
categories. Section 1847(a)(1)(B) and (D) of the Act mandated the phase 
in of the DMEPOS CBP in nine of the largest MSAs (Round 1), followed by 
91 additional large MSAs (Round 2), and finally in additional areas, 
which do not necessarily need to be tied to MSAs. Round 1 and Round 2 
CBAs that included more than one state have been subdivided into state-
specific CBAs. The CBP is currently operating in 130 CBAs throughout 
the nation, and those CBAs contain approximately half of the enrolled 
Medicare Part B population. The other half of the Medicare Part B 
population resides in areas where the CBP has not yet been phased in, 
including approximately 275 MSAs. In addition, CMS phased in a national 
mail order program for diabetic testing supplies in 2013. In the Round 
1 2017 and Round 2 Recompete competitions, the product categories 
currently include: Enteral Nutrients, Equipment and Supplies; General 
Home Equipment and Related Supplies and Accessories (including hospital 
beds, pressure reducing support surfaces, commode chairs, patient 
lifts, and seat lifts); Nebulizers and Related Supplies; Negative 
Pressure Wound Therapy (NPWT) Pumps and Related Supplies and 
Accessories; Respiratory Equipment and Related Supplies and Accessories 
(including oxygen and oxygen equipment, continuous positive pressure 
airway devices, and respiratory assist devices); Standard Mobility 
Equipment and Related Accessories (including walkers, standard manual 
wheelchairs, and standard power wheelchairs); and Transcutaneous 
Electrical Nerve Stimulation (TENS) Devices and Supplies. Since there 
are multiple items in each product category, a ``composite'' bid is 
calculated for each supplier to determine which supplier's bids would 
result in the greatest savings

[[Page 34350]]

to Medicare for the product category. A supplier's composite bid for a 
product category is calculated by multiplying a supplier's bid for each 
item in a product category by the item's weight and taking the sum of 
these numbers across items. The weight of an item is based on the 
annual utilization of the individual item compared to other items 
within that product category based on recent Medicare national claims 
data. Item weights are used to reflect the relative market importance 
of each item in the product category. Item weights ensure that the 
composite bid is directly comparable to the costs that Medicare would 
pay if it bought the expected bundle of items in the product category 
from the supplier. The sum of each supplier's weighted bids for every 
item in a product category is the supplier's composite bid for that 
product category.
    Each supplier submits a bid amount for each item in the product 
category, and multiple contracts must be awarded for each product 
category in each CBA. Section 1847(b)(5) of the Act mandates a single 
payment amount (SPA) for each item based on winning bids from multiple 
suppliers, so various options for calculating the SPA were addressed in 
the 2006 DMEPOS proposed rule (71 FR 25679). The methods of using the 
minimum winning bid amount for each item, the maximum winning bid 
amount for each item, the median of the winning bid amounts for each 
item, and an average adjusted price based on the method used during the 
demonstrations were considered during this rulemaking. The SPA 
calculation method using the median of the winning bids was finalized 
in the 2007 DMEPOS final rule (72 FR 18044) based on the rationale that 
the median of winning bids represents the bid amounts of the winning 
suppliers as a whole, whereas the minimum and maximum bids did not; it 
is a simpler method than the average adjusted price method; and it is 
consistent with the longstanding Medicare payment rules for DMEPOS that 
established allowed payment amounts based on average reasonable charges 
rather than minimum or maximum charges.
    To implement section 522(a) of the Medicare Access and Children's 
Health Insurance Program Reauthorization Act of 2015 (Pub. L. 114-10) 
(MACRA), we published a final rule on November 4, 2016 in the Federal 
Register, titled ``End-Stage Renal Disease Prospective Payment System, 
Coverage and Payment for Renal Dialysis Services Furnished to 
Individuals With Acute Kidney Injury, End-Stage Renal Disease Quality 
Incentive Program, Durable Medical Equipment, Prosthetics, Orthotics 
and Supplies Competitive Bidding Program Bid Surety Bonds, State 
Licensure and Appeals Process for Breach of Contract Actions, Durable 
Medical Equipment, Prosthetics, Orthotics and Supplies Competitive 
Bidding Program and Fee Schedule Adjustments, Access to Care Issues for 
Durable Medical Equipment; and the Comprehensive End-Stage Renal 
Disease Care Model'' (81 FR 77834), referred to as ``2016 ESRD PPS 
final rule''.
    Section 1847(a)(1)(G) of the Act, as added by section 522(a) of 
MACRA, requires bidding entities to secure a bid surety bond by the 
deadline for bid submission. Section 1847(a)(1)(G) of the Act provides 
that, with respect to rounds of competitions under section 1847 of the 
Act beginning not earlier than January 1, 2017 and not later than 
January 1, 2019, a bidding entity may not submit a bid for a CBA 
unless, as of the deadline for bid submission, the entity has (1) 
obtained a bid surety bond, in the range of $50,000 to $100,000, in a 
form specified by the Secretary consistent with paragraph (H) of 
section 1847(a)(1) of the Act, and (2) provided the Secretary with 
proof of having obtained the bid surety bond for each CBA in which the 
entity submits its bid(s). We believe that section 522(a) of MACRA was 
drafted under the assumption that the next round of competitive bidding 
would have been implemented at some point between January 1, 2017 and 
January 1, 2019. We have interpreted section 522(a) of MACRA as 
applying to the next round of competitive bidding even though the next 
round of competition will begin after the time period specified in the 
statute. Section 1847(a)(1)(H)(i) of the Act provides that in the event 
that a bidding entity is offered a contract for any product category 
for a CBA, and its composite bid for such product category and area was 
at or below the median composite bid rate for all bidding entities 
included in the calculation of the single payment amount(s) for the 
product category and CBA, and the entity does not accept the contract 
offered, the bid surety bond(s) for the applicable CBAs will be 
forfeited and the Secretary will collect on the bid surety bond(s). In 
instances where a bidding entity does not meet the bid bond forfeiture 
conditions for any product category for a CBA as specified in section 
1847(a)(1)(H)(i) of the Act, then the bid surety bond liability 
submitted by the entity for the CBA will be returned to the bidding 
entity within 90 days of the public announcement of the contract 
suppliers for such product category and area. As aforementioned, this 
requirement was implemented as part of the CY 2016 ESRD PPS final rule 
(81 FR 77834), so Sec.  414.412(h) now requires that bidding entities 
obtain bid surety bonds, and if an entity is offered a contract for any 
product category for a CBA, and its composite bid for such product 
category and area is at or below the median composite bid rate for all 
bidding entities included in the calculation of the single payment 
amounts for the product category/CBA combination, and the entity does 
not accept the contract offered, the bid surety bond for the applicable 
CBA will be forfeited and CMS will collect on the bid surety bond via 
Electronic Funds Transfer from the respective bonding company. Further 
detailed conditions of the surety bonds were also clarified in the 
final rule (81 FR 77931). The bid bond requirement is mentioned here in 
the background section of this proposed rule because bid bond 
forfeiture is tied to composite bids under the DMEPOS CBP, and this 
rule proposes to change how composite bids are defined and to implement 
lead item pricing under the DMEPOS CBP.
    Section 1847(b)(5) of the Act provides that Medicare payment for 
competitively bid items and services is made on an assignment-related 
basis and is equal to 80 percent of the applicable SPA, less any unmet 
Part B deductible described in section 1833(b) of the Act. Section 
1847(b)(2)(A)(iii) of the Act prohibits the Secretary from awarding a 
contract to an entity unless the Secretary finds that the total amounts 
to be paid to contractors in a CBA are expected to be less than the 
total amounts that would otherwise be paid. The DMEPOS CBP also 
includes provisions to ensure beneficiary access to quality DMEPOS 
items and services. Section 1847(b)(2)(A) of the Act directs the 
Secretary to award contracts to entities only after a finding that the 
entities meet applicable quality and financial standards and 
beneficiary access to a choice of multiple suppliers in the area is 
maintained, that is, more than one contract supplier is available for 
the product category in the area.
    Sections 1847(b)(6)(A)(i) and (b)(6)(A)(ii) of the Act provide that 
payment will not be made under Medicare Part B for items and services 
furnished under the CBP unless the supplier has submitted a bid to 
furnish those items and has been awarded a contract. Therefore, in 
order for a supplier that furnishes competitively bid items in a CBA to 
receive payment for those items, the supplier must have submitted a bid 
to furnish those particular items and must have been awarded a 
contract. In past rounds of

[[Page 34351]]

competition, CMS has allowed a 60-day bidding window for suppliers to 
prepare and submit their bids. Our regulation at Sec.  414.412 
specifies the rules for submission of bids under the DMEPOS CBP. Each 
bid submission is evaluated and contracts are awarded to qualified 
suppliers in accordance with the requirements of section 1847(b)(2) of 
the Act and Sec.  414.414, which specifies conditions for awarding 
contacts. Under the Round 2 and Round 1 Recompete competitions, 92 
percent of suppliers accepted contract offers at the SPAs set through 
the competitions. In addition, CMS reviewed all contract suppliers 
based on financial standards when evaluating their bids. This process 
includes review of tax records, credit reports, and other financial 
data, which leads to the calculation of a score, similar to processes 
used by lenders when evaluating the viability of a company. All 
contract suppliers met the financial standards established for the 
program. Before awarding contracts, each bid is screened and evaluated 
to ensure that it is bona fide so that CMS can verify that the supplier 
can provide the product to the beneficiary for the bid amount, and 
those that fail are excluded from the competition. Approximately 94 
percent of bids screened as part of the Round 2 and Round 1 Recompete 
competitions were determined to be bona fide.
    Section 1847(b)(6)(D) of the Act requires that appropriate steps be 
taken to ensure that small suppliers of items and services have an 
opportunity to be considered for participation in the DMEPOS CBP. We 
have established a number of provisions to ensure that small suppliers 
are given an opportunity to participate in the DMEPOS CBP. For example, 
under Sec.  414.414(g)(1)(i), we have established a 30 percent target 
for small supplier participation; thereby ensuring efforts are made to 
award at least 30 percent of contracts to small suppliers. Also, CMS 
worked in coordination with the Small Business Administration and based 
on advice from the PAOC to develop an appropriate definition of ``small 
supplier'' for this program. Under Sec.  414.402, a small supplier is 
one that generates gross revenues of $3.5 million or less in annual 
receipts, including Medicare and non-Medicare revenue. Under Sec.  
414.418, small suppliers may join together in ``networks'' in order to 
submit bids that meet the various program requirements. A majority of 
the bids used in establishing SPAs come from small suppliers with a 
history of furnishing items in the CBAs.

B. Current Method for Submitting Bids and Selecting Winners

    In the DMEPOS CBP, CMS awards contracts to suppliers for furnishing 
multiple items and services needed in a given CBA that fall under a 
product category (for example, respiratory equipment). The product 
categories are mostly large and include multiple items used for 
different purposes (for example, the respiratory equipment category 
includes oxygen equipment and positive pressure airway devices and 
multiple related accessories) based on past feedback from stakeholders 
to promote easy access for beneficiaries and referral agents to receive 
all items in a product category from one location, and to prevent 
instances where a supplier wins a contract for one product category but 
loses the competitions for several other product categories. Because 
multiple bids for individual items are submitted when competing to 
become a contract supplier for the product category of items and 
services as a whole, it is necessary to calculate a composite bid for 
each bidding supplier to determine the lowest bids for the category as 
a whole. In accordance with Sec.  414.402, a composite bid means the 
sum of a supplier's weighted bids for all items within a product 
category for purposes of allowing a comparison across bidding 
suppliers. Using a composite bid is a way to aggregate a supplier's 
bids for individual items within a product category into a single bid 
for the whole product category.
    In order to compute a composite bid, a weight must be applied to 
each item in the product category. The weight of an item is based on 
the beneficiary utilization or demand of the individual item compared 
to other items within that product category based on historic Medicare 
claims. Item weights are used to reflect the relative market importance 
of each item in the product category. Table 18 depicts the calculation 
of the item weights for a supplier's bid. The expected volume for items 
A, B, and C are 5, 3, and 2 units, respectively, for a total volume of 
10 units. The item weight for item A is 0.5 (5/10), the weight for item 
B is 0.3 (3/10), etc. The total item weight for the supplier's bid is 
1.

                                             Table 18--Item Weights
----------------------------------------------------------------------------------------------------------------
                      Item                               A               B               C             Total
----------------------------------------------------------------------------------------------------------------
Units...........................................               5               3               2              10
Item Weight.....................................             0.5             0.3             0.2               1
----------------------------------------------------------------------------------------------------------------

    The composite bid for a supplier equals the item weight multiplied 
by the item bid summed across all items in the product category. For 
example, supplier 1 bid $1.00 for item A, $4.00 for item B and $1.00 
for item C. The composite bid for Supplier 1 = (0.5 * $1.00) + (0.3 * 
$4.00) + (0.2 * $1.00) = 1.90. Table 19 shows the expected cost of the 
bundle based on each supplier's bids. The expected costs are directly 
proportional to the composite bids; the factor of proportionality is 
equal to the total number of units (10) in the product category. The 
composite bid is used to determine the expected costs for all of the 
items in the product category based upon expected volume.

                                      Table 19--Composite Bids by Supplier
----------------------------------------------------------------------------------------------------------------
                                                                                                      Product
                                                                                                   category bid
              Item                       A               B               C         Composite bid     (cost of
                                                                                                      bundle)
----------------------------------------------------------------------------------------------------------------
Units...........................               5               3               2
Item weight.....................             0.5             0.3             0.2
Supplier 1 bid..................           $1.00           $4.00           $1.00           $1.90          $19.00
Supplier 2 bid..................            3.00            5.00            3.00            3.60           36.00

[[Page 34352]]

 
Supplier 3 bid..................            3.00            4.00            3.00            3.30           33.00
Supplier 4 bid..................            2.00            2.00            2.00            2.00           20.00
Supplier 5 bid..................            2.00            4.00            2.00            2.60           26.00
Supplier 6 bid..................            2.00            3.00            2.00            2.30           23.00
Supplier 7 bid..................            3.00            3.00            2.00            2.80           28.00
Supplier 8 bid..................            3.00            4.00            2.00            3.10           31.00
Supplier 9 bid..................            2.00            3.00            3.00            2.50           25.00
Supplier 10 bid.................            3.00            4.00            1.00            2.90           29.00
Supplier 11 bid.................            3.00            2.00            3.00            2.70           27.00
----------------------------------------------------------------------------------------------------------------

    After computing composite bids for each supplier, a pivotal bid is 
established for each product category in each CBA. In accordance with 
Sec.  414.402, pivotal bid means the lowest composite bid based on bids 
submitted by suppliers for a product category that includes a 
sufficient number of suppliers to meet beneficiary demand for items in 
that category. As explained in the 2007 DMEPOS final rule (72 FR 
18039), demand for items and services is projected using Medicare 
claims data for allowed services during the previous two years, trended 
forward to the contract period. Table 20 shows the pivotal bid is the 
point where expected combined capacity of the bidders is sufficient to 
meet expected demands of beneficiaries for items in a product category. 
In Table 20, the projected demand is 1,800 units, therefore the 
composite bid for supplier 7 represents the pivotal bid, since the 
cumulative capacity of 1,845 would exceed the projected demand of 
1,800. As a result of the determination of the pivotal bid, suppliers 
1, 4, 6, 9, 5, 11 and 7 are selected as winning suppliers for the 
product category in the CBA. However, suppliers 10, 8, 3, and 2 are not 
selected as winning suppliers for the product category in the CBA and 
are eliminated from the competition.

   Table 20--Determining the Pivotal Bid for Product Category Point Where Beneficiary Demand (1,800) is met by
                                                Supplier Capacity
----------------------------------------------------------------------------------------------------------------
                                                         Supplier       Cumulative
           Supplier No.\1\             Composite bid     capacity        capacity               Result
----------------------------------------------------------------------------------------------------------------
1...................................           $1.90             250             250  Winning bid.
4...................................            2.00             300             550  Winning bid.
6...................................            2.30               0             550  Winning bid.
9...................................            2.50             300             850  Winning bid.
5...................................            2.60             360           1,210  Winning bid.
11..................................            2.70             275           1,485  Winning bid.
7...................................            2.80             360           1,845  Pivotal bid.
10..................................            2.90             200           2,045  Losing bid.
8...................................            3.10             300           2,345  Losing bid.
3...................................            3.30             200           2,545  Losing bid.
2...................................            3.60              25           2,570  Losing bid.
----------------------------------------------------------------------------------------------------------------
\1\ By ascending composite bid.

C. Current Method for Establishing SPAs

    For competitively bid items and services furnished in a CBA, the 
SPAs replace the Medicare allowed amounts established using the lower 
of the supplier's actual charge or the payment amount recognized under 
sections 1834(a)(2) through (7), 1834(h), and 1842(s) of the Act. We 
discussed various options for determining the SPA for individual items 
under the DMEPOS CBP during the notice and comment rulemaking conducted 
in 2006 and 2007 (71 FR 25653 and 72 FR 17992, respectively), including 
using the minimum winning bid, using the highest winning bid, using the 
median of winning bids, and using an average adjusted price methodology 
similar to the methodology used in competitive bidding demonstrations 
mandated by section 4319 of the Balanced Budget Act of 1997 (BBA) (Pub. 
L. 105-33). A detailed discussion of the various options considered for 
determining the SPA for individual items under the DMEPOS CBP can be 
found in the 2007 DMEPOS final rule (72 FR 17992, 18044 through 18047). 
Through rulemaking, we finalized using the median of bids submitted for 
each item by winning bidders in each CBA as the methodology for 
establishing the SPA for each item in each CBA.
    Under the current methodology for establishing SPAs at Sec.  
414.416, for individual items within each product category in each CBA, 
the median of the winning bids for each item is used to establish the 
SPA for that item in each CBA. The individual items are identified by 
the appropriate HCPCS codes. In cases where there is an even number of 
winning bids for an item, the SPA is equal to the average (mean) of the 
two bid prices in the middle of the array. Table 21 illustrates this 
method.

[[Page 34353]]



                                Table 21--Median of the Winning Bids Methodology
----------------------------------------------------------------------------------------------------------------
                      Item                               A               B               C        Composite  bid
----------------------------------------------------------------------------------------------------------------
Supplier 1 bid..................................           $1.00           $4.00           $1.00           $1.90
Supplier 4 bid..................................            2.00            2.00            2.00            2.00
Supplier 6 bid..................................            2.00            3.00            2.00            2.30
Supplier 9 bid..................................            2.00            3.00            3.00            2.50
Supplier 5 bid..................................            2.00            4.00            2.00            2.60
Supplier 11 bid.................................            3.00            2.00            3.00            2.70
Supplier 7 bid (pivotal bid)....................            3.00            3.00            2.00            2.80
Median/SPA......................................            2.00            3.00            2.00  ..............
----------------------------------------------------------------------------------------------------------------

    We stated in 2007 that we believed that setting the SPA based on 
the median of the winning bids satisfies the statutory requirement that 
SPAs are to be based on bids submitted and accepted. We believed that 
this methodology results in a single payment for an item under a 
competitive bidding program that is representative of all acceptable 
bids, not just the highest or the lowest of the winning bids for that 
item. The median is also not influenced by outliers at the extremes of 
the data set. This methodology also has the advantage of being easily 
understood by bidding suppliers.
    We received several comments on determining the SPA as a part of 
the rulemaking process for the 2007 DMEPOS final rule (72 FR 18046). 
Most of the commenters disagreed with the median bid methodology and 
supported the average adjusted price methodology. Numerous commenters 
suggested that CMS use the average adjusted price methodology that was 
used during the BBA demonstrations because suppliers were paid at least 
as much as they bid in aggregate, and commenters believed that the 
average adjusted price methodology would provide sufficient protections 
to encourage small suppliers to bid. Several commenters indicated that 
if contract suppliers with bids above the median amount cannot furnish 
items and services at payment amounts set below their bid amounts, 
demand for items and services might not be met and access to necessary 
items and services would be impaired. The commenters raised concerns 
that all bids would be equal in terms of establishing the median 
amount, and bids from small suppliers that only furnish a small 
percentage of the overall demand for items and services would have the 
same weight as bids from suppliers that would be responsible for 
furnishing the majority of the items and services. Other commenters 
suggested that the use of the median bid favors large chain suppliers 
that deliver a large volume of items and services.
    The average adjusted price methodology for establishing the SPA for 
an item was discussed in the 2007 DMEPOS final rule (72 FR 18045). This 
methodology involved using the average of the winning bids adjusted up 
to the point where the adjusted bids for each supplier in the winning 
range equals the level of the pivotal bid. This type of methodology was 
used during the competitive bidding demonstrations mandated by section 
4319 of the BBA. The first step of the methodology is to calculate the 
average of the winning bids per individual item. The second step is to 
calculate the average of the composite bids for the winning suppliers 
by taking the sum of the composite bids for all winning suppliers in 
the applicable CBA and dividing by the number of winning suppliers. The 
third step determines an adjustment factor by dividing the composite 
bid for the pivotal bidder by the average composite bid, and using this 
factor to increase every winner's overall bids for a product category 
to the level of the pivotal bidder's composite bid. The fourth step 
multiplies the average of the winning bids per item by the adjustment 
factor to adjust all bids up to the point of the pivotal bid, so that 
all winners would be paid for furnishing all items and services in the 
product category (the composite payment) equal to the composite bid of 
the pivotal bidder. This amount would become the SPA for the individual 
item. This is the price that all contract suppliers within a CBA would 
be paid for that product as illustrated in Table 22.

                                  Table 22--Average Adjusted Price Methodology
----------------------------------------------------------------------------------------------------------------
                                                                                      Average     Composite  bid
              Item                       A               B               C        composite  bid        \1\
----------------------------------------------------------------------------------------------------------------
Item weight.....................             0.5             0.3             0.2
Supplier 1 bid..................           $1.00           $4.00           $1.00  ..............           $1.90
Supplier 4 bid..................            2.00            2.00            2.00  ..............            2.00
Supplier 6 bid..................            2.00            3.00            2.00  ..............            2.30
Supplier 9 bid..................            2.00            3.00            3.00  ..............            2.50
Supplier 5 bid..................            2.00            4.00            2.00  ..............            2.60
Supplier 11 bid.................            3.00            2.00            3.00  ..............            2.70
Supplier 7 bid (pivotal bid)....            3.00            3.00            2.00  ..............            2.80
Average of winning bids.........            2.14            3.00            2.14           $2.40  ..............
Adjustment factor \2\...........           1.167           1.167           1.167  ..............  ..............
Average adjusted price/SPA......            2.50            3.50            2.50  ..............  ..............
----------------------------------------------------------------------------------------------------------------
\1\ Sum of item bids multiplied by item weights.
\2\ The adjustment factor is equal to the pivotal bid ($2.80 in this example) divided by the average composite
  bid ($2.40 in this example). The SPA is established by multiplying the average of the winning bids for each
  item by the adjustment factor.


[[Page 34354]]

    This methodology, similar to the one used under the BBA 
demonstrations from October 1, 1999 through December 31, 2002, results 
in payment to all winning suppliers at the pivotal bid (or highest 
winning composite bid) level. Under the BBA demonstrations, the 
adjustment factor varied by supplier and was based on the pivotal 
composite bid divided by the individual, winning supplier's composite 
bid, and the average of the prices was calculated after the bids were 
adjusted rather than before they were adjusted. Both versions of the 
average adjusted price methodology result in pricing at the pivotal bid 
level. For example, in Table 22 the methodology used under the BBA 
demonstrations would have resulted in SPAs of $2.46, $3.58, and $2.48 
for items A, B, and C, respectively. However, when factoring in the 
expected percentage of total services made up by each item in the 
product category (item weight), both versions of the average adjusted 
price methodology result in payment at the pivotal bid level:

Table 22: (0.5 * $2.50) + (0.3 * $3.50) + (0.2 * $2.50) = $2.80
BBA demonstrations: (0.5 * $2.46) + (0.3 * $3.58) + (0.2 * $2.48) = 
$2.80

Using either version, the overall payment for the product category 
equals or exceeds the individual composite bids of $1.90, $2.00, $2.30, 
$2.50, $2.60, $2.70 and $2.80. We chose not to propose this approach 
because we believed that this approach is not reflective of all of the 
winning bids accepted. In addition, we stated that we were concerned 
that this methodology may be confusing and overly complicated (72 FR 
18046).
    Two additional methodologies for determining the SPA for individual 
items under the DMEPOS CBP include the minimum bid methodology ($1.00, 
$2.00, and $1.00 in the example above) and the maximum bid methodology 
($3.00, $4.00, and $3.00 in the example above). More detailed 
explanations of these methods can be found in the 2007 DMEPOS final 
rule (72 FR 17992, pages 18044 through 18047). We did not support 
either methodology because they only reflect the bid of a single 
supplier and may be an outlier in the overall bid for the item. A 
methodology that uses a straight mean is most affected by outliers, 
since all values in a sample are given the same weight when calculating 
mean. A value that is far removed from the mean is going to likely skew 
results.

D. Provisions of the Proposed Rule

    We believe that two proposed reforms to the DMEPOS CBP would 
simplify the program, eliminate the possibility for price inversions, 
and ensure the long term sustainability of the program.
1. Lead Item Pricing for all Product Categories Under the DMEPOS CBP
    In the 2016 ESRD PPS final rule (81 FR 77945), we established 
alterative rules for submitting bids and determining SPAs for certain 
groupings of similar items with different features under the DMEPOS 
CBP. As discussed in the rule, price inversions result under the CBP 
when different item weights are assigned to similar items with 
different features within the product category. To prevent this from 
occurring under future competitions, we established an alternative 
``lead item'' bidding method for submitting bids and determining single 
payment amounts for certain groupings of similar items (for example, 
walkers) with different features (wheels, folding, etc.) under the 
DMEPOS CBP. Under this alternative bidding method, one item in the 
grouping of similar items would be the lead item for the grouping for 
bidding purposes. The item in the grouping with the highest total 
national allowed services (paid units of service) during a specified 
base period would be considered the lead item of the grouping. CMS 
established a method for calculating SPAs for items within each 
grouping of similar items based on the SPAs for lead items within each 
grouping of similar items (81 FR 42878). Under Sec.  414.416(b)(3), in 
the case of competitions where bids are submitted for an item that is a 
combination of codes for similar items within a product category as 
identified under Sec.  414.412(d)(2), the single payment amount for 
each code within the combination of codes is equal to the single 
payment amount for the lead item or code with the highest total 
nationwide allowed services multiplied by the ratio of the average of 
the 2015 fee schedule amounts for all areas (that is, all states, the 
District of Columbia (DC), Puerto Rico, and the U.S. Virgin Islands) 
for the code to the average of the 2015 fee schedule amounts for all 
areas for the lead item. Beginning in 2016, the fee schedule amounts 
used to pay claims in non-CBAs were adjusted based on information from 
the CBP. Thus, the 2015 fee schedule amounts were the last fee schedule 
amounts that were not adjusted based on SPAs for low weight items (for 
example, hospital beds without side rails) that in some cases were 
higher than the SPAs for other similar items in the same product 
category with more features (for example, hospital beds with side 
rails). The relative difference in the cost of the items (for example, 
hospital beds with side rails cost more than hospital beds without side 
rails) is reflected in the unadjusted fee schedule amounts in that the 
unadjusted fee schedule amounts for hospital beds with side rails are 
higher than the fee schedule amounts for hospital beds without side 
rails, and not in the adjusted fee schedule amounts, where the adjusted 
fee schedule amounts for hospital beds with side rails are not higher 
than the fee schedule amounts for hospital beds without side rails. For 
this reason, we use the unadjusted fee schedule amounts for 2015 to 
determine the relative difference in the cost of different items (for 
example, hospital beds with side rails compared to hospital beds 
without side rails).
    Under the CBP, in all rounds since 2011, we found price inversions 
for groupings of similar items within the following categories: 
Standard power wheelchairs, walkers, hospital beds, enteral infusion 
pumps, TENS devices, support surface mattresses and overlays and seat 
lift mechanisms. We consider the price of an item inverted when a more 
complicated item is cheaper than a simple version. For instance, when a 
walker without wheels costs more than a walker with wheels. The 
detailed method, examples, and responses to public comments regarding 
lead item bidding were explained in the 2016 ESRD PPS final rule (81 
FR77945 through 77949). We are now proposing to establish a similar 
lead item pricing methodology for all items and all product categories 
under the DMEPOS CBP. We propose that the methodology would now apply 
to all items in the product category rather than groupings of items 
within a product category. We also propose that the lead item would be 
identified based on total national allowed charges rather than total 
national allowed services. We believe that lead item pricing would 
address all price inversions we have already identified as well as 
potential future price inversions for other items. The lead item 
pricing methodology proposed in this rule is therefore similar to, but 
different than the lead item bidding methodology we finalized in 
previous rulemaking. This would not be an alternative bidding method, 
but would replace the current bidding method, where bids are submitted 
for each item in the product category, for all items. Since the bid for 
the lead item would be used to establish the SPAs for both the lead 
item and all other items in the

[[Page 34355]]

product category, we are referring to this proposed policy as ``lead 
item pricing'' rather than ``lead item bidding.'' We are proposing to 
implement lead item pricing and change the methodology for establishing 
SPAs under the CBP for a number of reasons.
    We believe lead item pricing would greatly reduce the complexity of 
the bidding process and the burden on suppliers since they would no 
longer have to submit bids for numerous items in a product category. 
For some product categories, there are hundreds of items, and many 
suppliers submit bids for multiple product categories and in multiple 
CBAs. The more bids a supplier has to submit, the more time it takes to 
complete the bidding process and the greater the risk for keying 
errors, which have disqualified bidders in the past, reducing the level 
of competition and opportunity for savings under the program. Lead item 
pricing would also eliminate the need for item weights and calculation 
of composite bids based on item weights. This would greatly eliminate 
the burden for suppliers since they would no longer have to submit bids 
for each individual item in a product category.
    Several issues related to this lead item pricing proposal warrant 
discussion. First, lead item pricing would apply to all items in each 
product category, including all codes for base equipment (for example, 
power wheelchairs) and all codes for accessories for base equipment 
(for example, wheelchair batteries). Bids for the lead item (for 
example, one of the power wheelchair codes), would therefore be used to 
establish the SPA for the code for the lead item, other codes for power 
wheelchairs other than the lead item, and codes for accessories used 
with the base equipment (in this example, various types of power 
wheelchairs). Examples of how this pricing method would work are in 
section V.D.2 of this proposed rule.
    Second, it is likely that some of the larger, conglomerate product 
categories established to promote ``one stop shopping'' for 
beneficiaries and referral agents would need to be split into multiple 
product categories so that lead item pricing is not implemented for 
categories that include different types of base equipment. Such 
categories include general home equipment (hospital beds, support 
surfaces, commode chairs, patient lifts, and seat lifts), respiratory 
equipment (oxygen and oxygen equipment, continuous positive airway 
pressure devices, and respiratory assist devices), and standard 
mobility equipment (walkers, standard manual wheelchairs, standard 
power wheelchairs, and scooters). We believe that it would be overly 
complex and confusing to establish prices for one type of equipment 
(for example, power wheelchairs) based on bids submitted for another 
type of equipment (for example, walkers). We believe it would be more 
straightforward for suppliers to submit a lead item bid for one code 
for one type of base equipment (for example, group 2, captains chair 
power wheelchair, which is a lead item because it has the highest 
allowed charges) that would be used to establish payment amounts for 
all similar types of the base equipment that is, power wheelchairs (for 
example, groups 1 and 2, captains chair and sling seat versions, and 
equipment accommodating various patient weight capacities) and 
accessories used with the various power wheelchairs (for example, 
batteries, arm pads, and tires).
    Third, as part of the proposal to move to lead item pricing, we are 
proposing to establish a new definition under Sec.  414.402 for ``lead 
item,'' and we are proposing to revise the current definitions for 
``bid'' and ``composite bid'' under Sec.  414.402. We propose to revise 
the definition of ``bid'' to include the words ``or items'' after the 
word ``item''. The definition of ``bid'' would read as follows ``Bid 
means an offer to furnish an item or items for a particular price and 
time period that includes, where appropriate, any services that are 
directly related to the furnishing of the item or items.'' We are 
proposing this change because under lead item pricing, the bid for a 
lead item includes the supplier's bid for furnishing all of the items 
in the product category and not just the lead item.
    We propose to revise the definition of ``composite bid''. The 
definition would read as follows ``Composite bid means the bid 
submitted by the supplier for the lead item in the product category.''
    Currently, the supplier's bid amounts for multiple items in the 
product category are weighted and summed to generate the supplier's 
composite bid for that product category. Under lead item pricing, the 
supplier's bid amount for the lead item is the composite bid. In 
addition, the bids for the lead items would be used to determine the 
SPAs for the rest of the items in the product category. We would 
educate suppliers regarding how pricing for all of the items in the 
product category would be established based on the bids submitted for 
the lead item, and that they should consider their costs for furnishing 
the various items in the product category when submitting their bid for 
the lead item.
    As indicated in section V.A of this proposed rule, section 
1847(a)(1)(G) of the Act and our regulations require that bidding 
suppliers obtain bid surety bonds when participating in future 
competitions under the CBP. If the supplier is offered a contract for 
any product category for a CBA, and its composite bid for such product 
category and area is at or below the median composite bid rate for all 
bidding suppliers included in the calculation of the SPAs for the 
product category/CBA combination, the supplier must accept the contract 
offered or the supplier's bid surety bond for the applicable CBA will 
be forfeited. Because we are proposing a change to the definition of 
composite bid (the composite bid would be defined as the supplier's bid 
for the lead item in the product category), we note that the supplier's 
bid for the lead item would also be treated as the ``composite bid'' 
for the purpose of implementing the statutory and regulatory bid surety 
bond requirement. Under the lead item pricing method, suppliers would 
forfeit their bid surety bond for a product category in a CBA if their 
composite bid (their bid for the lead item) is at or below the median 
composite bid rate for all bidding suppliers included in the 
calculation of SPAs for the product category and CBA and they do not 
accept a contract offer for the product category and CBA. In other 
words, the median of the winning bids for the lead item in the product 
category would be calculated and used to implement the bid surety bond 
requirement at section 1847(a)(1)(H)(i) of the Act and Sec.  
414.412(h).
    We are proposing to add the definition for ``lead item'' under 
Sec.  414.402. The definition of ``lead item'' would read as follows 
``Lead item is the item in a product category with multiple items with 
the highest total nationwide Medicare allowed charges of any item in 
the product category prior to each competition. Total nationwide 
Medicare allowed charges means the total sum of charges allowed for an 
item furnished in all states, territories, and D.C. where Medicare 
beneficiaries reside and can receive covered DMEPOS items and 
services.''
    Currently under Sec.  414.412(d)(2) the ``lead item'' in the 
product category is described as ``the code with the highest total 
nationwide allowed services for calendar year 2012,'' and ``total 
nationwide allowed services'' is defined in Sec.  414.402 as meaning 
the total number of services allowed for an item furnished in all 
states, territories, and DC where Medicare beneficiaries reside and can 
receive covered DMEPOS items and services. We are proposing to delete

[[Page 34356]]

the lead item bidding provision that currently appears in Sec.  
414.412(d)(2) and replace it with the proposed lead item pricing 
provision. We are proposing to change these descriptions and 
definitions as explained by replacing this language in Sec.  
414.412(d)(2) with a new definition of lead item in Sec.  414.402. We 
believe that using allowed charges rather than allowed services is a 
better way to identify the lead item in a product category for the 
purpose of implementing lead item pricing because the item with the 
highest allowed charges is the item that generates the most revenue for 
the suppliers of the items in the product category. The item with the 
most allowed services is not always the item that generates the most 
revenue for the supplier. For example, there are far more allowed 
services for NPWT dressings than NPWT pump rentals, but the revenue 
generated by the pump rentals is more than double the revenue generated 
by the dressings. Therefore, the item with the most allowed charges in 
the product category (the NPWT pump rentals) generates more revenue for 
the suppliers than the item with the most allowed services in the 
product category (the NPWT dressings). We note that in most cases the 
item with the most allowed charges would also be the item with the most 
allowed services, but in cases where this is not true, we believe that 
the lead item should be the one that generates the most revenue for 
suppliers as opposed to the one that has the higher number of allowed 
services.
    Section 1847(b)(2)(A)(iii) of the Act prohibits the awarding of 
contracts under the CBP unless the total amounts to be paid to contract 
suppliers in a CBA are expected to be less than the total amounts that 
would otherwise be paid. In order to implement this requirement for 
assurance of savings under the CBP, we propose to revise Sec.  
414.412(b)(2) to require that the supplier's bid for each lead item and 
product category in a CBA cannot exceed the fee schedule amount that 
would otherwise apply to the lead item without any adjustments based on 
information from the CBP.
    Finally, we propose to amend the conditions for awarding contracts 
under the CBP in Sec.  414.414(e) related to evaluation of bids under 
the CBP. Currently, this section indicates that CMS evaluates bids 
submitted for items within a product category, and that expected 
beneficiary demand in a CBA is calculated for items in the product 
category. We are proposing to change this section to indicate that CMS 
evaluates composite bids submitted for the lead item within a product 
category, and that expected beneficiary demand in a CBA is calculated 
for the lead item in the product category. We are proposing that under 
the lead item pricing methodology, CMS would calculate expected 
beneficiary demand and total supplier capacity based on the lead item 
in the product category when evaluating bids. Currently, beneficiary 
demand for items in a product category and supplier capacity for 
furnishing items in the product category are calculated based on 
historic utilization of the items making up at least 80 percent of the 
total expenditures for the product category as a whole. The demand for 
these items is trended forward to the contract period by the projected 
growth in beneficiary population in the CBA and utilization of the 
items in the product category. The pivotal bid is where total supplier 
capacity for furnishing the items within a product category meets 
projected beneficiary demand for the items. Projected demand for items 
within a product category and supplier capacity for meeting the 
projected demand for items within a product category are calculated by 
adding the projected demand and supplier capacity for those items in 
the product category that make up 80 percent of the total expenditures 
for the product category. It is assumed that the suppliers with the 
capacity to furnish the items making up 80 percent of the total 
expenditures for the product category would also have the capacity to 
furnish the remaining items in the product category as well. This has 
proven to be true. Under lead item pricing, we are proposing that 
projected demand and supplier capacity would only be calculated for the 
lead item for the purpose of determining or establishing the pivotal 
bid. In other words, the winning range of suppliers would be set based 
on where the cumulative capacity of suppliers for furnishing the lead 
item equals or exceeds the projected beneficiary demand for the lead 
item. It is assumed that the suppliers with the capacity to furnish the 
lead item in the product category would also have the capacity to 
furnish the remaining items in the product category as well. We believe 
this change would have a minimal impact on the number of contracts 
awarded under the program, with the exception of CPAP devices and 
accessories. For this category of items, the CPAP device would be the 
lead item, but there are also several codes for accessories (masks, 
tubing, etc.) where total allowed charges are close to the allowed 
charge total for the CPAP device itself. Establishing projected demand 
and supplier capacity based on the CPAP device alone could result in a 
drop in the number of winning suppliers; however, we believe that 
suppliers that have the capacity to meet projected beneficiary demand 
for rental of the CPAP device would also have the capacity to furnish 
the accessories used with the devices they are furnishing. In addition, 
the 20 percent cap on supplier capacity would still be in effect, which 
limits the capacity of suppliers, including large, national chain 
suppliers, to 20 percent of projected demand, even if these suppliers 
could meet far more than 20 percent of beneficiary demand for CPAP 
devices and accessories.
    In summary, we propose to amend Sec. Sec.  414.402, 414.412, and 
Sec.  414.414 to change the definitions, the methodology for the 
calculation of SPAs, and the evaluation of bids under the CBP to 
reflect and establish the lead item pricing methodology.
2. Calculation of Single Payment Amounts (SPAs) Using Maximum Winning 
Bids for Lead Items
    We propose to revise Sec.  414.416 to change the methodology for 
calculating SPAs under the CBP. The SPA for the lead item in each 
product category and CBA would be based on the maximum or highest 
amount bid for the item by suppliers in the winning range as 
illustrated in Table 23. The SPAs for all other items in the product 
category would be based on a percentage of the maximum winning bid for 
the lead item. Specifically, the SPA for a non-lead item in the product 
category would be equal to the SPA for the lead item multiplied by the 
ratio of the average of the 2015 fee schedule amounts for all areas 
(that is, all states, DC, Puerto Rico, and the U.S. Virgin Islands) for 
the item to the average of the 2015 fee schedule amounts for all areas 
for the lead item. Thus, the SPAs for a non-lead item would be based on 
the relative difference in the fee schedule amounts for the lead and 
non-lead item before the fee schedule amounts were adjusted based on 
information from the CBP. For example, if the average 2015 fee schedule 
amount for a non-lead item such as a wheelchair battery is $107.25, and 
the average 2015 fee schedule amount for the lead item (Group 2, 
captains chair power wheelchair) is $578.51, the ratio for these two 
items would be computed by dividing $107.25 by $578.51 to get 0.18539. 
Multiplying $578.51 by 0.18539 then generates the amount of $107.25. 
Under the lead item pricing methodology, if the maximum winning bid for 
the lead item in this example (Group 2, captains chair power 
wheelchair) is used to compute an SPA

[[Page 34357]]

of $433.88 for this lead item, then the SPA for the non-lead item in 
this example (wheelchair battery) would be computed by multiplying 
$433.88 by 0.18539 to generate an SPA of $80.44 for the non-lead item 
(wheelchair battery).
    We believe that establishing the SPA for the lead item based on the 
maximum winning bid rather than the median of winning bids could also 
further simplify the bidding process and better ensure the long term 
sustainability of the CBP. The maximum winning bid is the bid for the 
lead item submitted by the supplier with the pivotal bid, defined in 
Sec.  414.402 as the lowest composite bid based on bids submitted by 
suppliers for a product category that includes a sufficient number of 
suppliers to meet beneficiary demand for the items in that product 
category. Under the proposed revised definition of composite bid, each 
supplier's bid for the lead item would be their composite bid. In no 
case would a supplier in the winning range be paid an amount for the 
lead item in a product category that is less than its bid amount for 
the lead item, or its composite bid, for the product category as a 
whole. We believe that this is the best way to ensure that the supplier 
can furnish the quantity of items and services it indicates it can 
furnish with its bid. As an alternative to using median bids to 
establish SPAs, we are proposing to use the maximum winning bid for the 
lead item in a product category to establish the SPAs for the rest of 
the items in the product category in order to ensure long term 
sustainability of the DMEPOS CBP. We believe that lead item pricing 
based on the maximum winning bid for the lead item is the best way to 
ensure that the supplier can furnish the quantity of items and services 
it indicates it can furnish with its bid because all suppliers in the 
winning range would be paid at least what they bid for the lead item or 
more. Currently, suppliers are paid based on the median of the winning 
bids for each item, which results in many suppliers being paid less 
than the amount they bid for an item, which could potentially lead to 
beneficiary access problems for these items if the SPA based on the 
median of the winning bids is not sufficient to cover the supplier's 
costs for furnishing the quantity of items they indicated that they 
could furnish with their bid. Currently under the CBP, certain 
suppliers can be offered contracts after the initial contract awards 
are made if necessary to ensure access to items and services. These 
suppliers are suppliers that had composite bids above the pivotal bid, 
so their bids are even further removed from the median bid levels than 
the suppliers initially awarded contracts. As median bid levels 
continue to decline over time, we believe that it is possible that many 
of the suppliers with bids above the median would not be willing or 
able to accept contracts for items and services with SPAs that were set 
using the median of winning bids. We believe this could potentially 
jeopardize the program. If there are not enough suppliers willing to 
accept contract offers and meet beneficiary demand, then this would 
result in no contracts or payments at SPA levels set too low to ensure 
access. We believe this possible scenario could be avoided by changing 
the way that the SPAs are calculated, and using the proposed maximum 
winning bid for the lead item in a product category to establish the 
SPAs for all items in the product category, rather than using the 
median of winning bids to establish the SPA for each item in a product 
category. Also, by applying lead item pricing to all items, it would 
eliminate price inversions associated with suppliers bidding high for 
low weight items, since items weights and bids for low weight items 
would no longer be used to establish SPAs for items under the CBP.
    Bids from small suppliers that are only awarded contracts in order 
to help meet the small supplier target would not be used to determine 
the maximum winning bid because these contracts are awarded after the 
SPAs are established. Under Sec.  414.414(g)(1)(i), we established a 30 
percent target for small supplier participation in the CBP; thereby 
ensuring efforts are made to award at least 30 percent of contracts to 
small suppliers. If less than 30 percent of the suppliers in the 
winning range (suppliers at or below the pivotal bid) are not small 
suppliers, additional contracts are offered to small suppliers who bid 
above the pivotal bid in order to attempt to meet this 30 percent small 
supplier target. However, the bids above the pivotal bid have not been 
used to calculate the SPA in past competitions, and will not be used to 
calculate the SPA going forward. If small suppliers who are offered 
contracts do not accept them, we may not meet the small supplier 
target, but this refusal of the contract offers would not result in an 
access problem. The small supplier target is just a target for 
enhancing participation of small suppliers in the CBP and is not a 
threshold that must be met in order to meet demand for items and 
services. Currently, small suppliers not in the winning range who are 
only offered contracts in an attempt to meet this target must accept 
payment at the median of the winning bids for each item, which in most 
cases are amounts that are below what they bid for the item. While SPAs 
based on the proposed maximum winning bids would still be below what 
these suppliers bid, they are generally going to be closer to the 
amounts they bid than the SPAs based on the median of the winning bids.
    Likewise, bids from other suppliers awarded contracts after the 
SPAs are established are not currently used to determine the SPAs and 
would not be used to determine the maximum winning bid. Currently, in 
very limited cases, suppliers are offered and awarded contracts after 
the SPAs are established and contract offers are made because of errors 
that were made in the bid evaluation process. Also, additional 
contracts can be offered at any point during the contract period if 
necessary to ensure beneficiary access to items and services. The SPAs 
are not recalculated in these situations because it would be very 
disruptive and logistically challenging to change the SPAs and repeat 
the contracting process each time an additional contract is offered and 
accepted. The process for completing all of the steps necessary for CMS 
to implement a competition under the CBP from the time the competition 
is announced and suppliers are registered to bid in DBids (the online 
bidding system) to the time the contract period begins already takes 
approximately 2 years.
    Under the current methodology for establishing SPAs, for individual 
items within each product category in each CBA, the median of the 
winning bids for each item is used to establish the SPA for that item 
in each CBA, as illustrated in Table 21. The proposed methodology of 
using the maximum winning bids to establish SPAs is illustrated in 
Table 23.

