[Federal Register Volume 84, Number 217 (Friday, November 8, 2019)]
[Rules and Regulations]
[Pages 60648-60809]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-24063]



[[Page 60647]]

Vol. 84

Friday,

No. 217

November 8, 2019

Part III





Department of Health and Human Services





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Centers for Medicare & Medicaid Services





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42 CFR Parts 405, 410, 413 et al.





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) 
Fee Schedule Amounts, DMEPOS Competitive Bidding Program (CBP) 
Amendments, Standard Elements for a DMEPOS Order, and Master List of 
DMEPOS Items Potentially Subject to a Face-to-Face Encounter and 
Written Order Prior to Delivery and/or Prior Authorization 
Requirements; Final Rule

  Federal Register / Vol. 84 , No. 217 / Friday, November 8, 2019 / 
Rules and Regulations  

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 405, 410, 413 and 414

[CMS-1713-F]
RIN 0938-AT70


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) Fee Schedule Amounts, DMEPOS Competitive Bidding Program (CBP) 
Amendments, Standard Elements for a DMEPOS Order, and Master List of 
DMEPOS Items Potentially Subject to a Face-to-Face Encounter and 
Written Order Prior to Delivery and/or Prior Authorization Requirements

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

ACTION: Final rule.

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SUMMARY: This final rule updates and makes revisions to the End-Stage 
Renal Disease (ESRD) Prospective Payment System (PPS) for calendar year 
(CY) 2020. This rule also updates the payment rate for renal dialysis 
services furnished by an ESRD facility to individuals with acute kidney 
injury (AKI). This rule also updates requirements for the ESRD Quality 
Incentive Program (QIP). In addition, this rule establishes a 
methodology for calculating fee schedule payment amounts for new 
Durable Medical Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) 
items and services, and a methodology for making adjustments to the fee 
schedule amounts established using supplier or commercial prices if 
such prices decrease within 5 years of establishing the initial fee 
schedule amounts. This rule also revises existing regulations related 
to the DMEPOS competitive bidding program. This rule also streamlines 
the requirements for ordering DMEPOS items, and develops a new list of 
DMEPOS items potentially subject to a face-to-face encounter, written 
orders prior to delivery and/or prior authorization requirements. 
Finally, this rule summarizes responses to requests for information on 
data collection resulting from the ESRD PPS technical expert panel, 
changing the basis for the ESRD PPS wage index, and new requirements 
for the competitive bidding of diabetic testing strips.

DATES: These regulations are effective January 1, 2020.

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 
Amendments.
    Jennifer Phillips, (410) 786-1023; Olufemi Shodeke, (410) 786-1649; 
and Maria Ciccanti, (410) 786-3107, for issues related to the DMEPOS 
written order, face-to-face encounter, and prior authorization 
requirements.

SUPPLEMENTARY INFORMATION:

Addenda Are Only Available Through the Internet on the CMS Website

    The Addenda for the annual ESRD PPS proposed and final rules will 
no longer appear in the Federal Register. Instead, the Addenda will be 
available only through the internet 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].

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
    B. Summary of the Major Provisions
    C. Summary of Cost and Benefits
II. Calendar Year (CY) 2020 End-Stage Renal Disease (ESRD) 
Prospective Payment System (PPS)
    A. Background
    B. Summary of the Proposed Provisions, Public Comments, and 
Responses to Comments on the Calendar Year (CY) 2020 ESRD PPS
    C. Miscellaneous Comments
III. CY 2020 Payment for Renal Dialysis Services Furnished to 
Individuals With Acute Kidney Injury (AKI)
    A. Background
    B. Summary of the Proposed Provisions, Public Comments, and 
Responses to Comments on the CY 2020 Payment for Renal Dialysis 
Services Furnished to Individuals With AKI
    C. Annual Payment Rate Update for CY 2020
IV. End-Stage Renal Disease Quality Incentive Program (ESRD QIP)
    A. Background
    B. Summary of the Proposed Provisions, Public Comments, 
Responses to Comments, and Finalized Policies for the ESRD QIP
    C. Updates to Regulation Text
    D. Requirements Beginning With the PY 2022 ESRD QIP
    E. Requirements Beginning With the PY 2023 ESRD QIP
V. Establishing Payment Amounts for New Durable Medical Equipment, 
Prosthetics, Orthotics and Supplies (DMEPOS) Items and Services 
(Gap-Filling)
    A. Background
    B. Current Issues
    C. Summary of the Proposed Provisions, Public Comments, and 
Responses to Comments on the Proposed Rule
VI. Standard Elements for a Durable Medical Equipment, Prosthetics, 
Orthotics, and Supplies (DMEPOS) Order; Master List of DMEPOS Items 
Potentially Subject to a Face-to-Face Encounter and Written Order 
Prior to Delivery and/or Prior Authorization Requirements
    A. Background
    B. Summary of the Proposed Provisions, Public Comments, and 
Responses to Comments on the Proposed Rule
    C. Miscellaneous Comments
VII. DMEPOS Competitive Bidding Program (CBP) Amendments
    A. Background
    B. Proposed Amendments
VIII. Requests for Information
    A. Data Collection
    B. Wage Index Comment Solicitation
    C. Comment Solicitation on Sources of Market-Based Data 
Measuring Sales of Diabetic Testing Strips to Medicare Beneficiaries 
(Section 50414 of the Bipartisan Budget Act of 2018)
IX. Collection of Information Requirements
    A. Legislative Requirement for Solicitation of Comments
    B. Additional Information Collection Requirements
X. Economic Analyses
    A. Regulatory Impact Analysis
    B. Detailed Economic Analysis
    C. Accounting Statement
    D. Regulatory Flexibility Act Analysis
    E. Unfunded Mandates Reform Act Analysis
    F. Federalism Analysis
    G. Reducing Regulation and Controlling Regulatory Costs
    H. Congressional Review Act
XI. Files Available to the Public via the internet
Regulations Text