           Table 23--Proposed Maximum Winning Bids Methodology
------------------------------------------------------------------------
                                                            Bid amounts
                      Supplier bids                        for the lead
                                                               item
------------------------------------------------------------------------
Supplier 1 bid..........................................           $1.00
Supplier 4 bid..........................................            2.00
Supplier 6 bid..........................................            2.00
Supplier 9 bid..........................................            2.00
Supplier 5 bid..........................................            2.00
Supplier 11 bid.........................................            3.00
Supplier 7 bid (pivotal bid)............................            3.00
Maximum bid/SPA.........................................            3.00
------------------------------------------------------------------------

    As shown in this Table 23, the maximum winning bid, the pivotal 
bid, and the SPA are all equal.

[[Page 34358]]

    We stated in the 2007 DMEPOS final rule that we believed that 
setting the SPA based on the maximum of the winning bids is not 
representative of all bids submitted. However, we now believe that 
using the maximum winning bid amount for the lead item to establish the 
SPAs and paying most contract suppliers more than they bid helps to 
ensure access and long term sustainability of the CBP. This methodology 
has the advantage of being easily understood by bidding suppliers. 
Using the maximum winning bid for the lead item to establish SPAs 
addresses criticism from stakeholders that the use of median bids to 
establish SPAs results in CMS paying approximately half of the winning 
suppliers below what they bid for the item. Using the maximum winning 
bid is also strongly supported by the supplier community, as expressed 
in comments described in the preamble to the 2007 DMEPOS final rule (72 
FR 18046). Under the CBP, suppliers have consistently accepted contract 
offers 92 percent of the time, even though the median bid levels have 
trended lower with each successive round of competitions. However, if 
bid levels continue to trend downward, we believe this could ultimately 
result in many suppliers rejecting contract offers, to the point where 
there may not be enough suppliers accepting contracts to meet demand 
for items and services. Table 24 shows the average SPAs for seven high 
volume items that have been included in all rounds of bidding and how 
they have changed with each successive recompete of the contracts.

                             Table 24--Change in Average SPAs Over Rounds of Bidding
----------------------------------------------------------------------------------------------------------------
              Round                    Year             SPA            Year             SPA          Change %
----------------------------------------------------------------------------------------------------------------
                             E1390--Oxygen Concentrator/Oxygen and Oxygen Equipment
----------------------------------------------------------------------------------------------------------------
1...............................            2011         $116.16            2014          $95.74             -18
1...............................            2014           95.74            2017           77.97             -19
2...............................            2013           93.07            2016           76.84             -17
----------------------------------------------------------------------------------------------------------------
                                                   E0601--CPAP
----------------------------------------------------------------------------------------------------------------
1...............................            2011         $582.31            2014         $518.58             -11
1...............................            2014          518.58            2017          426.76             -18
2...............................            2013          466.02            2016          397.60             -15
----------------------------------------------------------------------------------------------------------------
                                    K0823--Group 2 Standard Power Wheelchair
----------------------------------------------------------------------------------------------------------------
1...............................            2011       $2,554.22            2014       $2,189.28             -14
1...............................            2014        2,189.28            2017        1,770.17             -19
2...............................            2013        1,889.48            2016        1,785.41              -6
----------------------------------------------------------------------------------------------------------------
                               B4035--Daily Supplies for Enteral Nutrition by Pump
----------------------------------------------------------------------------------------------------------------
1...............................            2011           $7.50            2014           $5.79             -23
1...............................            2014            5.79            2017            5.22             -10
2...............................            2013            5.98            2016            5.25             -12
----------------------------------------------------------------------------------------------------------------
                                          E0143--Folding Wheeled Walker
----------------------------------------------------------------------------------------------------------------
1...............................            2011          $66.13            2014          $58.79             -11
1...............................            2014           58.79            2017           47.89             -19
2...............................            2013           53.22            2016           45.93             -14
----------------------------------------------------------------------------------------------------------------
                                        E0260--Semi-Electric Hospital Bed
----------------------------------------------------------------------------------------------------------------
1...............................            2011         $803.45            2014         $738.59              -8
1...............................            2014          738.59            2017          615.22             -17
2...............................            2013          703.14            2016          591.30             -16
----------------------------------------------------------------------------------------------------------------
                                     E0277--Powered Mattress Support Surface
----------------------------------------------------------------------------------------------------------------
1...............................            2011       $3,197.50            2014       $2,855.09             -11
1...............................            2014        2,855.09            2017        2,257.05             -21
2...............................            2013        2,351.77            2016        1,748.70             -26
----------------------------------------------------------------------------------------------------------------

    If the median bids continue on this downward trend, suppliers with 
bids above the median bid may not be able to continue to furnish items 
and services at the SPAs established based on the median of winning 
bids, and this could cause problems with securing enough contract 
suppliers to meet demand and could cause non-viable programs in certain 
areas for certain product categories. We believe establishing SPAs 
based on the maximum winning bid for the lead item would help prevent 
such a scenario from unfolding and would enhance the long term 
sustainability of the DMEPOS CBP. We believe current tools used to 
address potential access or demand issues in CBAs, such as awarding 
additional contracts, may become insufficient if suppliers in the upper 
half of the winning range (those that bid at or below the pivotal bid, 
but above the median) stop accepting contract offers because the SPAs 
over time have decreased to the point where they are unacceptable to 
these suppliers.
    We believe that the maximum winning bid methodology would enable 
long term sustainability of the CBP but has some risks. This 
methodology could skew the data set of bids if there is an outlier. For 
example, in Table 23, if one

[[Page 34359]]

supplier bids $20 and the majority of suppliers bid between $1 and $3, 
this would cause the entire item price to be inaccurately skewed in one 
direction and would increase the cost of the item significantly. 
Although there are some hindrances in replacing the median bid amount 
methodology with the maximum winning bid methodology for determining 
the SPA, such as the risk of skewed bids and the risk of paying 
suppliers more than necessary to meet beneficiary demand, we believe 
that the pros of reducing burden and enhancing access to items and 
services and sustainability of the competitive bidding program outweigh 
these cons. We solicit comments on ways to minimize these risks.
    With regard to the fiscal impact of the proposal to use lead item 
pricing and maximum winning bids to establish SPAs, we believe that use 
of maximum winning bids to establish SPAs for lead items would increase 
payment amounts and expenditures for these lead items, but would also 
decrease payment amounts and expenditures for many of the non-lead 
items, which should offset the cost of the payments for the lead items. 
For example, the monthly rental SPA for the NPWT pump (E2402) for the 
Virginia Beach, Virginia CBA is $654.89 (60 percent less than the fee 
schedule amount of $1,642.09) and the purchase SPA for the NPWT 
dressing (A6550) is $25.39 (only 3 percent less than the fee schedule 
amount of $26.25). In 2017, approximately $356,257 was spent on the 
pump in this CBA while approximately $154,752 was spent on the 
dressings. Under lead item pricing, code E2402 would be the lead item, 
and the maximum winning bid for this item under the Round 2 Recompete 
(2016) was $839.00 per month (49 percent less than the fee schedule 
amount of $1,642.09). Had this amount been paid in 2017 in the Virginia 
Beach CBA, it would have increased expenditures for NPWT pump (E2402) 
by approximately $100,159 from $356,257 to approximately $456,416. 
However, using lead item pricing, the price for the dressing would have 
decreased from $25.39 to $13.41 (49 percent less than the fee schedule 
amount of $26.25), which would have decreased expenditures for code 
A6550 by approximately $73,018 from $154,752 to approximately $81,734. 
The net increase in expenditures in this example would have been 
approximately $27,141 ($100,159-$73,018).
    In summary, we propose to amend the SPA determination methodology 
in Sec.  414.416 to change the methodology from one that uses the 
median of winning bids for each item to establish the SPAs for each 
item to one that uses the maximum winning bid for the lead item to set 
the SPA for the lead item and the rest of the items within the product 
category (``non-lead items''). The SPAs for each non-lead item would be 
based on the relative difference in the fee schedule amounts for the 
non-lead item and the lead item in 2015, before the fee schedule 
amounts were adjusted based on information from the CBP.
    Finally, we are interested in obtaining feedback from the public on 
whether or not certain large CBAs should be split into smaller size 
CBAs to create more manageable service areas for suppliers, as has been 
done for the New York, Los Angeles, and Chicago CBAs. We are soliciting 
feedback that we can consider in potentially adjusting the size and 
boundaries of CBAs for future competitions. There are currently nine 
CBAs with more than 7,000 square miles, and three of these CBAs are 
areas with more than 9,000 square miles. The largest CBA is the 
Phoenix-Mesa-Scottsdale, Arizona CBA with approximately 12,000 square 
miles. This CBA is comprised of the two counties, Maricopa 
(approximately 8,000 square miles) in the northwest and Pinal 
(approximately 4,000 square miles) in the southeast. One option for 
reducing the size of this CBA would be to split the CBA in two based on 
the county borders and then remove some of the large low population 
density zip code areas from the southwestern portion of the new 
Maricopa County CBA to reduce the size of this CBA. Interstate highway 
10 runs west to east and then south through the northern part of the 
current CBA (primarily Maricopa County), while interstate highway 8 
runs west to east through the southern part of the current CBA 
(primarily Pinal County).
    The second largest CBA is the Boise City, Idaho CBA, comprised of 
five counties, approximately 11,800 square miles. Three zip code areas 
(83604, 83624, and 83650) south of the Snake River and interstate 
highway 84 in Owyhee County make up almost 65 percent of the area for 
the CBA (approximately 7,700 square miles), but only 2 percent of the 
population. Removing these three zip codes from the CBA would reduce 
the size of the CBA to a little over 4,000 square miles. The average 
size of the 130 CBAs is approximately 2,900 square miles. The third 
largest CBA is the Dallas-Fort Worth-Arlington, Texas CBA with 
approximately 9,100 square miles. The Dallas-Fort Worth-Arlington, 
Texas MSA and is made up of the two metropolitan divisions of Dallas-
Plano-Irving (approximately 5,000 square miles over eight counties) and 
Fort Worth-Arlington (approximately 4,000 square miles over seven 
counties). This CBA could potentially be divided into two new CBAs 
based on the metropolitan divisions. The other six CBAs with more than 
7,000 square miles are Riverside-San Bernardino-Ontario, California 
(approximately 8,900 square miles), Houston-The Woodlands-Sugar Land, 
Texas (approximately 8,800 square miles), Bakersfield, California 
(approximately 8,100 square miles), Salt Lake City, Utah (approximately 
7,500 square miles), San Antonio-New Braunfels, Texas (approximately 
7,300 square miles), and Atlanta-Sandy Springs-Roswell, Georgia 
(approximately 7,300 square miles).
    We are soliciting feedback on whether certain large CBAs should be 
subdivided to make the areas more manageable to serve. One result of 
subdividing the CBAs and creating more CBAs is that suppliers who wish 
to bid for furnishing items and services in all of the areas that 
formerly would have been one area would have to incur the cost and 
effort of obtaining multiple bid surety bonds for the new areas rather 
than one bid surety bond.

VI. Adjustments to DMEPOS Fee Schedule Amounts Based on Information 
From the DMEPOS CBP

A. Background

    Section 16008 of the 21st Century Cures Act (the Cures Act) (Pub. 
L. 114-255) was enacted on December 13, 2016, and amended section 
1834(a)(1)(G) of the Act to require in the case of items and services 
furnished in non-CBAs on or after January 1, 2019, that in making any 
adjustments to the fee schedule amounts in accordance with sections 
1834(a)(1)(F)(ii) and (iii), 1834(a)(1)(H)(ii), or 1842(s)(3)(B) of the 
Act, the Secretary shall: (1) Solicit and take into account stakeholder 
input; and (2) take into account the highest bid by a winning supplier 
in a CBA and a comparison of each of the following factors with respect 
to non-CBAs and CBAs:
     The average travel distance and cost associated with 
furnishing items and services in the area.
     The average volume of items and services furnished by 
suppliers in the area.
     The number of suppliers in the area.
1. Stakeholder Input Gathered in Accordance With Section 16008 of the 
Cures Act
    Section 16008 of the Cures Act mandates that we solicit and take 
into

[[Page 34360]]

account stakeholder input in making adjustments to fee schedule amounts 
for items furnished on or after January 1, 2019, based on information 
from the CBP. In order to solicit stakeholder input, we announced that 
we would be hosting a Medicare Learning Network (MLN) 
ConnectsTM National Provider Call (MLN Connects Call), which 
are educational conference calls conducted for the Medicare provider 
and supplier community that educate and inform participants about new 
policies and/or changes to the Medicare program. We announced this call 
through multiple CMS listservs throughout March 2017, in order to get 
the word out as quickly and directly as possible to our stakeholders. 
On March 23, 2017, CMS hosted a national provider call to solicit 
stakeholder input regarding adjustments to fee schedule amounts using 
information from the DMEPOS CBP. The national provider call was 
announced on March 3, 2017, and we requested written comments by April 
6, 2017.
    We received 125 written comments from stakeholders. More than 330 
participants called into our national provider call, with 23 
participants providing oral comments during the call. In general, the 
commenters were mostly suppliers, but also included manufacturers, 
trade organizations, and healthcare providers such as physical and 
occupational therapists. These stakeholders expressed concerns that the 
level of the adjusted payment amounts constrains suppliers from 
furnishing items and services to rural areas. Stakeholders requested an 
increase to the adjusted payment amounts for these areas. The written 
comments generally echoed the oral comments from the call held on March 
23, 2017, whereby stakeholders claimed that the adjusted fees are not 
sufficient to cover the costs of furnishing items and services in non-
CBAs and that this is having an impact on access to items and services 
in these areas.
    The oral and written comments are organized into the following 
categories:
    Inadequacy of Adjusted Fee Schedule Amounts: Commenters claim the 
adjusted fee schedule amounts do not cover the cost of furnishing the 
items and are not sustainable. Many commenters opposed the current 
adjusted payment amounts as insufficient to sustain the current cost of 
doing business. Some commenters stated that current reimbursement 
levels are below the cost of doing business. Many commenters stated 
they were billing non-assigned for items, or were considering billing 
non-assigned in the future.
    Travel Distance: Commenters claim the average travel distance and 
cost for suppliers serving rural areas are greater than the average 
travel distance and cost for suppliers serving CBAs. Many commenters 
described farther travel distances in rural areas than in non-rural 
areas. (For the purpose of implementing the fee schedule adjustment 
methodologies at Sec.  414.210(g), the term ``rural area'' is defined 
at Sec.  414.202 and essentially includes any areas outside an MSA or 
excluded from a CBA).
    Volume of Services: Many commenters asserted that the average 
volume of services furnished by suppliers, when serving non-CBAs, are 
lower than the average volume of services furnished by suppliers, when 
serving CBAs. Many commenters stated that they do not get the same 
increase in volume that suppliers who obtain competitive bidding 
contracts get, which does not allow them to have economies of scale and 
obtain products at lower costs.
    Beneficiary Access: Many commenters stated that the adjusted fees 
have reduced the number of suppliers in the area, and that this has 
caused or will cause beneficiary access issues. Some commenters claimed 
that they were the only supplier in the area.
    Adverse Beneficiary Health Outcomes: Commenters stated that 
beneficiaries are going without items and this is causing adverse 
health outcomes. Commenters stated that hospital readmissions and 
lengths of stay, falls, and fractures are increasing as a result of the 
fee schedule reductions.
    Delivery Expenses: A few commenters provided an estimate of how 
much their delivery expenses cost, their estimated service radius, and 
the average distance traveled. Several commenters stated that they have 
reduced the size of their service area due to the level of 
reimbursement that they are receiving.
    Costs in Rural Areas: Many commenters stated rural areas have 
unique costs, costs that are higher than non-rural areas. Similar to 
comments received on our CY 2015 ESRD PPS proposed rule (79 FR 40275 
through 40315) and discussed in the CY 2015 ESRD PPS final rule (79 FR 
66223 through 66265), some commenters stated that a 10 percent payment 
increase in rural areas is not enough to cover costs in rural areas. 
One commenter stated that non-contiguous areas, such as Alaska and 
Hawaii, face unique and greater costs due to higher shipping costs, a 
smaller amount of suppliers, and more logistical challenges related to 
delivery. Some commenters stated specific costs, as well as data 
sources, that CMS should take into account when adjusting fees in non-
CBAs. These included the following: Geographic wage index factors, gas, 
taxes, employee wages and benefits, wear and tear of vehicle, average 
per capita income, training, delivery, set up, historical Medicare home 
placement volume, proximity to nearby CBAs, employing a respiratory 
therapist, electricity charges, freight charges, 24/7 service, 
documentation requirements, average per patient cost, licensing 
accreditation, surety bonds, audits, population density, miles and time 
between points of service, regulatory costs, vehicle insurance, and 
liability insurance.
    Two commenters pointed to the Ambulance Fee Schedule and one 
commenter pointed to the Bureau of Labor Statistic Consumer Expenditure 
Survey as evidence that health care costs in rural areas are higher 
than in urban areas. Another commenter mentioned the Internal Revenue 
Service Mileage Rate, the minimum wage, AAA Gallon of Gasoline prices, 
and the price of a loaf of white bread, to highlight how the prices of 
such items have increased over the years, while reimbursement for DME 
has not.
    Using the Highest Winning Bids for the Adjusted Fee Schedule 
Methodology: Five commenters suggested that the adjusted fee schedule 
amounts be based on maximum winning bids in CBAs rather than the median 
of winning bids in CBAs. One commenter suggested that the maximum 
winning bids should be the starting point for the adjustments and that 
additional payment should be added on to these amounts to pay for the 
higher costs of furnishing items and services in non-CBAs.
2. Highest Winning Bids in CBAs Analysis
    Section 16008 of the Cures Act mandates that we take into account 
the highest amount bid by a winning supplier in a CBA in making 
adjustments to fee schedule amounts for items furnished on or after 
January 1, 2019, based on information from the CBP. We considered the 
highest amounts bid by a winning supplier for a specific item (maximum 
bid) in the various CBAs in Round 1 2017 and Round 2 Recompete to see 
if maximum bids varied in different types of areas (that is, low volume 
versus high volume areas, large versus small delivery service areas, 
areas with few suppliers versus many suppliers). We analyzed maximum 
bids for the lead items in each product category (those with the

[[Page 34361]]

highest allowed charges) and for other lower volume items. For lower 
volume items with low item weights, suppliers had less of an incentive 
to bid low on these items and therefore the maximum bids for many of 
these items are not significantly below the unadjusted fee schedule 
amounts.
    For the lead items, we focused primarily on items that clearly are 
delivered locally such as large bulky hospital beds and oxygen 
equipment (concentrators and tanks) since variations in maximum bid 
amounts from CBA to CBA due to differences in travel distances and 
costs would be most noticeable for these items. There are 130 CBAs in 
total in Round 1 2017 and Round 2 Recompete varying greatly in size, 
volume, and number of suppliers. What we found is that there is no 
pattern indicating that maximum bids are higher for larger areas with 
lower volume than they are for smaller areas with higher volume.
    Table 25 lists the 130 maximum bids for code E0260 (semi-electric 
hospital bed). We ranked the CBAs/bids from the largest maximum bid for 
E0260 to the lowest maximum bid for E0260. The average volume per 
supplier for each item is also included and ranked from 1 (lowest 
average volume per supplier) to 130 (highest average volume per 
supplier). We looked to see if lower average volumes (for example, 
rankings 1, 2, 3, etc.) corresponded with higher maximum bid amounts. 
We also looked to see if larger areas (for example, rankings 1, 2, 3, 
etc.) corresponded with higher maximum bid amounts.

                                   Table 25--Maximum Bid Amounts in Round 1 2017 and Round 2 Recompete for Code E0260
                                                              [Semi-Electric Hospital Bed]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Maximum                      Average E0260    Volume rank
                        Area name                             Size in        Size rank      winning bid   Max E0260  bid   services per    (low to high)
                                                           square miles                        E0260           rank        supplier \1\        E0260
--------------------------------------------------------------------------------------------------------------------------------------------------------
Salt Lake City UT.......................................           7,473               7       $1,343.79               1              37              23
Ocala FL................................................           1,585              88        1,325.00               2              33              17
Albuquerque NM..........................................           6,287              10        1,303.00               3              35              19
Charlotte-Concord-Gastonia NC...........................           3,788              37        1,276.61               4              75              68
Kansas City MO..........................................           4,572              25        1,207.50               5              51              36
Seattle-Tacoma-Bellevue WA..............................           5,872              14        1,199.00               6              34              18
Wichita KS..............................................           4,149              29        1,100.00               7              61              53
Knoxville TN............................................           3,501              39        1,100.00               7              49              33
Honolulu HI.............................................             601             124        1,075.00               9              46              30
Portland-Hillsboro-Beaverton OR.........................           4,399              26        1,000.00              10              61              52
McAllen-Edinburg-Mission TX.............................           1,571              90          950.00              11             127             107
Colorado Springs CO.....................................           2,684              52          941.00              12              22               3
Nashville-Davidson-Murfreesboro-Franklin TN.............           6,036              12          940.00              13              68              60
Phoenix-Mesa-Scottsdale AZ..............................          12,036               1          924.82              14              79              73
Riverside-San Bernardino-Ontario CA.....................           8,900               4          920.00              15              53              37
Bridgeport-Stamford-Norwalk CT..........................             625             122          897.23              16              84              77
Orlando-Kissimmee-Sanford FL............................           3,478              40          873.47              17              67              57
Tampa-St. Petersburg-Clearwater FL......................           2,513              55          850.00              18              85              78
Boise City ID...........................................          11,766               2          850.00              18              31              14
Hartford-West Hartford-East Hartford CT.................           1,515              94          843.92              20             138             110
Los Angeles County CA...................................           2,232              65          840.60              21             109              96
New Haven-Milford CT....................................             605             123          829.62              22             157             117
Boston-Cambridge-Quincy MA..............................           2,424              59          828.19              23             166             119
Kansas City-Overland Park-Ottawa KS.....................           2,829              48          819.00              24              36              20
Denver-Aurora-Lakewood CO...............................           3,906              34          818.11              25              24               6
Chicago-Naperville-Arlington Heights IL.................           1,273             103          818.10              26             328             130
Wilmington DE...........................................             426             127          817.41              27             156             116
Fresno CA...............................................           5,958              13          816.78              28              30              12
Worcester MA............................................           1,511              95          814.00              29              57              46
Jeffersonville-New Albany IN............................           1,709              82          811.56              30              95              87
Scranton-Wilkes-Barre-Hazleton PA.......................           1,747              81          807.35              31             142             112
Greensboro-High Point NC................................           1,994              73          805.31              32              73              65
Indianapolis-Carmel-Anderson IN.........................           3,994              33          800.00              33             120             101
Minneapolis-St. Paul-Bloomington MN.....................           4,731              23          800.00              33              94              86
El Paso TX..............................................           1,013             112          800.00              33              74              66
Austin-Round Rock TX....................................           4,220              27          800.00              33              58              47
Beaumont-Port Arthur TX.................................           3,034              46          800.00              33              37              24
Lakeland-Winter Haven FL................................           1,798              80          798.88              38              71              63
Deltona-Daytona Beach-Ormond Beach FL...................           1,586              87          798.88              38              45              29
Silver Spring-Rockville-Bethesda MD.....................           1,152             105          789.00              40             104              93
Augusta-Richmond County GA..............................           1,909              76          787.00              41             101              90
Atlanta-Sandy Springs-Roswell GA........................           7,275               9          787.00              41              92              84
Columbia SC.............................................           3,250              43          787.00              41              74              67
Greenville-Anderson-Mauldin SC..........................           2,711              51          787.00              41              69              61
Memphis TN..............................................           1,926              74          785.00              45             119             100
Omaha NE................................................           2,265              63          780.65              46              28               8
Council Bluffs IA.......................................           2,085              70          780.65              46              14               1
Chester Lancaster-York Counties SC......................           1,810              79          780.00              48              30              10
Oklahoma City OK........................................           5,512              15          778.68              49              59              49
Birmingham-Hoover AL....................................           5,280              17          776.79              50              86              79

[[Page 34362]]

 
Chattanooga TN..........................................           1,306              99          776.27              51              45              27
Washington DC...........................................              61             130          765.00              52             110              97
Miami-Fort Lauderdale-West Palm Beach FL................           5,077              20          760.20              53             159             118
Jacksonville FL.........................................           3,201              45          752.90              54             115              99
Jackson MS..............................................           4,649              24          752.90              55              82              74
Baton Rouge LA..........................................           4,027              32          752.90              55              61              51
South Haven-Olive Branch MS.............................           2,448              57          752.90              55              55              40
Cape Coral-Fort Myers FL................................             785             118          752.90              55              37              22
East St. Louis IL.......................................           3,845              36          750.00              59              59              48
Catoosa Dade-Walker Counties GA.........................             783             119          750.00              59              24               5
Pittsburgh PA...........................................           5,282              16          749.00              61             121             103
Raleigh NC..............................................           2,118              68          748.00              62              70              62
Charleston-North Charleston SC..........................           2,588              54          748.00              62              60              50
Aiken-Edgefield Counties SC.............................           1,571              90          748.00              62              56              43
Syracuse NY.............................................           2,385              61          742.50              65              50              34
St. Louis MO............................................           5,267              18          739.22              66              57              45
Nassau Kings Queens-Richmond Counties NY................             522             126          739.09              67             253             126
Palm Bay-Melbourne-Titusville FL........................           1,016             111          739.09              67              67              56
Rockingham-Strafford Counties NH........................           1,064             107          738.98              67              53              38
Milwaukee-Waukesha-West Allis WI........................           1,455              96          733.74              70              84              76
Las Vegas-Henderson-Paradise NV.........................           1,578              89          733.01              71              47              31
Providence RI...........................................           1,034             109          728.84              72              63              55
Huntington WV...........................................           1,570              92          728.75              73              54              39
Dearborn Franklin Ohio-Union Counties IN................             937             113          728.70              74              31              15
Mercer County PA........................................             673             120          725.00              75              33              16
Aurora-Elgin-Joliet IL..................................           2,727              50          720.00              76             120             102
Gary IN.................................................           1,878              77          719.99              77             124             105
Houston-The Woodlands-Sugar Land TX.....................           8,827               5          714.06              78             129             108
Tulsa OK................................................           6,269              11          710.00              79              76              70
Visalia-Porterville CA..................................           3,377              41          705.49              80             113              98
San Francisco-Oakland-Hayward CA........................           2,471              56          705.49              80              92              85
San Jose-Sunnyvale-Santa Clara CA.......................           2,679              53          705.49              80              30              13
San Diego-Carlsbad CA...................................           4,207              28          705.49              80              30              11
Cleveland-Elyria OH.....................................           1,997              72          705.00              84             180             122
New Orleans-Metairie LA.................................           2,422              60          705.00              84             126             106
Pierce-St. Croix Counties WI............................           1,296             101          703.14              86              19               2
Louisville-Jefferson County KY..........................           2,440              58          700.00              87             139             111
Dayton OH...............................................           1,706              83          700.00              87             103              92
Cincinnati OH...........................................           2,216              66          700.00              87             101              89
Albany-Schenectady-Troy NY..............................           2,812              49          700.00              87              95              88
Columbus OH.............................................           4,797              22          700.00              87              87              80
Youngstown-Warren-Boardman OH...........................           1,030             110          700.00              87              63              54
Dallas-Fort Worth-Arlington TX..........................           9,091               3          697.17              93             142             113
Baltimore-Columbia-Towson MD............................           2,948              47          695.52              94             190             123
Asheville NC............................................           2,033              71          691.83              95              51              35
Bakersfield CA..........................................           8,132               6          690.00              96              24               7
Calvert Charles-Prince Georges Counties MD..............           1,154             104          688.85              97             101              91
Suffolk County NY.......................................             912             114          687.05              98             168             120
Port Chester-White Plains-Yonkers NY....................             834             116          687.05              98             129             109
Akron OH................................................             900             115          683.00             100              90              83
Philadelphia PA.........................................           2,156              67          682.71             101             308             129
Buffalo-Cheektowaga-Niagara Falls NY....................           1,565              93          680.00             102              90              82
Rochester NY............................................           3,266              42          680.00             102              77              72
Jersey City-Newark NJ...................................           1,926              74          675.00             104             258             128
Elizabeth-Lakewood-New Brunswick NJ.....................           2,239              64          675.00             104             258             127
Detroit-Warren-Dearborn MI..............................           3,888              35          675.00             104             216             125
Flint MI................................................             637             121          675.00             104              83              75
Grand Rapids-Wyoming MI.................................           4,053              31          675.00             104              76              69
Arlington-Alexandria-Reston VA..........................           3,226              44          675.00             104              72              64
Richmond VA.............................................           4,897              21          675.00             104              49              32
Sacramento-Roseville-Arden-Arcade CA....................           5,094              19          674.00             111             151             115
Orange County CA........................................             791             117          674.00             111              68              59
Oxnard-Thousand Oaks-Ventura CA.........................           1,290             102          674.00             111              56              44
Stockton-Lodi CA........................................           1,391              98          674.00             111              37              21

[[Page 34363]]

 
San Antonio-New Braunfels TX............................           7,313               8          671.50             115              29               9
Camden NJ...............................................           1,674              84          670.00             116             209             124
Bronx-Manhattan NY......................................              65             129          670.00             116             150             114
Virginia Beach-Norfolk-Newport News VA..................           2,089              69          670.00             116              77              71
North Port-Sarasota-Bradenton FL........................           1,299             100          667.98             119              45              28
Toledo OH...............................................           1,618              85          664.58             120              55              41
Covington-Florence-Newport KY...........................           1,400              97          658.46             121              55              42
Lake-McHenry Counties IL................................           1,047             108          629.90             122             107              95
Allentown-Bethlehem-Easton PA...........................           1,096             106          625.00             123             172             121
Poughkeepsie-Newburgh-Middletown NY.....................           1,607              86          625.00             123              67              58
Kenosha County WI.......................................             272             128          618.78             125              23               4
Bristol County MA.......................................             553             125          600.00             126             105              94
Springfield MA..........................................           1,844              78          574.29             127             121             104
Little Rock-North Little Rock-Conway AR.................           4,085              30          574.29             127              90              81
Tucson AZ...............................................           3,675              38          574.29             127              42              26
Vancouver WA............................................           2,285              62          574.29             127              40              25
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ 2016 allowed services.

    We found no correlation between the size of the areas and/or 
average volume per supplier and maximum bid amounts for code E0260. The 
lowest volume CBA (Council Bluffs, Iowa) had the 46th highest maximum 
bid for E0260 and the second lowest volume CBA (Pierce-St. Croix 
Counties Wisconsin) had the 86th highest maximum bid for E0260. The 
highest maximum bid for E0260 was from the 7,437 square mile area for 
Salt Lake City, Utah (the 7th largest area), but the second highest 
maximum bid for E0260 was from the 1,585 square mile area for Ocala, 
Florida (the 88th largest area).
    We also analyzed the maximum bids for E0260 for states with at 
least 7 CBAs to see if there was any correlation between maximum bid 
amounts and area size, average volume per supplier, or number of 
suppliers and did not see any correlation between the maximum bids and 
these factors. California has 12 CBAs ranging in size from 791 to 8,900 
square miles. Bakersfield, one of the CBAs, has the second largest 
service area (8,132 square miles) and lowest average volume per 
supplier for E0260 in 2016 (24) in California, but the maximum winning 
bid for E0260 for Bakersfield was lower than the maximum winning bids 
for seven of the eleven other CBAs, all having smaller service areas as 
well, with the exception of Riverside (8,900 square miles). See Table 
26.

                            Table 26--Round 1 2017 and Round 2 Recompete California CBA Comparison and Maximum Bids for E0260
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                              Average
                                                           Service area                       Allowed        Number of        allowed      Maximum  bid
                          Area                            (square miles)    Population     services  in    suppliers  in   services per       (E0260)
                                                                                           2016  (E0260)   2016  (E0260)     supplier
--------------------------------------------------------------------------------------------------------------------------------------------------------
Bakersfield.............................................           8,132         839,631             462              19              24         $690.00
Fresno..................................................           5,958         930,450             571              19              30          816.78
San Diego...............................................           4,207       3,095,313           1,360              46              30          705.49
San Jose................................................           2,679       1,836,911             913              30              30          705.49
Stockton-Lodi...........................................           1,391         685,306             586              16              37          674.00
Riverside...............................................           8,900       4,224,851           2,838              54              53          920.00
Oxnard..................................................           1,290         823,318           1,124              20              56          674.00
Orange County...........................................             791       3,010,232           2,596              38              68          674.00
San Francisco...........................................           2,471       4,335,391           5,729              62              92          705.49
Los Angeles County......................................           2,232       9,818,605          11,509             106             109          840.60
Visalia-Porterville.....................................           3,377         442,179             907               8             113          705.49
Sacramento..............................................           5,094       2,149,127           5,434              36             151          674.00
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Florida has 10 CBAs ranging in size from 785 to 5,077 square miles. 
Ocala, one of the CBAs, has the lowest volume per supplier and the 
highest maximum bid in Florida. However, North Point and Deltona have 
much lower maximum bids for E0260 but only slightly higher volume and 
number of suppliers and are the same size as the Ocala CBA. See Table 
27.

[[Page 34364]]



                             Table 27--Round 1 2017 and Round 2 Recompete Florida CBA Comparison and Maximum Bids for E0260
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                              Average
                                                           Service area                       Allowed        Number of        allowed      Maximum  bid
                          Area                            (square miles)    Population     services  in    suppliers  in   services per       (E0260)
                                                                                           2016  (E0260)   2016  (E0260)     supplier
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ocala...................................................           1,585         331,303           1,195              36              33       $1,325.00
Cape Coral-Fort Myers...................................             785         618,754           1,189              32              37          752.90
North Port-Sarasota.....................................           1,299         702,281           2,177              48              45          667.98
Deltona.................................................           1,586         590,289           2,223              49              45          798.88
Orlando.................................................           3,478       2,134,406           6,593              98              67          873.47
Palm Bay-Melbourne......................................           1,016         543,376           2,416              36              67          739.09
Lakeland................................................           1,798         602,095           2,636              37              71          798.88
Tampa-St. Petersburg....................................           2,513       2,783,243           8,059              95              85          850.00
Jacksonville............................................           3,201       1,345,596           5,163              45             115          752.90
Miami...................................................           5,077       5,564,657          20,183             127             159          760.20
--------------------------------------------------------------------------------------------------------------------------------------------------------

    New York has 9 CBAs ranging in size from 65 to 3,266 square miles. 
Syracuse, one of the CBAs, has the lowest volume and highest maximum 
bid in New York for E0260. By contrast, the Nassau CBA has a much 
higher volume for E0260 and a smaller service area than the Syracuse 
CBA, but a maximum bid for E0260 that is very close to the maximum bid 
for E0260 for the Syracuse CBA. See Table 28.

                                     Table 28--Round 2 Recompete New York CBA Comparison and Maximum Bids for E0260
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                              Average
                                                           Service area                       Allowed        Number of        allowed      Maximum  bid
                          Area                            (square miles)    Population     services  in    suppliers  in   services per       (E0260)
                                                                                           2016  (E0260)   2016  (E0260)     supplier
--------------------------------------------------------------------------------------------------------------------------------------------------------
Syracuse................................................           2,385         662,577           1,599              32              50         $742.50
Poughkeepsie............................................           1,607         670,301           2,291              34              67          625.00
Rochester...............................................           3,266       1,079,671           2,382              31              77          680.00
Buffalo.................................................           1,565       1,135,509           1,983              22              90          680.00
Albany..................................................           2,812         870,716           2,854              30              95          700.00
Port Chester............................................             834       1,360,510           6,591              51             129          687.05
Bronx-Manhattan.........................................              65       2,970,981           9,884              66             150          670.00
Suffolk County..........................................             912       1,493,350           6,231              37             168          687.05
Nassau Kings Queens.....................................             522       6,543,684          25,839             102             253          739.09
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Ohio has 7 CBAs ranging in size from 900 to 4,797 square miles. 
Four of the CBAs have the same maximum bid for E0260 ($700), yet the 
areas are not similar in size, volume, or number of suppliers. See 
Table 29.

                               Table 29--Round 1 2017 and Round 2 Recompete Ohio CBA Comparison and Maximum Bids for E0260
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                              Average
                                                           Service area                       Allowed        Number of        allowed      Maximum  bid
                          Area                            (square miles)    Population     services  in    suppliers  in   services per       (E0260)
                                                                                           2016  (E0260)   2016  (E0260)     supplier
--------------------------------------------------------------------------------------------------------------------------------------------------------
Toledo..................................................           1,618         651,429           1,649              30              55         $664.58
Youngstown..............................................           1,030         449,130           1,199              19              63          700.00
Columbus................................................           4,797       1,901,974           5,409              62              87          700.00
Akron...................................................             900         703,200           2,350              26              90          683.00
Cincinnati..............................................           2,216       1,625,406           4,530              45             101          700.00
Dayton..................................................           1,706         841,502           3,705              36             103          700.00
Cleveland...............................................           1,997       2,077,245          10,623              59             180          705.00
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Finally, Texas has 7 CBAs ranging in size from 1,013 to 9,091 
square miles. The San Antonio CBA has the lowest volume for E0260 and 
is a large area, but has the lowest maximum bid amount for E0260 in 
Texas. The McAllen CBA has the highest maximum bid amount for E0260, 
but is much smaller and has a much higher average volume per supplier 
for E0260 than the San Antonio CBA. See Table 30.

                              Table 30--Round 1 2017 and Round 2 Recompete Texas CBA Comparison and Maximum Bids for E0260
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                              Average
                                                           Service area                       Allowed        Number of        allowed      Maximum  bid
                          Area                            (square miles)    Population     services  in    suppliers  in   services per       (E0260)
                                                                                           2016  (E0260)   2016  (E0260)     supplier
--------------------------------------------------------------------------------------------------------------------------------------------------------
San Antonio.............................................           7,313       2,142,508           1,026              35              29         $671.50

[[Page 34365]]

 
Beaumont-Port Arthur....................................           3,034         403,190             894              24              37          800.00
Austin..................................................           4,220       1,716,289           2,599              45              58          800.00
El Paso.................................................           1,013         800,647           1,110              15              74          800.00
McAllen.................................................           1,571         774,773           2,279              18             127          950.00
Houston.................................................           8,827       5,946,800          11,353              88             129          714.06
Dallas..................................................           9,091       6,417,724          14,362             101             142          697.17
--------------------------------------------------------------------------------------------------------------------------------------------------------

    We did not find any correlation between maximum winning bid amounts 
for code E0260 and the size of a service area or between maximum 
winning bid amounts for code E0260 and the volume of items and services 
furnished by suppliers in various areas.
    Table 31 lists the 130 maximum bids in Round 1 2017 and Round 2 
Recompete for code E1390 (oxygen concentrators and portable oxygen 
contents or tanks).

                                                   Table 31--Maximum Bid Amounts for HCPCS Code E1390
                                                    [Oxygen concentrator and portable contents/tanks]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Maximum                      Average E1390    Volume rank
                        Area name                             Size in        Size rank      winning bid   Max E1390  bid   services per    (low to high)
                                                           square miles                        E1390           rank        supplier \1\        E1390
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cape Coral-Fort Myers, FL...............................             785             118         $135.50               1             108               7
Seattle-Tacoma-Bellevue, WA.............................           5,872              14          134.17               2             222              79
Birmingham-Hoover, AL...................................           5,280              17          132.52               3             174              49
Hartford-West Hartford-East Hartford, CT................           1,515              94          130.28               4             287             108
Albuquerque, NM.........................................           6,287              10          123.00               5             224              81
Jeffersonville-New Albany, IN...........................           1,709              82          117.60               6             278             102
Gary, IN................................................           1,878              77          117.60               6             279             103
Indianapolis-Carmel-Anderson, IN........................           3,994              33          115.00               8             357             122
North Port-Sarasota-Bradenton, FL.......................           1,299             100          110.50               9             136              19
Nashville-Davidson-Murfreesboro-Franklin, TN............           6,036              12          109.00              10             185              57
Miami-Fort Lauderdale-West Palm Beach, FL...............           5,077              20          109.00              10             199              65
Salt Lake City, UT......................................           7,473               7          106.00              12             375             126
Ocala, FL...............................................           1,585              88          106.00              12             108               7
Charlotte-Concord-Gastonia, NC..........................           3,788              37          106.00              12             243              89
Kansas City, MO.........................................           4,572              25          106.00              12             315             115
Wichita, KS.............................................           4,149              29          106.00              12             412             130
Knoxville, TN...........................................           3,501              39          106.00              12             217              76
Portland-Hillsboro-Beaverton, OR........................           4,399              26          106.00              12             132              16
McAllen-Edinburg-Mission, TX............................           1,571              90          106.00              12              80               2
Colorado Springs, CO....................................           2,684              52          106.00              12             368             124
Phoenix-Mesa-Scottsdale, AZ.............................          12,036               1          106.00              12             168              44
Riverside-San Bernardino-Ontario, CA....................           8,900               4          106.00              12             188              61
Bridgeport-Stamford-Norwalk, CT.........................             625             122          106.00              12             234              84
Tampa-St. Petersburg-Clearwater, FL.....................           2,513              55          106.00              12             202              67
Boise City, ID..........................................          11,766               2          106.00              12             147              24
Los Angeles County, CA..................................           2,232              65          106.00              12             202              67
New Haven-Milford, CT...................................             605             123          106.00              12             237              87
Boston-Cambridge-Quincy, MA.............................           2,424              59          106.00              12             349             121
Kansas City-Overland Park-Ottawa, KS....................           2,829              48          106.00              12             275             100
Denver-Aurora-Lakewood, CO..............................           3,906              34          106.00              12             365             123
Chicago-Naperville-Arlington Heights, IL................           1,273             103          106.00              12             377             127
Fresno, CA..............................................           5,958              13          106.00              12             280             105
Worcester, MA...........................................           1,511              95          106.00              12             226              82
Minneapolis-St. Paul-Bloomington, MN....................           4,731              23          106.00              12             152              30
El Paso, TX.............................................           1,013             112          106.00              12             178              52
Austin-Round Rock, TX...................................           4,220              27          106.00              12             143              22
Beaumont-Port Arthur, TX................................           3,034              46          106.00              12             171              47
Lakeland-Winter Haven, FL...............................           1,798              80          106.00              12             115              10
Deltona-Daytona Beach-Ormond Beach, FL..................           1,586              87          106.00              12             123              13
Silver Spring-Rockville-Bethesda, MD....................           1,152             105          106.00              12             132              16
Atlanta-Sandy Springs-Roswell, GA.......................           7,275               9          106.00              12             236              86
Columbia, SC............................................           3,250              43          106.00              12             186              58

[[Page 34366]]

 
Memphis, TN.............................................           1,926              74          106.00              12             297             111
Omaha, NE...............................................           2,265              63          106.00              12             170              46
Council Bluffs, IA......................................           2,085              70          106.00              12             148              26
Oklahoma City, OK.......................................           5,512              15          106.00              12             286             106
Chattanooga, TN.........................................           1,306              99          106.00              12             176              51
Washington, DC..........................................              61             130          106.00              12             113               9
Jacksonville, FL........................................           3,201              45          106.00              12             187              59
Jackson, MS.............................................           4,649              24          106.00              12             150              27
Baton Rouge, LA.........................................           4,027              32          106.00              12             166              39
South Haven-Olive Branch, MS............................           2,448              57          106.00              12             214              74
East St. Louis, IL......................................           3,845              36          106.00              12             258              92
Pittsburgh, PA..........................................           5,282              16          106.00              12             327             120
Charleston-North Charleston, SC.........................           2,588              54          106.00              12             153              31
Aiken-Edgefield Counties, SC............................           1,571              90          106.00              12              96               3
St. Louis, MO...........................................           5,267              18          106.00              12             315             115
Nassau Kings Queens-Richmond Counties, NY...............             522             126          106.00              12             216              75
Palm Bay-Melbourne-Titusville, FL.......................           1,016             111          106.00              12             157              34
Rockingham-Strafford Counties, NH.......................           1,064             107          106.00              12             197              64
Milwaukee-Waukesha-West Allis, WI.......................           1,455              96          106.00              12             268              99
Providence, RI..........................................           1,034             109          106.00              12             221              77
Huntington, WV..........................................           1,570              92          106.00              12             223              80
Dearborn Franklin Ohio-Union Counties, IN...............             937             113          106.00              12             106               5
Aurora-Elgin-Joliet, IL.................................           2,727              50          106.00              12             191              62
Houston-The Woodlands-Sugar Land, TX....................           8,827               5          106.00              12             207              69
Tulsa, OK...............................................           6,269              11          106.00              12             226              82
Visalia-Porterville, CA.................................           3,377              41          106.00              12             398             128
San Francisco-Oakland-Hayward, CA.......................           2,471              56          106.00              12             166              39
San Jose-Sunnyvale-Santa Clara, CA......................           2,679              53          106.00              12             130              15
San Diego-Carlsbad, CA..................................           4,207              28          106.00              12             159              35
Cleveland-Elyria, OH....................................           1,997              72          106.00              12             407             129
New Orleans-Metairie, LA................................           2,422              60          106.00              12             160              36
Pierce-St. Croix Counties, WI...........................           1,296             101          106.00              12              72               1
Dayton, OH..............................................           1,706              83          106.00              12             235              85
Cincinnati, OH..........................................           2,216              66          106.00              12             311             112
Albany-Schenectady-Troy, NY.............................           2,812              49          106.00              12             263              94
Columbus, OH............................................           4,797              22          106.00              12             199              65
Dallas-Fort Worth-Arlington, TX.........................           9,091               3          106.00              12             262              93
Baltimore-Columbia-Towson, MD...........................           2,948              47          106.00              12             324             118
Bakersfield, CA.........................................           8,132               6          106.00              12             164              38
Calvert-Charles-Prince Georges Counties, MD.............           1,154             104          106.00              12             178              52
Suffolk County, NY......................................             912             114          106.00              12             208              70
Port Chester-White Plains-Yonkers, NY...................             834             116          106.00              12             153              31
Philadelphia, PA........................................           2,156              67          106.00              12             326             119
Buffalo-Cheektowaga-Niagara Falls, NY...................           1,565              93          106.00              12             286             106
Rochester, NY...........................................           3,266              42          106.00              12             171              47
Detroit-Warren-Dearborn, MI.............................           3,888              35          106.00              12             322             117
Grand Rapids-Wyoming, MI................................           4,053              31          106.00              12             183              54
Arlington-Alexandria-Reston, VA.........................           3,226              44          106.00              12             166              39
Richmond, VA............................................           4,897              21          106.00              12             275             100
Sacramento-Roseville-Arden-Arcade, CA...................           5,094              19          106.00              12             210              72
Orange County, CA.......................................             791             117          106.00              12             134              18
Oxnard-Thousand Oaks-Ventura, CA........................           1,290             102          106.00              12             140              20
San Antonio-New Braunfels, TX...........................           7,313               8          106.00              12             210              72
Bronx-Manhattan, NY.....................................              65             129          106.00              12              97               4
Virginia Beach-Norfolk-Newport News, VA.................           2,089              69          106.00              12             253              91
Covington-Florence-Newport, KY..........................           1,400              97          106.00              12             167              42
Lake-McHenry Counties, IL...............................           1,047             108          106.00              12             183              55
Kenosha County, WI......................................             272             128          106.00              12             161              37
Bristol County, MA......................................             553             125          106.00              12             264              97
Springfield, MA.........................................           1,844              78          106.00              12             252              90
Tucson, AZ..............................................           3,675              38          106.00              12             141              21
Vancouver, WA...........................................           2,285              62          106.00              12             121              11
Raleigh, NC.............................................           2,118              68          105.00             105             127              14
Asheville, NC...........................................           2,033              71           94.00             106             312             114

[[Page 34367]]

 
Honolulu, HI............................................             601             124           92.66             107             107               6
Las Vegas-Henderson-Paradise, NV........................           1,578              89           92.27             108             191              62
Orlando-Kissimmee-Sanford, FL...........................           3,478              40           92.00             109             175              50
Greensboro-High Point, NC...............................           1,994              73           86.84             110             169              45
Poughkeepsie-Newburgh-Middletown, NY....................           1,607              86           85.35             111             147              24
Augusta-Richmond County, GA.............................           1,909              76           85.00             112             155              33
Allentown-Bethlehem-Easton, PA..........................           1,096             106           85.00             112             263              94
Flint, MI...............................................             637             121           84.29             114             150              27
Greenville-Anderson-Mauldin, SC.........................           2,711              51           83.44             115             263              94
Chester Lancaster-York Counties, SC.....................           1,810              79           83.44             115             150              27
Scranton-Wilkes-Barre-Hazleton, PA......................           1,747              81           83.00             117             311             112
Louisville-Jefferson County, KY.........................           2,440              58           83.00             117             373             125
Little Rock-North Little Rock-Conway, AR................           4,085              30           83.00             117             279             103
Stockton-Lodi, CA.......................................           1,391              98           82.15             120             122              12
Wilmington, DE..........................................             426             127           82.00             121             209              71
Mercer County, PA.......................................             673             120           82.00             121             143              22
Jersey City-Newark, NJ..................................           1,926              74           82.00             121             237              87
Camden, NJ..............................................           1,674              84           82.00             121             287             108
Youngstown-Warren-Boardman, OH..........................           1,030             110           81.41             125             187              59
Akron, OH...............................................             900             115           81.41             125             167              42
Syracuse, NY............................................           2,385              61           81.00             127             265              98
Elizabeth-Lakewood-New Brunswick, NJ....................           2,239              64           81.00             127             296             110
Catoosa Dade-Walker Counties, GA........................             783             119           79.80             129             221              77
Toledo, OH..............................................           1,618              85           79.80             129             183              55
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ 2016 allowed services.

    Again, we found no correlation between area size and/or average 
volume for E1390 per supplier and maximum bid amounts. In addition, 
CBAs that had the highest maximum winning bids for code E0260 did not 
always have the highest maximum winning bids for code E1390. For 
example, the Cape Coral-Fort Myers, Florida CBA had the highest maximum 
winning bid for E1390, but was tied for the 55th highest maximum 
winning bid for E0260. In many cases, national chain suppliers for 
oxygen bid the same amount in every area. For oxygen and oxygen 
equipment (E1390), there were six national chain suppliers that 
submitted the same winning bid amounts in at least 33 different CBAs 
and four suppliers that submitted the same winning bid amounts in at 
least 67 different CBAs. One of these suppliers submitted the maximum 
winning bid for E1390 of $106 in 93 different CBAs.
    Maximum bid amounts can be bid amounts from a single supplier (the 
supplier submitting the pivotal bid), which may or may not reflect the 
costs of other suppliers and don't seem to show any pattern from area 
to area in terms of some areas always having the highest maximum bids 
for items and other areas always having the lowest maximum winning bids 
for items. The maximum winning bids for items show no correlation with 
area size, volume, or number of suppliers. In some cases, the maximum 
bid amount is the same in dozens of different CBAs across the country. 
The maximum bids for lower weight items are also impacted by unbalanced 
bidding, whereby the suppliers bid higher amounts for these items 
knowing that they will have little impact on their composite bid and 
chances for winning.
3. Travel Distance Analysis
    Section 16008 of the Cures Act mandates that we take into account a 
comparison of the average travel distances associated with furnishing 
items and services in CBAs and non-CBAs in making adjustments to fee 
schedule amounts for items furnished on or after January 1, 2019, based 
on information from the CBP. We first examined the average travel 
distances in CBAs versus non-CBAs by analyzing differences in the 
geographic size in square miles of CBAs versus non-CBAs consisting of 
MSAs and micropolitan statistical areas (micro areas). The majority of 
items subject to the fee schedule adjustments are furnished in these 
non-CBAs.
    The U.S. Office of Management and Budget (OMB) delineates MSAs and 
micro areas, which are referred to collectively as ``core based 
statistical areas'' (CBSAs). OMB set the standards for delineating MSAs 
and micro areas in the notice published on June 28, 2010 in the Federal 
Register, titled ``2010 Standards for Delineating Metropolitan and 
Micropolitan Statistical Areas'' (75 FR 37245). The general concept of 
the MSA and micro area is that of a core area containing a substantial 
population nucleus, together with adjacent communities having a higher 
degree of economic and social integration with that core. CBSAs consist 
of counties and equivalent entities throughout the U.S. and Puerto Rico 
(75 FR 37249). A CBSA is categorized based on the population of the 
largest urban area (urbanized area or urban cluster) within the CBSA 
(75 FR 37250). Each CBSA must have a Census Bureau delineated urbanized 
area of at least 50,000 population or a Census Bureau delineated urban 
cluster of at least 10,000 population (75 FR 37249). An urbanized area 
is a statistical geographic entity delineated by the U.S. Census 
Bureau, consisting of densely settled census tracts and blocks and 
adjacent densely settled territory that together contain at least 
50,000 people (75 FR 37252). An urban cluster is a statistical 
geographic entity delineated by the U.S. Census Bureau, consisting of 
densely settled census tracts and blocks and adjacent densely settled 
territory that together contain at least 2,500

[[Page 34368]]

people (75 FR 37252). MSAs contain at least one urbanized area that has 
a population of at least 50,000; micro areas contain at least one urban 
cluster that has a population of at least 10,000 and less than 50,000 
(75 FR 37252).
    We compared the average size of the different areas nationally and 
by Bureau of Economic Analysis (BEA) region. We also computed the 
weighted average size of the different areas nationally and by region, 
weighted by total population. The CBAs have much larger service areas 
than the non-CBA MSA and micro areas. It is also worth noting that our 
current definition of rural area for the purposes of fee schedule 
adjustments in non-CBAs includes micro areas (in general, a rural area 
is currently defined at 42 CFR 414.202 as any zip code area where at 
least 50 percent of the area is outside a MSA or with a low population 
density that was excluded from a CBA).
    Under the CBP, a contract supplier is required to deliver items to 
any beneficiary in the CBA that requests service. The size of CBAs can 
be compared to the size of non-CBAs to indicate how far a supplier 
located in or near the areas may have to travel to serve beneficiaries 
located in the various areas. As shown in Table 32, the average size of 
CBAs in each of the eight BEA regions is larger than the average size 
of both non-rural areas and rural areas classified as micro areas by 
OMB, areas where competitive bidding, for the most part, not yet been 
implemented, and where the vast majority of items are furnished in the 
non-CBAs.

                                         Table 32--Average Size of Area
                                                 [Square miles]
----------------------------------------------------------------------------------------------------------------
                           BEA region                                   CBA             MSA            Micro
----------------------------------------------------------------------------------------------------------------
New England.....................................................           1,241           1,175             968
Mideast.........................................................           1,659             833             859
Great Lakes.....................................................           2,061             942             638
Plains..........................................................           3,700           1,880           1,029
Southeast.......................................................           2,776           1,218             681
Southwest.......................................................           5,737           3,637           1,992
Rocky Mountain..................................................           6,457           3,025           3,002
Far West........................................................           3,791           2,308           3,776
Average.........................................................           3,428           1,877           1,618
----------------------------------------------------------------------------------------------------------------

    The average non-CBA MSA size is 55 percent of the average CBA size 
and the average non-CBA micro area size is 47 percent of the average 
CBA size. As shown in Table 33, when weighting the average size of the 
areas based on U.S. Census total resident 2010 population numbers, the 
differences in the average size of the areas is similar to the 
differences noted in Table 32. The weighted average non-CBA MSA size is 
57 percent of the weighted average CBA size and the weighted average 
non-CBA micro area size is 43 percent of the weighted average CBA size.

                      Table 33--Average Size of Area (Square Miles) Weighted by Population
----------------------------------------------------------------------------------------------------------------
                           BEA region                                   CBA             MSA            Micro
----------------------------------------------------------------------------------------------------------------
BEA Region......................................................             CBA             MSA           Micro
New England.....................................................           1,624           1,273           1,094
Mideast.........................................................           1,718             937           1,016
Great Lakes.....................................................           2,707           1,875             711
Plains..........................................................           4,371           3,169           1,157
Southeast.......................................................           5,780           1,517             911
Southwest.......................................................           7,917           3,510           2,355
Rocky Mountain..................................................           5,559           3,934           3,494
Far West........................................................           3,833           2,749           3,582
Average.........................................................           4,189           2,371           1,790
----------------------------------------------------------------------------------------------------------------

    The size of the CBAs are much larger than the size of the non-CBA 
MSAs and micro areas where most of the items subject to the fee 
schedule adjustments are furnished. The contract suppliers must serve 
every part of these areas and have much larger travel distances on 
average than suppliers in both non-CBA urban areas (MSAs) and non-CBA 
rural areas (areas outside MSAs).
    The data in Table 34 shows what percentage of suppliers furnishing 
items and services subject to the fee schedule adjustments are located 
in the same areas where the items and services are furnished (that is, 
the percentage of suppliers located in the same area as the 
beneficiary). We separated the data by CBA, and then non-CBA MSA, micro 
area, or Outside Core Based Statistical Area (OCBSA), which are 
counties that do not qualify for inclusion in a CBSA. The data in Table 
34 shows that the majority of suppliers furnishing items and services 
subject to the fee schedule adjustments are located in the same areas 
where these items and services are furnished.

                    Table 34--Percentage of Items and Services in 2016 Furnished by Suppliers
                                   Located in the Same Area as the Beneficiary
----------------------------------------------------------------------------------------------------------------
                                                                   Hospital beds
                        Beneficiary area                                (%)         Oxygen (%)     All items (%)
----------------------------------------------------------------------------------------------------------------
CBAs............................................................              68              77              64

[[Page 34369]]

 
Non-CBA MSAs....................................................              68              63              65
Non-CBA Micro Areas.............................................              64              61              61
Non-CBA OCBSAs..................................................              78              82              81
----------------------------------------------------------------------------------------------------------------

    We also compared the average travel distances for suppliers in the 
different areas using claims data for items and services subject to the 
fee schedule adjustments. For each allowed DME item and service, we 
used the shortest distance between the coordinates of the beneficiary's 
residential ZIP code and those of the supplier's ZIP code on the 
surface of a globe as a proxy of DME delivery distance. In addition, we 
prioritized 9-digit ZIP codes over 5-digit ZIP codes when determining 
the coordinates. The results in Table 35 are for hospital beds and 
oxygen and oxygen equipment, items that are most likely to be delivered 
locally by suppliers using company vehicles.

Table 35--Average Number of Miles Between Supplier and Beneficiary Based
                           on Claims for 2016
------------------------------------------------------------------------
            Beneficiary area               Hospital beds      Oxygen
------------------------------------------------------------------------
CBAs....................................              62              79
Non-CBA MSAs............................              35              54
Non-CBA Micro Areas.....................              30              49
Non-CBA OCBSAs..........................              34              57
------------------------------------------------------------------------

    These results indicate that the average travel distances in CBAs 
are much greater than the average travel distances in all non-CBAs, but 
the data may be skewed by claims for suppliers that put a billing 
address on the claim that is not the address of the location that 
furnished the item (either a different location or a subcontractor). 
The data may also be skewed by claims where the beneficiary receives 
the item from a supplier in a different area because he or she is 
travelling (for example, ``snowbirds''). To account for this, we 
excluded data for claims where the beneficiary address was more than 
two states away from the supplier location on the claim form, as these 
are likely claims where the item was delivered from a different 
location or by a sub-contractor, or were claims for traveling 
beneficiaries (that is, snowbirds and other beneficiaries receiving 
items from suppliers in locations other than their permanent 
residence). We also excluded data for suppliers with multiple locations 
that always put the same address on all of their claims. When using 
data for this restricted population (beneficiaries receiving items from 
suppliers in same or adjoining states) and these restricted suppliers 
(all suppliers except those with multiple locations that always bill 
from the same location), the results on average distances are 
significant, as shown in Table 36 for hospital beds, oxygen and oxygen 
equipment, and all items subject to the fee schedule adjustments.

                       Table 36--Average Number of Miles Between Supplier and Beneficiary
                                      Based on Restricted Claims for 2016 1
----------------------------------------------------------------------------------------------------------------
                        Beneficiary area                           Hospital beds      Oxygen         All items
----------------------------------------------------------------------------------------------------------------
CBAs............................................................              25              21              27
Non-CBA MSAs....................................................              22              19              24
Non-CBA Micro Areas.............................................              23              21              27
Non-CBA OCBSAs..................................................              27              30              36
----------------------------------------------------------------------------------------------------------------
\1\ Claims where the supplier billing address is in the same or adjoining state as the beneficiary address,
  excluding claims from suppliers with multiple locations that always use the same billing address.

    Based on these results, the average distances from the supplier to 
the beneficiary in the CBAs are still greater than the average 
distances from the supplier to the beneficiary in the non-CBA MSAs and 
micro areas where most of the items subject to the fee schedule 
adjustments are furnished. However, the average distances for other 
rural areas (areas outside both MSAs and micro areas) are slightly 
greater than the average distances for the CBAs.
    It is not surprising that the average distances between supplier 
billing locations and beneficiary residences are greater in CBAs than 
in non-CBA MSAs and micro areas given the findings above that the CBAs 
are much larger areas and given that the majority of items furnished in 
the various areas are furnished by suppliers located in those areas. 
Regardless of the type of area, it makes sense that suppliers would 
locate their businesses in the places where most of the population 
resides (cities and towns). The means that the average distance 
travelled by the supplier will be weighted heavily in favor of the 
shorter trips made from the location to the beneficiaries living in the 
immediate area. The supplier will also make much longer trips, but 
these trips would not have as great an impact on the average travel 
distance as the trips made to the population nucleus immediately 
surrounding the supplier location.
    We also did this same analysis comparing average distances in CBAs 
versus non-CBAs broken out not based on whether the beneficiary resided 
in an MSA, micro area, or OCBSA, but broken out based on whether or not 
the

[[Page 34370]]

beneficiary resided in a super rural (SR) area based on the definition 
of super rural area used in the ambulance fee schedule rules in Sec.  
414.610(c)(5)(ii). Specifically, we used the April 2018 quarterly Zip 
Code to Carrier Locality File. When doing so, we found that out of all 
allowed services for DME items subject to the fee schedule adjustments, 
9 percent of allowed services were furnished in SR areas. From 2015 to 
2016, SR areas saw a 3 percent increase in allowed services. At the 
product category level, SR areas exhibit the same level of change in 
service volume as the rest of the nation. Without any data 
restrictions, CBAs tend to have greater average service distances than 
non-CBAs. For the restricted population, however, SR areas almost 
always show the greatest average distance. Lastly, we did not find any 
noticeable increase in service distance from 2015 to 2016 for any 
product category.
    Table 37 shows the data for claims from all suppliers and Table 38 
shows the data for the same restricted claims.

Table 37--Average Number of Miles Between Supplier and Beneficiary Based
                           on Claims for 2016
------------------------------------------------------------------------
            Beneficiary area               Hospital beds      Oxygen
------------------------------------------------------------------------
CBAs....................................              62              79
Non-SR Areas............................              32              51
SR Areas................................              48              64
------------------------------------------------------------------------


   Table 38--Average Number of Miles Between Supplier and Beneficiary Based on Restricted Claims for 2016 \1\
----------------------------------------------------------------------------------------------------------------
                        Beneficiary area                           Hospital beds      Oxygen         All items
----------------------------------------------------------------------------------------------------------------
CBAs............................................................              25              21              27
Non-SR Areas....................................................              22              19              25
SR Areas........................................................              36              35              41
----------------------------------------------------------------------------------------------------------------
\1\ Claims where the supplier billing address is in the same or adjoining state as the beneficiary address,
  excluding claims from suppliers with multiple locations that always use the same billing address.

    We also did this same analysis comparing average distances in CBAs 
versus non-CBAs broken out not based on whether the beneficiary resided 
in an MSA, micro area, or OCBSA, but broken out based on whether or not 
the beneficiary resided in a far and remote (FAR) area. We examined 
whether the beneficiary resided in a FAR area, as defined by the Office 
of Rural Health Policy in the Health Resources and Services 
Administration in a final notice published on May 5, 2014 in the 
Federal Register, titled ``Methodology for Designation of Frontier and 
Remote Areas'' (79 FR 25599). FAR is a statistical delineation that 
defines frontier and remote areas based on remoteness and population 
sparseness. FAR areas are defined in relation to the time it takes to 
travel by car to the edges of nearby Census defined Urban Areas. The 
Department of Agriculture maintains a list of ZIP codes that identify 
FAR areas in the U.S. Specifically, we used the 2010 Frontier and 
Remote Area Codes Data Files, last updated by the Department of 
Agriculture on April 15, 2015.\18\ There are four levels of FAR, as 
rural areas experience degrees of remoteness at higher or lower 
population levels that affect access to different types of goods and 
services.
---------------------------------------------------------------------------

    \18\ https://www.ers.usda.gov/data-products/frontier-and-remote-area-codes/.
---------------------------------------------------------------------------

    We looked at whether the beneficiary resided in a FAR level 1 
(FAR1) area: An area with a population of less than 50,000 people 
located 60 minutes or more from an area with a population of at least 
50,000 people. Roughly 7 percent of items and services subject to 
competitive bidding nationally are furnished in these FAR1 areas.
    We also compared average distances in CBAs versus non-CBAs broken 
out based on whether the beneficiary resided in a FAR level 3 (FAR3) 
area: An area with a population of less than 10,000 people located 30 
minutes or more from an urban area of 10,000 to 24,999 people, 45 
minutes or more from an urban area of 25,000 to 49,999 people, and 60 
minutes or more from an urban area of 50,000 or more. Roughly 3 percent 
of items and services subject to competitive bidding nationally are 
furnished in these FAR3 areas.
    Table 39 shows the data for claims from all suppliers and Table 40 
shows the data for the same restricted claims.

Table 39--Average Number of Miles Between Supplier and Beneficiary Based
                           on Claims for 2016
------------------------------------------------------------------------
            Beneficiary area               Hospital beds      Oxygen
------------------------------------------------------------------------
CBAs....................................              62              79
Non-FAR Areas...........................              33              52
FAR1 Areas..............................              40              57
FAR3 Areas..............................              49              72
------------------------------------------------------------------------


                       Table 40--Average Number of Miles Between Supplier and Beneficiary
                                      Based on Restricted Claims for 2016 1
----------------------------------------------------------------------------------------------------------------
                        Beneficiary area                           Hospital beds      Oxygen         All items
----------------------------------------------------------------------------------------------------------------
CBAs............................................................              25              21              27

[[Page 34371]]

 
Non-FAR Areas...................................................              22              20              26
FAR1 Areas......................................................              29              30              37
FAR3 Areas......................................................              37              40              46
----------------------------------------------------------------------------------------------------------------
\1\ Claims where the supplier billing address is in the same or adjoining state as the beneficiary address,
  excluding claims from suppliers with multiple locations that always use the same billing address.

    Average distances between suppliers and beneficiaries in areas 
falling under the current definition of rural areas at Sec.  414.202 
are not greater than the average distances in CBAs. When the restricted 
data for rural areas for non-CBAs is broken out by micro area and 
OCBSA, the distances are only slightly greater for OCBSAs than CBAs. 
However, when the restricted data for non-CBAs in general is broken out 
based on whether the non-CBA is a FAR3, Super Rural, or OCBSA, the 
distances between suppliers and beneficiaries are much greater than for 
the CBAs.
4. Cost Analysis
    Section 16008 of the Cures Act mandates that we take into account a 
comparison of the average costs associated with furnishing items and 
services in CBAs and non-CBAs in making adjustments to fee schedule 
amounts for items furnished on or after January 1, 2019, based on 
information from the CBP. In our CY 2015 ESRD PPS proposed rule 
published in the Federal Register, titled ``Medicare Program; End-Stage 
Renal Disease Prospective Payment System, Quality Incentive Program, 
and Durable Medical Equipment, Prosthetics, Orthotics, and Supplies;'' 
(79 FR 40279), we noted that Congress previously mandated that the 
costs of furnishing DME in different geographic regions of the country 
be studied. Section 135 of the Social Security Act Amendments of 1994 
(Pub. L. 103-432), required an examination of the geographic variations 
in DME supplier costs in order to determine whether the fee schedules 
are reasonably adjusted to account for any geographic differences. Jing 
Xing Health and Safety Resources, Inc. provided assistance to the 
Health Care Financing Administration, now CMS, in conducting this 
study. The project, titled ``Durable Medical Equipment Supplier Product 
and Service Cost Study'', was completed under Contract Number Health 
Care Financing Administration (HCFA) 500-95-0044 and submitted to the 
agency in June 1996.\19\ As part of the study, a Federal Advisory Panel 
was convened, a formal meeting with representatives of the DME industry 
was held, and a literature review was conducted. The general consensus 
among industry representatives and government agencies that 
participated in the study was that there is no conclusive evidence that 
urban and rural costs differed significantly or that the costs of 
furnishing DME items and services were higher in urban areas versus 
rural areas or vice versa.
---------------------------------------------------------------------------

    \19\ https://ia800903.us.archive.org/14/items/durablemedicaleq00kowa/durablemedicaleq00kowa.pdf.
---------------------------------------------------------------------------

    Jing Xing Health and Safety Resources, Inc. summarized the findings 
from the study in a report titled ``Final Report: Durable Medical 
Equipment Supplier Product and Service Cost Study'', and stated that, 
``At one level, it is intuitively obvious that certain DME categories 
require a much larger service component than others. To illustrate, the 
service component in providing oxygen equipment is a larger proportion 
of costs than, for example, selling a walker or cane. The latter does 
not involve very much, if any, assembly, patient education, 
maintenance, etc.'' Additionally, ``There was a general consensus among 
study participants that excluding the impact of volume purchasing the 
costs of acquiring DME items (that is, wholesale costs) are generally 
the same around the country with the possible exceptions of Alaska and 
Hawaii where shipping costs are greater. There was also general 
agreement that service costs do vary with the largest geographic 
variation resulting from labor costs. Limited tests using Medicare data 
provide support for the theory that geographic variation in the costs 
of providing DME is primarily caused by service components.''
    In researching cost data for section 16008 of the Cures Act, we 
sought data that was national in scope, robust, and would allow us to 
access differences in costs of furnishing items and services in CBAs 
versus non-CBAs throughout the country. We also primarily sought data 
that was available at the county level, as this allowed us to compare 
CBA counties to non-CBA counties. CBAs are currently comprised of whole 
counties, except when certain low population density areas are excluded 
from a county included in a CBA in accordance with section 
1847(a)(3)(A) of the Act.
    We examined four sources of cost data: (1) The Practice Expense 
Geographic Practice Cost Index (PE GPCI), (2) delivery driver wages 
from the Bureau of Labor Statistics (BLS), (3) real estate taxes from 
the U.S. Census Bureau's American Community Survey (ACS), and (4) gas 
and utility prices from the Consumer Price Index (CPI). Overall, we 
found that CBAs tended to have the highest costs out of the cost data 
that we examined, when compared to non-CBAs. We will now discuss the 
cost data sources we examined, and the methodology we used to analyze 
such cost data.
a. Cost Data Methodology
    We first examined the PE GPCI. CMS first implemented the GPCIs as 
part of the Medicare Physician Fee Schedule (PFS) in 1992 (56 FR 
59502). CMS must review and, if necessary, adjust the GPCIs at least 
every 3 years, as required by section 1848(e)(1)(C) of the Act. The 
most recent update occurred in 2017, in which a final rule was 
published on November 15, 2016 in the Federal Register, titled 
``Medicare Program; Revisions to Payment Policies Under the Physician 
Fee Schedule and Other Revisions to Part B for CY 2017; Medicare 
Advantage Bid Pricing Data Release; Medicare Advantage and Part D 
Medical Loss Ratio Data Release; Medicare Advantage Provider Network 
Requirements; Expansion of Medicare Diabetes Prevention Program Model; 
Medicare Shared Savings Program Requirements'' (81 FR 80170). The PE 
GPCIs are comprised of four component indices (employee wages; 
purchased services; office rent; and medical equipment, supplies and 
other miscellaneous expenses), and are designed to measure the relative 
cost difference in the mix of goods and services comprising practice 
expenses (not including malpractice expenses) among the 89 PFS fee 
schedule areas

[[Page 34372]]

throughout the nation, as compared to the national average of these 
costs. The current 89 fee schedule areas are defined by state 
boundaries (for example, Wisconsin), metropolitan areas (for example, 
Metropolitan St. Louis, MO), portions of a metropolitan area (for 
example, Manhattan), or rest-of-state areas that exclude metropolitan 
areas (for example, Rest of Missouri). This configuration is used to 
calculate the GPCIs that are in turn used to calculate payments for 
physicians' services under the PFS (81 FR 80263).
    The employee wage index measures several kinds of wages for 
clinical and administrative office staff. The current GPCI methodology 
relies on wage data from occupations representing 100 percent of total 
non-physician wages in the ``offices of physicians: industry'' from the 
BLS Occupational Employment Statistics (OES). This includes wages for 
``Medical secretaries,'' ``Receptionists and information clerks,'' 
``Medical records and health information technicians,'' and other 
additional occupations.\20\
---------------------------------------------------------------------------

    \20\ Proposed Revisions to the Sixth Update of the Geographic 
Practice Cost Index. https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/PhysicianFeeSched/Downloads/CMS_1524_P_CY2012_PFS_NPRM_GPCI_Revisions.pdf.
---------------------------------------------------------------------------

    The purchased services index includes BLS OES wages for occupations 
employed in industries from which physicians are likely to purchase 
services, which includes the cost of contracted services (for example, 
accounting, legal). This includes wages for ``Commercial and industrial 
machinery and equipment repair and maintenance,'' ``Services to 
buildings and dwellings,'' and other additional occupations.\20\
    The office rent index measures regional variation in the price of 
office rents using residential rent data from the U.S. Census Bureau's 
American Community Survey (ACS) on median gross rents for two-bedroom 
apartments. The ACS determines gross rent by adding up the following: 
Contract rent + utilities (electricity, gas, and water and sewer) + 
fuel (oil, coal, kerosene, wood, etc.). As such, we are using the PE 
GPCI as a proxy for commercial rent and utilities.
    In a final rule published on November 15, 2016 in the Federal 
Register, titled ``Medicare Program; Revisions to Payment Policies 
Under the Physician Fee Schedule and Other Revisions to Part B for CY 
2017; Medicare Advantage Bid Pricing Data Release; Medicare Advantage 
and Part D Medical Loss Ratio Data Release; Medicare Advantage Provider 
Network Requirements; Expansion of Medicare Diabetes Prevention Program 
Model; Medicare Shared Savings Program Requirements'' final rule (81 FR 
80170), we stated because Medicare is a national program, and section 
1848(e)(1)(A) of the Act requires CMS to establish GPCIs to measure 
relative cost differences among localities compared to the national 
average, we believe it is important to use the best data that is 
available on a nationwide basis, that is regularly updated, and retains 
consistency area-to-area, year-to-year (81 FR 80263). CMS discussed how 
there is currently no national data source available for physician 
office or other comparable commercial rents, which is why CMS uses 
county-level residential rent data from ACS as a proxy for the relative 
cost differences in commercial office rents. The ACS is administered by 
the U.S. Census Bureau, which is a leading source of national, robust, 
quality, publicly available data. A commercial data source for office 
rent that provided for adequate representation of urban and rural areas 
nationally would be preferable to a residential rent proxy. The GPCIs 
are not an absolute measure of practice costs, rather they are a 
measure of the relative cost differences for each of the three GPCI 
components. The U.S. Census Bureau is a federal agency that specializes 
in data collection, accuracy, and reliability, and we believe that 
where such a publicly available resource exists that can provide useful 
data to assess geographic cost differences in office rent, even though 
it is a proxy for the exact data we seek, we should utilize that 
available resource.
    Therefore, given its national representation, reliability, high 
response rate and frequent updates, we believe the ACS residential rent 
data is the most appropriate data source available at this time for the 
purposes of analyzing rent and utilities. It is also worth noting that 
we examine utility prices from the CPI as another source of cost data, 
which is discussed further on in the preamble of this proposed rule.
    The medical equipment, supplies and other miscellaneous expense 
cost index component of the PE GPCI measures practice expenses 
associated with a wide range of costs that include chemicals and 
rubber, to telephone and postage. The medical equipment, supplies, and 
miscellaneous expenses index holds that there is a national market for 
the items it measures such that there is not significant geographic 
variation in costs. Therefore, this index is given a value of 1.000 for 
each PFS fee schedule area. We discussed our reasoning behind this in 
the final rule published on November 15, 2004 in the Federal Register, 
titled ``Medicare Program; Revisions to Payment Policies Under the 
Physician Fee Schedule for Calendar Year 2005'' (69 FR 66235), stating 
``We were again unable to find any data sources that demonstrated price 
differences by geographic areas. As mentioned in previous updates, some 
price differences may exist, but these differences are more likely to 
be based on volume discounts rather than on geographic areas.'' 
Separately billable items such as DMEPOS are generally not included in 
this index, but this finding is consistent with the aforesaid findings 
from the Jing Xing Health and Safety Resources, Inc. study.
    The PE GPCIs are calculated at the fee schedule area level after 
aggregating the county-level component indexes. The PE GPCI county 
level data are for informational purposes only so that interested 
parties can have a better understanding of the data that underpin their 
fee schedule area GPCI values. In order to compare CBAs and non-CBAs, 
we used CY 2017 PE GPCI county data (CY 2017 PFS final rule (81 FR 
80170)) found in the GPCI public use files.\21\ This allowed us to then 
map each county in this dataset to either a CBA, or non-CBA by MSA, 
micro area, or OCBSA county, and to then see its corresponding PE GPCI. 
The counties and county equivalent names listed in this file are from 
the 2010 U.S. Census.
---------------------------------------------------------------------------

    \21\ https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/PhysicianFeeSched/PFS-Federal-Regulation-Notices-Items/CMS-1654-F.html.
---------------------------------------------------------------------------

    When mapping counties to CBAs, we selected all counties that were 
included in Round 2 Recompete or Round 1 2017. We then used OMB 
Bulletin No. 15-01 as the source for mapping the remaining counties to 
either non-CBA by MSAs, micro areas, or OCBSAs.\22\ After doing this, 
we grouped all contiguous counties of the U.S. with the same 
delineation and BEA Region together. We grouped any non-contiguous 
counties of the U.S. with the same delineation together. We then 
calculated the weighted average of each delineation's PE GPCI value 
using U.S. Census 2010 total resident population numbers for each 
county. For this PE GPCI analysis, we included all 50 states and the 
District of Columbia.
---------------------------------------------------------------------------

    \22\ https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/bulletins/2015/15-01.pdf.
---------------------------------------------------------------------------

    Although counties in Puerto Rico and the Virgin Islands have a PE 
GPCI value, each is assigned the GPCI national average of 1.0. For the 
Virgin Islands, because county-level wage and rent data are not 
available, and insufficient malpractice premium data are available, CMS 
has set the PE GPCI values for the

[[Page 34373]]

Virgin Islands fee schedule area at the national average of 1.0 (81 FR 
80269). In an effort to provide greater consistency in the calculation 
of GPCIs given the lack of comprehensive data regarding the validity of 
applying the proxy data used in the states in accurately accounting for 
variability of costs for these island territories, we discussed in a 
final rule published on November 15, 2016 in the Federal Register, 
titled ``Medicare Program; Revisions to Payment Policies Under the 
Physician Fee Schedule and Other Revisions to Part B for CY 2017; 
Medicare Advantage Bid Pricing Data Release; Medicare Advantage and 
Part D Medical Loss Ratio Data Release; Medicare Advantage Provider 
Network Requirements; Expansion of Medicare Diabetes Prevention Program 
Model; Medicare Shared Savings Program Requirements'' final rule (81 FR 
80170) that we would treat the Caribbean Island territories (the Virgin 
Islands and Puerto Rico) in a consistent manner. We thus finalized a 
proposal to do so by assigning the national average of 1.0 to each GPCI 
index for both Puerto Rico and the Virgin Islands. Thus, in calculating 
weighted average PE GPCIs for non-contiguous areas, we only 
incorporated PE GPCIs from Hawaii and Alaska.
    Because stakeholders on the March 23, 2017 stakeholder call 
indicated that deliveries make up a significant part of the costs when 
furnishing items and services, we examined delivery driver wages as the 
next source of cost data. The BLS OES provides delivery driver wage 
data in the ``53-0000 Transportation and Material Moving Occupations'' 
occupation group. Specifically, we used the ``53-3033 Light Truck or 
Delivery Services Drivers'' individual occupation wage index, which is 
underneath the ``53-0000 Transportation and Material Moving 
Occupations'' occupation group.
    We used the median hourly wage from the ``53-3033 Light Truck or 
Delivery Services Drivers'' individual occupation wage index as the 
source of this delivery driver wage data. We used median hourly wage 
values from the May 2016 Metropolitan and Nonmetropolitan Area 
Occupational Employment and Wage Estimates.\23\
---------------------------------------------------------------------------

    \23\ https://www.bls.gov/oes/tables.htm.
---------------------------------------------------------------------------

    For this analysis, we used a similar methodology that we used for 
the aforesaid PE GPCI analysis. We mapped each county to two areas: Its 
corresponding delineation (CBA, non-CBA MSA, non-CBA micro area, or 
non-CBA OCBSA), and its BEA Region. We then mapped counties to their 
corresponding median hourly wage by using the May 2016 Metropolitan and 
Nonmetropolitan Area Definitions provided by the BLS.\24\ In cases 
where BLS did not have a median hourly delivery driver wage for a 
particular county, we calculated and then assigned such counties the 
median hourly delivery driver wage for that county's state (this was 
the case for the following counties: Bradley County, Tennessee (TN); 
Polk County, TN; Los Alamos County, New Mexico; Champaign County, 
Illinois (IL); Piatt County, IL; Ford County, IL; Kankakee County, IL). 
In order to come up with an hourly wage for each BEA Region and 
delineation, we calculated the weighted average of the median hourly 
wages for the counties within each area, basing the weighted average 
off of each county's U.S. Census total resident 2010 population 
numbers.
---------------------------------------------------------------------------

    \24\ https://www.bls.gov/oes/current/msa_def.htm.
---------------------------------------------------------------------------

    For New England states, the BLS assigns wages to New England city 
and town areas (NECTAs) instead of metropolitan and non-metropolitan 
areas that adhere to county boundaries, which the BLS does for every 
other area outside of New England. An issue with assigning wages to 
NECTAs is that there is not a one-to-one mapping of NECTAs to counties, 
as the collection of townships in a NECTA may not completely cover a 
county. This results in counties being represented in multiple NECTAs. 
To address this issue, we mapped NECTAs to New England counties by 
using the U.S. Census Bureau's ``NECTAs, NECTA divisions, and combined 
NECTAs'' file that is based on OMB Bulletin No. 15-01 delineations.\25\ 
If a New England county had more than one NECTA, we calculated the 
weighted average of each of its NECTAs' median hourly wages. We used 
total population estimates from the 2016 ACS for the population 
weighting (U.S. Census Bureau, 2012-2016 ACS 5-Year Estimates).
---------------------------------------------------------------------------

    \25\ https://www.census.gov/geographies/reference-files/time-series/demo/metro-micro/delineation-files.html.
---------------------------------------------------------------------------

    OMB set the standards for NECTAs in the notice published on June 
28, 2010 in the Federal Register, titled ``2010 Standards for 
Delineating Metropolitan and Micropolitan Statistical Areas'' (75 FR 
37245). Based upon these standards, 10 counties in New England did not 
have any towns or cities that qualified as NECTAs (Aroostook County, 
Maine (ME); Caledonia County, Vermont (VT); Carroll County, New 
Hampshire; Essex County, VT; Franklin County, ME; Knox County, ME; 
Nantucket County, Massachusetts; Orleans County, VT; Washington County, 
ME; and Windham County, (VT). We assigned delivery driver wages to 
these 10 counties based upon which area each of these counties' seat 
were located in the May 2016 Metropolitan and Nonmetropolitan Area 
Definitions provided by BLS.\26\
---------------------------------------------------------------------------

    \26\ NACo Analysis of U.S. Census Bureau, NACo Research, 2013.
---------------------------------------------------------------------------

    We also used ACS data to examine real estate taxes. We analyzed 
2016 data from the survey titled ``Mortgage Status by Median Real 
Estate Taxes Paid (Dollars) Universe: Owner-occupied housing 
units''.\27\ In this survey, ACS provides a median real estate tax for 
each U.S. county, thus allowing us to use a similar methodology that we 
used for the PE GCPIs and delivery driver wages. In order to come up 
with a real estate tax value for each BEA Region and delineation, we 
calculated the weighted average of the median real estate tax values 
for the counties within each area, basing the weighted average off of 
each county's U.S. Census total resident 2010 population numbers. It is 
worth noting that the ACS measures real estate taxes paid on housing 
units, not business units. However, similar to our reasoning above for 
using residential rent data provided by the ACS as a proxy for 
commercial rent, we believe the ACS is a valuable tool in measuring 
geographic differences in cost, and are also using real estate taxes on 
housing units as a proxy to measure taxes paid on business units.
---------------------------------------------------------------------------

    \27\ U.S. Census Bureau, 2012-2016 American Community Survey 5-
Year Estimates.
---------------------------------------------------------------------------

    In order to further examine costs, we also analyzed CPI data for 
gas and utility prices. For each month in 2016, BLS released a CPI 
detailed report with monthly prices for various data included in the 
CPI.\28\ In order to analyze gas prices, we compiled the CPI detailed 
report for every month in 2016, and calculated the annual average for 
the values in the ``Gasoline All Types'' index of ``Table P3: Average 
prices for gasoline, U.S. city average and selected areas'' of the CPI 
detailed report. In order to analyze utility prices, we compiled the 
CPI detailed report for every month in 2016, and calculated the annual 
average for the values in ``Table P2: Average residential unit prices 
and consumption ranges for utility (piped) gas and electricity for U.S. 
city average and selected areas''. Specifically, we looked at the 
``Average price per therm of utility (piped) gas'' and the ``Average 
price per KWH of electricity'' index in the CPI report. As discussed 
earlier in the preamble of this proposed rule, the Office Rent Index of 
the PE GPCI

[[Page 34374]]

already includes utilities in its calculation, based on ACS residential 
rent data. Nevertheless, we examined an additional source of utility 
prices, in order to further examine any potential price trends.
---------------------------------------------------------------------------

    \28\ https://www.bls.gov/cpi/cpi_dr.htm.
---------------------------------------------------------------------------

    BLS separates prices in these tables based upon the following size 
classes: A, B/C, and D. Size A represents metropolitan areas with a 
population of over 1,500,000, size B/C represents mid-sized and small 
metropolitan areas (population of 50,000 to 1,500,000), and size D 
represents nonmetropolitan urban areas.\29\
---------------------------------------------------------------------------

    \29\ https://www.bls.gov/opub/mlr/1996/12/art2full.pdf.
---------------------------------------------------------------------------

    An issue with CPI size classes is that the CPI data cannot directly 
map to every county and BEA Region in the U.S., unlike the previously 
discussed cost data. This is because the CPI data is only available at 
the national level, for a select number of metropolitan areas, and for 
the four U.S. Census Bureau Regions.
    However, the CPI sampled a total of 87 Primary Sampling Units 
(PSUs) for the 2016 CPI, which are the smallest geographic areas in 
which pricing is done for the CPI. Appendix 4 in Chapter 17 of the BLS 
Handbook of Methods lists the 87 PSUs sampled in the 2016 CPI.\30\ 
Appendix 4 also lists the counties in these PSUs that the CPI sampled, 
which totaled 425 counties and included counties in the contiguous and 
non-contiguous U.S.
---------------------------------------------------------------------------

    \30\ BLS Handbook of Methods. Chapter 17. The Consumer Price 
Index. (Updated 06/2015).
---------------------------------------------------------------------------

    We found that CBA counties made up the majority of size class A and 
B/C, while non-CBA micro and OCBSA counties made up the majority of 
size class D. The exact number can be found in Table 41, and the exact 
percentages can be found in Table 42. In order to identify the 
delineation of these counties and to be consistent with our previous 
cost data analyses, we used the same reference materials that we used 
for our previous cost data analyses: county and county equivalent names 
from the 2010 U.S. Census, and county and county equivalent 
delineations from OMB Bulletin No. 15-01.
    It is worth noting that although the CPI data is from 2016, the 
2016 CPI bases the counties and county equivalents and their size 
classes off of the 1990 decennial Census and its Metropolitan Areas off 
of OMB Bulletin No. 93-05.\31\ One implication of this is that counties 
and county equivalents sampled in the 2016 CPI may have changed size 
classes based upon their population numbers in the 2010 Census, and 
their Metropolitan Area status in OMB Bulletin No. 15-01. Further, 
CBSAs, micro areas, and OCBSAs were not a concept at the time in OMB 
Bulletin No. 93-05. Additionally, the counties and county equivalents 
that the CPI sampled were based off of the 1990 U.S. Census, meaning 
that the CPI data would not reflect any substantial changes to counties 
and county equivalent entities after 1990, as indicated by the U.S. 
Census Bureau.\32\ However, most of the county and county equivalent 
names that the CPI sampled remained the same or were similar to those 
in the 2010 U.S. Census, allowing us to map the counties and county 
equivalents listed in Appendix 4 of Chapter 17 of the BLS Handbook of 
Methods to those in the 2010 U.S. Census. We also believe that this CPI 
data is a valuable tool in examining price trends for gas and utilities 
amongst differently sized areas with varying levels of urbanization. 
Further, because we are able to know which counties the CPI sampled, we 
are able to know which size classes have CBA and non-CBA counties, thus 
allowing us to compare costs between CBAs and non-CBAs, making it 
useful for our data purposes in fulfilling section 16008 of the Cures 
Act.
---------------------------------------------------------------------------

    \31\ https://www.bls.gov/opub/mlr/1996/12/art2full.pdf.
    \32\ https://www.census.gov/geo/reference/county-changes.html.