I. Executive Summary

A. Purpose

    This final rule finalizes changes related to the End-Stage Renal 
Disease

[[Page 60649]]

(ESRD) Prospective Payment System (PPS), payment for renal dialysis 
services furnished to individuals with acute kidney injury (AKI), the 
ESRD Quality Incentive Program (QIP), the Durable Medical Equipment, 
Prosthetics, Orthotics and Supplies (DMEPOS) Fee Schedule Amounts, the 
DMEPOS Competitive Bidding Program (CBP), and the regulations governing 
DMEPOS orders, face-to-face encounters, and prior authorization.
    In future rulemaking years, the DMEPOS provisions will be in a 
separate rule from the ESRD PPS, AKI and ESRD QIP provisions.
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) (Pub. L. 110-275). 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 
updates and makes revisions to the ESRD PPS for CY 2020.
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 
updates the AKI payment rate for CY 2020.
3. End-Stage Renal Disease Quality Incentive Program (ESRD QIP)
    The End-Stage Renal Disease Quality Incentive Program (ESRD QIP) is 
authorized by section 1881(h) of the Act. The Program fosters 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 final rule finalizes several 
updates to the ESRD QIP.
4. DMEPOS Fee Schedule Payment Rules
a. Establishing Payment Amounts for New DMEPOS Items and Services (Gap-
Filling)
    This rule establishes a gap-filling methodology for the pricing of 
new DMEPOS items and services in accordance with sections 1834(a), (h), 
(i) and 1833(o) of the Act for DME, prosthetic devices, orthotics, 
prosthetics, surgical dressings, and custom molded shoes, extra-depth 
shoes, and inserts, and section 1842(b) for parental and enteral 
nutrients (PEN) and medical supplies, including splints and casts and 
intraocular lenses inserted in a physician's office.
b. Adjusting Payment Amounts for DMEPOS Items and Services Gap-Filled 
Using Supplier or Commercial Prices
    This rule finalizes a one-time adjustment to the gap-filled fee 
schedule amounts in cases where prices decrease by less than 15 percent 
within 5 years of establishing the initial fee schedule amounts.
5. Conditions of Payment To Be Applied to Certain DMEPOS Items
    This rule will streamline the requirements for ordering DMEPOS 
items. It will also develop one Master List of DMEPOS items potentially 
subject to a face-to-face encounter, written orders prior to delivery 
and/or prior authorization requirements under the authority provided 
under sections 1834(a)(1)(E)(iv), 1834(a)(11)(B), and 1834(a)(15) of 
the Act.

B. Summary of the Major Provisions

1. ESRD PPS
     Update to the ESRD PPS base rate for CY 2020: The final CY 
2020 ESRD PPS base rate is $239.33. This amount reflects a 
productivity-adjusted market basket increase as required by section 
1881(b)(14)(F)(i)(I) of the Act (1.7 percent), and application of the 
wage index budget-neutrality adjustment factor (1.000244), equaling 
$239.33 ($235.27 x 1.017 x 1.000244 = $239.33).
     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 2020, we are updating the wage index values to the latest 
available data.
     Update to the outlier policy: We are updating the outlier 
policy using the most current data, as well as updating 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 2020 using CY 2018 claims data. Based on the 
use of the latest available data, the final FDL amount for pediatric 
beneficiaries will decrease from $57.14 to $41.04, and the MAP amount 
will decrease from $35.18 to $32.32, as compared to CY 2019 values. For 
adult beneficiaries, the final FDL amount will decrease from $65.11 to 
$48.33, and the MAP amount will decrease from $38.51 to $35.78. The 1.0 
percent target for outlier payments was not achieved in CY 2018. 
Outlier payments represented approximately 0.5 percent of total 
payments rather than 1.0 percent. We believe using CY 2018 claims data 
to update the outlier MAP and FDL amounts for CY 2020 will increase 
payments for ESRD beneficiaries requiring higher resource utilization 
in accordance with a 1.0 percent outlier percentage.
     Eligibility criteria for the transitional drug add-on 
payment adjustment (TDAPA): We are finalizing revisions to the drug 
designation process regulation at 42 CFR 413.234 for new renal dialysis 
drugs and biological products that fall within an existing ESRD PPS 
functional category. Specifically, we are excluding drugs approved by 
the Food and Drug Administration (FDA) under section 505(j) of the 
Federal Food, Drug, and Cosmetic Act (FD&C Act) and drugs for which the 
new drug application (NDA) is classified by FDA as Type 3, 5, 7 or 8, 
Type 3 in combination with Type 2 or Type 4, or Type 5 in combination 
with Type 2, or Type 9 when the ``parent NDA'' is a Type 3, 5, 7 or 8--
from being eligible for the transitional drug add-on payment adjustment 
(TDAPA), effective January 1, 2020.
     Modification of the basis of payment for the TDAPA for 
calcimimetics: We will continue to pay the TDAPA for calcimimetics for 
a third year in CY 2020 in order to collect