                                Table 41--Number of Counties Sampled in 2016 CPI
----------------------------------------------------------------------------------------------------------------
                                                                                                   Total number
                   Delineation                        Size A         Size B/C         Size D         counties
----------------------------------------------------------------------------------------------------------------
CBA.............................................             235              86               1             322
Non-CBA MSA.....................................              26              46               3              75
Non-CBA Micro...................................               5               8               8              21
Non-CBA OCBSA...................................               1               0               6               7
                                                 ---------------------------------------------------------------
    Total number Counties.......................             267             140              18             425
----------------------------------------------------------------------------------------------------------------


                              Table 42--County Delineation Percentages for 2016 CPI
----------------------------------------------------------------------------------------------------------------
                           Delineation                               Size A  %      Size B/C  %      Size D  %
----------------------------------------------------------------------------------------------------------------
CBA.............................................................           88.01           61.43            5.56
Non-CBA MSA.....................................................            9.74           32.86           16.67
Non-CBA Micro...................................................            1.87            5.71           44.44
Non-CBA OCBSA...................................................            0.37            0.00           33.33
                                                                 -----------------------------------------------
    Total.......................................................          100.00          100.00          100.00
----------------------------------------------------------------------------------------------------------------

b. Cost Data Results
    We found that, on average, CBAs had higher costs than non-CBAs, for 
most of the cost data that we examined. For instance, CBAs had the 
highest average PE GPCI in every BEA Region, when compared to the non-
CBAs in each BEA Region. CBAs had the highest average driver wage in 
all but one BEA Region (Rocky Mountain), when compared to the non-CBAs 
in each Region. CBAs also had the highest average real estate tax in 
every BEA Region, when compared to the non-CBAs in each BEA Region.
    Typically, the ranking from highest to lowest cost delineation in 
each BEA Region was the following: (1) CBA, (2) non-CBA MSA, (3) non-
CBA micro, and (4) non-CBA OCBSA. Thus, the more urbanized areas tended 
to have higher costs than the less urbanized areas.

[[Page 34375]]

    Additionally, we found that BEA Regions have different costs. We 
arranged the 8 BEA Regions into two cost tiers, for each of the cost 
data that we examined. The top tier included BEA Regions where costs 
were, on average, the highest. The bottom tier included BEA Regions 
where costs were, on average, the lowest. To be in the top tier, a BEA 
Region had to have a value that was in the top 50 percent of all 8 BEA 
Region values. To be in the bottom tier, a BEA Region had to have a 
value that was in the bottom 50 percent of all 8 BEA Region values. 
Overall, the Far West, Mideast, and New England Regions tended to be in 
the top cost tier for most of the cost data sources that we examined. 
The Far West Region was in the top cost tier most often, indicating 
that its costs are amongst the highest out of the 8 BEA Regions.
    The Far West, New England, Mideast, and Rocky Mountain BEA Regions 
were in the top tier of average PE GPCI values in the 8 BEA Regions. 
For instance, when looking at the average PE GPCI value for each of the 
8 BEA Regions, these 4 BEA Regions' average PE GPCI values were in the 
top 50 percent for every delineation. The bottom tier included the 
Great Lakes, Southwest, Plains, and Southeast BEA Regions. They were 
all in the bottom 50 percent of average PE GPCI values, for every 
delineation.
    When looking at the average delivery driver wage for each of the 8 
BEA Regions, the Plains and Far West Regions' average driver wage were 
in the top 50 percent for every delineation. New England, Mideast, and 
Rocky Mountain were also a part of this top tier, yet alternated in and 
out of the top 50 percent, depending on which delineation we examined. 
The bottom tier for delivery driver wages included the Great Lakes, 
Southwest, and Southeast BEA Regions.
    For real estate taxes, the New England and Mideast BEA Regions had 
significantly higher real estate taxes, on average, than every other 
BEA Region, for each delineation. The BEA Regions of New England, 
Mideast, Far West, and the Great Lakes were in the top 50 percent of 
real estate taxes for every delineation. The BEA Regions of Southwest, 
Plains, Southeast, and Rocky Mountain were in the bottom 50 percent of 
real estate taxes for every delineation.
    It is worth noting that we did not include non-contiguous areas in 
the average values for the 8 BEA Regions, and instead counted non-
contiguous areas as their own type of area. In doing so, we found that 
the average PE GPCI for non-contiguous delineations (in Alaska and 
Hawaii) were higher than every other delineation in the 8 BEA Regions. 
Additionally, the average driver wage for non-contiguous delineations 
(in Alaska and Hawaii), were higher than every other delineation in the 
8 BEA Regions, except for non-contiguous micro areas, which were only 
lower than driver wages in the micro areas of the Rocky Mountain BEA 
Region. When we included driver wages from Puerto Rico in the non-
contiguous average driver wage calculation (along with Alaska and 
Hawaii), the Puerto Rico driver wages lowered the average non-
contiguous driver wages so that OCBSAs were then the only non-
contiguous delineation with a higher value than delineations in the 8 
BEA Regions.
    Lastly, there were certain non-CBA counties around the country that 
had relatively high driver wages--driver wages that were higher than 
that of CBA counties. These counties primarily were in the Plains, 
Rocky Mountain, and Far West BEA Regions. Many of these non-CBA 
counties with higher driver wages were either OCBSAs or micro areas. 
However, many other OCBSA or micro counties elsewhere in the country 
had relatively low driver wages. It is also worth noting that these 
very same counties that had higher driver wages had relatively low PE 
GPCI values and real estate taxes.
    Table 43 shows the summary of these cost data results.

                                      Table 43--Average Costs by BEA Region
----------------------------------------------------------------------------------------------------------------
                                                                                                      Annual
                                                                                      Average       residential
                   BEA region                       Delineation       PE GPCI     median  driver    real estate
                                                                                  wage  per hour        tax
----------------------------------------------------------------------------------------------------------------
Far West........................................             CBA            1.14          $15.79       $3,463.59
Far West........................................             MSA            1.03           15.11        2,413.43
Far West........................................           Micro            0.96           15.04        1,778.87
Far West........................................           OCBSA            0.96           15.06        1,663.85
Great Lakes.....................................             CBA            0.97           14.77        3,338.46
Great Lakes.....................................             MSA            0.92           14.08        2,322.51
Great Lakes.....................................           Micro            0.87           13.19        1,629.62
Great Lakes.....................................           OCBSA            0.86           12.85        1,491.14
Mideast.........................................             CBA            1.11           15.92        5,245.05
Mideast.........................................             MSA            0.96           13.92        3,132.32
Mideast.........................................           Micro            0.89           12.97        2,102.79
Mideast.........................................           OCBSA            0.89           13.46        2,208.62
New England.....................................             CBA            1.10           16.49        4,725.59
New England.....................................             MSA            1.02           14.88        3,739.11
New England.....................................           Micro            1.00           14.02        4,065.67
New England.....................................           OCBSA            0.93           13.17        2,317.18
Plains..........................................             CBA            0.98           16.20        2,408.32
Plains..........................................             MSA            0.90           14.45        2,049.21
Plains..........................................           Micro            0.87           13.34        1,489.76
Plains..........................................           OCBSA            0.84           13.52        1,160.55
Rocky Mountain..................................             CBA            1.00           15.28        1,658.02
Rocky Mountain..................................             MSA            0.93           14.60        1,506.69
Rocky Mountain..................................           Micro            0.93           16.09        1,428.58
Rocky Mountain..................................           OCBSA            0.88           15.64        1,047.09
Southeast.......................................             CBA            0.97           14.47        1,821.26
Southeast.......................................             MSA            0.90           13.19        1,094.17
Southeast.......................................           Micro            0.84           12.38          787.18
Southeast.......................................           OCBSA            0.83           12.12          624.88
Southwest.......................................             CBA            0.97           14.38        2,643.70

[[Page 34376]]

 
Southwest.......................................             MSA            0.91           13.42        1,698.48
Southwest.......................................           Micro            0.87           12.96        1,054.82
Southwest.......................................           OCBSA            0.85           12.66          915.76
----------------------------------------------------------------------------------------------------------------

    Tables 44 through 46 summarize the data at the national contiguous 
level and for non-contiguous areas.

                                 Table 44--Average Costs for the Contiguous U.S.
----------------------------------------------------------------------------------------------------------------
                                                                                      Average         Annual
                                                                                  median  driver    residential
                           Delineation                                PE GPCI         wage per      real estate
                                                                                       hour             tax
----------------------------------------------------------------------------------------------------------------
CBA.............................................................            1.04          $15.24       $3,301.60
MSA.............................................................            0.93           13.95        1,943.28
Micro...........................................................            0.88           13.23        1,415.56
OCBSA...........................................................            0.85           12.95        1,083.05
----------------------------------------------------------------------------------------------------------------


                      Table 45--Average Costs for the Non-Contiguous U.S. (Alaska, Hawaii)
----------------------------------------------------------------------------------------------------------------
                                                                                      Average         Annual
                                                                                  median  driver    residential
                           Delineation                                PE GPCI         wage per      real estate
                                                                                       hour             tax
----------------------------------------------------------------------------------------------------------------
CBA (Honolulu, HI)..............................................            1.17          $15.35       $1,710.00
MSA.............................................................            1.11           19.12        2,863.27
Micro...........................................................            1.05           15.42        1,230.27
OCBSA...........................................................            1.09           21.65        1,600.30
----------------------------------------------------------------------------------------------------------------


              Table 46--Average Costs for the Non-Contiguous U.S. (Alaska, Hawaii, and Puerto Rico)
----------------------------------------------------------------------------------------------------------------
                                                                                      Average         Annual
                                                                                  median  driver    residential
                           Delineation                                PE GPCI         wage per      real estate
                                                                                       hour             tax
----------------------------------------------------------------------------------------------------------------
CBA (Honolulu, HI)..............................................            1.17          $15.35       $1,710.00
MSA.............................................................            1.02           10.39          846.20
Micro...........................................................            1.04           13.33          958.94
OCBSA...........................................................            1.08           19.98        1,429.99
----------------------------------------------------------------------------------------------------------------

    As discussed earlier, BLS separates certain CPI data based upon the 
following size classes: A, B/C, and D. Size A represents metropolitan 
areas with a population of over 1,500,000 people, size B/C represents 
mid-sized and small metropolitan areas (population of 50,000 to 
1,500,000), and size D represents nonmetropolitan urban areas.\33\ For 
the gas and utility CPI data in Tables 50, 51, and 52, the typical 
ranking was the following from highest to lowest price: (1) size class 
A, (2) size class B/C, and (3) size class D. This is thus similar to 
our other cost data summarized in Tables 43, 44, 45, and 46, in that 
the more populated urban areas (size class A and B/C) tended to have 
higher average costs than the less populated urban areas (size class 
D). Additionally, CPI size classes with more CBA counties (size class A 
and B/C) tended to have higher average costs than size classes with 
more non-CBA counties (size class D). Thus, we conclude based off this 
CPI data in Tables 47, 48, and 49, that CBAs generally have higher gas 
prices and residential utility prices, on average, than non-CBAs.
---------------------------------------------------------------------------

    \33\ https://www.bls.gov/opub/mlr/1996/12/art2full.pdf.

  Table 47--Average Prices for Gasoline, U.S. City Average and Selected
                                  Areas
                              [Per Gallon]
                           Gasoline all Types
------------------------------------------------------------------------
                                                             National
                  Urban area size class                    average  2016
------------------------------------------------------------------------
A.......................................................          $2.296
B/C.....................................................           2.102
D.......................................................           2.128
------------------------------------------------------------------------


[[Page 34377]]


  Table 48--Average Residential Unit Prices and Consumption Ranges for
 Utility (Piped) Gas and Electricity for U.S. City Average and Selected
                                  Areas
                  Average Price per KWH of Electricity
------------------------------------------------------------------------
                                                             National
                  Urban area size class                    average  2016
------------------------------------------------------------------------
A.......................................................          $0.150
B/C.....................................................           0.125
D.......................................................           0.117
------------------------------------------------------------------------


  Table 49--Average residential Unit Prices and Consumption Ranges for
 Utility (Piped) Gas and Electricity for U.S. City Average and Selected
                                  Areas
             Average Price per Therm of Utility (Piped) Gas
------------------------------------------------------------------------
                                                             National
                  Urban area size class                    average  2016
------------------------------------------------------------------------
A.......................................................          $0.949
B/C.....................................................           0.894
D.......................................................           0.829
------------------------------------------------------------------------

5. The Average Volume of Items and Services Furnished by Suppliers in 
the Area Analysis
    Section 16008 of the Cures Act mandates that we take into account a 
comparison of the average volume of items and services furnished by 
suppliers in CBAs and non-CBAs in making adjustments to fee schedule 
amounts for items furnished on or after January 1, 2019, based on 
information from the CBP. We found that in virtually all cases, the 
average volume of items and services for suppliers when furnishing 
those items to the various areas is higher in CBAs than non-CBAs. As 
indicated in Table 50, the difference in volume is more pronounced as 
the size of the area in terms of population declines.

                       Table 50--Allowed Services per Supplier in 2015 and 2016 for Items Subject to the Fee Schedule Adjustments
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Allowed                                         Allowed
                                                              Allowed        Suppliers     services per       Allowed        Suppliers     services per
                          Areas                              services      serving area      supplier        services      serving area      supplier
                                                              (2015)          (2015)          (2015)          (2016)          (2016)          (2016)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       CPAP & RADs
--------------------------------------------------------------------------------------------------------------------------------------------------------
CBAs....................................................       9,140,617           4,091           2,234      10,634,486           4,064           2,617
Non-CBA MSAs............................................       4,780,160           4,977             960       5,474,533           4,918           1,113
Non-CBA Rural...........................................       4,318,843           5,519             783       4,928,348           5,372             917
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                         Oxygen
--------------------------------------------------------------------------------------------------------------------------------------------------------
CBAs....................................................       6,406,412           4,667           1,373       6,265,856           4,289           1,461
Non-CBA MSAs............................................       3,766,780           4,883             771       3,662,808           4,548             805
Non-CBA Rural...........................................       4,521,374           5,325             849       4,420,783           5,036             878
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       Nebulizers
--------------------------------------------------------------------------------------------------------------------------------------------------------
CBAs....................................................       2,088,109           7,643             273       1,769,830           6,392             277
Non-CBA MSAs............................................       1,132,972           6,167             184       1,032,926           5,742             180
Non-CBA Rural...........................................       1,372,641           7,002             196       1,267,774           6,509             195
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  Standard Wheelchairs
--------------------------------------------------------------------------------------------------------------------------------------------------------
CBAs....................................................       1,589,682           3,428             464       1,624,569           3,419             475
Non-CBA MSAs............................................         652,588           4,687             139         658,504           4,451             148
Non-CBA Rural...........................................         600,098           5,441             110         609,432           5,190             117
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     WC Accessories
--------------------------------------------------------------------------------------------------------------------------------------------------------
CBAs....................................................       1,339,631           2,903             461       1,388,992           2,909             477
Non-CBA MSAs............................................         431,487           3,505             123         456,145           3,388             135
Non-CBA Rural...........................................         334,264           4,093              82         355,364           3,938              90
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Hospital Beds
--------------------------------------------------------------------------------------------------------------------------------------------------------
CBAs....................................................         791,371           2,814             281         781,486           2,707             289
Non-CBA MSAs............................................         314,095           3,870              81         310,312           3,647              85
Non-CBA Rural...........................................         332,047           4,460              74         331,278           4,212              79
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     Infusion Pumps
--------------------------------------------------------------------------------------------------------------------------------------------------------
CBAs....................................................         741,236           1,320             562         641,192           1,329             482
Non-CBA MSAs............................................         305,067           1,415             216         258,168           1,388             186
Non-CBA Rural...........................................         268,204           1,589             169         224,845           1,498             150
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                         Walkers
--------------------------------------------------------------------------------------------------------------------------------------------------------
CBAs....................................................         466,112           3,558             131         465,134           3,722             125
Non-CBA MSAs............................................         255,487           5,367              48         248,570           5,138              48

[[Page 34378]]

 
Non-CBA Rural...........................................         230,651           6,488              36         227,668           6,094              37
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     Commode Chairs
--------------------------------------------------------------------------------------------------------------------------------------------------------
CBAs....................................................         191,538           3,656              52         177,339           3,010              59
Non-CBA MSAs............................................          69,232           3,193              22          67,323           2,838              24
Non-CBA Rural...........................................          63,932           3,845              17          61,175           3,483              18
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          NPWT
--------------------------------------------------------------------------------------------------------------------------------------------------------
CBAs....................................................         182,939           1,413             129         182,375           1,380             132
Non-CBA MSAs............................................          86,421           1,371              63          87,326           1,347              65
Non-CBA Rural...........................................          76,583           1,565              49          79,939           1,532              52
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Patient Lifts
--------------------------------------------------------------------------------------------------------------------------------------------------------
CBAs....................................................         161,975           2,450              66         156,168           2,223              70
Non-CBA MSAs............................................          55,504           2,262              25          53,969           2,124              25
Non-CBA Rural...........................................          52,133           2,724              19          50,405           2,532              20
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    Support Surfaces
--------------------------------------------------------------------------------------------------------------------------------------------------------
CBAs....................................................         131,756           1,859              71         128,033           1,725              74
Non-CBA MSAs............................................          51,675           2,186              24          50,267           2,113              24
Non-CBA Rural...........................................          47,302           2,665              18          47,402           2,519              19
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          TENS
--------------------------------------------------------------------------------------------------------------------------------------------------------
CBAs....................................................         119,135           1,164             102          53,695           1,031              52
Non-CBA MSAs............................................          55,563             780              71          28,878             697              41
Non-CBA Rural...........................................          55,020             867              63          28,207             791              36
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       Seat Lifts
--------------------------------------------------------------------------------------------------------------------------------------------------------
CBAs....................................................           5,925           1,057               6           3,026             715               4
Non-CBA MSAs............................................           3,774             927               4           2,652             746               4
Non-CBA Rural...........................................           6,032           1,326               5           4,439           1,151               4
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Complex Wheelchairs
--------------------------------------------------------------------------------------------------------------------------------------------------------
CBAs....................................................           1,059             209               5           1,295             236               5
Non-CBA MSAs............................................             581             176               3             618             199               3
Non-CBA Rural...........................................             420             140               3             544             171               3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes: Complex wheelchairs include Group 2 complex rehabilitative power wheelchair bases.

    One factor to consider is that as a supplier's volume increases, 
the overall costs of furnishing those items also increases due to the 
need to purchase more delivery vehicles, hire additional employees, 
expand warehouse and office space, purchase additional office 
equipment, additional use of gas and other utilities, etc.
    Past stakeholder input and studies suggest that delivery costs and 
wages affect a suppliers' overall costs more than equipment acquisition 
costs and volume discounts. In 2006, Morrison Informatics, Inc. 
conducted a study for the American Association for Homecare titled ``A 
Comprehensive Cost Analysis of Medicare Home Oxygen Therapy'', which 
used a survey of 74 oxygen suppliers to determine which factors are 
more important in influencing oxygen suppliers' cost of furnishing 
oxygen and oxygen equipment. The study concluded that equipment 
acquisition only accounted for 28 percent of the cost of providing 
medically necessary oxygen to Medicare beneficiaries. This study 
concluded that services such as preparing and delivering equipment, 
driving to the home to repair and maintain equipment, training and 
educating patients, obtaining required medical necessity documentation, 
customer service, and operating and overhead costs accounted for 72 
percent of overall costs. Our data indicates that delivery, wages, 
gasoline, utilities, office rental, and other overhead costs are lower 
in non-CBAs than in CBAs, and the findings of the Morrison study 
indicate that these costs represent a majority of the supplier's 
overall cost.\34\
---------------------------------------------------------------------------

    \34\ Morrison Informatics, Inc., A Comprehensive Cost Analysis 
of Medicare Home Oxygen Therapy (Mechanicsburg, Pa.: June 27, 2006).
---------------------------------------------------------------------------

    Table 2 from the Morrison study provided a breakdown of an oxygen 
supplier's monthly cost per patient of $201.20 into seven components: 
One for equipment cost; four for labor for various tasks; one for 
delivery; and one for overhead, including rent and other facility 
costs. Table 51 represents that table from the study.

[[Page 34379]]



 Table 51--2006 Oxygen Supplier Cost Survey by Morrison Informatics, Inc
------------------------------------------------------------------------
                                                           Average  cost
                     Cost component                        per- patient
                                                             per-month
------------------------------------------------------------------------
1. SYSTEM ACQUISITION \1\...............................          $55.81
2. INTAKE AND CUSTOMER SERVICE \2\......................           12.66
3. PREPARATION, RETURN, DISPOSABLES, AND SCHEDULED                 25.24
 MAINTENANCE \3\........................................
4. UNSCHEDULED REPAIRS AND MAINTENANCE \4\..............            6.10
5. PATIENT ASSESSMENT, TRAINING, EDUCATION AND                     17.54
 MONITORING \5\.........................................
6. DELIVERY ASSOCIATED WITH PREPARATION, RETURN,                   42.26
 DISPOSABLES, AND SCHEDULED MAINTENANCE \6\.............
7. OTHER MONTHLY OPERATING AND OVERHEAD \7\.............           41.59
8. TOTAL DIRECT COST BEFORE TAXES.......................          201.20
------------------------------------------------------------------------
\1\ The amount includes acquisition costs for stationary, portable and
  backup units, conserving devices, ancillary equipment and accessories,
  and oxygen system contents (liquid and gaseous oxygen).
\2\ The amount includes labor associated with patient intake functions,
  ongoing customer service (patient inquiries, scheduling of deliveries/
  maintenance/clinical visits, accommodating patient travel plans), and
  initial and renewal prescription processing.
\3\ The amount includes labor associated with equipment preparation
  (testing, cleaning, and repair), equipment set-up and maintenance upon
  return, initial patient instruction, cost of disposable and
  maintenance supplies, and labor costs associated with scheduled
  preventive equipment maintenance.
\4\ The amount includes labor and vehicle costs associated with
  unscheduled equipment repair and maintenance.
\5\ The amount includes labor and travel costs associated with clinical
  visits by respiratory care practitioner, in-home patient assessments
  (including home environment safety assessment and oxygen therapy plan
  of care), training, education and compliance monitoring.
\6\ The amount includes delivery costs associated with oxygen fills
  (liquid and gaseous oxygen), preparation, return, disposables and
  scheduled maintenance.
\7\ The amount includes rent and other facility costs, administration,
  insurance, legal, regulatory compliance, MIS systems/controls,
  communications systems, employee training, accreditation, supplies,
  billing and compliance functions.

    Table 52 combines the monthly costs from Table 2 of the Morrison 
study into the major components of a DME supplier's costs: Equipment 
cost; labor cost; delivery cost; and overhead.

  Table 52--Dollar Cost Breakout for DME Supplier of Oxygen and Oxygen
                                Equipment
------------------------------------------------------------------------
                                                          Percentage  of
    Monthly average cost per            Component           total cost
          beneficiary                                        (percent)
------------------------------------------------------------------------
$55.81.........................  Oxygen Equipment.......              28
61.54..........................  Combined Labor Costs...              30
42.26..........................  Delivery...............              21
41.59..........................  Overhead...............              21
201.20.........................  Total Cost Per Month...             100
------------------------------------------------------------------------

    The average volume of oxygen equipment furnished by suppliers in 
CBAs is greater than the average volume of oxygen equipment furnished 
by suppliers in non-CBAs, particularly rural areas, as shown previously 
in Table 50. But volume discounts associated with bulk purchasing of 
oxygen equipment, or the lack thereof, would only impact 28 percent of 
the suppliers' total cost per month according to the Morrison study. 
The Morrison study concludes that labor, delivery, and overhead costs 
combined account for far more of the oxygen supplier's overall cost (72 
percent) than the cost of the oxygen equipment (28 percent). Even if 
the supplier received a 25 percent volume discount on the price of the 
equipment from the manufacturer, reducing its monthly cost for the 
equipment from $55.81 to $41.86, this savings would be more than 
cancelled out if the supplier's labor, delivery, and overhead costs are 
just 10 percent higher than the supplier in the area with lower costs 
and lower volume. Also, as a supplier increases their volume, the costs 
associated with labor, delivery, and overhead also increase 
proportionally. The conclusion drawn from the Morrison study is that 
although the average volume of oxygen and oxygen equipment furnished by 
suppliers in the CBAs may be higher than the average volume of oxygen 
and oxygen equipment furnished by suppliers in the non-CBA areas, this 
factor alone does not mean that the overall costs of furnishing oxygen 
and oxygen equipment in the CBAs is lower than the overall costs of 
furnishing oxygen and oxygen equipment in the non-CBAs. Our data 
indicates that the labor, delivery, and overhead costs of suppliers 
furnishing oxygen and oxygen equipment in CBAs are higher than the 
labor, delivery, and overhead costs of suppliers furnishing oxygen and 
oxygen equipment in non-CBAs, and the Morrison study concludes that 
these costs make up 72 percent of the oxygen supplier's overall costs.
6. Number of Suppliers Analysis
    Section 16008 of the Cures Act mandates that we take into account a 
comparison of the number of suppliers in CBAs and non-CBAs in making 
adjustments to fee schedule amounts for items furnished on or after 
January 1, 2019, based on information from the CBP. We examined data 
regarding the number of suppliers serving the various CBAs and did not 
find any correlation between number of suppliers and SPA or maximum 
winning bid amount. We are not certain how much this factor might 
affect costs in terms of competition for business or serving areas with 
a limited number of suppliers, but it does not appear to have been a 
factor under the competitive bidding program in terms of bids submitted 
in the various CBAs.
    Data for number of suppliers per area and product category did not 
change significantly in 2016 from levels in 2015. There was at least a 
double digit number of suppliers serving non-CBAs in almost every MSA, 
micro area or other rural counties for items subject to the fee 
schedule reductions. The number of suppliers in the non-CBAs decreased 
by a little over 6 percent in 2016 overall, while volume per supplier 
increased, suggesting a consolidation in

[[Page 34380]]

the number of locations serving the non-CBAs.
    We believe that one of the most critical items subject to the fee 
schedule adjustments in terms of beneficiary access is oxygen and 
oxygen equipment. If access to oxygen and oxygen equipment is denied to 
a beneficiary who needs oxygen, this can have serious health 
implications. Oxygen and oxygen equipment is also an item that must be 
delivered to the beneficiary and set up and used properly in the home 
for safety reasons. Access to oxygen and oxygen equipment in remote 
areas is critical and this has been stressed by stakeholders. To 
determine if there were pockets of the country where access to oxygen 
and oxygen equipment was in jeopardy, we looked at data showing how 
many non-CBA counties are being served by only one oxygen supplier. 
This data shows that these instances are extremely rare (35 counties 
out of about 2,700 counties in 2016 and 2017) and that the suppliers 
serving these counties are all accepting the fully adjusted fee 
schedule amounts as payment in full 100 percent of the time. Of the 35 
counties, 28 have only one beneficiary using oxygen, so only one 
supplier could serve these counties at one time, meaning that there may 
be other suppliers able to serve these areas as well if there were more 
beneficiaries using oxygen in these areas. Also of note, 28 of these 
counties are from Puerto Rico (25), Alaska (2), or the Virgin Islands 
(1), and the suppliers for these non-contiguous areas are all accepting 
the fully adjusted fee schedule amounts as payment in full 100 percent 
of the time and are continuing to serve these areas.
7. Fee Schedule Adjustment Impact Monitoring Data
    Regarding adverse beneficiary health outcomes, we have been 
monitoring claims data from non-CBAs and it does not show any 
observable trends indicating an increase in adverse health outcomes 
such as mortality, hospital and nursing home admission rates, monthly 
hospital and nursing home days, physician visit rates, or emergency 
room visits in 2016, 2017, or 2018 compared to 2015 in the non-CBAs, 
overall. In addition, we have been monitoring data on the rate of 
assignment in non-CBAs and it remains high (over 99 percent) in most 
areas, which reflects when suppliers are accepting Medicare payment as 
payment in full and not balance billing beneficiaries for the cost of 
the DME. We are, however, soliciting comments on ways to improve our 
fee schedule adjustment impact monitoring data.
8. Summary of Our Findings
    A brief summary of our general findings gathered in accordance with 
section 16008 of the Cures Act are as follows:
Highest Winning Bid
    Highest winning bids from Round 2 Recompete varied widely across 
the CBAs and the variance does not appear to be based on any geographic 
factor (that is, there is no pattern of maximum bid amounts for items 
being higher in certain CBAs or regions of the country versus others).
Stakeholder Input
    Stakeholders, most of which were suppliers, stated that the fully 
adjusted fee schedule amounts are not sufficient to cover supplier 
costs for furnishing items and services in non-CBAs. Stakeholders also 
stated that the number of suppliers furnishing items in these areas 
continues to decline, the average travel distance and cost for 
suppliers serving rural areas are greater than the average travel 
distance and cost for suppliers serving CBAs, and that the average 
volume of services furnished by suppliers when serving non-CBAs are 
lower than the average volume of services furnished by suppliers when 
serving CBAs. Many commenters also stated that the adjusted fee 
schedule amounts have caused or will cause beneficiary access issues, 
and that beneficiaries are going without items and that this is causing 
adverse health outcomes. Several commenters stated that they have 
reduced the size of their service area due to the level of 
reimbursement that they are receiving. Five commenters suggested that 
the adjusted fee schedule amounts be based on maximum winning bids in 
CBAs.
Distance
    From our analysis presented in this rule, the average distance 
traveled in CBAs is generally greater than in most non-CBAs. However, 
when looking at certain non-CBA rural areas such as FAR, OCBSAs, and 
super rural areas, suppliers generally must travel farther distances to 
beneficiaries located in these areas than beneficiaries located in CBAs 
and other non-CBAs.
Costs
    Costs, on average, are higher in CBAs than they are in the non-
CBAs, for most of the cost data that we examined and presented in this 
proposed rule.
Volume
    Overall, suppliers in CBAs have significantly more volume than 
suppliers in either non-CBA MSAs, micro areas, or OCBSAs, based on 
claims data we examined and the analysis presented in this proposed 
rule.
Number of Suppliers
    The number of suppliers in the non-CBAs decreased by a little over 
6 percent in 2016 overall, while volume per supplier increased, 
suggesting a consolidation in the number of locations serving the non-
CBAs. Instances of beneficiaries located in areas being served by one 
supplier were extremely rare, when looking at users of oxygen and 
oxygen equipment, and were mostly in non-contiguous areas of the 
country. The suppliers for these non-contiguous areas were all 
accepting the fully adjusted fee schedule amounts as payment in full 
100 percent of the time in 2016 and 2017. We also did not find any 
correlation between number of suppliers and SPA or maximum winning bid 
amount.
    We are soliciting comments on these findings.

B. Current Issues

1. Proposed Fee Schedule Adjustments for Items and Services Furnished 
in Non-Competitive Bidding Areas During a Gap in the DMEPOS CBP
    As indicated in section V.D.2 of section V ``Changes to the Durable 
Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) 
Competitive Bidding Program (CBP)'' of the proposed rule, we are 
proposing to make changes to the DMEPOS CBP effective January 1, 2019. 
The proposed changes to the CBP would be effective for competitions 
beginning on or after January 1, 2019. The Round 2 Recompete, National 
Mail-Order Recompete, and Round 1 2017 contract periods of performance 
will end on December 31, 2018. Competitive bidding for items furnished 
on or after January 1, 2019 has not yet begun, and therefore, we do not 
expect that CBP contracts would be in place on January 1, 2019. Thus we 
anticipate that there would be a gap in the CBP beginning January 1, 
2019. During a gap in the CBP beginning January 1, 2019, there would be 
no contract suppliers and payment for all items and services previously 
included under the CBP would be based on the lower of the supplier's 
charge for the item or fee schedule amounts adjusted in accordance with 
sections 1834(a)(1)(F) and 1842(s)(3)(B) of the Act. We are proposing 
specific fee schedule adjustments as a way to temporarily pay for items 
and services in the event of a gap in the CBP due to CMS being unable 
to timely recompete CBP contracts before the current

[[Page 34381]]

DMEPOS competitive bidding contract periods of performance end.
    We are proposing three different fee schedule adjustment 
methodologies depending on the area in which the items and services are 
furnished: (1) One fee schedule adjustment methodology for DME items 
and services furnished on or after January 1, 2019, in areas that are 
currently CBAs in the event of a gap in the CBP; (2) another fee 
schedule adjustment methodology for items and services furnished from 
January 1, 2019, through December 31, 2020, in areas that are currently 
not CBAs, are not rural areas, and are located in the contiguous United 
States (U.S.); and (3) another fee schedule adjustment methodology for 
items and services furnished from January 1, 2019, through December 31, 
2020, in areas that are currently not CBAs and are either rural areas 
or non-contiguous areas.
    With regard to section 16008 of the Cures Act, we have taken the 
information mandated by section 16008 of the Cures Act into account as 
part of developing the proposed fee schedule adjustments for items and 
services furnished on or after January 1, 2019 through December 31, 
2020, in areas that are currently non-CBAs. Section 16008 of the Cures 
Act first mandates that we take stakeholder input into account in 
making fee schedule adjustments based on information from the DMEPOS 
CBP for items and services furnished beginning in 2019. The information 
we have collected includes input from many stakeholders indicating that 
the fully adjusted fee schedule amounts are too low and that this is 
having an adverse impact on beneficiary access to items and services 
furnished in rural and remote areas. Industry stakeholders have stated 
that the fully adjusted fee schedule amounts are not sufficient to 
cover the supplier's costs, particularly for delivering items in rural, 
remote areas. We are monitoring outcomes, assignment rates, and other 
issues related to access of items and services such as changes in 
allowed services and number of suppliers. We believe it is important to 
continue monitoring these things before proposing a more long term fee 
schedule adjustment methodology using information from the CBP. If fee 
schedule amounts are too low, they could impact access and potentially 
damage the businesses that furnish DMEPOS items and services. If fee 
schedule amounts are too high, this increases Medicare program and 
beneficiary costs unnecessarily. For these reasons, we believe that we 
should proceed cautiously in developing fee schedule adjustment 
methodologies for the short term that can protect access to items, 
while we continue to monitor and gather data and information. We plan 
to address fee schedule adjustments for items furnished on or after 
January 1, 2021 in future rulemaking after we have continued to monitor 
health outcomes, assignment rates, and other information.
    Section 16008 of the Cures Act mandates that we take into the 
account the highest amount bid by a winning supplier in a CBA. However, 
as previously discussed in section VI.A.2 of this proposed rule, the 
highest winning bids from Round 2 Recompete varied widely across the 
CBAs and the variance does not appear to be based on any geographic 
factor (that is, there is no pattern of maximum bid amounts for items 
being higher in certain CBAs or regions of the country versus others). 
Thus, we did not find any supporting evidence for the development of a 
payment methodology for the non-CBAs based on the highest winning bids 
in a CBA.
    Section 16008 of the Cures Act mandates that we take into account a 
comparison of the average travel distance and cost associated with 
furnishing items and services in the area. We found that the average 
travel distance and cost for suppliers in non-CBAs is generally lower 
than the average travel distance and cost for suppliers in CBAs. 
However, oftentimes costs in the non-contiguous areas of the U.S., 
particularly in Hawaii and Alaska, were higher than costs in the 
contiguous areas of the U.S., for most of the cost data that we 
examined and presented in this rule. As noted in section VI.A.1 of this 
proposed rule, this was confirmed by one commenter who stated that non-
contiguous areas, such as Alaska and Hawaii, face unique and greater 
costs due to higher shipping costs, a smaller amount of suppliers, and 
more logistical challenges related to delivery. Additionally, from our 
analysis presented in this rule, the average distance traveled in CBAs 
is generally greater than in most non-CBAs. However, when looking at 
certain non-CBA rural areas such as FAR, OCBSAs, and super rural areas, 
suppliers, on average, must travel farther distances to beneficiaries 
located in these areas than beneficiaries located in CBAs and other 
non-CBAs. Thus, we believe this supports a payment methodology that 
factors in the increased costs in non-contiguous areas, and the 
increased travel distance suppliers face in reaching certain rural 
areas.
    Section 16008 of the Cures Act mandates that we take into account a 
comparison of the average volume of items and services furnished by 
suppliers in the area. We found that in virtually all cases, the 
average volume of items and services for suppliers when furnishing 
those items is higher in CBAs than non-CBAs. We believe this finding 
supports a payment methodology that factors in and ensures beneficiary 
access to items and services in non-CBAs with relatively low volume.
    Finally, section 16008 of the Cures Act mandates that we take into 
account a comparison of the number of suppliers in the area. According 
to Medicare claims data, the number of supplier locations furnishing 
DME items and services subject to the fee schedule adjustments 
decreased by 22 percent from 2013 to 2016. In 2016 alone there was a 
little over 6 percent decline from the previous year in the number of 
DME supplier locations furnishing items and services subject to the fee 
schedule adjustments. The magnitude of this decline in DME supplier 
locations, from 13,535 (2015) to 12,617 (2016), indicates that the 
number of DME supplier locations serving these areas continues to 
decline. There has been a further reduction in supplier locations of 9 
percent in 2017. We can attribute a certain percentage of this decline 
in the number of suppliers to audit, investigation, and evaluations by 
CMS and its contractors to enhance fraud and abuse controls to monitor 
suppliers. Furthermore, we have noted in section VI.A.6 of this 
proposed rule that instances of beneficiaries located in areas being 
served by one supplier were extremely rare, when looking at users of 
oxygen and oxygen equipment, and were mostly in non-contiguous areas of 
the country. The suppliers for these non-contiguous areas were all 
accepting the fully adjusted fee schedule amounts as payment in full 
100 percent of the time in 2016 and 2017. Additionally, while the 
number of suppliers in the non-CBAs decreased by a little over 6 
percent in 2016 overall, volume per supplier increased, suggesting a 
consolidation in the number of locations serving the non-CBAs. However, 
we are still concerned about the potential beneficiary access issues 
that might occur in more rural and remote areas based on this 
consistent decline in number of suppliers. As such, out of an abundance 
of caution, we believe that the consistent decline in number of 
suppliers supports adjusting the fee schedule amounts in a way that 
seeks to abate this declining trend and ensure access to items and 
services for beneficiaries living in rural areas and other remote areas 
such as Alaska,

[[Page 34382]]

Hawaii, Puerto Rico and other U.S. territories.
    Based on the stakeholder comments, the higher costs for non-
contiguous areas, the increased average travel distance in certain 
rural areas, the significantly lower average volume per supplier in 
non-CBAs, especially in rural and non-contiguous areas, and the 
decrease in the number of non-CBA supplier locations, we believe the 
fee schedule amounts for items and services furnished from January 1, 
2019 through December 31, 2020, in all areas that are currently rural 
or non-contiguous non-CBAs, should be based on a blend of 50 percent of 
the adjusted fee schedule amounts and 50 percent of the unadjusted fee 
schedule amounts in accordance with the current methodologies under 
paragraphs (1) through (8) of Sec.  414.210(g). We believe that since 
the information from the CBP comes from bidding in non-rural areas only 
and in all but one case in areas located in the contiguous U.S., that 
full adjustments based on this information should not be applied to fee 
schedule amounts for items and services furnished in rural and non-
contiguous areas on or after January 1, 2019. We believe that blended 
rates can help ensure beneficiary access to needed DME items and 
services in rural, remote and non-contiguous areas and better account 
for the differences in costs for these areas versus more densely 
populated areas. We believe the fee schedule amounts for items and 
services furnished from January 1, 2019 through December 31, 2020, in 
all areas that are currently non-CBAs, but are not rural or non-
contiguous areas, should be based on 100 percent of the adjusted fee 
schedule amounts in accordance with the current methodologies under 
paragraphs (1) through (8) of Sec.  414.210(g). Although the average 
volume of items and services furnished by suppliers in non-rural non-
CBAs is lower than the average volume of items and services furnished 
by suppliers in CBAs, the travel distances and costs for these areas 
are lower than the travel distances and costs for CBAs. Because the 
travel distances and costs for these areas are lower than the travel 
distances and costs for CBAs, we believe the fully adjusted fee 
schedule amounts are sufficient. However, we request specific comments 
on the issue of whether the 50/50 blended rates should apply to these 
areas as well.
    In the event that the proposal outlined in section V ``Changes to 
the Durable Medical Equipment, Prosthetics, Orthotics, and Supplies 
(DMEPOS) Competitive Bidding Program (CBP)'', to change the method for 
calculating SPAs under the CBP is finalized and SPAs under future 
competitions are calculated based on maximum winning bids rather than 
the median of winning bids, this change in payments under the CBP may 
warrant further changes to the fee schedule adjustment methodologies 
under Sec.  414.210(g)(1) through (8). We would address further changes 
to the fee schedule adjustment methodologies in future rulemaking.
    In summary, based on stakeholder input, the higher costs for 
suppliers in non-contiguous areas, the longer average travel distance 
for suppliers furnishing items in certain rural areas, the 
significantly lower average volume that most non-CBA suppliers furnish, 
and the decrease in the number of non-CBA supplier locations, we are 
proposing to revise Sec.  414.210(g)(9) and to adjust the fee schedule 
amounts for items and services furnished in rural and non-contiguous 
non-CBAs by extending through December 31, 2020, the current 
methodology which bases the fee schedule amounts on a blend of 50 
percent of the adjusted fee schedule amounts and 50 percent of the 
unadjusted fee schedule amount in accordance with the current 
methodologies under paragraphs (1) through (8) of Sec.  414.210(g). We 
are proposing to adjust the fee schedule amounts for items and services 
furnished in non-rural and contiguous non-CBAs from January 1, 2019 
through December 31, 2020, using the current methodologies under 
paragraphs (1) through (8) of Sec.  414.210(g). We plan to continue 
monitoring health outcomes, assignment rates, and other information and 
would address fee schedule adjustments for all non-CBAs for items 
furnished on or after January 1, 2021, in future rulemaking.
2. Proposed Fee Schedule Adjustments for Items and Services Furnished 
in Former Competitive Bidding Areas During a Gap in the DMEPOS CBP
    In the event of a future gap in the CBP due to CMS being unable to 
timely recompete contracts under the program before the DMEPOS 
competitive bidding contract periods of performance end, we are 
proposing a fee schedule adjustment methodology that would be used to 
adjust the fee schedules for items and services that are currently 
subject to and included in competitive bidding programs. We believe 
that a fee schedule adjustment methodology for items and services 
furnished during a gap in the CBP in areas that were included in the 
CBP should result in rates comparable to the rates that would otherwise 
be established under the CBP in order to maintain the level of savings 
that would otherwise be achieved if the CBP was in effect. We are 
proposing a specific fee schedule adjustment methodology for items and 
services furnished within former CBAs in accordance with sections 
1834(a)(1)(F) and 1834(a)(1)(G) of the Act. Specifically, we propose to 
add a new paragraph (10) under Sec.  414.210(g) that would establish a 
methodology for adjusting fee schedule amounts paid in areas that were 
formerly CBAs during periods when there is a temporary lapse in the 
CBP. We propose to adjust the fee schedule amounts for items and 
services furnished in former CBAs based on the SPAs in effect in the 
CBA on the last day before the CBP contract periods of performance 
ended, increased by the projected percentage change in the CPI for all 
Urban Consumers (CPI-U) for the 12-month period on the date after the 
contract periods ended (for example, January 1, 2019). If the gap in 
the CBP lasts for more than 12 months, the fee schedule amounts are 
increased once every 12 months on the anniversary date of the first day 
after the contract period ended based on the projected percentage 
change in the CPI-U for the 12-month period ending on the anniversary 
date.
    We also propose to revise paragraph (4) under Sec.  414.210(g), so 
that it does not conflict with the proposed new paragraph (10), by 
revising the first sentence in paragraph (4) to read: ``In the case 
where adjustments to fee schedule amounts are made using any of the 
methodologies described, other than paragraph (g)(10) of this section, 
if the adjustments are based solely on single payment amounts from 
competitive bidding programs that are no longer in effect, the single 
payment amounts are updated before being used to adjust the fee 
schedule amounts.''
    With regard to payment for non-mail order diabetic testing 
supplies, section 1834(a)(1)(H) of the Act mandates that payment for 
non-mail order diabetic testing supplies be equal to the SPAs 
established under the national mail order competition for diabetic 
testing supplies. We believe that as of January 1, 2019, we must 
continue payment for non-mail order diabetic supplies at the current 
SPA rates. These SPA rates would not be updated by inflation adjustment 
factors and would remain in effect until new SPA rates are established 
under the national mail order program. We do not believe that this 
statutory provision would cease to apply in situations where there is a 
gap in the national mail order competitions for diabetic testing 
supplies; and therefore, we will continue to use the SPAs for mail 
order diabetic testing supplies as the payment amounts for

[[Page 34383]]

non-mail order diabetic testing supplies in the event that there is a 
gap in the CBP.
    We seek comments on these proposals.

C. Provisions of the Proposed Rule

    We are proposing to revise the fee schedule adjustment methodology 
at Sec.  414.210(g)(9) so that for items and services furnished in non-
CBAs that are rural or non-contiguous areas with dates of service from 
January 1, 2019, through December 31, 2020, the fee schedule amount for 
the area is equal to 50 percent of the adjusted payment amount 
established under this section and 50 percent of the unadjusted fee 
schedule amount. We are proposing to revise the fee schedule adjustment 
methodology at Sec.  414.210(g)(9) so that for items and services 
furnished in non-CBAs that are not rural or non-contiguous areas with 
dates of service from January 1, 2019, through December 31, 2020, the 
fee schedule amount for the area is equal to 100 percent of the 
adjusted payment amount established under this section.
    We also propose a methodology for adjusting the fee schedule 
amounts for items and services that are currently subject to 
competitive bidding furnished in former CBAs in the event of a lapse in 
the DMEPOS CBP. We propose to create a new paragraph (10) under Sec.  
414.210(g) titled ``Payment Adjustments for Items and Services 
Furnished in Former Competitive Bidding Areas During Temporary Gaps in 
the DMEPOS CBP'' that has the following text underneath: ``During a 
temporary gap in the entire DMEPOS CBP and/or National Mail Order CBP, 
the fee schedule amounts for items and services that were competitively 
bid and furnished in areas that were competitive bidding areas at the 
time the program(s) was in effect are adjusted based on the SPAs in 
effect in the competitive bidding areas on the last day before the CBP 
contract period of performance ended, increased by the projected 
percentage change in the Consumer Price Index for all Urban Consumers 
(CPI-U) for the 12-month period ending on the date after the contract 
periods ended. If the gap in the CBP lasts for more than 12 months, the 
fee schedule amounts are increased once every 12 months on the 
anniversary date of the first day of the gap period based on the 
projected percentage change in the CPI-U for the 12-month period ending 
on the anniversary date.''
    Finally, with regard to payment for non-mail order diabetic testing 
supplies in the event of a gap in the CBP, payment would continue at 
the SPA rates for mail order diabetic testing supplies as mandated by 
section 1834(a)(1)(H) of the Act. We would pay for non-mail order 
diabetic supplies at the current SPA rates until new rates are 
established under the national mail order program.

VII. New Payment Classes for Oxygen and Oxygen Equipment and 
Methodology for Ensuring Annual Budget Neutrality of the New Classes

A. Background

    The Medicare payment rules for durable medical equipment are set 
forth in section 1834(a) of the Act and 42 CFR part 414, subpart D of 
our regulations. In general, Medicare payment for DME items and 
services paid on a fee schedule basis is equal to 80 percent of the 
lower of either the actual charge or the fee schedule amount for the 
item. The beneficiary coinsurance is equal to 20 percent of the lower 
of either the actual charge or the fee schedule amount for the item. 
General payment rules for DME are set forth in section 1834(a)(1) of 
the Act and Sec.  414.210 of our regulations, and Sec.  414.210 also 
contains paragraphs relating to maintenance and servicing of items and 
replacement of items. Specific payment rules for oxygen and oxygen 
equipment are set forth in section 1834(a)(5) of the Act and Sec.  
414.226 of our regulations. The average monthly payment to suppliers 
serving beneficiaries with a prescribed flow rate of greater than 4 
liters per minute in 2006 was approximately $299.76. Before the 
enactment of the Deficit Reduction Act of 2005 (DRA), these monthly 
payments continued for the duration of use of the equipment, provided 
that Medicare Part B coverage and eligibility criteria were met. 
Medicare covers three types of oxygen delivery systems: (1) Stationary 
or portable oxygen concentrators, which concentrate oxygen in room air; 
(2) stationary or portable liquid oxygen systems, which use oxygen 
stored as a very cold liquid in cylinders and tanks; and (3) stationary 
or portable gaseous oxygen systems, which administer compressed oxygen 
directly from cylinders. There is also transfilling equipment that 
takes oxygen from concentrators and fills up small portable gaseous 
tanks. Both liquid and gaseous oxygen systems require delivery of 
oxygen contents. Concentrators and transfilling systems do not require 
delivery of oxygen contents. Medicare payment for furnishing oxygen and 
oxygen equipment is made on a monthly basis and the fee schedule 
amounts vary by State.
    Effective January 1, 2006, section 5101(b) of the DRA amended 
section 1834(a)(5) of the Act, limiting the monthly payments for oxygen 
equipment to 36 months of continuous use. The limit of 36 months of 
payment also applies to cases where there is an oxygen flow rate of 
greater than 4 liters per minute. The DRA mandated that payment for the 
delivery of oxygen contents continue after the 36-month cap on payments 
for oxygen equipment. At this time, Medicare already had an established 
fee schedule amount or payment class for oxygen contents only for 
beneficiaries who owned the stationary and/or portable oxygen 
equipment. The monthly payment for oxygen contents for beneficiaries 
who purchased oxygen equipment prior to 1989 included payment for 
delivery of both stationary and portable contents and was approximately 
$156 on average in 2006. CMS implemented section 1834(a)(5) of the Act, 
as amended by section 5101 of the DRA, in the final rule published on 
November 9, 2006 in the Federal Register, titled ``Home Health 
Prospective Payment System Rule Update for Calendar Year 207 and 
Deficit Reduction Act of 2005 Changes to Medicare Payment for Oxygen 
Equipment and Capped Rental Durable Medical Equipment'', (71 FR 65884). 
As part of this rule, we amended Sec.  414.226 by adding a new 
paragraph (c) and separate payment classes for: Oxygen generating 
portable equipment (OGPE) consisting of portable oxygen concentrators 
and transfilling equipment that met the patient's portable oxygen needs 
without relying on the delivery of oxygen contents; stationary oxygen 
contents after the 36-month rental period; and portable oxygen contents 
after the 36-month rental period. With the addition of the new class 
for OGPE, rather than receiving the standard monthly add-on payment of 
$31.79 for portable oxygen equipment, we established a higher amount of 
$51.63 per month for this new technology as opposed to furnishing 
portable gaseous or liquid oxygen equipment, which continued to be paid 
at the lower add-on payment rate of $31.79 per month.
    Section 1834(a)(9)(D) of the Act provides the authority to create 
separate classes of oxygen and oxygen equipment. Section 
1834(a)(9)(D)(ii) of the Act mandates that new, separate classes of 
oxygen and oxygen equipment be budget neutral; the Secretary may 
establish new classes for oxygen and oxygen equipment only if the 
establishment of such classes does not result in expenditures for any 
year that are less or more than the expenditures which would have been 
made had the

[[Page 34384]]

classes not been established. It is important to stress that the budget 
neutrality requirement in section 1834(a)(9)(D)(ii) of the Act applies 
regardless of whether fee schedule amounts are adjusted based on 
information from the DMEPOS CBP. As long as suppliers continue to get 
paid more for OGPE than they would otherwise be paid had the OGPE class 
not been established, a methodology must be employed to ensure that 
payments or expenditures overall are budget neutral. Since 2008, in 
accordance with our regulations at Sec.  414.226(c), CMS has ensured 
budget neutrality each year by determining how much expenditures 
increased as a result of the higher paying OGPE class and reducing the 
monthly payment amount for stationary oxygen equipment and oxygen 
contents by a certain percentage to offset the increase in payments 
attributed to the higher amount paid for OGPE. Stakeholders have argued 
that the budget neutrality requirement should no longer apply in 
situations where the fee schedule amounts for oxygen and oxygen 
equipment, including the fee schedule amounts for OGPE, are adjusted 
based on information from the DMEPOS CBP. However, as long as the add-
on payment amounts for OGPE are higher than the add-on payment amounts 
that would otherwise have been made for portable oxygen equipment in 
general, a budget neutrality offset is needed to ensure the OGPE class 
does not result in total expenditures for any year which are more or 
less than the expenditures which would have been made if the payment 
class had not been established.
    As of January 1, 2018, the average adjusted fee schedule monthly 
add-on amount for OGPE was $40.08 and for portable gaseous and liquid 
oxygen equipment was $18.20. Either of these monthly add-on amounts is 
added to the average adjusted fee schedule monthly payment for 
stationary oxygen equipment and oxygen contents which was $72.95. We 
note that if the fee schedule amounts for oxygen and oxygen equipment 
are adjusted based on information from the DMEPOS CBP, and these 
adjustments result in the fees for OGPE being lower than the add-on 
payment amounts that would otherwise have been made for portable oxygen 
equipment in general, a positive rather than a negative budget 
neutrality offset would be needed to ensure that total expenditures for 
any year are not more or less than the expenditures which would have 
been made if the payment class had not been established.

B. Provisions of the Proposed Rule

1. Adding a Portable Liquid Oxygen Equipment Class
    The current payment classes for oxygen and oxygen equipment are 
included in Sec.  414.226(c), and include: (i) Stationary oxygen 
equipment (including stationary concentrators) and oxygen contents 
(stationary and portable); (ii) Portable equipment only (gaseous or 
liquid tanks); (iii) OGPE only; (iv) Stationary oxygen contents only; 
and (v) Portable oxygen contents only.
    As explained earlier in the preamble, the add-on payment for OGPE 
is higher than the add-on payment for portable gaseous and liquid 
equipment. OGPE provides advantages for beneficiaries in that they do 
not need to rely on the delivery of oxygen contents, in contrast to 
beneficiaries using portable gaseous or liquid equipment. The OGPE 
systems are also more lightweight and therefore allow for greater 
ambulation for beneficiaries who cannot carry or push heavier 
equipment. Since adding the higher paying OGPE class, utilization of 
this equipment has doubled, use of portable gaseous equipment declined 
slightly, while use of portable liquid equipment dropped significantly 
and now accounts for only 2 percent of utilization of portable oxygen 
equipment. Although portable liquid oxygen equipment does not eliminate 
the need for delivery of oxygen contents, it is a more lightweight 
system like OGPE and promotes ambulation in beneficiaries. It is also 
more expensive than portable gaseous equipment to suppliers, 
beneficiaries, and the Medicare program. The higher payments and 
incentives for furnishing OGPE have in essence created a disincentive 
to furnish portable liquid equipment.
    This proposed rule would amend our regulations at Sec.  414.226 by 
using the authority at section 1834(a)(9)(D) to add separate payment 
classes for portable gaseous oxygen equipment only and portable liquid 
oxygen equipment only. Instead of having one class for portable oxygen 
equipment only (gaseous and liquid tanks), we propose splitting this 
class into two classes and increasing the add-on amount for portable 
liquid oxygen equipment. We propose establishing the initial add-on 
amounts for portable liquid oxygen equipment so that they are equal to 
the add-on amounts for OGPE, thus reducing the incentive to furnish 
OGPE over portable liquid oxygen equipment. The add-on payment amounts 
would be adjusted in the future based on pricing information from the 
DMEPOS CBP. As explained above, section 1834(a)(9)(D)(ii) of the Act 
mandates that these new classes be annually budget neutral; however, we 
do not expect this change to result in a dramatic increase in the use 
of portable liquid oxygen equipment, and so we do not believe the 
budget neutrality offset would be significant.
    Suppliers furnishing oxygen and oxygen equipment in a CBA under the 
DMEPOS CBP must furnish portable liquid oxygen equipment in any case 
where a beneficiary starting a new 36-month period of continuous use 
for oxygen and oxygen equipment requests portable liquid oxygen 
equipment. This is because all of the HCPCS codes describing the 
different types of oxygen and oxygen equipment are items included in 
the respiratory equipment product category under the DMEPOS CBP and 
Sec.  414.422(e)(1) requires that that a contract supplier agree to 
furnish items under its contract to any beneficiary who maintains a 
permanent residence in, or who visits, the CBA and who requests those 
items from that contract supplier. However, suppliers in non-CBAs are 
not required to furnish portable liquid oxygen equipment even if a 
beneficiary requests such equipment from a supplier, which is why we 
believe it is important to eliminate any disincentives for furnishing 
this modality that may result because of higher payments for OGPE. 
Thus, we believe that adding the portable liquid oxygen equipment class 
and adding a provision to the regulations that would ensure that the 
payment amount for portable liquid oxygen equipment is the same as OGPE 
would encourage suppliers to furnish this modality when it is requested 
by beneficiaries.
2. Adding a Liquid High-Flow Oxygen Contents Class
    As explained above, the statute allows a 50 percent volume 
adjustment add-on payment to suppliers for furnishing oxygen and oxygen 
equipment to beneficiaries with a prescribed oxygen flow rate of more 
than 4 liters per minute. This provides additional payment for 
equipment and/or delivery of additional contents necessary to meet the 
needs of beneficiaries who are prescribed a large quantity of oxygen. 
However, this add-on payment is tied to the payment for stationary 
equipment, which is capped after 36 months of continuous use. Certain 
oxygen concentrators are capable of meeting the high flow needs of some 
beneficiaries and continue to be available after the 36-month cap on 
payments for oxygen equipment. In addition, transfilling machines can 
be used to fill multiple lightweight portable canisters and continue to 
be available after the 36-

[[Page 34385]]

month cap on payments for oxygen equipment.
    Section 1834(a)(5)(F)(ii)(II) of the Act requires that Medicare 
continue to make monthly payments for the delivery and refilling of 
oxygen contents for the period of medical need after 36 months of 
continuous use. Currently, there are two classes for oxygen contents 
(gaseous and liquid), one for stationary oxygen contents and the other 
for portable oxygen contents--see Sec.  414.226(iv) and (v). In a 
limited number of cases where a patient is ambulatory and is prescribed 
a very high flow rate of oxygen (generally greater than 6 liters per 
minute), a portable liquid oxygen system is the only modality that 
would meet their high flow, portable oxygen needs. In order to better 
ensure that these beneficiaries have access to the portable liquid 
oxygen contents necessary to meet their high flow needs, we propose to 
add a new separate class for ``portable liquid oxygen contents only for 
prescribed flow rates of more than 4 liters per minute.''
    We propose to establish the initial fee schedule amounts for 
portable liquid oxygen contents for prescribed flow rates of more than 
4 liters per minute by multiplying the fee schedule amounts for 
portable oxygen contents by 1.5 to increase the payment amount by 50 
percent above the payment amount for portable oxygen contents. Like the 
other classes of oxygen and oxygen equipment, the fee schedule amounts 
for this class would be adjusted in the future based on pricing 
information from the DMEPOS CBP. As explained above, section 
1834(a)(9)(D)(ii) of the Act mandates that this new class be annually 
budget neutral; however, we expect that this change will have a very 
minimal impact on expenditures due to the limited number of 
beneficiaries who require a high flow rate for oxygen and can still 
ambulate. Therefore, we do not believe the budget neutrality offset 
needed would be significant.
    Table 53 compares the current classes of oxygen and oxygen 
equipment and the proposed classes of oxygen and oxygen equipment.

   Table 53--Current and Proposed Oxygen and Oxygen Equipment Classes
------------------------------------------------------------------------
 Current oxygen and oxygen equipment: 5     Proposed oxygen and oxygen
      classes described in 414.226             equipment: 7 classes
------------------------------------------------------------------------
Stationary oxygen equipment (including   Stationary oxygen equipment
 stationary concentrators) and oxygen     (including stationary
 contents (stationary and portable).      concentrators) and oxygen
                                          contents (stationary and
                                          portable).
Portable equipment only (gaseous or      Portable gaseous equipment
 liquid tanks).                           only.
                                         Portable liquid equipment only.
Oxygen generating portable equipment     Oxygen generating portable
 only..                                   equipment only.
Stationary oxygen contents only........  Stationary oxygen contents
                                          only.
Portable oxygen contents only..........  Portable gaseous and liquid
                                          oxygen contents only except
                                          for portable liquid oxygen
                                          contents for prescribed flow
                                          rates greater than four liters
                                          per minute.
                                         Portable liquid oxygen contents
                                          only for prescribed flow rates
                                          greater than four liters per
                                          minute.
------------------------------------------------------------------------

3. Applying Budget Neutrality Offset to All Oxygen and Oxygen Equipment 
Classes
    In accordance with section 1834(a)(9)(D)(ii) of the Act, the fee 
schedule amounts for the oxygen and oxygen equipment classes are set in 
a budget neutral manner for each oxygen and oxygen equipment HCPCS 
code. The budget neutrality offset necessary to maintain the separate 
class for OGPE has been exclusively applied to the stationary oxygen 
equipment fee schedule amount as indicated in Sec.  414.226(c)(6). We 
propose to change Sec.  414.226(c)(6) and the methodology for applying 
the budget neutrality offset, in addition to adding the two new oxygen 
and oxygen equipment classes proposed above. Rather than applying the 
budget neutrality offset to the payment for stationary equipment and 
oxygen contents only, we propose to apply the budget neutrality offset 
to all oxygen and oxygen equipment classes and HCPCS codes beginning 
January 1, 2019. To implement our proposal, a budget neutrality offset 
shall be applied to all HCPCS codes for oxygen equipment and oxygen 
contents, thereby lowering the amount of the offset applied 
specifically to payments for stationary oxygen. We consider applying 
the budget neutrality offset to all oxygen classes instead of just the 
stationary oxygen equipment class to be more equitable in that it would 
not just lower payments for suppliers of stationary oxygen equipment 
(some of which may never furnish OGPE), but would spread the budget 
neutrality offset more equitably across all classes and codes for 
oxygen and oxygen equipment. Table 54 is an example of the fee schedule 
amounts when the budget neutrality offset is applied only to the 
stationary oxygen equipment rate versus applying the budget neutrality 
offset to all oxygen classes. This particular example depicts fully 
adjusted fee schedule amounts, including budget neutrality adjustments, 
for oxygen and oxygen equipment furnished in non-rural areas in the 
Southeast U.S.

                Table 54--January 1, 2018 Fees for Current and Proposed Budget Neutrality Methods
----------------------------------------------------------------------------------------------------------------
                Current method                    2018 rate              Proposed method             2018 rate
----------------------------------------------------------------------------------------------------------------
Stationary oxygen equipment (including                 $70.23   Stationary oxygen equipment               $72.59
 stationary concentrators) and oxygen                            (including stationary
 contents (stationary and portable).                             concentrators) and oxygen
                                                                 contents (stationary and
                                                                 portable).
Portable equipment only (gaseous or liquid              17.29   Portable gaseous equipment only.           16.04
 tanks).
                                                                Portable liquid equipment only..           34.73
Oxygen generating portable equipment only....           37.44   Oxygen generating portable                 34.73
                                                                 equipment only.
Stationary oxygen contents only..............           53.32   Stationary oxygen contents only.           49.46

[[Page 34386]]

 
Portable oxygen contents only................           53.32   Portable gaseous and liquid                49.46
                                                                 oxygen contents only with the
                                                                 exception of portable liquid
                                                                 contents greater than four
                                                                 liters per minute.
                                                                Portable liquid contents only              74.19
                                                                 greater than four liters per
                                                                 minute.
----------------------------------------------------------------------------------------------------------------

    We solicit comments on these provisions.

VIII. Payment for Multi-Function Ventilators

A. Background

    Section 1834(a) of the Act governs payment for DME covered under 
Part B and under Part A for a home health agency and provides for the 
implementation of a fee schedule payment methodology for DME furnished 
on or after January 1, 1989. Sections 1834(a)(2) through (a)(7) of the 
Act set forth separate payment categories of DME and describe how the 
fee schedule amounts for items under each of the categories are 
established. More importantly, the payment rules for these categories 
are different and in some cases mutually exclusive. Table 55 provides a 
summary of the payment categories, corresponding payment methodology, 
and statutory and regulatory sections. The main payment categories are: 
Inexpensive or other routinely purchased items, items requiring 
frequent and substantial servicing, customized items, oxygen and oxygen 
equipment, and other items of DME (capped rental). Some differences in 
the payment rules for the payment categories arise, for example, where 
sections 1834(a)(2), (4), (6), and (7) of the Act allow for the lump 
sum purchase of certain items paid under these categories, while 
sections 1834(a)(3) and (5) of the Act do not allow for lump sum 
purchase of items in those categories. Also, sections 1834(a)(2), (5), 
and (7) of the Act cap or limit total rental payments for items paid 
under these categories, whereas section 1834(a)(3) does not. With 
regard to rented items, section 1834(a)(7) of the Act mandates 
beneficiary ownership of the item after 13 months of continuous rental, 
whereas sections 1834(a)(2), (3), and (5) do not require transfer of 
ownership to the beneficiary. Finally, section 1834(a)(3) of the Act 
mandates that payment for covered items such as ventilators and 
intermittent positive pressure breathing machines be made on a monthly 
basis for the rental of the item, whereas ventilators that are either 
continuous positive airway pressure devices or intermittent assist 
devices with continuous positive airway pressure devices are excluded 
from section 1834(a)(3) of the Act. Respiratory assist devices, suction 
pumps (aspirators), and nebulizers fall under section 1834(a)(7) of the 
Act.

     Table 55--Summary of DME Equipment Payment Categories and Rules
------------------------------------------------------------------------
         Payment category                       Payment rules
------------------------------------------------------------------------
Inexpensive or other routinely      Purchase price of $150 or less, OR
 purchased items--section            were routinely purchased (75
 1834(a)(2) of the Act               percent of the time or more) under
                                     the rent/purchase program prior to
                                     1989, OR are speech generating
                                     devices, OR are accessories used in
                                     conjunction with nebulizers,
                                     aspirators, continuous positive
                                     airway pressure devices,
                                     respiratory assist devices, or
                                     speech generating devices. If
                                     covered, these items can be
                                     purchased new or used and can be
                                     rented; however, total payments
                                     cannot exceed the purchase new fee
                                     for the item. See 42 CFR 414.220.
Items requiring frequent and        Items, such as ventilators,
 substantial servicing--section      requiring frequent and substantial
 1834(a)(3) of the Act               servicing, in order to avoid risk
                                     to the patient's health. If
                                     covered, these items can be rented
                                     as long as they are medically
                                     necessary with the supplier
                                     retaining ownership of the
                                     equipment. Payment is generally
                                     made on a monthly rental basis with
                                     no cap on the number of rental
                                     payments made as long as medically
                                     necessary. Excludes CPAP devices,
                                     respiratory assist devices, suction
                                     pumps/aspirators, and nebulizers.
                                     See 42 CFR 414.222.
Customized items--section           Payment amounts are not calculated
 1834(a)(4) of the Act               for a customized DME item.
                                     Customized DME is defined at 42 CFR
                                     414.224, including customized
                                     wheelchairs. If covered, payment is
                                     made in a lump-sum amount for the
                                     purchase of the item based on the
                                     DME Medicare Administrative
                                     Contractor (MAC), Part A MAC, or
                                     Part B MAC's individual
                                     determination. See 42 CFR 414.224.
Oxygen and oxygen equipment--       One bundled monthly rental payment
 section 1834(a)(5) of the Act       amount is made, not to exceed a 36
                                     month cap, for all covered
                                     stationary equipment, stationary
                                     and portable contents, and all
                                     accessories used in conjunction
                                     with the oxygen equipment. An add-
                                     on payment may also be made for
                                     portable oxygen. After 36 months,
                                     payment can continue to be made on
                                     a monthly basis for oxygen contents
                                     for liquid or gaseous oxygen
                                     equipment. Payment for in-home
                                     maintenance and servicing of
                                     supplier-owned oxygen concentrators
                                     and transfilling equipment may be
                                     made every 6 months, beginning 6
                                     months after the 36 month rental
                                     cap, for any period of medical need
                                     for the remainder of the reasonable
                                     useful lifetime of the equipment (5
                                     years). See 42 CFR 414.226.
Other Covered Items (Other than     Payment under a lump sum purchase.
 DME)--section 1834(a)(6) of the
 Act
Other items of DME (capped rental   Monthly rental payment amount is
 items)--section 1834(a)(7) of the   made not to exceed a 13 month cap
 Act                                 at which point the beneficiary
                                     takes over ownership of the
                                     equipment. Complex rehabilitative
                                     power wheelchairs can be purchased
                                     in the first month of use. For
                                     capped rental items other than
                                     power wheelchairs, the payment
                                     amount is calculated based on 10
                                     percent of the base year purchase
                                     price for months 1 through 3.
                                     Beginning with the fourth month,
                                     the payment amount is equal to 7.5
                                     percent of the purchase price. For
                                     power wheelchairs, the rental
                                     payment amount is calculated based
                                     on 15 percent of the base year
                                     purchase price for months 1 through
                                     3. Beginning with the fourth month,
                                     the fee schedule amount is equal to
                                     6 percent of the purchase price.
                                     See 42 CFR 414.229.
------------------------------------------------------------------------


[[Page 34387]]

    The Medicare allowed amount for DMEPOS items and services paid on a 
fee schedule basis is equal to the lower of the supplier's actual 
charge or the fee schedule amount. The Medicare payment amount for a 
DME item is generally equal to 80 percent of the lesser of the actual 
charge or the fee schedule amount for the item, less any unmet Part B 
deductible. The beneficiary coinsurance for such items is generally 
equal to 20 percent of the lesser of the actual charge or the fee 
schedule amount for the item once the deductible is met.

B. Current Issues

    Concerns have been raised by the manufacturer of a multi-function 
ventilator about how the separate payment categories set forth at 
sections 1834(a)(2) through (a)(7) of the Act would apply to a new type 
of ventilator, which consists of a ventilator base item classified 
under section 1834(a)(3) of the Act, but can also perform the function 
of portable oxygen equipment classified under the payment categories in 
sections 1834(a)(5), and the functions of a nebulizer, a suction pump, 
and a cough stimulator classified under paragraph (7) of section 
1834(a) of the Act. For example, a new product was recently cleared by 
the Food and Drug Administration (FDA) as a ventilator, but can also 
function as a portable oxygen concentrator, nebulizer, suction pump 
(aspirator), and cough stimulator. The multi-function ventilator 
assists with serving multiple, different medical needs of beneficiaries 
with diagnoses such as chronic lung disease, cystic fibrosis, ALS, and 
muscular dystrophy. As shown in Table 56, separate DME items perform 
each of these functions, and the DME items that perform these functions 
have already been assigned separate HCPCS codes and payment amounts 
under the DMEPOS fee schedule. Currently, HCPCS codes E0465 and E0466 
are denoted for a home ventilator item, any type, used with either an 
invasive interface (for example, tracheostomy tube) or non-invasive 
interface (for example, mask, chest shell). Portable oxygen 
concentrators are identified using a combination of codes E1390 plus 
E1392.

   Table 56--Functions, Payment Category, and HCPCS for Functions of a
                        Multi-Function Ventilator
------------------------------------------------------------------------
         HCPCS code                 Function          Payment category
------------------------------------------------------------------------
E0465 or E0466..............  Ventilator..........  Items requiring
                                                     frequent and
                                                     substantial
                                                     servicing.
E1390 and E1392.............  Portable Oxygen       Oxygen and oxygen
                               Concentrator.         equipment.
E0570.......................  Nebulizer...........  Capped rental items.
E0600.......................  Suction Pump........  Capped rental items.
E0482.......................  Cough Stimulator....  Capped rental items.
------------------------------------------------------------------------

    We noted other concerns while considering how to categorize and pay 
for the multi-function ventilator. One concern is that a patient may 
not need all of the functions that the new multi-function ventilator 
performs, and there are different Medicare medical necessity coverage 
criteria for each of the five different functions typically performed 
by five different pieces of equipment. In addition, another concern we 
have is while section 1847(a)(2)(A) of the Act mandates the 
implementation of competitive bidding for covered items, the only items 
that comprise the multi-function ventilator that have been phased into 
the DMEPOS CBP at this time are portable oxygen concentrators and 
nebulizers. As a result, in CBAs, only contract suppliers can furnish 
portable oxygen concentrators or nebulizers to beneficiaries in these 
areas, whereas non-contract suppliers can furnish ventilators, suction 
pumps, and cough stimulators in these same areas. The current 
competitive bid product categories do not include a single item, 
furnished by one supplier, which performs the functions of five 
separate items, as the multi-function ventilator does. Upon 
determination that the multi-function ventilator is a covered item 
within the meaning of section 1834(a)(13) of the Act and its payment 
category, the multi-function ventilator item can be eligible for 
inclusion in a CBP along with other ventilator items.
    To address these concerns, we reviewed the payment rules for 
ventilators. Section 1834(a)(1)(C) of the Act indicates that subsection 
(a) of section 1834 is the exclusive payment rule for these items; 
however, this subsection does not specifically set forth a payment 
category for DME items that are capable of performing the functions of 
other items that can be classified under the multiple, different 
payment categories and accompanying rules under sections 1834(a)(2) 
through (7) of the Act. Similarly, the regulations at 42 CFR 414.220 
through 42 CFR 414.229 and program instructions currently do not 
address payment for the multi-function ventilator's additional 
functions. In addition, there is no guidance or criteria regarding how 
to determine which function of a new multi-function item should 
determine the payment category for the entire multi-function item. 
Furthermore, because the supplier is only furnishing one item and the 
patient may not need more than one of the functions/features for the 
duration of time the item is used by the patient, we do not believe 
payment should be established by summing the current separate payment 
amounts for each function (ventilators, oxygen concentrators, 
nebulizers, suction pumps, and cough stimulators) to determine the fee 
schedule amount for the integrated multi-function item.
    We believe we should classify multi-function ventilators in the 
frequent and substantial servicing payment category under section 
1834(a)(3) of the Act and address payment for these ventilators that 
can perform multiple functions. The information we gathered during our 
review supports our proposal to classify these items under the frequent 
and substantial servicing payment category at section 1834(a)(3) of the 
Act. Multi-function ventilators are classified by the FDA as 
ventilators, instead of oxygen concentrators, nebulizers, suction 
pumps, or cough stimulators. We believe that section 1834(a)(1)(C) of 
the Act requires that DME be classified into one of the payment 
categories in section 1834(a)(2) through (7) of the Act. We believe 
that by classifying these items under section 1834(a)(3) of the Act and 
not under sections 1834(a)(2), (4), (5), (6), or (7) of the Act, that 
only the rules under section 1834(a)(3) would apply to these items. We 
believe this is appropriate and propose to establish fee schedule 
amounts for multi-function ventilators based on the current Medicare 
fee schedule amounts for ventilators plus an additional amount for the 
average cost of the various additional functions or features the 
equipment offers (oxygen concentration, drug nebulization, respiratory 
airway suction, and cough stimulation). This is

[[Page 34388]]

similar to how fee schedule amounts have been established for other DME 
items in the past, such as using the average of allowed charges for 
underarm crutches with shock absorbers and allowed charges for underarm 
crutches without shock absorbers to establish the fee schedule amounts 
for underarm crutches with or without shock absorbers (HCPCS code 
E0116), or using the average of allowed charges for walkers with a 
fixed height and allowed charges for walkers with an adjustable height 
to establish the fee schedule amounts for walkers with or without 
adjustable heights (HCPCS codes E0130 through E0143).

C. Provisions of the Proposed Rule

    Based on our review, we are proposing to add a provision to the 
regulation at Sec.  414.222(f) to establish a payment methodology for 
multi-function ventilators effective for dates of service on or after 
January 1, 2019. We believe that our proposal complies with the 
Medicare payment rules for DME in section 1834(a) of the Act, while 
recognizing and encouraging innovations in technology such as multi-
function ventilators. These devices can enhance patient care and 
promote ambulation by eliminating the need for the patient to be 
tethered to several pieces of equipment. We propose that multi-function 
ventilators be classified under section 1834(a)(3) of the Act. Items 
classified under section 1834(a)(3) of the Act are paid on a continuous 
monthly rental basis. We are interested in receiving comments on 
alternatives to the approach we are taking regarding the proposed 
classification and payment of multi-function ventilators.
    We propose to establish the monthly rental fee schedule amounts for 
a multi-function ventilator based on the existing monthly rental fee 
schedule amounts for ventilators plus payment for the average cost of 
the additional functions. Under this proposal, a single monthly rental 
fee schedule amount shall be paid to encompass the base ventilator item 
and its additional functional components as follows.
     The monthly rental fee schedule amount for a multi-
function ventilator is equal to the monthly rental fee schedule amount 
for a ventilator established in Sec.  414.222(c) and (d) plus the 
average of the lowest monthly cost for one additional function and the 
monthly cost of all additional functions, increased by the annual 
coverage item updates of section 1834(a)(14) of the Act.
     The monthly cost for additional functions shall be 
determined as follows:
    [cir] For functions performed by items classified under Sec.  
414.222 prior to 1994 the monthly cost is equal to the monthly rental 
fee schedule amount established in paragraphs (c) and (d) of this 
section increased by the covered item update of section 1834(a)(14) of 
the Act.
    [cir] For functions performed by items classified under Sec.  
414.220, the monthly cost is equal to the fee schedule amount for 
purchased equipment established in Sec.  414.220(c), (d), (e), and (f), 
adjusted in accordance with Sec.  414.210(g), divided by 60 months or 
total number of months of the reasonable useful lifetime of the 
equipment. There are currently no multi-function ventilators on the 
market that perform the function for items classified under Sec.  
414.220.
    [cir] For functions performed by items classified under Sec.  
414.226 for oxygen equipment, the monthly cost is equal to the monthly 
payment amount established in Sec.  414.226(e), (f), and (g), adjusted 
in accordance with Sec.  414.210(g), multiplied by 36 and divided by 60 
months or total number of months of the reasonable useful lifetime of 
the oxygen equipment.
    [cir] For functions performed by items classified under Sec.  
414.229 for cough stimulator, the monthly cost is equal to the purchase 
price established in Sec.  414.229(c), adjusted in accordance with 
Sec.  414.210(g), divided by 60 months or total number of months of the 
reasonable useful lifetime of the equipment.

    Table 57--Proposed Payment Method for Multi-Function Ventilators
                                [Example]
------------------------------------------------------------------------
         Step                   Method                 HCPCS codes
------------------------------------------------------------------------
(1)...................  Base amount =           E0465 or E0466
                         ventilator monthly
                         rental fee schedule
                         amount.
(2)...................  Determine monthly       ........................
                         rental fee schedule
                         amount for each
                         additional function:
    (a)...............  (Portable Oxygen        E1392 + E1390
                         Concentrator monthly
                         fee schedule amount x
                         36 months)/60 months
                         *.
    (b)...............  CY 1993 Nebulizer       E0570
                         monthly rental fee
                         schedule amount x
                         covered item update
                         factor for DME to CY
                         2019 **.
    (c)...............  CY 1993 Suction Pump    E0600
                         monthly rental fee
                         schedule amount x
                         covered item update
                         factor for DME to CY
                         2019 **.
    (d)...............  (Cough Stimulator       E0482
                         newly purchased fee
                         schedule amount)/60
                         months *.
(3)...................  Base amount from Step
                         1 + lowest cost
                         function amount from
                         Step 2.
(4)...................  Base amount from Step
                         1 + all function
                         amounts from Step 2.
(5)...................  Determine Payment for
                         Multi-function
                         ventilator (average
                         of step 3 and 4).
------------------------------------------------------------------------
* 5 year (60 months) reasonable useful lifetime of the equipment.
** The monthly rental amounts paid prior to 1994 included payment for
  the equipment and all related accessories.

    Medicare coverage and payment can be available for multi-function 
ventilators furnished to beneficiaries who are prescribed a multi-
function ventilator and meet the Medicare medical necessity coverage 
criteria for a ventilator and at least one of the four additional 
functions of the device. The fee schedule amount for the multi-function 
ventilator would be determined in advance for each calendar year and 
would not vary regardless of how many additional functions the 
beneficiary needs in addition to the ventilator function. We are 
proposing that the payment amount would be established for CY 2019 and 
then updated each year after 2019 using the covered item update factors 
mandated by section 1834(a)(14) of the Act. In the event that a patient 
is furnished a multi-function ventilator and only meets the Medicare 
medical necessity coverage criteria for a ventilator, Medicare coverage 
and monthly rental payments would be for the ventilator only, and 
payment could not be made for the other functions of the device.
    We are proposing a payment method that we believe ensures an 
integration of the functions of the multi-function ventilator with a 
bundled corresponding payment amount that addresses additional 
functions of the items that are necessary for patient care. If a

[[Page 34389]]

beneficiary is furnished a multi-function ventilator, payment would be 
denied for any separate claims for oxygen and oxygen equipment, 
nebulizers and related accessories, suction pumps and related 
accessories, and cough stimulators and any related accessories. Thus, 
our proposal prevents division of the multi-function item into separate 
parts with separate fee schedule amounts for each function of the item, 
some of which have conflicting payment rules. Also, this proposed 
payment method lessens confusion for the supplier which could occur if 
the supplier were to receive varying monthly rental amounts for a 
multi-function item and instead permits a supplier to receive 
predictable monthly payments over the 60 month reasonable useful 
lifetime of the multi-function ventilator.
    We are not proposing Sec.  414.222(f) to apply to other DME items. 
Subsequent rulemaking would be necessary to address other multi-
function items.
    We are soliciting comments on this proposal.

IX. Including the Northern Mariana Islands in Future National Mail 
Order CBPs

A. Background

    In our CY 2015 ESRD PPS final rule (79 FR 66223 through 66265), we 
said that while section 1847(a)(1)(A) of the Act provides that CBPs be 
established throughout the U.S., the definition of U.S. at section 
210(i) of the Act does not include the Northern Mariana Islands. We 
therefore previously determined that the Northern Mariana Islands are 
not considered an area eligible for inclusion under a national mail 
order CBP. We finalized a proposal regarding fee schedule adjustments 
based on information from the national mail order program and the 
Northern Mariana Islands at Sec.  414.210(g)(7) to provide that the fee 
schedule amounts for mail order items furnished in the Northern Mariana 
Islands are adjusted so that they are equal to 100 percent of the 
single payment amounts (SPAs) established under a national mail order 
program. We discussed how a few commenters recommended waiting for the 
second round of bidding for the national mail order CBP before 
adjusting the fee schedule amounts for mail order items furnished in 
the Northern Mariana Islands in order to allow more time to determine 
if the competitive bidding payment amounts allow for access to items 
and services and to acquire more pricing points over an extended period 
of time. The commenters further recommended increasing payment amounts 
for the national mail order SPA for the Northern Mariana Islands to 
limit any access or pricing complications. In response, we said we 
disagreed with these suggestions, and that the national mail order SPAs 
already applied to items shipped to various remote areas of the U.S. 
and have not resulted in any problems with access to mail order items 
in these areas. Therefore, we believed the SPAs could be used to adjust 
the mail order fee schedule amounts for the Northern Mariana Islands 
effective January 1, 2016.

B. Current Issues

    The national mail order program for diabetic testing supplies is 
currently in effect in all areas of the U.S., except for the Northern 
Mariana Islands. Thus, the Northern Mariana Islands are currently the 
only non-CBA for mail order diabetic testing supplies. However, even 
though the Northern Mariana Islands are currently not included in the 
national mail order program, per Sec.  414.210(g)(7), CMS currently 
pays for mail order items furnished in the Northern Mariana Islands at 
100 percent of the SPAs established under the national mail order CBP. 
After further examining this issue, it is now our view that the 
Northern Mariana Islands are an area eligible for inclusion under a 
national mail order CBP. A Joint Resolution addressing the Northern 
Mariana Islands titled ``Covenant to Establish a Commonwealth of the 
Northern Mariana Islands in Political Union with the United States of 
America'' was approved in 1976 (Pub. L. 94-241 (HJRes 549), 90 Stat 
263, March 24, 1976). The Joint Resolution addresses the applicability 
of certain federal laws to the Northern Mariana Islands. Article V 
(``Applicability of Laws''), section 502(a) specifies:
    ``The following laws of the United States in existence as of the 
effective date of this Section and subsequent amendments to such laws 
will apply to the Northern Mariana Islands, except as otherwise noted 
in this Covenant: (1) Those laws which provide federal services and 
financial assistance programs and the federal banking laws as they 
apply to Guam;''
    Thus, under the Joint Resolution, laws which provide federal 
services and financial assistance apply to the Northern Mariana Islands 
to the same extent as they do to Guam. CMS has recognized the Joint 
Resolution and taken the position that the Northern Mariana Islands 
fall within the definition of U.S. under Medicare in 42 CFR 411.9(a). 
In a proposed rule published on April 25, 2006, in the Federal Register 
titled ``Medicare Program; Proposed Changes to the Hospital Inpatient 
Prospective Payment Systems and Fiscal Year 2007 Rates'', (71 FR 
23996), we discussed the Joint Resolution and defined the U.S. to 
include the 50 States, the District of Columbia, Puerto Rico, the 
Virgin Islands, Guam, American Samoa, and the Northern Mariana Islands. 
The Northern Mariana Islands are also included in the definition of 
U.S. at 42 CFR 400.200. Thus, even though the Northern Mariana Islands 
are not explicitly referenced in sections 1861(x) and 210(h) and (i) 
(which notably do reference Guam) of the Act, we believe that we can 
consider the Northern Mariana Islands to be part of the U.S. for the 
purposes of the national mail order program as well.
    As such, we propose to amend Sec.  414.210(g)(7) to say that 
beginning on or after the date that the Northern Mariana Islands are 
included under a national mail order CBP, the fee schedule adjustment 
methodology under this paragraph would no longer apply. Under this 
proposed rule, the Northern Mariana Islands would be included in the 
CBA for all competitions under the national mail order CBP beginning on 
or after January 1, 2019.
    We are soliciting comments on this proposal.

C. Provisions of the Proposed Rule

    We propose to amend Sec.  414.210(g)(7) to indicate that beginning 
on or after the date that the Northern Mariana Islands are included 
under a national mail order competitive bidding program, the fee 
schedule adjustment methodology under this paragraph would no longer 
apply.
    We are soliciting comments on this proposal.

X. Request for Information on the Gap-Filling Process for Establishing 
Fees for New DMEPOS Items

    In general, the statute mandates that fee schedule amounts 
established for DME, prosthetics and orthotics and other items be based 
on average payments made previously under the reasonable charge payment 
methodology. The criteria for determining reasonable charges are at 42 
CFR 405.502. For example, the exclusive payment rule at sections 
1834(a)(2), (3), (8), and (9) of the Act mandates that the fee schedule 
amounts for DME generally be based on average reasonable charges from 
1986 and/or 1987, increased by annual covered item update factors. 
Since section 1834(a)(1)(C) of the Act mandates that

[[Page 34390]]

this be the exclusive payment rule for DME, as section 1834(h)(1)(D) of 
the Act does for prosthetic devices, prosthetics and orthotics, CMS is 
required to establish fee schedule amounts for these items based on the 
amounts and levels established under the reasonable charge payment 
periods set forth in the statute (that is, July 1, 1986 through June 
30, 1987, for prosthetic devices, prosthetics and orthotics, 
therapeutic shoes, and most DME items).
    Because there may be DMEPOS items that come on the market that were 
not paid for by Medicare during the reasonable charge payment periods 
that the statute mandates be used for establishing the fee schedule 
amounts for these items, we establish the fee schedule amounts for 
newly covered items using a ``gap-filling'' process. The gap-filling 
process allows Medicare to establish fee schedule amounts that align 
with the statutory basis for the DMEPOS fee schedule. We essentially 
fill the gap in the data due to the lack of historic reasonable charge 
payments from 1986 and 1987 by estimating what the historic reasonable 
charge payments would have been for the items. As described in section 
60.3 of chapter 23 of the Medicare Claims Processing Manual (Pub. L. 
100-04), CMS gap-fills by using fees for comparable equipment or prices 
from supplier price lists, such as mail order catalogs. The gap-filling 
process only applies to items not assigned existing HCPCS codes that 
are also not items that previously were paid for under a HCPCS code 
that was either deleted or revised, in other words truly new items or 
technology as opposed to recoded/reclassified or technologically 
refined items or technology. This gap-filling process can result in fee 
schedule amounts that greatly exceed the cost to suppliers of the new 
technology items (such as when inflated prices from a manufacturer were 
used as a proxy for supplier price lists under past gap-filling 
exercises) or do not cover the costs of furnishing the technology if 
the comparable items used for gap-filling purposes are less expensive 
than the new item.
    We are considering if changes should be made to the gap-filling 
process for establishing fees for newly covered DMEPOS items paid on a 
fee schedule basis. We are soliciting comments for information on how 
the gap-filling process could be revised in terms of what data sources 
or methods could be used to estimate historic allowed charges for new 
technologies in a way that satisfies the exclusive payment rules for 
DMEPOS items and services, while preventing excessive overpayments or 
underpayments for new technology items and services.

XI. DMEPOS CBP Technical Amendments

A. Background

    Medicare pays for certain DMEPOS items and services furnished 
within competitive bidding areas based on the payment rules that are 
set forth in section 1847 of the Social Security Act (the Act) and 42 
CFR part 414, subpart F. We propose to make two minor technical 
amendments to correct the existing DMEPOS CBP regulations in 42 CFR 
414.422 published in the Federal Register on November 6, 2014, titled 
``Medicare Program; End-Stage Renal Disease Prospective Payment System, 
Quality Incentive Program, and Durable Medical Equipment, Prosthetics, 
Orthotics, and Supplies; Final Rule'' (79 FR 66120) and in Sec.  
414.423 in a final rule published in the Federal Register on November 
29, 2010, titled ``Medicare Program; Payment Policies Under the 
Physician Fee Schedule and Other Revisions to Part B for CY 2011; Final 
Rule'' (75 FR 73169).

B. Proposed Technical Amendments

    We are proposing to make minor technical amendments as follows:
     In Sec.  414.422, we propose to correct the numbering in 
section (d)(4), which contains subsections (i) through (vi), but omits 
(ii) in the numbering sequence. This error was made when the regulation 
was promulgated. The proposed new numbering in section (d)(4) contains 
subsections (i) through (v), including (ii). The content of (d)(4) 
would remain the same.
     In Sec.  414.423(i)(8), we propose removing the reference 
to ``42 U.S.C.'' before Title 18. This statutory citation was 
inadvertently included when the regulation was promulgated.
    We solicit public comments on these technical amendments and 
request that when commenting on this section, commenters reference 
``DMEPOS CBP Proposed Technical Amendments.''

XII. Burden Reduction on Comorbidities

A. Background

    In the CY 2011 ESRD PPS final rule (75 FR 49094), we finalized six 
comorbidity categories that are eligible for a comorbidity payment 
adjustment, each with associated International Classification of 
Diseases (ICD) Clinical Modification diagnosis codes (75 FR 49100). 
Beginning January 1, 2011, these categories included three acute, 
short-term diagnostic categories (pericarditis, bacterial pneumonia, 
and gastrointestinal tract bleeding with hemorrhage) and three chronic 
diagnostic categories (hereditary hemolytic anemia (including sickle 
cell anemia), myelodysplastic syndrome, and monoclonal gammopathy).
    We stated in the same rule (75 FR 49099) that we would require ESRD 
facilities to have documentation in the patient's medical/clinical 
record to support any diagnosis recognized for a payment adjustment, 
utilizing specific criteria that we issued in sub-regulatory guidance, 
specifically the Medicare Benefit Policy Manual, Pub. 100-02, Chapter 
11, Section 60.A.5 (https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/downloads/bp102c11.pdf). For example, to qualify for 
the pericarditis comorbidity adjustment, at least two of the four 
following criteria must be met: Atypical chest pain; pericardial 
friction rub; suggestive electrocardiogram changes (for example, 
widespread ST segment elevation with reciprocal ST segment depressions 
and PR depressions) not previously reported; and new or worsening 
pericardial effusion. In response to such requirements, stakeholders 
have suggested it would require additional testing or procedures to 
document a comorbidity, which was not our intent. Rather, our 
assumption was that the patient's diagnosing physician would provide 
the documentation. In the CY 2011 ESRD PPS final rule (75 FR 49104), we 
stated that ESRD facilities will obtain diagnostic information through 
increased communication with their patients, their patient's 
nephrologists and their patient's families. If there is no 
documentation in the medical record, the ESRD facility would be unable 
to claim a comorbidity payment adjustment for that patient, but could 
seek payment through the outlier mechanism.
    In the CY 2012 ESRD PPS final rule (76 FR 70252), we clarified that 
the ICD-9-CM codes eligible for the comorbidity payment adjustment are 
subject to the annual ICD-9-CM coding updates that occur in the 
hospital Inpatient Prospective Payment System final rule and are 
effective October 1st of each year. We explained that any updates to 
the ICD-9-CM codes that affect the categories of comorbidities and the 
diagnoses within the comorbidity categories that are eligible for a 
comorbidity payment adjustment would be communicated to ESRD facilities 
through sub-regulatory guidance. We update the list of eligible 
diagnosis codes on an annual basis and communicate these changes 
through the CMS.gov website.

[[Page 34391]]

    In the CY 2016 ESRD PPS final rule (80 FR 68989 through 68990), in 
consideration of stakeholder concerns about the burden associated with 
meeting the documentation requirements for bacterial pneumonia, we 
finalized the elimination of the case-mix payment adjustment for the 
comorbidity categories of bacterial pneumonia and monoclonal gammopathy 
beginning in CY 2016.

B. Proposed Documentation Requirements

    In the CY 2018 ESRD PPS proposed rule (82 FR 31224), we published a 
request for information (RFI) related to improvements to the health 
care delivery system that reduce unnecessary burdens for clinicians, 
other providers, and patients and their families and invited the public 
to submit their ideas for regulatory, sub-regulatory, policy, practice, 
and procedural changes to better accomplish these goals. The aim of the 
RFI was to request information that would lead to increased quality of 
care, lower costs, improved program integrity, and to make the health 
care system more effective, simple and accessible.
    After a review of the comments received in response to the RFI, we 
have determined that the documentation requirements associated with the 
conditions that are eligible for the comorbidity payment adjustment 
should be revisited. We have heard from stakeholders that they continue 
to face challenges in obtaining the required documentation in order to 
report specific diagnosis codes and obtain the comorbidity payment 
adjustments. Additionally, we have determined that the ESRD PPS 
documentation requirements are more rigorous than the documentation 
requirements under other CMS payment systems that generally rely on the 
ICD Official Guidelines.
    In order to reduce burden on ESRD facilities and provide consistent 
policy across Medicare payment systems, we are proposing to reduce the 
documentation requirements necessary for justification of the 
comorbidity payment adjustment. Specifically, we would no longer 
require that ESRD facilities obtain results from specific diagnostic 
tests in order to qualify for a comorbidity payment adjustment. 
Instead, we propose to rely on the guidelines established by the 
Official ICD Guidelines for Coding and Reporting. This proposal does 
not preclude the requirement for ESRD facilities to maintain clear 
documentation in the beneficiary's medical record used to justify the 
reporting of diagnosis codes, which is also necessary for adherence to 
ICD Guidelines. Documentation required to meet ICD guidelines continues 
to be required for purposes of the adjustment.
    We are soliciting comment on this proposal.

XIII. Requests for Information

    This section addresses two requests for information (RFIs). Upon 
reviewing the RFIs, respondents are encouraged to provide complete, but 
concise responses. These RFIs are issued solely for information and 
planning purposes; neither RFI constitutes a Request for Proposal 
(RFP), application, proposal abstract, or quotation. The RFIs do not 
commit the U.S. Government to contract for any supplies or services or 
make a grant award. Further, CMS is not seeking proposals through these 
RFIs and will not accept unsolicited proposals. Responders are advised 
that the U.S. Government will not pay for any information or 
administrative costs incurred in response to this RFI; all costs 
associated with responding to these RFIs will be solely at the 
interested party's expense. Failing to respond to either RFI will not 
preclude participation in any future procurement, if conducted. Please 
note that CMS will not respond to questions about the policy issues 
raised in these RFIs. CMS may or may not choose to contact individual 
responders. Such communications would only serve to further clarify 
written responses. Contractor support personnel may be used to review 
RFI responses. Responses to these RFIs are not offers and cannot be 
accepted by the U.S. Government to form a binding contract or issue a 
grant. Information obtained as a result of this RFI may be used by the 
U.S. Government for program planning on a non-attribution basis. 
Respondents should not include any information that might be considered 
proprietary or confidential. All submissions become U.S. Government 
property and will not be returned. CMS may publically post the comments 
received, or a summary thereof.

A. Request for Information on Promoting Interoperability and Electronic 
Healthcare Information Exchange Through Possible Revisions to the CMS 
Patient Health and Safety Requirements for Hospitals and Other 
Medicare- and Medicaid-Participating Providers and Suppliers

    Currently, Medicare- and Medicaid-participating providers and 
suppliers are at varying stages of adoption of health information 
technology (health IT). Many hospitals have adopted electronic health 
records (EHRs), and CMS has provided incentive payments to eligible 
hospitals, critical access hospitals (CAHs), and eligible professionals 
who have demonstrated meaningful use of certified EHR technology 
(CEHRT) under the Medicare EHR Incentive Program. As of 2015, 96 
percent of Medicare- and Medicaid-participating non-Federal acute care 
hospitals had adopted certified EHRs with the capability to 
electronically export a summary of clinical care.\35\ While both 
adoption of EHRs and electronic exchange of information have grown 
substantially among hospitals, significant obstacles to exchanging 
electronic health information across the continuum of care persist. 
Routine electronic transfer of information post-discharge has not been 
achieved by providers and suppliers in many localities and regions 
throughout the Nation.
---------------------------------------------------------------------------

    \35\ These statistics can be accessed at: https://dashboard.healthit.gov/quickstats/pages/FIG-Hospital-EHR-Adoption.php.
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    CMS is firmly committed to the use of certified health IT and 
interoperable EHR systems for electronic healthcare information 
exchange to effectively help hospitals and other Medicare- and 
Medicaid-participating providers and suppliers improve internal care 
delivery practices, support the exchange of important information 
across care team members during transitions of care, and enable 
reporting of electronically specified clinical quality measures 
(eCQMs). The Office of the National Coordinator for Health Information 
Technology (ONC) acts as the principal Federal entity charged with 
coordination of nationwide efforts to implement and use health 
information technology and the electronic exchange of health 
information on behalf of the Department of Health and Human Services.
    In 2015, ONC finalized the 2015 Edition health IT certification 
criteria (2015 Edition), the most recent criteria for health IT to be 
certified to under the ONC Health IT Certification Program. The 2015 
Edition facilitates greater interoperability for several clinical 
health information purposes and enables health information exchange 
through new and enhanced certification criteria, standards, and 
implementation specifications. CMS requires eligible hospitals and CAHs 
in the Medicare and Medicaid EHR Incentive Programs and eligible 
clinicians in the Quality Payment Program (QPP) to use EHR technology 
certified to the 2015 Edition beginning in CY 2019.

[[Page 34392]]

    In addition, several important initiatives will be implemented over 
the next several years to provide hospitals and other participating 
providers and suppliers with access to robust infrastructure that will 
enable routine electronic exchange of health information. Section 4003 
of the 21st Century Cures Act (Pub. L. 114-255), enacted in 2016, and 
amending section 3000 of the Public Health Service Act (42 U.S.C. 
300jj), requires HHS to take steps to advance the electronic exchange 
of health information and interoperability for participating providers 
and suppliers in various settings across the care continuum. 
Specifically, Congress directed that ONC ``. . . for the purpose of 
ensuring full network-to-network exchange of health information, 
convene public-private and public-public partnerships to build 
consensus and develop or support a trusted exchange framework, 
including a common agreement among health information networks 
nationally.'' In January 2018, ONC released a draft version of its 
proposal for the Trusted Exchange Framework and Common Agreement,\36\ 
which outlines principles and minimum terms and conditions for trusted 
exchange to enable interoperability across disparate health information 
networks (HINs). The Trusted Exchange Framework (TEF) is focused on 
achieving the following four important outcomes in the long-term:
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    \36\ The draft version of the trusted Exchange Framework may be 
accessed at: https://beta.healthit.gov/topic/interoperability/trusted-exchange-framework-and-common-agreement.
---------------------------------------------------------------------------

     Professional care providers, who deliver care across the 
continuum, can access health information about their patients, 
regardless of where the patient received care.
     Patients can find all of their health information from 
across the care continuum, even if they do not remember the name of the 
professional care provider they saw.
     Professional care providers and health systems, as well as 
public and private health care organizations and public and private 
payer organizations accountable for managing benefits and the health of 
populations, can receive necessary and appropriate information on 
groups of individuals without having to access one record at a time, 
allowing them to analyze population health trends, outcomes, and costs; 
identify at-risk populations; and track progress on quality improvement 
initiatives.
     The health IT community has open and accessible 
application programming interfaces (APIs) to encourage entrepreneurial, 
user-focused innovation that will make health information more 
accessible and improve EHR usability.
    ONC will revise the draft TEF based on public comment and 
ultimately release a final version of the TEF that will subsequently be 
available for adoption by HINs and their participants seeking to 
participate in nationwide health information exchange. The goal for 
stakeholders that participate in, or serve as, a HIN is to ensure that 
participants will have the ability to seamlessly share and receive a 
core set of data from other network participants in accordance with a 
set of permitted purposes and applicable privacy and security 
requirements. Broad adoption of this framework and its associated 
exchange standards is intended to both achieve the outcomes described 
above while creating an environment more conducive to innovation.
    In light of the widespread adoption of EHRs along with the 
increasing availability of health information exchange infrastructure 
predominantly among hospitals, we are interested in hearing from 
stakeholders on how we could use the CMS health and safety standards 
that are required for providers and suppliers participating in the 
Medicare and Medicaid programs (that is, the Conditions of 
Participation (CoPs), Conditions for Coverage (CfCs), and Requirements 
for Participation (RfPs) for Long-Term Care (LTC) Facilities) to 
further advance electronic exchange of information that supports safe, 
effective transitions of care between hospitals and community 
providers. Specifically, CMS might consider revisions to the current 
CMS CoPs for hospitals, such as: Requiring that hospitals transferring 
medically necessary information to another facility upon a patient 
transfer or discharge do so electronically; requiring that hospitals 
electronically send required discharge information to a community 
provider via electronic means if possible and if a community provider 
can be identified; and requiring that hospitals make certain 
information available to patients or a specified third-party 
application (for example, required discharge instructions) via 
electronic means if requested.
    On November 3, 2015, we published a proposed rule (80 FR 68126) to 
implement the provisions of the Improving Medicare Post-Acute Care 
Transformation Act of 2014 (the IMPACT Act) (Pub. L. 113-185) and to 
revise the discharge planning CoP requirements that hospitals 
(including short-term acute care hospitals, long-term care hospitals 
(LTCHs), rehabilitation hospitals, psychiatric hospitals, children's 
hospitals, and cancer hospitals), critical access hospitals (CAHs), and 
home health agencies (HHAs) would need to meet in order to participate 
in the Medicare and Medicaid programs. This proposed rule has not been 
finalized yet. However, several of the proposed requirements directly 
address the issue of communication between providers and between 
providers and patients, as well as the issue of interoperability:
     Hospitals and CAHs would be required to transfer certain 
necessary medical information and a copy of the discharge instructions 
and discharge summary to the patient's practitioner, if the 
practitioner is known and has been clearly identified;
     Hospitals and CAHs would be required to send certain 
necessary medical information to the receiving facility/post-acute care 
providers, at the time of discharge; and
     Hospitals, CAHs, and HHAs would need to comply with the 
IMPACT Act requirements that would require hospitals, CAHs, and certain 
post-acute care providers to use data on quality measures and data on 
resource use measures to assist patients during the discharge planning 
process, while taking into account the patient's goals of care and 
treatment preferences.
    We published another proposed rule (81 FR 39448) on June 16, 2016, 
that updated a number of CoP requirements that hospitals and CAHs would 
need to meet in order to participate in the Medicare and Medicaid 
programs. This proposed rule has not been finalized yet. One of the 
proposed hospital CoP revisions in that rule directly addresses the 
issues of communication between providers and patients, patient access 
to their medical records, and interoperability. We proposed that 
patients have the right to access their medical records, upon an oral 
or written request, in the form and format requested by such patients, 
if it is readily producible in such form and format (including in an 
electronic form or format when such medical records are maintained 
electronically); or, if not, in a readable hard copy form or such other 
form and format as agreed to by the facility and the individual, 
including current medical records, within a reasonable timeframe. The 
hospital must not frustrate the legitimate efforts of individuals to 
gain access to their own medical records and must actively seek to meet 
these requests as quickly as its recordkeeping system permits.
    We also published a final rule (81 FR 68688) on October 4, 2016, 
that revised

[[Page 34393]]

the requirements that LTC facilities must meet to participate in the 
Medicare and Medicaid programs. In this rule, we made a number of 
revisions based on the importance of effective communication between 
providers during transitions of care, such as transfers and discharges 
of residents to other facilities or providers, or to home. Among these 
revisions was a requirement that the transferring LTC facility must 
provide all necessary information to the resident's receiving provider, 
whether it is an acute care hospital, an LTCH, a psychiatric facility, 
another LTC facility, a hospice, a home health agency, or another 
community-based provider or practitioner (42 CFR 483.15(c)(2)(iii)). We 
specified that necessary information must include the following:
     Contact information of the practitioner responsible for 
the care of the resident;
     Resident representative information including contact 
information;
     Advance directive information;
     Special instructions or precautions for ongoing care;
     The resident's comprehensive care plan goals; and
     All other necessary information, including a copy of the 
resident's discharge or transfer summary and any other documentation to 
ensure a safe and effective transition of care.
    We note that the discharge summary mentioned above must include 
reconciliation of the resident's medications, as well as a 
recapitulation of the resident's stay, a final summary of the 
resident's status, and the post-discharge plan of care. In addition, in 
the preamble to the rule, we encouraged LTC facilities to 
electronically exchange this information if possible and to identify 
opportunities to streamline the collection and exchange of resident 
information by using information that the facility is already capturing 
electronically.
    Additionally, we specifically invite stakeholder feedback on the 
following questions regarding possible new or revised CoPs/CfCs/RfPs 
for interoperability and electronic exchange of health information:
     If CMS were to propose a new CoP/CfC/RfP standard to 
require electronic exchange of medically necessary information, would 
this help to reduce information blocking as defined in section 4004 of 
the 21st Century Cures Act?
     Should CMS propose new CoPs/CfCs/RfPs for hospitals and 
other participating providers and suppliers to ensure a patient's or 
resident's (or his or her caregiver's or representative's) right and 
ability to electronically access his or her health information without 
undue burden? Would existing portals or other electronic means 
currently in use by many hospitals satisfy such a requirement regarding 
patient/resident access as well as interoperability?
     Are new or revised CMS CoPs/CfCs/RfPs for interoperability 
and electronic exchange of health information necessary to ensure 
patients/residents and their treating providers routinely receive 
relevant electronic health information from hospitals on a timely basis 
or will this be achieved in the next few years through existing 
Medicare and Medicaid policies, the implementing regulations related to 
the privacy and security standards of the Health Insurance Portability 
and Accountability Act of 1996 (HIPAA) (Pub. L. 104-91), and 
implementation of relevant policies in the 21st Century Cures Act?
     What would be a reasonable implementation timeframe for 
compliance with new or revised CMS CoPs/CfCs/RfPs for interoperability 
and electronic exchange of health information if CMS were to propose 
and finalize such requirements? Should these requirements have delayed 
implementation dates for specific participating providers and 
suppliers, or types of participating providers and suppliers (for 
example, participating providers and suppliers that are not eligible 
for the Medicare and Medicaid EHR Incentive Programs)?
     Do stakeholders believe that new or revised CMS CoPs/CfCs/
RfPs for interoperability and electronic exchange of health information 
would help improve routine electronic transfer of health information as 
well as overall patient/resident care and safety?
     Under new or revised CoPs/CfCs/RfPs, should non-electronic 
forms of sharing medically necessary information (for example, printed 
copies of patient/resident discharge/transfer summaries shared directly 
with the patient/resident or with the receiving provider or supplier, 
either directly transferred with the patient/resident or by mail or fax 
to the receiving provider or supplier) be permitted to continue if the 
receiving provider, supplier, or patient/resident cannot receive the 
information electronically?
     Are there any other operational or legal considerations 
(for example, implementing regulations related to the HIPAA privacy and 
security standards), obstacles, or barriers that hospitals and other 
providers and suppliers would face in implementing changes to meet new 
or revised interoperability and health information exchange 
requirements under new or revised CMS CoPs/CfCs/RfPs if they are 
proposed and finalized in the future?
     What types of exceptions, if any, to meeting new or 
revised interoperability and health information exchange requirements 
should be allowed under new or revised CMS CoPs/CfCs/RfPs if they are 
proposed and finalized in the future? Should exceptions under the QPP, 
including CEHRT hardship or small practices, be extended to new 
requirements? Would extending such exceptions impact the effectiveness 
of these requirements?
    We would also like to directly address the issue of communication 
between hospitals (as well as the other providers and suppliers across 
the continuum of patient care) and their patients and caregivers. 
MyHealthEData is a government-wide initiative aimed at breaking down 
barriers that contribute to preventing patients from being able to 
access and control their medical records. Privacy and security of 
patient data will be at the center of all CMS efforts in this area. CMS 
must protect the confidentiality of patient data, and CMS is completely 
aligned with the Department of Veterans Affairs (VA), the National 
Institutes of Health (NIH), ONC, and the rest of the Federal 
Government, on this objective.
    While some Medicare beneficiaries have had, for quite some time, 
the ability to download their Medicare claims information, in pdf or 
Excel formats, through the CMS Blue Button platform, the information 
was provided without any context or other information that would help 
beneficiaries understand what the data were really telling them. For 
beneficiaries, their claims information is useless if it is either too 
hard to obtain or, as was the case with the information provided 
through previous versions of Blue Button, hard to understand. In an 
effort to fully contribute to the Federal Government's MyHealthEData 
initiative, CMS developed and launched the new Blue Button 2.0, which 
represents a major step toward giving patients meaningful control of 
their health information in an easy-to-access and understandable way. 
Blue Button 2.0 is a developer-friendly, standards-based application 
programming interface (API) that enables Medicare beneficiaries to 
connect their claims data to secure applications, services, and 
research programs they trust. The possibilities for better care through 
Blue Button 2.0 data are exciting, and might include enabling the 
creation of health dashboards for Medicare beneficiaries to view their 
health information in a single portal, or allowing beneficiaries to 
share complete

[[Page 34394]]

medication lists with their doctors to prevent dangerous drug 
interactions.
    To fully understand all of these health IT interoperability issues, 
initiatives, and innovations through the lens of its regulatory 
authority, CMS invites members of the public to submit their ideas on 
how best to accomplish the goal of fully interoperable health IT and 
EHR systems for Medicare- and Medicaid-participating providers and 
suppliers, as well as how best to further contribute to and advance the 
MyHealthEData initiative for patients. We are particularly interested 
in identifying fundamental barriers to interoperability and health 
information exchange, including those specific barriers that prevent 
patients from being able to access and control their medical records. 
We also welcome the public's ideas and innovative thoughts on 
addressing these barriers and ultimately removing or reducing them in 
an effective way, specifically through revisions to the current CMS 
CoPs, CfCs, and RfPs for hospitals and other participating providers 
and suppliers. We have received stakeholder input through recent CMS 
Listening Sessions on the need to address health IT adoption and 
interoperability among providers that were not eligible for the 
Medicare and Medicaid EHR Incentives program, including long-term and 
post-acute care providers, behavioral health providers, clinical 
laboratories and social service providers, and we would also welcome 
specific input on how to encourage adoption of certified health IT and 
interoperability among these types of providers and suppliers as well.

B. Request for Information on Price Transparency: Improving Beneficiary 
Access to Provider and Supplier Charge Information

    In the FY 2019 IPPS/LTCH PPS proposed rule (83 FR 20548-49) and the 
FY 2015 IPPS/LTCH PPS proposed and final rules (79 FR 28169 and 79 FR 
50146, respectively), we stated that we intend to continue to review 
and post relevant charge data in a consumer-friendly way, as we 
previously have done by posting hospital and physician charge 
information on the CMS website.\37\ In the FY 2019 IPPS/LTCH PPS 
proposed rule, we also continued our discussion of the implementation 
of section 2718(e) of the Public Health Service Act, which aims to 
improve the transparency of hospital charges. This discussion in the FY 
2019 IPPS/LTCH PPS proposed rule continued a discussion we began in the 
FY 2015 IPPS/LTCH PPS proposed rule and final rule (79 FR 28169 and 79 
FR 50146, respectively). In all of these rules, we noted that section 
2718(e) of the Public Health Service Act requires that each hospital 
operating within the United States, for each year, establish (and 
update) and make public (in accordance with guidelines developed by the 
Secretary) a list of the hospital's standard charges for items and 
services provided by the hospital, including for diagnosis-related 
groups (DRGs) established under section 1886(d)(4) of the Social 
Security Act. In the FY 2015 IPPS/LTCH PPS proposed and final rules, we 
reminded hospitals of their obligation to comply with the provisions of 
section 2718(e) of the Public Health Service Act and provided 
guidelines for its implementation. We stated that hospitals are 
required to either make public a list of their standard charges 
(whether that be the chargemaster itself or in another form of their 
choice) or their policies for allowing the public to view a list of 
those charges in response to an inquiry. In the FY 2019 IPPS/LTCH PPS 
proposed rule, we took one step to further improve the public 
accessibility of charge information. Specifically, effective January 1, 
2019, we are updating our guidelines to require hospitals to make 
available a list of their current standard charges via the Internet in 
a machine readable format and to update this information at least 
annually, or more often as appropriate.
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    \37\ See, for example, Medicare Provider Utilization and Payment 
Data, available at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/Medicare-Provider-Charge-Data/index.html.
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    In general, we encourage all providers and suppliers of healthcare 
services to undertake efforts to engage in consumer-friendly 
communication of their charges to help patients understand what their 
potential financial liability might be for services they obtain, and to 
enable patients to compare charges for similar services. We encourage 
providers and suppliers to update this information at least annually, 
or more often as appropriate, to reflect current charges.
    We are concerned that challenges continue to exist for patients due 
to insufficient price transparency. Such challenges include patients 
being surprised by out-of-network bills for physicians, such as 
anesthesiologists and radiologists, who provide services at in-network 
hospitals and in other settings, and patients being surprised by 
facility fees, physician fees for emergency department visits, or by 
fees for provider and supplier services that the beneficiary considered 
to be part of an episode of care involving a hospital but were not 
services furnished by the hospital. We also are concerned that, for 
providers and suppliers that maintain a list of standard charges, the 
charge data may not be helpful to patients for determining what they 
are likely to pay for a particular service or facility encounter. In 
order to promote greater price transparency for patients, we are 
considering ways to improve the accessibility and usability of current 
charge information.
    We also are considering potential actions that would be appropriate 
to further our objective of having providers and suppliers undertake 
efforts to engage in consumer-friendly communication of their charges 
to help patients understand what their potential financial liability 
might be for services they obtain from the provider or supplier, and to 
enable patients to compare charges for similar services across 
providers and suppliers, including services that could be offered in 
more than one setting. Therefore, we are seeking public comment from 
all providers and suppliers, including ESRD facilities and DME 
suppliers, on the following:
     How should we define ``standard charges'' in various 
provider and supplier settings? Is there one definition for those 
settings that maintain chargemasters, and potentially a different 
definition for those settings that do not maintain chargemasters? 
Should ``standard charges'' be defined to mean: Average or median rates 
for the items on a chargemaster or other price list or charge list; 
average or median rates for groups of items and/or services commonly 
billed together, as determined by the provider or supplier based on its 
billing patterns; or the average discount off the chargemaster, price 
list or charge list amount across all payers, either for each 
separately enumerated item or for groups of services commonly billed 
together? Should ``standard charges'' be defined and reported for both 
some measure of the average contracted rate and the chargemaster, price 
list or charge list? Or is the best measure of a provider's or 
supplier's standard charges its chargemaster, price list or charge 
list?
     What types of information would be most beneficial to 
patients, how can health care providers and suppliers best enable 
patients to use charge and cost information in their decision-making, 
and how can CMS and providers and suppliers help third parties create 
patient-friendly interfaces with these data?
     Should providers and suppliers be required to inform 
patients how much their out of pocket costs for a service will be 
before those patients are furnished that service? How can

[[Page 34395]]

information on out-of-pocket costs be provided to better support 
patients' choice and decision-making? What changes would be needed to 
support greater transparency around patient obligations for their out-
of-pocket costs? How can CMS help beneficiaries to better understand 
how copayment and coinsurance are applied to each service covered by 
Medicare? What can be done to better inform patients of their financial 
obligations? Should providers and suppliers play any role in helping to 
inform patients of what their out-of-pocket obligations will be?
     Can we require providers and suppliers to provide patients 
with information on what Medicare pays for a particular service 
performed by that provider or supplier? If so, what changes would need 
to be made by providers and suppliers? What burden would be added as a 
result of such a requirement?
    In addition, we are seeking public comment on improving a Medigap 
patient's understanding of his or her out-of-pocket costs prior to 
receiving services, especially with respect to the following particular 
questions:
     How does Medigap coverage affect patients' understanding 
of their out of pocket costs before they receive care? What challenges 
do providers and suppliers face in providing information about out-of-
pocket costs to patients with Medigap? What changes can Medicare make 
to support providers and suppliers that share out-of-pocket cost 
information with patients that reflects the patient's Medigap coverage? 
Who is best situated to provide patients with clear Medigap coverage 
information on their out-of-pocket costs prior to receipt of care? What 
role can Medigap plans play in providing information to patients on 
their expected out-of-pocket costs for a service? What state-specific 
requirements or programs help educate Medigap patients about their out-
of-pocket costs prior to receipt of care?

XIV. Collection of Information Requirements

A. Legislative Requirement for Solicitation of Comments

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-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 requirement 
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.

B. Requirements in Regulation Text

    In section II.B.1 and II.B.2.b of this proposed rule, we are 
proposing changes to regulatory text for the ESRD PPS in CY 2019. 
However, the changes that are being proposed do not impose any new 
information collection requirements.

C. Additional Information Collection Requirements

    This proposed rule does not impose any new information collection 
requirements in the regulation text, as specified above. However, there 
are changes in some currently approved information collections. The 
following is a discussion of these information collections.
1. ESRD QIP--Wage Estimates
    To derive wage estimates, we used data from the U.S. Bureau of 
Labor Statistics' May 2016 National Occupational Employment and Wage 
Estimates. In the CY 2016 ESRD PPS final rule (80 FR 69069), we stated 
that it was reasonable to assume that Medical Records and Health 
Information Technicians, who are responsible for organizing and 
managing health information data,\38\ are the individuals tasked with 
submitting measure data to CROWNWeb and NHSN, as well as compiling and 
submitting patient records for purposes of the data validation studies 
rather than a Registered Nurse, whose duties are centered on providing 
and coordinating care for patients.\39\ The mean hourly wage of a 
Medical Records and Health Information Technician is $20.59 per hour. 
Fringe benefit and overhead are calculated at 100 percent. Therefore, 
using these assumptions, we estimate an hourly labor cost of $41.18 as 
the basis of the wage estimates for all collection of information 
calculations in the ESRD QIP. We have adjusted these employee hourly 
wage estimates by a factor of 100 percent to reflect current HHS 
department-wide guidance on estimating the cost of fringe benefits and 
overhead. These are necessarily rough adjustments, both because fringe 
benefits and overhead costs vary significantly from employer to 
employer and because methods of estimating these costs vary widely from 
study to study. Nonetheless, there is no practical alternative and we 
believe that these are reasonable estimation methods.
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    \38\ https://www.bls.gov/oes/current/oes292071.htm.
    \39\ https://www.bls.gov/oes/current/oes291141.htm.
---------------------------------------------------------------------------

    We used these updated wage estimates along with updated facility 
counts and patient counts to re-estimate the total information 
collection burden under the ESRD QIP. We estimate the total information 
collection burden for the PY 2021 ESRD QIP to be $181 million, and for 
PY 2022, to be $202 million for a net incremental burden of $21 
million.
a. Estimated Time Required To Submit Data Based on Proposed Reporting 
Requirements
    In the CY 2016 ESRD PPS final rule (80 FR 69070), we estimated that 
the time required to submit measure data using CROWNWeb is 2.5 minutes 
per data element submitted, which takes into account the small 
percentage of data that is manually reported, as well as the human 
interventions required to modify batch submission files to ensure that 
they meet CROWNWeb's internal data format requirements.
b. Estimated Burden Associated With the Data Validation Requirements 
for PY 2021 and PY 2022
    Section IV.B.6 of this proposed rule outlines our data validation 
proposals. Specifically, for the CROWNWeb validation, we are proposing 
to adopt the CROWNWeb data validation methodology that we previously 
adopted for the PY 2016 ESRD QIP as the methodology we would use to 
validate CROWNWeb data for all payment years, beginning with PY 2021. 
Under this methodology, 300 facilities would be selected each year to 
submit to CMS not more than 10 records, and we would reimburse these 
facilities for the costs associated with copying and mailing the 
requested records. The burden associated with these validation 
requirements is the time and effort necessary to submit the requested 
records to a CMS contractor. We estimate that it would take each 
facility approximately 2.5 hours to comply with this requirement. If 
300 facilities are asked to submit records, we estimate that the total 
combined annual burden for these facilities would be 750 hours (300 
facilities x 2.5 hours). Since we anticipate that Medical Records and 
Health Information Technicians or

[[Page 34396]]

similar administrative staff would submit these data, we estimate that 
the aggregate cost of the CROWNWeb data validation each year would be 
approximately $30,885 (750 hours x $41.18), or an annual total of 
approximately $103 ($30,885/300 facilities) per facility in the sample. 
The burden associated with these requirements is captured in an 
information collection request (OMB control number 0938-1289).
    Under the proposed continued study for validating data reported to 
the NHSN Dialysis Event Module, we are proposing to modify the sampling 
methodology finalized in the CY 2018 ESRD PPS final rule (82 FR 50766 
through 50767). Under the proposed modifications, we would select 150 
facilities for participation in the PY 2021 validation study and 300 
facilities for participation in the PY 2022 validation study. A CMS 
contractor would send these facilities requests for 20 patient records 
for each of 2 quarters of data reported in CY 2018 (for a total of 40 
patient records per facility). The burden associated with these 
validation requirements is the time and effort necessary to submit the 
requested records to a CMS contractor. We estimate that it would take 
each facility approximately 10 hours to comply with this requirement. 
If 150 facilities are asked to submit records, as proposed for PY 2021, 
we estimate that the total combined annual burden for these facilities 
would be 1,500 hours (150 facilities x 10 hours). Since we anticipate 
that Medical Records and Health Information Technicians or similar 
administrative staff would submit these data, we estimate that the 
aggregate cost of the NHSN data validation in PY 2021 would be $61,770 
(1,500 hours x $41.18), or a total of approximately $412 ($61,770/150 
facilities) per facility in the sample in PY 2021. If 300 facilities 
are asked to submit records, as proposed for PY 2022, we estimate that 
the total combined annual burden for these facilities would be 3,000 
hours (300 facilities x 10 hours). Since we anticipate that Medical 
Records and Health Information Technicians or similar administrative 
staff would submit these data, we estimate that the aggregate cost of 
the NHSN data validation in PY 2022 would be $123,540 (3,000 hours x 
$41.18), or a total of approximately $412 ($123,540/300 facilities) per 
facility in the sample for PY 2022. The information collection request 
(OMB control number 0938-1340) will be revised and sent to OMB for 
approval.
2. Proposed New CROWNWeb Reporting Requirements for PY 2021, PY 2022, 
and PY 2024
    To determine the burden associated with proposed new collection of 
information requirements, we look at the total number of patients 
nationally, the number of data elements per patient-year that the 
facility would be required to submit to CROWNWeb for each measure, the 
amount of time required for data entry, the estimated wage plus 
benefits applicable to the individuals within facilities who are most 
likely to be entering data into CROWNWeb, and the number of facilities 
submitting data to CROWNWeb. In section IV.B.1.c of this proposed rule, 
we are proposing to modify our data collection requirements for PY 2021 
by removing four reporting measures from the ESRD QIP measure set. 
These changes would result in a burden collection savings of 
approximately $12 million for PY 2021 (from an estimated $193 million 
in total ESRD QIP burden for PY 2021 to an estimated $181 million). 
Approximately $2 million of that reduction is attributable to the 
proposed removal of the Pain Assessment and Follow-Up reporting measure 
and the remaining $10 million of that reduction is attributable to the 
proposed removal of the Serum Phosphorus reporting measure. The total 
reduction in burden hours is approximately 300,000 hours (from an 
estimated 4.7 million burden hours for PY 2021 to an estimated 4.4 
million burden hours). Approximately 40,000 hours of that reduction is 
attributable to the proposed removal of the Pain Assessment and Follow-
Up reporting measure and the remaining 260,000 hours of that reduction 
is attributable to the proposed removal of the Serum Phosphorus 
reporting measure. The proposed removal of the other two reporting 
measures (Healthcare Personnel Influenza Vaccination and Anemia 
Management) would not affect our burden calculations because data on 
those measures are not reported through CROWNWeb.
    In section IV.C.1 of this proposed rule, we are proposing to adopt 
two new measures beginning with PY 2022. We estimate that the burden 
associated with this new data collection requirement would be 
approximately $21 million, or an estimated 510,000 burden hours, and 
that this burden would be attributable entirely to the reporting of 
data on the proposed MedRec measure. Since facilities are not required 
to submit data to CROWNWeb for the PPPW measure, we estimate that there 
would be no additional burden on facilities if our proposal to adopt 
the PPPW measure is finalized. We estimate that the total burden 
increase associated with reporting data on the two new measures 
proposed for PY 2022 is $21 million. The information collection request 
under OMB control number 0938-1289 will be revised and sent to OMB.
    In section IV.D.1 of this proposed rule, we are proposing to adopt 
one new measure beginning in PY 2024. We estimate that the burden 
associated with the proposed measure will be zero. Since facilities are 
not required to submit data to CROWNWeb for the SWR measure, there is 
no burden in connection with this measure in PY 2024.
3. DMEPOS Competitive Bidding Program
a. Bidding Forms A and B
    Section V.D of this proposed rule outlines our proposed changes to 
the DMEPOS CBP. DMEPOS suppliers submit bids in order to compete to 
become a contract supplier to furnish competitively bid items to 
Medicare beneficiaries who live in a CBA. CMS publishes Request for 
Bids instructions to describe DMEPOS CBP requirements and to instruct 
bidders through the bid submission process. Bids are submitted 
electronically via the DMEPOS Bidding System (DBidS), which is the 
DMEPOS CBPs' online bidding system. The bids submitted before the close 
of the bid window are evaluated to determine which bidders will be 
offered contracts. Form A collects key business information to identify 
a bidder, the areas and products where the bidder chooses to bid, and 
pertinent information to indicate whether the bidder meets all 
eligibility requirements. A thorough analysis is performed of all 
information submitted to determine that the bidder has met all 
requirements, including licensure, financial, and quality standards. 
Form B contains key bid information including the bid amount for each 
item, historical experience providing each item, and specific 
manufacturer and model information for each item. The manufacturer and 
model information is utilized to populate the Medicare Supplier 
Directory during the contract period for bidders that are awarded a 
contract. CMS utilizes the combined information from Forms A and B to 
select winning bidders and establish single payment amounts for 
competitively bid items and services. The previously approved 
information collection request is under OMB control number 0938-1016.

[[Page 34397]]

    All bidders must submit their information and signature(s) 
electronically into Forms A and B using DBidS. This system allows 
bidders to efficiently and consistently provide the necessary 
information contained on Forms A and B for CMS to review. Bidders are 
allowed to make changes to their bids at any time prior to the close of 
the bid window, at which time bidders are required to complete, 
approve, and certify their bids. The Competitive Bidding Implementation 
Contractor (CBIC) will use the appropriate technology to safely obtain 
and secure the bidding information that is transmitted. Assistance and 
technical support is available to bidders throughout the competitive 
bidding process. Bidders will be required to submit supporting 
documentation such as required financial documents, proof of a bid 
surety bond(s), and any network agreement(s) to the CBIC.
b. Burden Estimates (Hours and Wages) for Bidding Forms A and B
    Form A is used to identify the bidder. This form includes 
information for all locations that would be included with the bid(s). 
In preparation for the next round, CMS has incorporated an update to 
this form that would also provide new instructions in accordance with 
Sec.  414.412(h), allowing the bidder to attest that they have obtained 
a bid surety bond for each CBA for which they are submitting a bid.
    We have estimated the time to obtain a bid surety bond from a 
surety company (including contacting the company, filling out forms, 
submitting forms, filing paperwork, etc.) to be 11 minutes. 
Additionally, we estimate that the time to assemble and complete the 
new bid surety bond section of Form A to be 5 minutes. The time to 
submit the bid surety bond documentation is estimated to take an 
additional 5 minutes. Therefore, the total time to complete Form A has 
changed from 8 hours to 8 hours and 21 minutes. Based on the number of 
bidders from prior rounds of competition, we have estimated the number 
of respondents (bidders) to be 1,500 for the next round. Each bidder 
would be required to complete one Form A for each round in which it 
bids. We anticipate that this form would be completed by the equivalent 
of an Administrative Services Manager with a mean hourly wage of 
$49.70, plus fringe benefits and overhead of $49.70, for a total of 
$99.40. This wage is based on the May 2017 Occupational Employment 
Statistics from the Bureau of Labor Statistics, plus fringe benefits 
and overhead, https://www.bls.gov/oes/current/oes113011.htm. It is 
anticipated that an Administrative Services Manager would have the 
requisite knowledge, access to information, and decision making 
authority related to a bidder's business operations necessary to 
formulate a bid. We are seeking comments on this assumption. We 
estimate, based on information from previous rounds of competition, the 
burden for each bidder to complete Form A is 8 hours and 21 minutes, 
and $829.99. This estimate is based on the time it takes a bidder to 
develop their business strategy on which CBAs and product categories to 
bid; obtain their bid surety bond(s); gather the required documents; 
and enter and review their information.
    We do not know the exact number of bidders who would bid in the 
next round; however, for purposes of this estimate, we would assume 
that the number of bidders would be roughly the same as in previous 
rounds of competition. We estimate there would be approximately 1,500 
bidders in the next round and each bidder would complete Form A once 
for a total of 12,525 hours and a total cost of $1,244,985.
    Bidders will use Form B to submit bids for items included in the 
DMEPOS CBP. This form would be completed once for each CBA and product 
category combination with an estimated completion time of 3 hours. 
Total completion time assumes the time it takes a bidder to familiarize 
itself on how to complete Form B, develop its bid amount and enter the 
applicable information into Form B. For the next round, we do not know 
how many bids will be submitted; however, for purposes of this 
estimate, we would assume the average bidder would bid in 5 CBAs in 7 
product categories for an average total of 35 Form Bs. We expect the 
number of hours to complete Form B to decrease from previous rounds 
based on the removal of the expansion plan section, as well as the 
proposed change in bidding methodology to move to lead item pricing as 
described in this proposed rule. Specifically, the expansion plan 
section is being removed from Form B to reduce the burden for bidders 
as we have learned from past rounds that this information is no longer 
necessary. The proposed change in bidding methodology to move to lead 
item pricing would require bidders to only submit a single bid for an 
entire product category, instead of multiple bids (which can be over 
100 for some product categories). We anticipate that this form would be 
completed by the equivalent of an Administrative Services Manager with 
a mean hourly wage of $49.70, plus fringe benefits and overhead of 
$49.70, for a total of $99.40. It is anticipated that an Administrative 
Services Manager would have the requisite knowledge, access to 
information, and decision making authority related to a bidder's 
business operations necessary to formulate the bid. As a result, we 
estimate it would require the average bidder 105 hours to complete all 
35 Form Bs with a cost of $10,437. Assuming 1,500 bidders participate 
in the next round of the DMEPOS CBP, and each bidder completes 35 Form 
Bs, there would be estimated 52,500 Form Bs submitted taking an 
estimated 157,500 hours for a total estimated cost of $15,655,500.
    The information collection request associated with the DMEPOS CBP 
will be revised and submitted to OMB under control number 0938-1016. 
These requirements are not effective until approved by OMB.

XV. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We will consider all comments we receive 
by the date and time specified in the DATES section of this preamble, 
and, when we proceed with a subsequent document, we will respond to the 
comments in the preamble to that document.

XVI. Economic Analyses

A. Regulatory Impact Analysis

1. Introduction
    We have examined the impacts of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), 
Executive Order 13563 on Improving Regulation and Regulatory Review 
(January 18, 2011), 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 (March 22, 
1995; Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 
1999), the Congressional Review Act (5 U.S.C. 804(2) and Executive 
Order 13771 on Reducing Regulation and Controlling Regulatory Costs 
(January 30, 2017).
    Executive Orders 12866 and 13563 direct 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). Section 
3(f) of Executive Order

[[Page 34398]]

12866 defines a ``significant regulatory action'' as an action that is 
likely to result in a rule: (1) Having an annual effect on the economy 
of $100 million or more in any 1 year, or adversely and materially 
affecting a sector of the economy, productivity, competition, jobs, the 
environment, public health or safety, or state, local or tribal 
governments or communities (also referred to as ``economically 
significant''); (2) creating a serious inconsistency or otherwise 
interfering with an action taken or planned by another agency; (3) 
materially altering the budgetary impacts of entitlement grants, user 
fees, or loan programs or the rights and obligations of recipients 
thereof; or (4) raising novel legal or policy issues arising out of 
legal mandates, the President's priorities, or the principles set forth 
in the Executive Order.
    A regulatory impact analysis (RIA) must be prepared for major rules 
with economically significant effects ($100 million or more in any 1 
year).
    We estimate that this rulemaking is ``economically significant'' as 
measured by the $100 million threshold, and hence also 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 
rulemaking.
    We solicit comments on the regulatory impact analysis provided.
2. Statement of Need
a. ESRD PPS
    This rule proposes a number of routine updates and several policy 
changes to the ESRD PPS in CY 2019. The proposed routine updates 
include the CY 2019 wage index values, the wage index budget-neutrality 
adjustment factor, and outlier payment threshold amounts. Failure to 
publish this proposed rule would result in ESRD facilities not 
receiving appropriate payments in CY 2019 for renal dialysis services 
furnished to ESRD patients.
b. AKI
    This rule also proposes routine updates to the payment for renal 
dialysis services furnished by ESRD facilities to individuals with AKI. 
Failure to publish this proposed rule would result in ESRD facilities 
not receiving appropriate payments in CY 2019 for renal dialysis 
services furnished to patients with AKI in accordance with section 
1834(r) of the Act.
c. ESRD QIP
    This rule proposes to implement requirements for the ESRD QIP, 
including a proposal to adopt two new measures beginning with PY 2022 
and a proposal to adopt a new measure beginning with PY 2024. Failure 
to propose requirements for the PY 2022 ESRD QIP would prevent 
continuation of the ESRD QIP beyond PY 2021. In addition, proposing 
requirements for the PY 2022 ESRD QIP provides facilities with more 
time to review and fully understand new measures before their 
implementation in the ESRD QIP.
d. DMEPOS
i. Changes to the Durable Medical Equipment, Prosthetics, Orthotics, 
and Supplies (DMEPOS) Competitive Bidding Program (CBP)
    The proposed revisions include implementation of lead item pricing 
and determination of SPAs based on maximum winning bids submitted for a 
lead item in each product category. This rule also proposes to revise 
the definitions of ``bid'' and ``composite bid'' and establish a new 
definition for ``lead item.''
ii. Adjustments to DMEPOS Fee Schedule Amounts Based on Information 
From the DMEPOS CBP
    We are proposing to revise Sec.  414.210(g)(9) so that for items 
and services furnished in rural or non-contiguous areas with dates of 
service from January 1, 2019 through December 31, 2020, under part 414, 
subpart D the fee schedule amount for the area is equal to 50 percent 
of the adjusted payment amount established under this section and 50 
percent of the unadjusted fee schedule amount. We are proposing to 
revise Sec.  414.210(g)(9) so that for items and services furnished in 
non-CBAs that are not rural or non-contiguous areas with dates of 
service from January 1, 2019 through December 31, 2020, under part 414, 
subpart D the fee schedule amount for the area is equal to 100 percent 
of the adjusted payment amount established under this section.
    We then propose to create a new paragraph (10) under Sec.  
414.210(g) titled, ``Payment Adjustments for Items and Services 
Furnished in Former Competitive Bidding Areas During Temporary Gaps in 
the DMEPOS Competitive Bidding Program'' which has the following text 
underneath: ``During a temporary gap in the entire DMEPOS CBP and/or 
National Mail Order CBP, the fee schedule amounts for items and 
services that were competitively bid and furnished in areas that were 
competitive bidding areas at the time the program(s) was in effect are 
adjusted based on the SPAs in effect in the competitive bidding areas 
on the last day before the CBP contract period of performance ended, 
increased by the projected percentage change in the Consumer Price 
Index for all Urban Consumers (CPI-U) for the 12-month period ending on 
the date after the contract periods ended. If the gap in the CBP lasts 
for more than 12 months, the fee schedule amounts are increased once 
every 12 months on the anniversary date of the first day of the gap 
period based on the projected percentage change in the CPI-U for the 
12-month period ending on the anniversary date.''
iii. New Payment Classes for Oxygen and Oxygen Equipment and 
Methodology for Ensuring Annual Budget Neutrality of the New Classes
    This proposed rule would amend our regulations at Sec.  414.226 by 
revising the payment rules for oxygen and oxygen equipment and adding a 
new paragraph after paragraph (c) that establishes some new oxygen and 
oxygen equipment payment classes effective January 1, 2019. Instead of 
having one class for portable oxygen equipment only (gaseous and liquid 
tanks), we propose establishing two classes for portable oxygen 
equipment: (1) One class for portable oxygen equipment (gaseous tanks) 
and (2) another class for portable oxygen equipment (liquid tanks.) We 
are also proposing to add a class for liquid oxygen contents for 
prescribed flow rates greater than four liters per minute and used with 
portable equipment. We are also proposing a new budget neutrality 
offset to ensure the budget neutrality of all oxygen and oxygen 
equipment classes added after 2006.
iv. Payment for Multi-Function Ventilators
    We are proposing to add a payment rule to Sec.  414.222(f) for 
multi-function ventilators that would establish payment in accordance 
with section 1834(a)(3) of the Act for ventilators that also perform 
the functions of other items of durable medical equipment subject to 
payment rules under paragraphs (2), (5), and (7) of section 1834(a) of 
the Act.
v. Including the Northern Mariana Islands in Future National Mail Order 
CBPs
    We propose to amend Sec.  414.210(g)(7) to say that beginning on or 
after the date that the Northern Mariana Islands are included under a 
national mail order competitive bidding program, the fee schedule 
adjustment methodology under this paragraph would no longer apply.

[[Page 34399]]

3. Overall Impact
a. ESRD PPS
    We estimate that the proposed revisions to the ESRD PPS would 
result in an increase of approximately $220 million in payments to ESRD 
facilities in CY 2019, which includes the amount associated with 
updates to the outlier thresholds, and updates to the wage index.
b. AKI
    We are estimating approximately $37.0 million that would now be 
paid to ESRD facilities for dialysis treatments provided to AKI 
beneficiaries.
c. ESRD QIP
    For PY 2021, we have re-estimated the costs associated with 
information collection requirements under the Program with updated wage 
estimates, facility counts, and patient counts, as well as the proposed 
policy changes described earlier in the preamble of this proposed rule, 
including the proposed measure removals. We also re-estimated the 
payment reductions under the ESRD QIP in accordance with the proposed 
policy changes described earlier, including the proposed domain 
restructuring and reweighting. We estimate that these updates would 
result in an overall impact of $219 million associated with quality 
reporting burden and payment reductions, which includes a $12 million 
incremental reduction in burden in collection of information 
requirements and $38 million in estimated payment reductions across all 
facilities.
    For PY 2022, we estimate that the proposed revisions to the ESRD 
QIP would result in an increase in overall impact to $240 million, 
which includes a $21 million incremental increase associated with the 
proposed collection of information requirements and $38 million in 
estimated payment reductions across all facilities.
d. DMEPOS
i. Changes to the Durable Medical Equipment, Prosthetics, Orthotics, 
and Supplies (DMEPOS) Competitive Bidding Program (CBP)
    This proposed rule with comment period, which proposes to base 
single payment amounts on the maximum winning bid and to implement lead 
item pricing in the Medicare DMEPOS CBP, (which we expect could 
potentially be delayed until January 1, 2021) has impacts estimated by 
rounding to the nearer 5 million dollars and is expected to cost $10 
million in Medicare benefit payments and roughly $3 million in Medicare 
beneficiary cost sharing for the 5-year period beginning January 1, 
2019 and ending September 30, 2023. The Medicaid impacts for cost 
sharing for the dual eligibles for the federal and state portions are 
assumed to be $0 million.
ii. Adjustments to DMEPOS Fee Schedule Amounts Based on Information 
From the DMEPOS CBP
    This rule proposes transitional fee schedule adjustments for DMEPOS 
items and services furnished on or after January 1, 2019 in areas that 
are currently CBAs and in areas that are currently not CBAs. 
Altogether, this rule proposes three different fee schedule adjustment 
methodologies depending on the area in which the items and services are 
furnished: (1) One fee schedule adjustment methodology for DME items 
and services furnished on or after January 1, 2019, in areas that are 
currently CBAs, in the event of a gap in the CBP; (2) another fee 
schedule adjustment methodology for items and services furnished from 
January 1, 2019, through December 31, 2020, in areas that are currently 
not CBAs, are not rural areas, and are located in the contiguous United 
States (U.S.); and (3) another fee schedule adjustment methodology for 
items and services furnished from January 1, 2019, through December 31, 
2020, in areas that are currently not CBAs and are either rural areas 
or non-contiguous areas.
    The estimated impacts for this part of the rule are calculated 
against a baseline that assumes payments for items furnished in CBAs 
and non-CBAs are done consistent with the rules in place as of January 
1, 2018.
    The impacts are expected to cost $1,050 million in Medicare benefit 
payments and $260 million in Medicare beneficiary cost sharing for the 
2-year period beginning January 1, 2019 and ending December 31, 2020. 
The Medicaid impacts for cost sharing for the dual eligibles for the 
federal and state portions are assumed to be $45 million and $30 
million, respectively.
iii. New Payment Classes for Oxygen and Oxygen Equipment and 
Methodology for Ensuring Annual Budget Neutrality of the New Classes
    This proposed rule establishes new payment classes for oxygen and 
oxygen equipment and is estimated to be budget neutral to the Medicare 
program and its beneficiaries.
iv. Payment for Multi-Function Ventilators
    This rule proposes to establish payment rules for multi-function 
ventilators. The impacts are estimated by rounding to the nearer 5 
million dollars and are expected to cost $15 million in Medicare 
benefit payments and $0 million in Medicare beneficiary cost sharing 
for the 5-year period beginning January 1, 2019 and ending September 
30, 2023. The Medicaid impacts for cost sharing for the beneficiaries 
enrolled in the Medicare Part B and Medicaid programs for the federal 
and state portions are assumed to both be $0 million.
v. Including the Northern Mariana Islands in Future National Mail Order 
CBPs
    This change would not have a fiscal impact.
4. Regulatory Review Cost Estimation
    If regulations impose administrative costs on private entities, 
such as the time needed to read and interpret this proposed rule, we 
should estimate the cost associated with regulatory review. Due to the 
uncertainty involved with accurately quantifying the number of entities 
that will review the rule, we assume that the total number of unique 
commenters on last year's proposed rule will be the number of reviewers 
of this proposed rule. We acknowledge that this assumption may 
understate or overstate the costs of reviewing this rule. It is 
possible that not all commenters reviewed last year's rule in detail, 
and it is also possible that some reviewers chose not to comment on the 
proposed rule. For these reasons we thought that the number of past 
commenters would be a fair estimate of the number of reviewers of this 
rule. We welcome any comments on the approach in estimating the number 
of entities which will review this proposed rule.
    We also recognize that different types of entities are in many 
cases affected by mutually exclusive sections of this proposed rule, 
and therefore for the purposes of our estimate we assume that each 
reviewer reads approximately 50 percent of the rule. We seek comments 
on this assumption.
    Using the wage information from the BLS (https://www.bls.gov/oes/2017/may/naics4_621100.htm) for medical and health service managers 
(Code 11-9111), we estimate that the cost of reviewing this rule is 
$110.00 per hour, including overhead and fringe benefits. Assuming an 
average reading speed, we estimate that it would take approximately 
6.25 hours for the staff to review half of this proposed rule. For each 
ESRD facility that reviews the rule, the estimated cost is $687.50 
(6.25 hours x $110.00). Therefore, we estimate that the total cost of 
reviewing this

[[Page 34400]]

regulation rounds to $39,875. ($687.50 x 58 reviewers).
    For DME suppliers, we calculate a different cost of reviewing this 
rule. Assuming an average reading speed, we estimate that it would take 
approximately 2 hours for the staff to review this proposed rule. For 
each entity that reviews this proposed rule, the estimated cost is 
$220.00 (2 hours x $110.00). Therefore, we estimate that the total cost 
of reviewing this proposed rule is $143,000 ($220.00 x 650 reviewers).

B. Detailed Economic Analysis

1. CY 2019 End-Stage Renal Disease Prospective Payment System
a. 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 2018 to estimated payments in CY 2019. To 
estimate the impact among various types of ESRD facilities, it is 
imperative that the estimates of payments in CY 2018 and CY 2019 
contain similar inputs. Therefore, we simulated payments only for those 
ESRD facilities for which we are able to calculate both current 
payments and new payments.
    For this proposed rule, we used CY 2017 data from the Part A and 
Part B Common Working Files, as of February 16, 2018, as a basis for 
Medicare dialysis treatments and payments under the ESRD PPS. We 
updated the 2017 claims to 2018 and 2019 using various updates. The 
updates to the ESRD PPS base rate are described in section II.B.3.h of 
this proposed rule. Table 58 shows the impact of the estimated CY 2019 
ESRD payments compared to estimated payments to ESRD facilities in CY 
2018.

                            Table 58--Impact of Proposed Changes in Payment to ESRD Facilities for CY 2019 \1\ Proposed Rule
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                             Effect of
                                                                                                                                            total 2019
                                                                                                                                             proposed
                                                                                                          Effect of 2019                      changes
                                                                                          Effect of 2019    changes in    Effect of 2019  (outlier, wage
                                                             Number of       Number of      changes in      wage index,     changes in       index and
                      Facility type                         facilities    treatments (in  outlier policy    wage floor,    payment rate    floor, labor-
                                                                             millions)          (%)         and labor-      update (%)    related share,
                                                                                                           related share                      routine
                                                                                                                (%)                       updates to the
                                                                                                                                           payment rate)
                                                                                                                                                (%)
                                                                       A               B               C               D               E               F
--------------------------------------------------------------------------------------------------------------------------------------------------------
All Facilities..........................................           7,042            44.5             0.2             0.0             1.5             1.7
Type:
    Freestanding........................................           6,626            42.4             0.2             0.0             1.5             1.7
    Hospital based......................................             416             2.1             0.4            -0.1             1.5             1.8
Ownership Type:
    Large dialysis organization.........................           5,355            34.4             0.2             0.0             1.5             1.7
    Regional chain......................................             871             5.7             0.3             0.1             1.5             1.9
    Independent.........................................             479             2.9             0.2             0.2             1.5             2.0
    Hospital based \1\..................................             325             1.6             0.4             0.0             1.5             1.9
    Unknown.............................................              12             0.0             0.1             0.3             1.5             1.9
Geographic Location:
    Rural...............................................           1,263             6.4             0.2            -0.3             1.5             1.4
    Urban...............................................           5,779            38.1             0.2             0.0             1.5             1.8
Census Region:
    East North Central..................................           1,136             6.2             0.2            -0.4             1.5             1.4
    East South Central..................................             569             3.3             0.2            -0.7             1.5             1.1
    Middle Atlantic.....................................             769             5.4             0.2             0.1             1.5             1.8
    Mountain............................................             398             2.3             0.2            -0.3             1.5             1.4
    New England.........................................             191             1.5             0.2            -0.3             1.5             1.4
    Pacific \2\.........................................             837             6.4             0.2             1.1             1.5             2.8
    Puerto Rico and Virgin Islands......................              51             0.3             0.1             4.5             1.5             6.2
    South Atlantic......................................           1,612            10.4             0.3            -0.3             1.5             1.5
    West North Central..................................             492             2.3             0.3            -0.3             1.5             1.5
    West South Central..................................             987             6.5             0.2            -0.1             1.5             1.7
Facility Size:
    Less than 4,000 treatments..........................           1,689             5.9             0.2             0.0             1.5             1.8
    4,000 to 9,999 treatments...........................           2,502            11.8             0.2            -0.2             1.5             1.6
    10,000 or more treatments...........................           2,776            26.7             0.2             0.1             1.5             1.8
    Unknown.............................................              75             0.2             0.4             0.3             1.5             2.2
Percentage of Pediatric Patients:
    Less than 2%........................................           6,938            44.2             0.2             0.0             1.5             1.7
    Between 2% and 19%..................................              41             0.3             0.3             0.0             1.5             1.8
    Between 20% and 49%.................................              12             0.0             0.1            -0.4             1.5             1.3
    More than 50%.......................................              51             0.0             0.1             0.2             1.5             1.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
\l\ Sensipar and Parsabiv will be paid under the transitional drug add-on payment adjustment for CY 2019. In CY 2016 there was approximately $840
  million in spending for Sensipar under Part D.
\2\ Includes hospital-based ESRD facilities not reported to have large dialysis organization or regional chain ownership.
\3\ Includes ESRD facilities located in Guam, American Samoa, and the Northern Mariana Islands.


[[Page 34401]]

    Column A of the impact table indicates the number of ESRD 
facilities for each impact category and column B indicates the number 
of dialysis treatments (in millions). The overall effect of the 
proposed changes to the outlier payment policy described in section 
II.B.3.g of this proposed rule is shown in column C. For CY 2019, the 
impact on all ESRD facilities as a result of the changes to the outlier 
payment policy would be a 0.2 percent increase in estimated payments. 
Nearly all ESRD facilities are anticipated to experience a positive 
effect in their estimated CY 2019 payments as a result of the proposed 
outlier policy changes.
    Column D shows the effect of the proposed CY 2019 wage indices and 
the wage index floor of 0.50. The categories of types of facilities in 
the impact table show changes in estimated payments ranging from a -0.7 
percent to a 4.5 percent increase due to these proposed updates in the 
wage indices.
    Column E shows the effect of the proposed CY 2019 ESRD PPS payment 
rate update. The proposed ESRD PPS payment rate update is 1.5 percent, 
which reflects the proposed ESRDB market basket percentage increase 
factor for CY 2019 of 2.2 percent and the proposed MFP adjustment of 
0.7 percent.
    Column F reflects the overall impact, that is, the effects of the 
proposed outlier policy changes, the proposed wage index floor, and 
payment rate update. We expect that overall ESRD facilities would 
experience a 1.7 percent increase in estimated payments in CY 2019. The 
categories of types of facilities in the impact table show impacts 
ranging from an increase of 1.1 percent to 6.2 percent in their CY 2019 
estimated payments.
b. Effects on Other Providers
    Under the ESRD PPS, Medicare pays ESRD facilities a single bundled 
payment for renal dialysis services, which may have been separately 
paid to other providers (for example, laboratories, durable medical 
equipment suppliers, and pharmacies) by Medicare prior to the 
implementation of the ESRD PPS. Therefore, in CY 2019, we estimate that 
the proposed ESRD PPS would have zero impact on these other providers.
c. Effects on the Medicare Program
    We estimate that Medicare spending (total Medicare program 
payments) for ESRD facilities in CY 2019 would be approximately $10.6 
billion. This estimate takes into account a projected increase in fee-
for-service Medicare dialysis beneficiary enrollment of 1.2 percent in 
CY 2019.
d. Effects on Medicare Beneficiaries
    Under the ESRD PPS, beneficiaries are responsible for paying 20 
percent of the ESRD PPS payment amount. As a result of the projected 
1.7 percent overall increase in the proposed CY 2019 ESRD PPS payment 
amounts, we estimate that there will be an increase in beneficiary co-
insurance payments of 1.7 percent in CY 2019, which translates to 
approximately $60 million.
e. Alternatives Considered
    In section II.B.3.b of this proposed rule, we proposed changes to 
the wage index floor.
    We considered maintaining the existing wage index floor of 0.4000 
and also considered increasing the wage floor to 0.5500 and 0.5800. 
However, based on the analyses we have conducted, we no longer believe 
a wage index floor value of 0.4000 is appropriate and we are concerned 
about the impact a higher floor value would have on the base rate.
2. Proposed Payment for Renal Dialysis Services Furnished to 
Individuals With AKI
    To understand the impact of the changes affecting payments to 
different categories of ESRD facilities for renal dialysis services 
furnished to individuals with AKI, it is necessary to compare estimated 
payments in CY 2018 to estimated payments in CY 2019. To estimate the 
impact among various types of ESRD facilities for renal dialysis 
services furnished to individuals with AKI, it is imperative that the 
estimates of payments in CY 2018 and CY 2019 contain similar inputs. 
Therefore, we simulated payments only for those ESRD facilities for 
which we are able to calculate both current payments and new payments.
    For this proposed rule, we used CY 2017 data from the Part A and 
Part B Common Working Files, as of February 16, 2018, as a basis for 
Medicare for renal dialysis services furnished to individuals with AKI. 
We updated the 2017 claims to 2018 and 2019 using various updates. The 
updates to the AKI payment amount are described in section III.B of 
this proposed rule. Table 59 shows the impact of the estimated CY 2019 
payments for renal dialysis services furnished to individuals with AKI 
compared to estimated payments for renal dialysis services furnished to 
individuals with AKI in CY 2018.

  Table 59--Impact of Proposed Changes in Payment for Renal Dialysis Services Furnished to Individuals With AKI
                                            for CY 2019 Proposed Rule
----------------------------------------------------------------------------------------------------------------
                                                                     Effect of
                                                                   2019 changes      Effect of
                                                     Number of        in wage      2019 changes      Effect of
          Facility type              Number of      treatments      index, wage     in payment      total 2019
                                    facilities    (in thousands)    floor, and      rate update      proposed
                                                                   labor-related        (%)        changes  (%)
                                                                    share  (%)
                                             (A)             (B)             (C)             (D)             (E)
----------------------------------------------------------------------------------------------------------------
All Facilities..................           3,861           156.9             0.0             1.5             1.5
Type
    Freestanding................           3,775           153.7             0.0             1.5             1.5
    Hospital based..............              86             3.2            -0.1             1.5             1.4
Ownership Type
    Large dialysis organization.           3,269           134.8             0.0             1.5             1.5
    Regional chain..............             416            15.1             0.0             1.5             1.5
    Independent.................             119             4.5             0.1             1.5             1.6
    Hospital based \1\..........              55             2.5             0.0             1.5             1.5
    Unknown.....................               2             0.0            -0.3             1.5             1.2
Geographic Location
    Rural.......................             691            25.7            -0.2             1.5             1.3

[[Page 34402]]

 
    Urban.......................           3,170           131.2             0.1             1.5             1.6
Census Region
    East North Central..........             706            29.9            -0.3             1.5             1.2
    East South Central..........             310            10.5            -0.6             1.5             0.9
    Middle Atlantic.............             401            16.5             0.0             1.5             1.5
    Mountain....................             244            11.0            -0.2             1.5             1.3
    New England.................             123             4.7            -0.4             1.5             1.1
    Pacific \2\.................             482            27.0             1.1             1.5             2.7
    Puerto Rico and Virgin                     2             0.0             6.0             1.5             7.6
     Islands....................
    South Atlantic..............             872            34.1            -0.3             1.5             1.2
    West North Central..........             251             7.7            -0.2             1.5             1.3
    West South Central..........             470            15.6            -0.2             1.5             1.3
Facility Size
    Less than 4,000 treatments..             720            25.5             0.2             1.5             1.7
    4,000 to 9,999 treatments...           1,403            51.4            -0.2             1.5             1.3
    10,000 or more treatments...           1,716            79.1             0.1             1.5             1.6
    Unknown.....................              22             1.0             0.3             1.5             1.8
Percentage of Pediatric Patients
    Less than 2%................           3,860           156.7             0.0             1.5             1.5
    Between 2% and 19%..........               1             0.2             0.6             1.5             2.1
    Between 20% and 49%.........               0             0.0             0.0             0.0             0.0
    More than 50%...............               0             0.0             0.0             0.0             0.0
----------------------------------------------------------------------------------------------------------------

    Column A of the impact table indicates the number of ESRD 
facilities for each impact category and column B indicates the number 
of AKI dialysis treatments (in thousands).
    Column C shows the effect of the proposed CY 2019 wage indices and 
the wage index floor of 0.50. The categories of types of facilities in 
the impact table show changes in estimated payments of a 1.5 percent 
increase due to these proposed updates in the wage indices.
    Column D shows the effect of the proposed CY 2019 ESRD PPS payment 
rate update. The proposed ESRD PPS payment rate update is 1.5 percent, 
which reflects the proposed ESRDB market basket percentage increase 
factor for CY 2019 of 2.2 percent and the MFP adjustment of 0.7 
percent.
    Column E reflects the overall impact, that is, the effects of the 
proposed wage index floor and payment rate update. We expect that 
overall ESRD facilities would experience a 1.5 percent increase in 
estimated payments in CY 2019. The categories of types of facilities in 
the impact table show impacts ranging from an increase of 0.0 percent 
to 7.6 percent in their CY 2019 estimated payments.
b. Effects on Other Providers
    Under section 1834(r) of the Act, as added by section 808(b) of 
TPEA, we are proposing to update the payment rate for renal dialysis 
services furnished by ESRD facilities to beneficiaries with AKI. The 
only two Medicare providers authorized to provide these outpatient 
renal dialysis services are hospital outpatient departments and ESRD 
facilities. The decision about where the renal dialysis services are 
furnished is made by the patient and his or her physician. Therefore, 
this proposal will have zero impact on other Medicare providers.
c. Effects on the Medicare Program
    We estimate approximately $30.0 million would be paid to ESRD 
facilities in CY 2019 as a result of AKI patients receiving renal 
dialysis services in the ESRD facility at the lower ESRD PPS base rate 
versus receiving those services only in the hospital outpatient setting 
and paid under the outpatient prospective payment system, where 
services were required to be administered prior to the TPEA.
d. Effects on Medicare Beneficiaries
    Currently, beneficiaries have a 20 percent co-insurance obligation 
when they receive AKI dialysis in the hospital outpatient setting. When 
these services are furnished in an ESRD facility, the patients would 
continue to be responsible for a 20 percent co-insurance. Because the 
AKI dialysis payment rate paid to ESRD facilities is lower than the 
outpatient hospital PPS's payment amount, we would expect beneficiaries 
to pay less co-insurance when AKI dialysis is furnished by ESRD 
facilities.
e. Alternatives Considered
    As we discussed in the CY 2017 ESRD PPS proposed rule (81 FR 
42870), we considered adjusting the AKI payment rate by including the 
ESRD PPS case-mix adjustments, and other adjustments at section 
1881(b)(14)(D) of the Act, as well as not paying separately for AKI 
specific drugs and laboratory tests. We ultimately determined that 
treatment for AKI is substantially different from treatment for ESRD 
and the case-mix adjustments applied to ESRD patients may not be 
applicable to AKI patients and as such, including those policies and 
adjustment would be inappropriate. We continue to monitor utilization 
and trends of items and services furnished to individuals with AKI for 
purposes of refining the payment rate in the future. This monitoring 
would assist us in developing knowledgeable, data-driven proposals.

[[Page 34403]]

3. ESRD QIP
a. Effects of the PY 2022 ESRD QIP on ESRD Facilities
    The ESRD QIP provisions are intended to prevent possible reductions 
in the quality of ESRD dialysis facility services provided to 
beneficiaries. The methodology that we are proposing to use to 
determine a facility's TPS for the PY 2022 ESRD QIP is described in 
section IV.C of this proposed rule. Any reductions in ESRD PPS payments 
as a result of a facility's performance under the PY 2022 ESRD QIP 
would apply to ESRD PPS payments made to the facility for services 
furnished in CY 2022.
    For the PY 2022 ESRD QIP, we estimate that, of the 6,814 dialysis 
facilities (including those not receiving a TPS) enrolled in Medicare, 
approximately 44.31 percent or 2,896 of the facilities would receive a 
payment reduction for PY 2022. The total payment reduction for all of 
the 2,896 facilities expected to receive a reduction is approximately 
$38,114,871.88. Facilities that do not receive a TPS do not receive a 
payment reduction.
    Table 60 shows the overall estimated distribution of payment 
reductions resulting from the PY 2022 ESRD QIP.

 Table 60--Estimated Distribution of PY 2022 ESRD QIP Payment Reductions
------------------------------------------------------------------------
                                             Number of      Percent of
            Payment reduction               facilities      facilities
------------------------------------------------------------------------
0.0%....................................           3,639           55.68
0.5%....................................           1,351           20.67
1.0%....................................             923           14.12
1.5%....................................             437            6.69
2.0%....................................             185            2.83
------------------------------------------------------------------------
Note: This table excludes 279 facilities that we estimate will not
  receive a payment reduction because they will not report enough data
  to receive a TPS.

    To estimate whether a facility would receive a payment reduction in 
PY 2022, we scored each facility on achievement and improvement on 
several measures we have previously finalized and for which there were 
available data from CROWNWeb and Medicare claims. Measures used for the 
simulation are shown in Table 61.

                       Table 61--Data Used To Estimate PY 2022 ESRD QIP Payment Reductions
----------------------------------------------------------------------------------------------------------------
                                            Period of time used to
                                             calculate achievement
                Measure                     thresholds, performance                Performance period
                                          standards, benchmarks, and
                                            improvement thresholds
----------------------------------------------------------------------------------------------------------------
VAT:
    Standardized Fistula Rate.........  Jan 2015-Dec 2015.............  Jan 2016-Dec 2016.
    Long Term Catheter Rate...........  Jan 2015-Dec 2015.............  Jan 2016-Dec 2016.
Kt/V Dialysis Adequacy Comprehensive..  Jan 2015-Dec 2015.............  Jan 2016-Dec 2016.
Hypercalcemia.........................  Jan 2015-Dec 2015.............  Jan 2016-Dec 2016.
STrR..................................  Jan 2015-Dec 2015.............  Jan 2016-Dec 2016.
ICH CAHPS Survey......................  Jan 2015-Dec 2015.............  Jan 2016-Dec 2016.
SRR...................................  Jan 2015-Dec 2015.............  Jan 2016-Dec 2016.
NHSN BSI..............................  Jan 2015-Dec 2015.............  Jan 2016-Dec 2016.
SHR...................................  Jan 2015-Dec 2015.............  Jan 2016-Dec 2016.
----------------------------------------------------------------------------------------------------------------

    For all measures except STrR and SHR, clinical measure topic areas 
with less than 11 cases for a facility were not included in that 
facility's TPS. For SHR and STrR, facilities were required to have at 
least 5 and 10 patient-years at risk, respectively, in order to be 
included in the facility's TPS. Each facility's TPS was compared to an 
estimated minimum TPS and an estimated payment reduction table that 
were consistent with the proposals outlined in section IV.B.3.b of this 
proposed rule. Facility reporting measure scores were estimated using 
available data from CY 2015 and 2016. Facilities were required to have 
a score on at least one clinical measure to receive a TPS.
    To estimate the total payment reductions in PY 2022 for each 
facility resulting from this proposed rule, we multiplied the total 
Medicare payments to the facility during the 1-year period between 
January 2016 and December 2016 by the facility's estimated payment 
reduction percentage expected under the ESRD QIP, yielding a total 
payment reduction amount for each facility: Total ESRD payment in 
January 2016 through December 2016 times the estimated payment 
reduction percentage.
    Table 62 shows the estimated impact of the finalized ESRD QIP 
payment reductions to all ESRD facilities for PY 2022. The table 
details the distribution of ESRD facilities by facility size (both 
among facilities considered to be small entities and by number of 
treatments per facility), geography (both urban/rural and by region), 
and by facility type (hospital based/freestanding facilities). Given 
that the performance periods used for these calculations will differ 
from those we propose to use for the PY 2022 ESRD QIP, the actual 
impact of the PY 2022 ESRD QIP may vary significantly from the values 
provided here.

[[Page 34404]]



               Table 62--Impact of Proposed QIP Payment Reductions to ESRD Facilities for PY 2022
----------------------------------------------------------------------------------------------------------------
                                                                                     Number of        Payment
                                                     Number of       Number of      facilities       reduction
                                     Number of      treatments      facilities     expected  to      (percent
                                    facilities       2016  (in       with QIP        receive a      change  in
                                                     millions)         score          payment       total ESRD
                                                                                     reduction       payments)
----------------------------------------------------------------------------------------------------------------
    All Facilities..............           6,814            45.1           6,535           2,896           -0.40
Facility Type:
    Freestanding................           6,383            42.7           6,149           2,740           -0.40
    Hospital-based..............             431             2.4             386             156           -0.39
Ownership Type:
    Large Dialysis..............           5,110            34.3           4,945           2,131           -0.37
    Regional Chain..............             871             5.8             841             341           -0.36
    Independent.................             487             3.1             448             291           -0.69
    Hospital-based (non-chain)..             341             1.8             301             133           -0.44
    Unknown.....................               5             0.0               0               0  ..............
Facility Size:
    Large Entities..............           5,981            40.1           5,786           2,472           -0.37
    Small Entities \1\..........             828             5.0             749             424           -0.59
    Unknown.....................               5             0.0               0               0  ..............
Rural Status:
    (1) Yes.....................           1,243             6.5           1,212             380           -0.25
    (2) No......................           5,571            38.6           5,323           2,516           -0.43
Census Region:
    Northeast...................             933             7.0             894             462           -0.48
    Midwest.....................           1,593             8.6           1,504             538           -0.30
    South.......................           3,048            20.4           2,929           1,463           -0.45
    West........................           1,183             8.6           1,151             389           -0.28
    U.S. Territories \2\........              57             0.4              57              44           -0.99
Census Division:
    Unknown.....................               7             0.1               7               4           -0.57
    East North Central..........           1,109             6.4           1,037             403           -0.34
    East South Central..........             551             3.4             534             244           -0.41
    Middle Atlantic.............             742             5.5             710             390           -0.52
    Mountain....................             382             2.2             370              82           -0.17
    New England.................             191             1.5             184              72           -0.30
    Pacific.....................             801             6.3             781             307           -0.34
    South Atlantic..............           1,572            10.5           1,498             774           -0.47
    West North Central..........             484             2.3             467             135           -0.22
    West South Central..........             925             6.5             897             445           -0.45
    U.S. Territories \2\........              50             0.4              50              40           -1.05
Facility Size (number of total
 treatments):
    Less than 4,000 treatments..           1,127             2.0             900             301           -0.33
    4,000-9,999 treatments......           2,514            11.6           2,502             978           -0.35
    Over 10,000 treatments......           3,007            30.6           3,007           1,558           -0.45
    Unknown.....................             166             0.9             126              59           -0.50
----------------------------------------------------------------------------------------------------------------
\1\ Small Entities include hospital-based and satellite facilities, and non-chain facilities based on DFC self-
  reported status.
\2\ Includes American Samoa, Guam, Northern Mariana Islands, Puerto Rico, and Virgin Islands.

b. Effects on Other Providers
    The ESRD QIP is applicable to dialysis facilities. We are aware 
that several of our measures impact other providers. For example, with 
the introduction of the SRR clinical measure in PY 2017 and the SHR 
clinical measure in PY 2020, we anticipate that hospitals may 
experience financial savings as dialysis facilities work to reduce the 
number of unplanned readmissions and hospitalizations. We are exploring 
various methods to assess the impact these measures have on hospitals 
and other outpatient facilities, such as through the impacts of the 
Hospital Readmissions Reduction Program and the Hospital-Acquired 
Conditions Reduction Program, and we intend to continue examining the 
interactions between our quality programs to the greatest extent 
feasible.
c. Effects on the Medicare Program
    For PY 2022, we estimate that ESRD QIP would contribute 
approximately $38,114,872 in Medicare savings. For comparison, Table 63 
shows the payment reductions that we estimate will be achieved by the 
ESRD QIP from PY 2017 through PY 2022.

  Table 63--Estimated Payment Reductions Payment Year 2017 Through 2022
------------------------------------------------------------------------
                                         Estimated payment reductions
            Payment year                          (citation)
------------------------------------------------------------------------
PY 2022.............................  $38,114,872.
PY 2021.............................  $37,872,521.
PY 2020.............................  $31,581,441 (81 FR 77960).
PY 2019.............................  $15,470,309 (80 FR 69074).
PY 2018.............................  $11,576,214 (79 FR 66257).
PY 2017.............................  $11,954,631 (79 FR 66255).
------------------------------------------------------------------------

    Additionally, we estimate that the proposed removal of four 
reporting measures beginning with PY 2021 would reduce the information 
collection burden by $12 million.
d. Effects on Medicare Beneficiaries
    The ESRD QIP is applicable to dialysis facilities. Since the 
Program's

[[Page 34405]]

inception, there is evidence of improved performance on ESRD QIP 
measures. As we stated in the CY 2018 ESRD PPS final rule, one 
objective measure we can examine to demonstrate the improved quality of 
care over time is the improvement of performance standards (82 FR 
50795). As the ESRD QIP has refined its measure set and as facilities 
have gained experience with the measures included in the Program, 
performance standards have generally continued to rise. We view this as 
evidence that facility performance (and therefore the quality of care 
provided to Medicare beneficiaries) is objectively improving. To date 
we have been unable to examine the impact of the ESRD QIP on Medicare 
beneficiaries including the financial impact of the Program or the 
impact on the health outcomes of beneficiaries. However, in future 
years we are interested in examining these impacts through the addition 
of new measures to the Program and through the analysis of available 
data from our existing measures.
    Additionally, in this proposed rule, we are proposing changes to 
the ESRD QIP to reflect the Meaningful Measures Initiative's 
priorities, including focusing our quality measure set on more outcome-
oriented, less burdensome quality measures. We believe that the changes 
we are proposing, which include a reduced information collection burden 
of $12 million for PY 2021, will help focus the Program's measurements 
on the most clinically appropriate topics while ensuring that 
facilities are not unduly burdened by quality reporting requirements.
e. Alternatives Considered
    As discussed in section IV.B.3.b of this proposed rule, we 
considered two alternatives for reassigning measure weights in 
situations where a facility does not receive a score on at least one 
measure but is still eligible to receive a TPS score: (1) Redistribute 
the weight of missing measures evenly across the remaining measures 
(that is, we would divide up the missing measure's weight equally 
across the remaining measures), and (2) redistribute the weight of 
missing measures proportionately across the remaining measures, based 
on their weight as a percentage of TPS (that is, when dividing up a 
missing measure's weight, we would shift a larger share of that weight 
to measures with a higher assigned weight; measures with a lower weight 
would gain a smaller portion of the missing measure's weight).
    While the first policy alternative is administratively simpler to 
implement, we rejected this option because it would not maintain the 
Meaningful Measure Initiative priorities in the measure weights as 
effectively as the second policy alternative. In section IV.B.3 of this 
proposed rule, we propose an approach for reweighting the domains and 
measures in the ESRD QIP in PY 2021 based on the priorities identified 
in the Meaningful Measures Initiative. For example, we propose to 
assign a higher weight to measures that focus on outcomes and a lower 
weight to measures that focus on clinical processes. If we adopted the 
first policy alternative, measures that we consider a lower priority 
would represent a much larger share of TPS relative to measures that we 
consider a higher priority, in situations where a facility is missing 
one or more measure scores. Under the second policy alternative, when a 
facility is not scored on a measure, the weight of lower priority 
measures relative to higher priority measures would be more consistent 
with the weights assigned to the complete measure set. For example, if 
a facility was ineligible to receive a score on all the measures in 
both the Clinical Care Measure Domain and the Safety Measure Domain in 
PY 2022, the weight of the Clinical Depression and Follow-Up Measure--
the lowest weight remaining in the measure set would increase from 2.5 
percent of the TPS to 13.5 percent of the TPS under the first policy 
alternative and would increase from 2.5 percent of the TPS to 5.6 
percent of the TPS under the second policy alternative. Under the same 
scenario, the weight of the ICH CAHPS measure--the highest weight 
remaining in the measure set would increase from 15 percent to 26 
percent under the first policy alternative and would increase from 15 
percent to 33.33 percent under the second policy alternative.
4. DMEPOS
a. Changes to the Durable Medical Equipment, Prosthetics, Orthotics, 
and Supplies (DMEPOS) Competitive Bidding Program (CBP)
i. Effects on Other Providers
    We believe that using the maximum winning bid amount and lead item 
pricing to establish the SPAs and paying most contract suppliers more 
than they bid helps to ensure beneficiary access to DMEPOS and long 
term sustainability of the CBP. This methodology has the advantage of 
being easily understood by bidding suppliers. Further, lead item 
pricing simplifies the supplier's bidding process. We anticipate that 
more suppliers would compete given the simpler rules and the fact that 
all winning bidders would be paid at least as much as they bid. 
Therefore, we believe that this proposal would have a positive economic 
impact on bidding suppliers.
ii. Effects on the Medicare Program
    This proposed rule, which proposes to base single payment amounts 
on the maximum winning bid and to implement lead item pricing in the 
Medicare DMEPOS CBP, is estimated by rounding to the nearer 5 million 
dollars and is expected to cost $10 million in Medicare benefit 
payments for the 5-year period beginning January 1, 2019 and ending 
September 30, 2023. The estimate uses the current baseline which bases 
the SPAs on the median of winning bids. The cost of the proposal is the 
sum of yearly impacts. Each year's impact is the product of the 
projected spending on items subject to competitive bidding furnished in 
former CBAs for that year multiplied by the percentage increase in 
aggregate spending due to the change in the payment rules, in this case 
0.2 percent.
    In considering a future in which the current regulations remain in 
place (the regulatory baseline), we note that over the long run, a 
potential supplier would be motivated to continue bidding if its 
expenses are below its expectation for the median of the winning bids. 
As such, this long run--in which suppliers have learned the likely 
bidding outcomes--could result in no contracts or payments at SPA 
levels set too low to ensure access. In this scenario, bidders might 
have minimal incentive to change their bidding behavior based upon a 
policy switch from median to maximum winning bid to determine SPAs. 
After all, the baseline pricing method would award contracts to the 
suppliers with bids below the median at prices that at least cover 
their production costs. Additionally, it is possible that the 
behavioral response of bidders who, knowing that the SPA would be set 
based on the maximum winning bid, would respond by bidding more 
competitively in a CBP round where the payment is determined based on 
the maximum winning bid. The trade-off between setting the SPA using 
the maximum winning bid and the fact that bids are more competitive, 
hence lowering costs, tend to balance one another out so that the 
resulting SPAs would be expected to be similar to the SPAs set using 
median bid. This trade-off is termed Revenue Equivalency with the 
expected result being that bidders would respond in a manner that would 
mitigate the SPA determination methodology change to maximum winning 
bid. In other words, a relatively low impact, such as that presented in

[[Page 34406]]

this section, could be reasonable considering Revenue Equivalency.
    As noted earlier in the preamble, median bid levels have trended 
lower with each successive round of competition. To the extent that 
factors impacting the competition are still developing, the impacts of 
this policy proposal may be underestimated. We request comment that 
would allow for refinement of the impact estimate for the final rule. 
We also seek comment and information on how much DMEPOS production 
costs change from year to year; whether the changes likely to be common 
across suppliers, or at least well known amongst them. We would also 
seek comment and information on the duration of time the bidding 
process requires to reach steady participation so that payment outcomes 
occur due to the implementation of new policies for the subsequent 
rounds of CBP (such as the surety bond policy that was part of the 2016 
ESRD PPS final rule).
iii. Effects on Medicare Beneficiaries
    This proposed rule would base single payment amounts on the maximum 
winning bid and implement lead item pricing in the Medicare DMEPOS CBP. 
The effects are estimated by rounding to the nearer 5 million dollars 
and to cost roughly $3 million in Medicare beneficiary cost sharing for 
the 5-year period beginning January 1, 2019 and ending September 30, 
2023. The Medicaid impacts for cost sharing for the dual eligibles for 
the federal and state portions are assumed to be $0 million. Section 
503 of the Consolidated Appropriations Act of 2016 and section 5002 of 
the Cures Act, added section 1903(i)(27) to the Act, which prohibits 
federal Medicaid reimbursement to states for certain DME expenditures 
that are, in the aggregate, in excess of what Medicare would have paid 
for such items. The requirement took effect January 1, 2018. Many 
states have started limiting payment for DME based on the Medicare 
rates, but the majority of the states do not currently have the ability 
to use rates that apply to only parts of the state, such as rates paid 
in CBAs or rural areas of the state.
iv. Alternatives Considered
    One alternative we considered was to continue the Medicare DMEPOS 
CBP with no changes. This would have no economic impact on the Medicare 
program or its beneficiaries.
    Another alternative is to implement lead item pricing based on 
maximum winning bids as proposed, but offer contracts based on overall 
demand for items and services and unadjusted supplier capacity. We 
believe that currently more contracts are offered under the program 
than are needed to meet overall demand for items and services, so this 
is potentially an option we could consider. For example, we currently 
limit a supplier's capacity to 20 percent of projected demand. We could 
eliminate this limit which could result in less winning contracts being 
offered. However, the risk is that the number of contract suppliers 
could be reduced too much and could lead to access problems.
b. Adjustments to DMEPOS Fee Schedule Amounts Based on Information From 
the DMEPOS CBP
    In the event of a gap in the CBP beginning January 1, 2019, any 
enrolled supplier can furnish the items currently subject to 
competitive bidding in former CBAs and non-CBAs. The suppliers 
furnishing items in former CBAs would be paid slightly more than the 
current SPAs based on the median of winning bids because the proposed 
fee schedule adjustment methodology for items and services furnished in 
former CBAs would adjust the fee schedule amounts for such items and 
services based on the current SPAs plus a CPI-U update. We understand 
this proposal to be consistent with the requirements of section 
1834(a)(1)(F) of the Act. The suppliers furnishing items in non-CBAs 
would be paid based on current fee schedule amounts.
i. Effects on the Medicare Program
    This rule proposes transitional fee schedule adjustments for DMEPOS 
items and services furnished on or after January 1, 2019 for areas that 
are currently CBAs and for areas that are currently not CBAs. 
Altogether, this rule proposes three different fee schedule adjustment 
methodologies depending on the area in which the items and services are 
furnished: (1) One fee schedule adjustment methodology for DME items 
and services furnished on or after January 1, 2019, in areas that are 
currently CBAs, in the event of a gap in the CBP; (2) another fee 
schedule adjustment methodology for items and services furnished from 
January 1, 2019 through December 31, 2020, in areas that are currently 
not CBAs, are not rural areas, and are located in the contiguous U.S.; 
and (3) another fee schedule adjustment methodology for items and 
services furnished from January 1, 2019 through December 31, 2020, in 
areas that are currently not CBAs and are either rural areas or non-
contiguous areas. The impacts for this part of the rule are calculated 
against a baseline that assumes payments for items furnished in CBAs 
and non-CBAs are done consistent with the rules in place as of January 
1, 2018. The impacts are expected to cost $1,050 million dollars in 
Medicare benefit payments for the 2-year period beginning January 1, 
2019 and ending December 31, 2020.
ii. Effects on Medicare Beneficiaries
    This rule proposes transitional fee schedule adjustments for DMEPOS 
items and services furnished on or after January 1, 2019 in areas that 
are currently CBAs and for areas that are currently not CBAs. 
Altogether, this rule proposes three different fee schedule adjustment 
methodologies depending on the area in which the items and services are 
furnished: (1) One fee schedule adjustment methodology for DME items 
and services furnished on or after January 1, 2019, in areas that are 
currently CBAs, in the event of a gap in the CBP; (2) another fee 
schedule adjustment methodology for items and services furnished from 
January 1, 2019, through December 31, 2020, in areas that are currently 
not CBAs, are not rural areas, and are located in the contiguous U.S.; 
and (3) another fee schedule adjustment methodology for items and 
services furnished from January 1, 2019 through December 31, 2020, in 
areas that are currently not CBAs and are either rural areas or non-
contiguous areas.
    The estimated impacts for this part of the rule are calculated 
against a baseline that assumes payments for items furnished in CBAs 
and non-CBAs are done consistent with the rules in place as of January 
1, 2018. The impacts are expected to cost $265 million in Medicare 
beneficiary cost sharing beginning January 1, 2019. The Medicaid 
impacts for cost sharing for the beneficiaries enrolled in the Medicare 
Part B and Medicaid programs for the federal and state portions are 
assumed to be $45 million and $30 million, respectively.
iii. Alternatives Considered
    One alternative we considered but did not propose was to establish 
a fee schedule adjustment methodology that uses the blended (75 
unadjusted/25 adjusted) rates in all super rural and non-contiguous 
areas, and the blended (25 unadjusted/75 adjusted) rates in all other 
non-CBAs. In this alternative, the fee schedule amount for items 
furnished in current CBAs would be based on the current SPAs updated by 
the projected change in the CPI-U. This alternative is estimated by 
rounding to the nearer 5 million dollars and is expected to cost $30 
million in Medicare benefit payments and $5 million in Medicare 
beneficiary cost sharing beginning

[[Page 34407]]

January 1, 2019. The Medicaid impacts for cost sharing for the dual 
eligibles for the federal and state portions are assumed to be $0 
million and $0 million, respectively.
    Another alternative we considered but did not propose was to 
maintain the current SPA determination methodology, which bases the SPA 
on the median of winning bids, for the CBAs and maintain the current 
fee schedule adjustment methodologies for the non-CBAs. This 
alternative is estimated by rounding to the nearer 5 million dollars 
and to save $1,140 million in Medicare benefit payments and $280 
million in Medicare beneficiary cost sharing beginning January 1, 2019. 
The Medicaid impacts for cost sharing for the dual eligibles for the 
federal and state portions are assumed to be $50 million and $40 
million, respectively.
    We request public comments on these alternatives.
c. New Payment Classes for Oxygen and Oxygen Equipment and Methodology 
for Ensuring Annual Budget Neutrality of the New Classes
i. Effects on Other Providers
    Suppliers of high-flow oxygen equipment and oxygen contents would 
get paid more when furnishing oxygen to the high-risk beneficiaries who 
have been prescribed high-flow oxygen. The budget neutrality offset 
applied to all oxygen classes would lessen the offset applied to the 
stationary oxygen equipment fee schedule amount, which would be to the 
advantage of suppliers that furnish only stationary oxygen equipment.
ii. Effects on the Medicare Program
    No fiscal impact due to the annual budget neutrality calculation.
iii. Effects on Medicare Beneficiaries
    No fiscal impact due to the annual budget neutrality calculation.
iv. Alternatives Considered
    One alternative we considered but did not propose was to apply the 
budget neutrality offset to all DME, not just to the oxygen classes as 
proposed. This would have no fiscal impact because it would be budget 
neutral.
    Another alternative we considered but did not propose was to 
eliminate OGPE classes added in 2006 and resort back to modality 
neutral payments for both stationary and portable equipment. This 
alternative would have no fiscal impact, either.
d. New Payment Classes for Oxygen and Oxygen Equipment and Methodology 
for Ensuring Annual Budget Neutrality of the New Classes
i. Effects on Other Providers
    Suppliers of high-flow oxygen equipment and oxygen contents would 
get paid more when furnishing oxygen to the high-risk beneficiaries who 
have been prescribed high-flow oxygen. The budget neutrality offset 
applied to all oxygen classes would lessen the offset applied to the 
stationary oxygen equipment fee schedule amount, which would be to the 
advantage of suppliers that furnish only stationary oxygen equipment.
ii. Effects on the Medicare Program
    No fiscal impact due to the annual budget neutrality calculation.
iii. Effects on Medicare Beneficiaries
    No fiscal impact due to the annual budget neutrality calculation.
iv. Alternatives Considered
    One alternative we considered but did not propose was to apply the 
budget neutrality offset to all DME, not just to the oxygen classes as 
proposed. This would have no fiscal impact because it would be budget 
neutral.
    Another alternative we considered but did not propose was to 
eliminate OGPE classes added in 2006 and resort back to modality 
neutral payments for both stationary and portable equipment. This 
alternative would have no fiscal impact, either.
e. Payment for Multi-Function Ventilators
i. Effects on Other Providers
    We expect that the impact of our proposal to classify the multi-
function ventilator item in the frequent and substantial servicing 
payment category and our proposed payment rule for determining the 
monthly rental fee schedule amount would overall result in a slight 
increase in payments to suppliers since the suppliers would continue to 
receive the monthly rental amount for the base ventilator item plus an 
additional average amount for the integrated functions. In addition, 
the supplier would retain ownership of the multi-function ventilator 
that is used and can furnish the equipment for additional separate 
rental periods to other beneficiaries.
ii. Effects on the Medicare Program
    We expect our proposed payment rule for multi-function ventilators 
to be a 5-year cost of $15 million to the Medicare program as the 
proposed payment method would result in suppliers continuing to receive 
the monthly rental amount for the base ventilator item plus an 
additional average amount for the integrated functions.
iii. Effects on Medicare Beneficiaries
    We expect the proposal would have a negligible effect on Medicare 
beneficiaries' copayments.
iv. Alternatives Considered
    We considered two alternatives for our proposed payment rule for 
multi-function ventilators. One alternative payment approach is to pay 
a ventilator base item monthly rental amount and also pay separate, 
add-on monthly rental payments for each of the four additional 
functions of the item. This alternative is expected to have no cost to 
the beneficiaries or the Medicare program. Another alternative payment 
approach is to establish a monthly rental payment amount for a 
ventilator plus the monthly cost of all four additional functions. 
However, this payment alternative would only be allowed if the patient 
requires all five functions of the multi-function ventilator. This 
alternative is expected to have no cost to the beneficiaries or the 
Medicare program. Each of these alternatives did not approach the new 
multi-function ventilator as an integrated item that encompasses 
efficiencies for the suppliers, beneficiaries and the program. Also, 
neither of these two alternatives would address payment for multi-
function ventilators in a different manner than paying for five 
separate items that perform the same functions. Thus, we did not elect 
to pursue these alternatives.
f. Including the Northern Mariana Islands in Future National Mail Order 
CBPs
    Because this proposal would not have a fiscal impact, no detailed 
economic analysis is necessary.

C. Accounting Statement

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars_a004_a-4), in Table 64, we have 
prepared an accounting statement showing the classification of the 
transfers and costs associated with the various provisions of this 
proposed rule.

[[Page 34408]]



  Table 64--Accounting Statement: Classification of Estimated Transfers
                            and Costs/Savings
------------------------------------------------------------------------
                            ESRD PPS and AKI
-------------------------------------------------------------------------
                Category                            Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers.........  $190 million.
From Whom to Whom......................  Federal government to ESRD
                                          providers.
------------------------------------------------------------------------
Category                                 Transfers
------------------------------------------------------------------------
Increased Beneficiary Co-insurance       $30 million.
 Payments.
From Whom to Whom......................  Beneficiaries to ESRD
                                          providers.
------------------------------------------------------------------------
                          ESRD QIP for PY 2021
------------------------------------------------------------------------
Category                                 Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers.........  -$38 million.
From Whom to Whom......................  Federal government to ESRD
                                          providers.
------------------------------------------------------------------------
Category                                 Costs
------------------------------------------------------------------------
Annualized Monetized ESRD Provider       $181 million.
 Costs.
                                         The PY 2021 policy changes
                                          would result in an estimated
                                          $12 million in savings.
------------------------------------------------------------------------
                          ESRD QIP for PY 2022
------------------------------------------------------------------------
Category                                 Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers.........  -$38 million.
From Whom to Whom......................  Federal government to ESRD
                                          providers.
------------------------------------------------------------------------
Category                                 Costs
------------------------------------------------------------------------
Annualized Monetized ESRD Provider       $202 million.
 Costs.
                                         The PY 2022 policy changes
                                          would result in an estimated
                                          $21 million increase.
------------------------------------------------------------------------
DME Provisions: Competitive Bidding Reforms Annualization Period 2019 to
                                  2023
------------------------------------------------------------------------


 
                                                                                  Transfers
                         Category                          -----------------------------------------------------
                                                                Estimates        Year dollar      Discount rate
----------------------------------------------------------------------------------------------------------------
Annualized Monetized Transfer on Beneficiary Cost Sharing                $2              2019                7%
 (in $Millions)...........................................               $2              2019                3%
----------------------------------------------------------------------------------------------------------------
From Whom to Whom.........................................           Beneficiaries to Medicare providers
----------------------------------------------------------------------------------------------------------------
                                                                                  Transfers
                                                           -----------------------------------------------------
                                                                  Estimates       Year dollar     Discount rate
----------------------------------------------------------------------------------------------------------------
Annualized Monetized Transfer Payments (in $Millions).....             $0.6              2019                7%
                                                                       $0.6              2019                3%
----------------------------------------------------------------------------------------------------------------
From Whom to Whom.........................................        Federal government to Medicare providers.
----------------------------------------------------------------------------------------------------------------
                 DME Provisions: Transitional Fee Adjustments Annualization Period 2019 to 2020
----------------------------------------------------------------------------------------------------------------
Category                                                                          Transfers
                                                           -----------------------------------------------------
                                                                  Estimates       Year dollar     Discount rate
----------------------------------------------------------------------------------------------------------------
Annualized Monetized Transfer on Beneficiary Cost Sharing              $506              2019                7%
 (in $Millions)...........................................             $516              2019                3%
----------------------------------------------------------------------------------------------------------------
From Whom to Whom.........................................          Beneficiaries to Medicare providers.
----------------------------------------------------------------------------------------------------------------
                                                                                  Transfers
                                                           -----------------------------------------------------
                                                                  Estimates       Year dollar     Discount rate
----------------------------------------------------------------------------------------------------------------
Annualized Monetized Transfer Payments (in $Millions).....             $128              2019                7%
                                                                       $130              2019                3%
----------------------------------------------------------------------------------------------------------------
From Whom to Whom.........................................        Federal government to Medicare providers.
----------------------------------------------------------------------------------------------------------------


[[Page 34409]]

    In accordance with the provisions of Executive Order 12866, this 
proposed rule was reviewed by the Office of Management and Budget.

XVII. Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act (September 19, 1980, Pub. L. 96-354) 
(RFA) requires agencies to analyze options for regulatory relief of 
small entities, if a rule has a significant impact on a substantial 
number of small entities. For purposes of the RFA, small entities 
include small businesses, nonprofit organizations, and small 
governmental jurisdictions. Approximately 11 percent of ESRD dialysis 
facilities are considered small entities according to the Small 
Business Administration's (SBA) size standards, which classifies small 
businesses as those dialysis facilities having total revenues of less 
than $38.5 million in any 1 year. Individuals and states are not 
included in the definitions of a small entity. For more information on 
SBA's size standards, see the Small Business Administration's Web site 
at http://www.sba.gov/content/small-business-size-standards (Kidney 
Dialysis Centers are listed as 621492 with a size standard of $38.5 
million).
    We do not believe ESRD facilities are operated by small government 
entities such as counties or towns with populations of 50,000 or less, 
and therefore, they are not enumerated or included in this estimated 
RFA analysis. Individuals and States are not included in the definition 
of a small entity.
    For purposes of the RFA, we estimate that approximately 11 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 Table 58. Using the 
definitions in this ownership category, we consider 479 facilities that 
are independent and 325 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 of more than $38.5 million in any year when the total 
revenues for all locations are combined for each business (individual 
LDO or regional chain), and are not, therefore, included as small 
entities.
    For the ESRD PPS updates proposed in this rule, a hospital-based 
ESRD facility (as defined by type of ownership, not by type of dialysis 
facility) is estimated to receive a 1.9 percent increase in payments 
for CY 2019. An independent facility (as defined by ownership type) is 
also estimated to receive a 2.0 percent increase in payments for CY 
2019.
    For AKI dialysis, we are unable to estimate whether patients would 
go to ESRD facilities, however, we have estimated there is a potential 
for $37.5 million in payment for AKI dialysis treatments that could 
potentially be furnished in ESRD facilities.
    For ESRD QIP, we estimate that of the 2,896 ESRD facilities 
expected to receive a payment reduction in the PY 2022 ESRD QIP, 424 
are ESRD small entity facilities. We present these findings in Table 60 
(``Estimated Distribution of PY 2022 ESRD QIP Payment Reductions'') and 
Table 61 (``Impact of Proposed QIP Payment Reductions to ESRD 
Facilities for PY 2022''). We estimate that the payment reductions 
would average approximately $13,161 per facility across the 2,896 
facilities receiving a payment reduction, and $14,665 for each small 
entity facility. We also estimate that there are 828 small entity 
facilities in total, and that the aggregate ESRD PPS payments to these 
facilities would decrease 0.59 percent in PY 2022.
    For DMEPOS, small entities include small businesses, nonprofit 
organizations, and small governmental jurisdictions. Approximately 85 
percent of the DME industry are considered small businesses according 
to the Small Business Administration's size standards with total 
revenues of $6.5 million or less in any 1 year and a small percentage 
are nonprofit organizations. Individuals and states are not included in 
the definition of a small entity. As discussed in section VI of this 
proposed rule, this rule would provide additional revenue to a 
substantial number of small rural entities, especially for certain 
items furnished outside of the former competitively bid areas. 
Therefore, the Secretary has determined that these proposed rules would 
have a significant economic impact on a substantial number of small 
entities.
    Therefore, the Secretary has determined that these proposed rules 
would have a significant economic impact on a substantial number of 
small entities. The economic impact assessment is based on estimated 
Medicare payments (revenues) and HHS's practice in interpreting the RFA 
is to consider effects economically ``significant'' only if greater 
than 5 percent of providers reach a threshold of 3 to 5 percent or more 
of total revenue or total costs. We solicit comment on the RFA analysis 
provided.
    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 603 of the RFA. For purposes of section 1102(b) of the Act, we 
define a small rural hospital as a hospital that is located outside of 
a metropolitan statistical area and has fewer than 100 beds. We do not 
believe this proposed rule would have a significant impact on 
operations of a substantial number of small rural hospitals because 
most dialysis facilities are freestanding. While there are 132 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 132 
rural hospital-based dialysis facilities will experience an estimated 
1.6 percent increase in payments. As concerns the DME parts of the 
rule, our data indicates that only around 6.9 percent of small rural 
hospitals are organizationally linked to a DME supplier with paid 
claims in 2017. Thus, we do not believe the DME parts of the rule will 
have a significant impact on operations of a substantial number of 
small rural hospitals. As a result, the entire proposed rule is not 
estimated to have a significant impact on small rural hospitals.
    Therefore, the Secretary has determined that these proposed rules 
would not have a significant impact on the operations of a substantial 
number of small rural hospitals.

XVIII. Unfunded Mandates Reform Act Analysis

    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 of $100 
million in 1995 dollars, updated annually for inflation. In 2018, that 
threshold is approximately $150 million. These proposed rules do not 
include any mandates that would impose spending costs on state, local, 
or Tribal governments in the aggregate, or by the private sector, of 
$150 million. Moreover, HHS interprets UMRA as applying only to 
unfunded mandates. We do not interpret Medicare payment rules as being 
unfunded mandates, but simply as conditions for the receipt of payments 
from the Federal government for providing services that meet Federal 
standards. This interpretation applies whether the facilities or 
providers are private, state, local, or tribal.

[[Page 34410]]

XIX. Federalism Analysis

    Executive Order 13132 on Federalism (August 4, 1999) 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 have reviewed these 
proposed rules under the threshold criteria of Executive Order 13132, 
Federalism, and have determined that it would have substantial direct 
effects on the rights, roles, and responsibilities of states, local or 
Tribal governments. It is estimated that these proposals contained in 
section VI of this proposed rule would add $30 million dollars of 
additional expense to state governments because of the added cost 
sharing expense for Medicare and Medicaid dual eligible beneficiaries.

XX. Reducing Regulation and Controlling Regulatory Costs

    Executive Order 13771, entitled Reducing Regulation and Controlling 
Regulatory Costs (82 FR 9339), was issued on January 30, 2017. This 
proposed rule is expected to be an Executive Order 13771 regulatory 
action due to the estimated $9 million incremental costs (see Table 
64).

XXI. Congressional Review Act

    These proposed rules are subject to the Congressional Review Act 
provisions of the Small Business Regulatory Enforcement Fairness Act of 
1996 (5 U.S.C. 801 et seq.) and has been transmitted to the Congress 
and the Comptroller General for review.

XXII. Files Available to the Public via the Internet

    The Addenda for the annual ESRD PPS proposed and final rulemakings 
will no longer appear in the Federal Register. Instead, the Addenda 
will be available only through the Internet and is posted on the CMS 
website at http://www.cms.gov/ESRDPayment/PAY/list.asp. In addition to 
the Addenda, limited data set (LDS) files are available for purchase at 
http://www.cms.gov/Research-Statistics-Data-and-Systems/Files-for-Order/LimitedDataSets/EndStageRenalDiseaseSystemFile.html. Readers who 
experience any problems accessing the Addenda or LDS files, should 
contact [email protected].

List of Subjects

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.

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services proposes to amend 42 CFR chapter IV as follows:

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

0
1. 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), 1395g, 1395l(a), (i), and 
(n), 1395x(v), 1395hh, 1395rr, 1395tt, and 1395ww); and sec. 124 of 
Public Law 106-113, 113 Stat. 1501A-332; sec. 3201 of Public Law 
112-96, 126 Stat. 156; sec. 632 of Public Law 112-240, 126 Stat. 
2354; sec. 217 of Public Law 113-93, 129 Stat. 1040; and sec. 204 of 
Public Law 113-295, 128 Stat. 4010; and sec. 808 of Public Law 114-
27, 129 Stat. 362.

0
2. Section 413.177(a) is revised to read as follows:


Sec.  413.177   Quality incentive program payment.

    (a) With respect to renal dialysis services as defined under Sec.  
413.171, in the case of an ESRD facility that does not earn enough 
points under the program described at Sec.  413.178 to meet or exceed 
the minimum total performance score (as defined at Sec.  413.178(a)(8)) 
established by CMS for a payment year (as defined at Sec.  
413.178(a)(10)), payments otherwise made to the facility under Sec.  
413.230 for renal dialysis services during the payment year will be 
reduced by up to 2 percent as follows:
    (1) For every 10 points that the total performance score (as 
defined at Sec.  413.178(a)(14)) earned by the ESRD facility falls 
below the minimum total performance score, the payments otherwise made 
will be reduced by 0.5 percent.
    (2) [Reserved]
* * * * *
0
3. Section 413.178 is added to read as follows:


Sec.  413.178  ESRD quality incentive program.

    (a) Definitions. As used in this section:
    (1) Achievement threshold means the 15th percentile of national 
ESRD facility performance on a clinical measure during the baseline 
period for a payment year.
    (2) Baseline period means, with respect to a payment year, the time 
period used to calculate the performance standards, benchmark, 
improvement threshold and achievement threshold that apply to each 
clinical measure for that payment year.
    (3) Benchmark means, with respect to a payment year, the 90th 
percentile of national ESRD facility performance on a clinical measure 
during the baseline period that applies to the measure for that payment 
year.
    (4) Clinical measure means a measure that is scored for a payment 
year using the methodology described in paragraphs (d)(1)(i) through 
(iii) of this section.
    (5) End-Stage Renal Disease (ESRD) Quality Incentive Program (QIP) 
means the program authorized under section 1881(h) of the Social 
Security Act.
    (6) ESRD facility means an ESRD facility as defined in Sec.  
413.171.
    (7) Improvement threshold means an ESRD facility's performance on a 
clinical measure during the baseline period that applies to the measure 
for a payment year.
    (8) Minimum total performance score (mTPS) means, with respect to a 
payment year, the total performance score that an ESRD facility would 
receive if, during the baseline period, it performed at the 50th 
percentile of national ESRD facility performance on all clinical 
measures and the median of national ESRD facility performance on all 
reporting measures.
    (9) Payment reduction means the reduction, as specified by CMS, to 
each payment that would otherwise be made to an ESRD facility under 
Sec.  413.230 for a calendar year based on the TPS earned by the ESRD 
facility for the corresponding payment year that is lower than the mTPS 
score established for that payment year.
    (10) Payment year means the calendar year for which a payment 
reduction, if applicable, is applied to the payments otherwise made to 
an ESRD facility under Sec.  413.230.
    (11) Performance period means the time period during which data are

[[Page 34411]]

collected for the purpose of calculating an ESRD facility's performance 
on measures with respect to a payment year.
    (12) Performance standards are, for a clinical measure, the 
performance levels used to award points to an ESRD facility based on 
its performance on the measure, and are, for a reporting measure, the 
levels of data submission and completion of other actions specified by 
CMS that are used to award points to an ESRD facility on the measure.
    (13) Reporting measure means a measure that is scored for a payment 
year using the methodology described in paragraph (d)(1)(iv) of this 
section.
    (14) Total performance score (TPS) means the numeric score ranging 
from 0 to 100 awarded to each ESRD facility based on its performance 
under the ESRD QIP with respect to a payment year.
    (b) Applicability of the ESRD QIP. The ESRD QIP applies to ESRD 
facilities as defined at Sec.  413.171 beginning the first day of the 
month that is 4 months after the facility CMS Certification Number 
(CCN) effective date.
    (c) ESRD QIP measure selection. CMS specifies measures for the ESRD 
QIP for a payment year and groups the measures into domains. The 
measures for a payment year include, but are not limited to:
    (1) Measures on anemia management that reflect the labeling 
approved by the Food and Drug Administration for such management.
    (2) Measures on dialysis adequacy.
    (3) To the extent feasible, measures on iron management, bone 
mineral metabolism, and vascular access (including for maximizing the 
placement of arterial venous fistula).
    (4) Beginning with the 2016 payment year, measures specific to the 
conditions treated with oral-only drugs and that are, to the extent 
feasible, outcomes-based.
    (d) Performance scoring under the ESRD QIP. (1) CMS will award 
points to an ESRD facility based on its performance on each clinical 
measure for which the ESRD facility reports the applicable minimum 
number of cases during the performance period for a payment year, and 
based on the degree to which the ESRD facility submits data and 
completes other actions specified by CMS for a reporting measure during 
the performance period for a payment year.
    (i) CMS will award from 1 to 9 points for achievement on a clinical 
measure to each ESRD facility whose performance on that measure during 
the applicable performance period meets or exceeds the achievement 
threshold but is less than the benchmark specified for that measure.
    (ii) CMS will award from 0 to 9 points for improvement on a 
clinical measure to each ESRD facility whose performance on that 
measure during the applicable performance period meets or exceeds the 
improvement threshold but is less than the benchmark specified for that 
measure.
    (iii) CMS will award 10 points to each ESRD facility whose 
performance on a clinical measure during the applicable performance 
period meets or exceeds the benchmark specified for that measure.
    (iv) CMS will award from 0 to 10 points to each ESRD facility on a 
reporting measure based on the degree to which, during the applicable 
performance period, the ESRD facility reports data and completes other 
actions specified by CMS with respect to that measure.
    (2) CMS calculates the TPS for an ESRD facility for a payment year 
as follows:
    (i) CMS calculates a domain score for each domain based on the 
total number of points the ESRD facility has earned under paragraph 
(d)(1) of this section for each measure in the domain and the weight 
that CMS has assigned to each measure.
    (ii) CMS weights each domain score in accordance with the domain 
weight that CMS has established for the payment year.
    (iii) The sum of the weighted domain scores is the ESRD facility's 
TPS for the payment year.
    (e) Public availability of ESRD QIP performance information. (1) 
CMS will make information available to the public regarding the 
performance of each ESRD facility under the ESRD QIP on the Dialysis 
Facility Compare website, including the facility's TPS and scores on 
individual measures.
    (2) Prior to making the information described in paragraph (e)(1) 
of this section available to the public, CMS will provide ESRD 
facilities with an opportunity to review that information, technical 
assistance to help them understand how their performance under the ESRD 
QIP was scored, and an opportunity to request and receive responses to 
questions that they have about the ESRD QIP.
    (3) CMS will provide each ESRD facility with a performance score 
certificate on an annual basis that describes the TPS achieved by the 
facility with respect to a payment year. The performance score 
certificate must be posted by the ESRD facility within 15 business days 
of the date that CMS issues the certificate to the ESRD facility, with 
the content unaltered, in an area of the facility accessible to 
patients.
    (f) Limitation on review. There is no administrative or judicial 
review of the following:
    (1) The determination of the amount of the payment reduction under 
section 1881(h)(1) of the Act.
    (2) The specification of measures under section 1881(h)(2) of the 
Act.
    (3) The methodology developed under section 1881(h)(3) of the Act 
that is used to calculate TPSs and performance scores for individual 
measures.
    (4) The establishment of the performance standards and the 
performance period under section 1881(h)(4) of the Act.
0
4. Section 413.232 is amended by--
0
a. Revising paragraphs (b) introductory text and (b)(2);
0
b. Revising paragraph (c)(2);
0
c. Revising paragraph (e);
0
d. Revising paragraph (g)(2); and
0
e. Adding paragraph (g)(3).
    The revisions and addition read as follows:


Sec.  413.232   Low-volume adjustment.

* * * * *
    (b) Definition of low-volume facility. A low-volume facility is an 
ESRD facility that, as determined based on the documentation submitted 
pursuant to paragraph (g) of this section:
* * * * *
    (2) Has not opened, closed, or received a new provider number due 
to a change in ownership (except where the change in ownership results 
in a change in facility type) in the 3 cost reporting years (based on 
as-filed or final settled 12-consecutive month cost reports, whichever 
is most recent) preceding the payment year.
    (c) * * *
    (2) Five (5) road miles or less from the ESRD facility in question.
* * * * *
    (e) Except as provided in paragraph (f) of this section and unless 
extraordinary circumstances justify an exception, to receive the low-
volume adjustment an ESRD facility must provide an attestation 
statement, by November 1st of each year preceding the payment year, to 
its Medicare Administrative Contractor that the facility meets all the 
criteria established in this section, except that, for calendar year 
2012, the attestation must be provided by January 3, 2012, for calendar 
year 2015, the attestation must be provided by December 31, 2014, and 
for calendar year 2016, the attestation must be provided by December 
31, 2015.
* * * * *

[[Page 34412]]

    (g) * * *
    (2) In the case of an ESRD facility that has undergone a change of 
ownership wherein the ESRD facility's Medicare billing number does not 
change or changes due to a reclassification of facility type, the MAC 
relies upon the attestation and if the change results in two non-
standard cost reporting periods (less than or greater than 12 
consecutive months) does one of the following for the 3 cost reporting 
years preceding the payment year to verify the number of treatments:
    (i) Combines the two non-standard cost reporting periods of less 
than 12 months to equal a full 12-consecutive month period; and/or
    (ii) Combines the two non-standard cost reporting periods that in 
combination may exceed 12-consecutive months and prorates the data to 
equal a full 12-consecutive month period.
    (3) In the case of an ESRD facility that has changed their cost 
reporting period, the MAC relies on the attestation and does one or 
both of the following for the 3 cost reporting years preceding the 
payment year to verify the number of treatments:
    (i) Combines the two non-standard cost reporting periods of less 
than 12 months to equal a full 12-consecutive month period; and/or
    (ii) Combines the two non-standard cost reporting periods that in 
combination may exceed 12-consecutive months and prorates the data to 
equal a full 12-consecutive month period.
0
5. Section 413.234 is amended--
0
a. In paragraph (a) by removing the definition of ``New injectable or 
intravenous product'' and adding the definition of ``New renal dialysis 
drug or biological'' in alphabetical order; and
0
b. By revising paragraphs (b) and (c).
    The revisions read as follows:


Sec.  413.234   Drug designation process.

    (a) * * *
    New renal dialysis drug or biological. An injectable, intravenous, 
oral or other form or route of administration drug or biological that 
is used to treat or manage a condition(s) associated with ESRD. It must 
be approved by the Food and Drug Administration (FDA) on or after 
January 1, 2019 under section 505 of the Federal Food, Drug, and 
Cosmetic Act or section 351 of the Public Health Service Act, 
commercially available, have an HCPCS application submitted in 
accordance with the official HCPCS Level II coding procedures, and 
designated by CMS as a renal dialysis service under Sec.  413.171. 
Oral-only drugs or biologicals are excluded until January 1, 2025.
* * * * *
    (b) Drug designation process. New renal dialysis drugs or 
biologicals are included in the ESRD PPS bundled payment using the 
following drug designation process:
    (1) If the new renal dialysis drug or biological is used to treat 
or manage a condition for which there is an ESRD PPS functional 
category, the new renal dialysis drug or biological is considered 
included in the ESRD PPS bundled payment and the following steps occur:
    (i) The new renal dialysis drug or biological is added to an 
existing ESRD PPS functional category.
    (ii) The new renal dialysis drug or biological is paid for using 
the transitional drug add-on payment adjustment described in paragraph 
(c)(1) of this section.
    (2) If the new renal dialysis drug or biological is used to treat 
or manage a condition for which there is not an ESRD PPS functional 
category, the new renal dialysis drug or biological is not considered 
included in the ESRD PPS bundled payment and the following steps occur:
    (i) An existing ESRD PPS functional category is revised or a new 
ESRD PPS functional category is added for the condition that the new 
renal dialysis drug or biological is used to treat or manage;
    (ii) The new renal dialysis drug or biological is paid for using 
the transitional drug add-on payment adjustment described in paragraph 
(c)(2) of this section; and
    (iii) The new renal dialysis drug or biological is added to the 
ESRD PPS bundled payment following payment of the transitional drug 
add-on payment adjustment.
    (c) Transitional drug add-on payment adjustment. A new renal 
dialysis drug or biological is paid for using a transitional drug add-
on payment adjustment, which is based on 100 percent of Average Sales 
Price (ASP). If ASP is not available then the transitional drug add-on 
payment adjustment is based on 100 percent of Wholesale Acquisition 
Cost (WAC) and, when WAC is not available, the payment would be based 
on the drug manufacturer's invoice.
    (1) A new renal dialysis drug or biological that is considered 
included in the ESRD PPS base rate is paid the transitional drug add-on 
payment adjustment is paid for 2 years.
    (i) Following payment of the transitional drug add-on payment 
adjustment the ESRD PPS base rate will not be modified.
    (ii) [Reserved]
    (2) A new renal dialysis drug or biological that is not considered 
included in the ESRD PPS base rate is paid the transitional drug add-on 
payment adjustment until sufficient claims data for rate setting 
analysis for the new renal dialysis drug or biological is available, 
but not for less than 2 years.
    (i) Following payment of the transitional drug add-on payment 
adjustment the ESRD PPS base rate will be modified, if appropriate, to 
account for the new renal dialysis drug or biological in the ESRD PPS 
bundled payment.
    (ii) [Reserved]
* * * * *

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

0
6. 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)).

0
7. Section 414.210 is amended by--
0
a. Revising paragraphs (g)(4), (7) and (9); and
0
b. Adding paragraph (g)(10).
    The revisions and addition read as follows:


Sec.  414.210   General payment rules.

* * * * *
    (g) * * *
    (4) Payment adjustments using data on items and services included 
in competitive bidding programs no longer in effect. In the case where 
adjustments to fee schedule amounts are made using any of the 
methodologies described, other than paragraph (g)(10) of this section, 
if the adjustments are based solely on single payment amounts from 
competitive bidding programs that are no longer in effect, the single 
payment amounts are updated before being used to adjust the fee 
schedule amounts. The single payment amounts are updated based on the 
percentage change in the Consumer Price Index for all Urban Consumers 
(CPI-U) from the mid-point of the last year the single payment amounts 
were in effect to the month ending 6 months prior to the date the 
initial fee schedule reductions go into effect. Following the initial 
adjustments to the fee schedule amounts, if the adjustments continue to 
be based solely on single payment amounts from competitive bidding 
programs that are no longer in effect, the single payment amounts used 
to reduce the fee schedule amounts are updated every 12 months using 
the percentage change in the CPI-U for the 12-month period ending 6 
months prior to the date the updated

[[Page 34413]]

payment adjustments would go into effect.
* * * * *
    (7) Payment adjustments for mail order items furnished in the 
Northern Mariana Islands. The fee schedule amounts for mail order items 
furnished to beneficiaries in the Northern Mariana Islands are adjusted 
so that they are equal to 100 percent of the single payment amounts 
established under a national mail order competitive bidding program. 
Beginning on or after the date that the Northern Mariana Islands are 
included under a national mail order competitive bidding program, the 
fee schedule adjustment methodology under this paragraph would no 
longer apply.
* * * * *
    (9) Transition rules. The payment adjustments described above are 
phased in as follows:
    (i) For applicable items and services furnished with dates of 
service from January 1, 2016 through December 31, 2016, based on the 
fee schedule amount for the area is equal to 50 percent of the adjusted 
payment amount established under this section and 50 percent of the 
unadjusted fee schedule amount.
    (ii) For items and services furnished with dates of service from 
January 1, 2017, through May 31, 2018, the fee schedule amount for the 
area is equal to 100 percent of the adjusted payment amount established 
under this section.
    (iii) For items and services furnished in rural areas and non-
contiguous areas (Alaska, Hawaii, and U.S. territories) with dates of 
service from June 1, 2018 through December 31, 2020, based on the fee 
schedule amount for the area is equal to 50 percent of the adjusted 
payment amount established under this section and 50 percent of the 
unadjusted fee schedule amount.
    (iv) For items and services furnished in areas other than rural or 
noncontiguous areas with dates of service from June 1, 2018 through 
December 31, 2020, based on the fee schedule amount for the area is 
equal to 100 percent of the adjusted payment amount established under 
this section.
    (10) Payment adjustments for items and services furnished in former 
competitive bidding areas during temporary gaps in the DMEPOS CBP. 
During a temporary gap in the entire DMEPOS CBP and/or National Mail 
Order CBP, the fee schedule amounts for items and services that were 
competitively bid and furnished in areas that were competitive bidding 
areas at the time the program(s) was in effect are adjusted based on 
the SPAs in effect in the competitive bidding areas on the last day 
before the CBP contract period of performance ended, increased by the 
projected percentage change in the Consumer Price Index for all Urban 
Consumers (CPI-U) for the 12-month period ending on the date after the 
contract periods ended. If the gap in the CBP lasts for more than 12 
months, the fee schedule amounts are increased once every 12 months on 
the anniversary date of the first day of the gap period based on the 
projected percentage change in the CPI-U for the 12-month period ending 
on the anniversary date.
0
8. Section 414.222 is amended by adding paragraph (f) to read as 
follows:


Sec.  414.222   Items requiring frequent and substantial servicing.

* * * * *
    (f) Multi-function ventilators--(1) Definition. For the purpose of 
this paragraph, a multi-function ventilator is a ventilator as defined 
in paragraph (a)(1) of this section that also performs medically 
necessary functions for the patient at the same time that would 
otherwise be performed by one or more different items classified under 
Sec.  414.220, Sec.  414.226, or Sec.  414.229.
    (2) Payment rule. Effective for dates of service on or after 
January 1, 2019, the monthly rental fee schedule amount for a multi-
function ventilator described in paragraph (f)(1) of this section is 
equal to the monthly rental fee schedule amount for the ventilator 
established in paragraph (c) and paragraph (d) of this section plus the 
average of the lowest monthly cost for one additional function 
determined under paragraph (f)(3) of this section and the monthly cost 
of all additional functions determined under paragraph (f)(3), 
increased by the annual covered item updates of section 1834(a)(14) of 
the Act.
    (3) Monthly cost for additional functions. (i) For functions 
performed by items classified under this section prior to 1994, the 
monthly cost is equal to the monthly rental fee schedule amount 
established in paragraphs (c) and (d) of this section increased by the 
covered item update of section 1834(a)(14) of the Act.
    (ii) For functions performed by items classified under Sec.  
414.220, the monthly cost is equal to the fee schedule amount for 
purchased equipment established in Sec.  414.220(c), (d), (e), and (f), 
adjusted in accordance with Sec.  414.210(g), divided by 60 months or 
total number of months of the reasonable useful lifetime of the 
equipment.
    (iii) For functions performed by items classified under Sec.  
414.226, the monthly cost is equal to the monthly payment amount 
established in Sec.  414.226(e), (f), and (g) of, adjusted in 
accordance with Sec.  414.210(g), multiplied by 36 and divided by 60 
months or total number of months of the reasonable useful lifetime of 
the oxygen equipment.
    (iv) For functions performed by items classified under Sec.  
414.229, the monthly cost is equal to the purchase price established in 
Sec.  414.229 (c) of, adjusted in accordance with Sec.  414.210(g), 
divided by 60 months or total number of months of the reasonable useful 
lifetime of the equipment.
0
9. Section 414.226 is amended--
0
a. By revising the heading of paragraph (c);
0
b. By revising paragraph (c)(6);
0
c. By revising the heading of paragraph (d);
0
d. In paragraph (d)(2) by removing the reference ``paragraph (e)(2)'' 
and adding in its place the reference ``paragraph (g)(2)'';
0
e. By redesignating paragraphs (e), (f) and (g) as paragraphs (g), (h), 
and (i); and
0
f. By adding new paragraphs (e) and (f).
    The revisions and additions read as follows:


Sec.  414.226   Oxygen and oxygen equipment.

* * * * *
    (c) Monthly fee schedule amount for items furnished from 2007 
through 2018. * * *
* * * * *
    (6) For 2008 through 2018, CMS makes an annual adjustment to the 
national limited monthly payment rate for items described in paragraph 
(c)(1)(i) of this section to ensure that such payment rates do not 
result in expenditures for any year that are more or less than the 
expenditures that would have been made if such classes had not been 
established.
    (d) Application of monthly fee schedule amounts for items furnished 
from 2007 through 2018. * * *
* * * * *
    (e) Monthly fee schedule amount for items furnished for years after 
2018. (1) For 2019, national limited monthly payment rates are 
calculated and paid as the monthly fee schedule amounts for the 
following classes of items:
    (i) Stationary oxygen equipment (including stationary 
concentrators) and oxygen contents (stationary and portable).
    (ii) Portable gaseous equipment only.
    (iii) Portable liquid equipment only.
    (iv) Oxygen generating portable equipment only.
    (v) Stationary oxygen contents only.
    (vi) Portable oxygen contents only, except for portable liquid 
oxygen

[[Page 34414]]

contents for prescribed flow rates greater than four liters per minute.
    (vii) Portable liquid oxygen contents only for prescribed flow 
rates of more than 4 liters per minute.
    (2) The monthly payment rate for items described in paragraphs 
(e)(1)(i), (ii), (iv), (v), and (vi) of this section are determined 
using the applicable methodologies contained in Sec.  414.210(g).
    (3) The monthly payment rate for items described in paragraph 
(e)(1)(iii) of this section is determined initially based on the 
monthly payment rate for items described in paragraph (e)(1)(iv) of 
this section and is subsequently adjusted using the applicable 
methodologies contained in Sec.  414.210(g).
    (4) The monthly payment rate for items described in paragraph 
(e)(1)(vii) of this section is determined initially based on 150 
percent of the monthly payment rate for items described in paragraph 
(e)(1)(vi) of this section and is subsequently adjusted using the 
applicable methodologies contained in Sec.  414.210(g).
    (5) Beginning in 2019, CMS makes an annual adjustment to the 
monthly payment rate for items described in paragraphs (e)(1)(i) 
through (e)(1)(vii) of this section to ensure that such payment rates 
do not result in expenditures for any year that are more or less than 
the expenditures that would have been made if such classes had not been 
established.
    (f) Application of monthly fee schedule amounts for items furnished 
for years after 2018. (1) The fee schedule amount for items described 
in paragraph (e)(1)(i) of this section is paid when the beneficiary 
rents stationary oxygen equipment.
    (2) Subject to the limitation set forth in paragraph (g)(2) of this 
section, the fee schedule amount for items described in paragraphs 
(e)(1)(ii), (iii), and (iv) of this section is paid when the 
beneficiary rents portable oxygen equipment.
    (3) The fee schedule amount for items described in paragraph 
(e)(1)(v) of this section is paid when the beneficiary--
    (i) Owns stationary oxygen equipment that requires delivery of 
gaseous or liquid oxygen contents; or
    (ii) Rents stationary oxygen equipment that requires delivery of 
gaseous or liquid oxygen contents after the period of continuous use of 
36 months described in paragraph (a)(1) of this section.
    (4) The fee schedule amount for items described in paragraph 
(e)(1)(vi) of this section is paid when the beneficiary--
    (i) Owns portable oxygen equipment described in paragraphs 
(e)(1)(ii) or (e)(1)(iii) of this section; or
    (ii) Rents portable oxygen equipment described in paragraphs 
(e)(1)(ii) or (e)(1)(iii) of this section during the period of 
continuous use of 36 months described in paragraph (a)(1) of this 
section and does not rent stationary oxygen equipment; or
    (iii) Rents portable oxygen equipment described in paragraphs 
(e)(1)(ii) or (e)(1)(iii) of this section after the period of 
continuous use of 36 months described in paragraph (a)(1) of this 
section.
    (5) The fee schedule amount for items described in paragraph 
(e)(1)(vii) of this section is paid when the beneficiary has a 
prescribed flow rate of more than 4 liters per minute and--
    (i) Owns portable liquid oxygen equipment described in paragraph 
(e)(1)(iii) of this section; or
    (ii) Rents portable liquid oxygen equipment described in paragraph 
(e)(1)(iii) of this section during the period of continuous use of 36 
months described in paragraph (a)(1) of this section and does not rent 
stationary oxygen equipment; or
    (iii) Rents portable liquid oxygen equipment described in paragraph 
(e)(1)(iii) of this section after the period of continuous use of 36 
months described in paragraph (a)(1) of this section.


Sec.  414.230   [Amended]

0
10. Section 414.230 is amended in paragraph (h) by removing the 
reference ``Sec.  414.226(f)'' and adding in its place the reference 
``Sec.  414.226(h)''.
0
11. Section 414.402 is amended by revising the definitions of ``Bid'' 
and ``Composite bid'', and adding the definition of ``Lead item'' in 
alphabetical order to read as follows:


Sec.  414.402   Definitions.

* * * * *
    Bid means an offer to furnish an item or items for a particular 
price and time period that includes, where appropriate, any services 
that are directly related to the furnishing of the item or items.
* * * * *
    Composite bid means the bid submitted by the supplier for the lead 
item in the product category.
* * * * *
    Lead item is the item in a product category with multiple items 
with the highest total nationwide Medicare allowed charges of any item 
in the product category prior to each competition.
* * * * *
0
12. Section 414.412 is amended by--
0
a. Revising paragraphs (b)(1) and (2);
0
b. Revising paragraph (c);
0
c. Revising the heading of paragraph (e); and
0
d. Revising the heading of paragraph (h).
    The revisions read as follows:


Sec.  414.412   Submission of bids under a competitive bidding program.

* * * * *
    (b) * * *
    (1) Composite bids, as defined in Sec.  414.402, are submitted for 
lead items, as defined in Sec.  414.402.
    (2) The bid submitted for each lead item and product category 
cannot exceed the payment amount that would otherwise apply to the lead 
item under subpart C of this part, without the application of Sec.  
414.210(g), or subpart D of this part, without the application of Sec.  
414.105.
* * * * *
    (c) Furnishing of items. A bid must include all costs related to 
furnishing all items in the product category, including all services 
directly related to the furnishing of the items.
    (e) Commonly-owned or controlled suppliers. * * *
* * * * *
    (h) Requiring bid surety bonds for bidding entities. * * *
* * * * *
0
13. Section 414.414 is amended by revising paragraph (e) to read as 
follows:


Sec.  414.414   Conditions for awarding contracts.

* * * * *
    (e) Evaluation of bids. CMS evaluates composite bids submitted for 
a lead item within a product category by--
    (1) Calculating the expected beneficiary demand in the CBA for the 
lead item in the product category;
    (2) Calculating the total supplier capacity that would be 
sufficient to meet the expected beneficiary demand in the CBA for the 
lead item in the product category;
    (3) Arraying the composite bids from the lowest composite bid price 
to the highest composite bid price;
    (4) Calculating the pivotal bid for the product category; and
    (5) Selecting all suppliers and networks whose composite bids are 
less than or equal to the pivotal bid for that product category, and 
that meet the requirements in paragraphs (b) through (d) of this 
section.
* * * * *
0
14. Section 414.416 is amended by revising paragraph (b) to read as 
follows:

[[Page 34415]]

Sec.  414.416   Determination of competitive bidding payment amounts.

* * * * *
    (b) Methodology for setting payment amount. (1) The single payment 
amount for a lead item furnished under a competitive bidding program is 
equal to the maximum or highest bid submitted for that item by 
suppliers whose composite bids for the product category that includes 
the item are equal to or below the pivotal bid for that product 
category.
    (2) The single payment amount for a lead item must be less than or 
equal to the amount that would otherwise be paid for the same item 
under subpart C or subpart D of this part.
    (3) The single payment amount for an item in a product category 
furnished under a competitive bidding program that is not a lead item 
for that product category is equal to the single payment amount for the 
lead item in the same product category multiplied by the ratio of the 
average of the 2015 fee schedule amounts for all areas (that is, all 
states, the District of Columbia, Puerto Rico, and the United States 
Virgin Islands) for the item to the average of the 2015 fee schedule 
amounts for all areas for the lead item.


Sec.  414.422   [Amended]

0
15. Section 414.422 is amended by redesignating paragraphs (d)(4)(iii) 
through (d)(4)(vi) as paragraphs (d)(4)(ii) through (d)(4)(v).
0
16. Section 414.423 is amended by revising paragraph (i)(8) to read as 
follows:


Sec.  414.423   Appeals process for breach of a DMEPOS competitive 
bidding program contract actions.

* * * * *
    (i) * * *
    (8) Comply with all applicable provisions of Title 18 and related 
provisions of the Act, the applicable regulations issued by the 
Secretary, and manual instructions issued by CMS.
* * * * *

    Dated: June 26, 2018.
Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: June 28, 2018.
Alex M. Azar II,
Secretary, Department of Health and Human Services.
[FR Doc. 2018-14986 Filed 7-11-18; 4:15 pm]
 BILLING CODE P