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sufficient claims data for rate setting analysis, but we are finalizing 
a reduction to the basis of payment for the TDAPA for calcimimetics for 
CY 2020 from the average sales price plus 6 percent (ASP+6) methodology 
to 100 percent of ASP.
     Average sales price (ASP) conditional policy for 
application of the TDAPA: Effective January 1, 2020, the basis of 
payment for the TDAPA for all new renal dialysis drugs and biological 
products is ASP+0, but if ASP data is not available, then we use 
Wholesale Acquisition Cost (WAC) +0, and if WAC is not available, then 
we use invoice pricing. We are finalizing a policy to no longer apply 
the TDAPA for a new renal dialysis drug or biological product if CMS 
does not receive a full calendar quarter of ASP data within 30 days of 
the last day of the 3rd calendar quarter after we begin applying the 
TDAPA for that product. We will no longer apply the TDAPA for a new 
renal dialysis drug or biological product beginning no later than 2-
calendar quarters after we determine a full calendar quarter of ASP 
data is not available. We are also finalizing a policy to no longer 
apply the TDAPA for a new renal dialysis drug or biological product if 
CMS does not receive the latest full calendar quarter of ASP data for 
the product, beginning no later than 2-calendar quarters after CMS 
determines that the latest full calendar quarter of ASP data is not 
available.
     New and innovative renal dialysis equipment and supplies: 
We are finalizing our proposal to establish a transitional add-on 
payment adjustment to support ESRD facilities in the uptake of certain 
new and innovative renal dialysis equipment and supplies under the ESRD 
PPS. We will pay this adjustment, which we are calling the Transitional 
Add-on Payment Adjustment for New and Innovative Equipment and Supplies 
(TPNIES), for equipment and supplies that: (1) Have been designated by 
CMS as a renal dialysis service, (2) are new, meaning granted marketing 
authorization by FDA on or after January 1, 2020, (3) are commercially 
available by January 1 of the particular calendar year, meaning the 
year in which the payment adjustment would take effect; (4) have a 
Healthcare Common Procedure Coding System (HCPCS) application submitted 
in accordance with the official Level II HCPCS coding procedures by 
September 1 of the particular calendar year; (5) are innovative, 
meaning they meet the substantial clinical improvement (SCI) criteria 
specified in the Inpatient Prospective Payment System (IPPS) 
regulations at 42 CFR 412.87(b)(1) and related guidance, and (6) are 
not capital-related assets. Specifically, the equipment or supply must 
represent an advance that substantially improves, relative to renal 
dialysis services previously available, the diagnosis or treatment of 
Medicare beneficiaries. CMS will only consider a complete application 
received by CMS by February 1 prior to the particular calendar year. 
FDA marketing authorization for the equipment or supply must occur by 
September 1 prior to the particular calendar year.
    We are finalizing that the TPNIES will be based on 65 percent of 
the price established by the Medicare Administrative Contractors 
(MACs), using the information from the invoice and other relevant 
sources of information. We will pay the TPNIES for 2-calendar years, 
after which the equipment or supply will qualify as an outlier service 
and no change to the ESRD PPS base rate will be made.
     Erythropoiesis-stimulating agent (ESA) monitoring policy 
(EMP): We are discontinuing the application of the erythropoiesis-
stimulating agent (ESA) monitoring policy (EMP) under the ESRD PPS.
2. Payment for Renal Dialysis Services Furnished to Individuals With 
AKI
    We are updating the AKI payment rate for CY 2020. The final CY 2020 
payment rate is $239.33, which is the same as the base rate finalized 
under the ESRD PPS for CY 2020.
3. ESRD QIP
    We are finalizing several new requirements for the ESRD QIP 
beginning with payment year (PY) 2022, including an updated scoring 
methodology for the National Healthcare Safety Network (NHSN) Dialysis 
Event reporting measure to allow new facilities and facilities that are 
eligible to report data on the measure for less than 12 months to be 
able to receive a score on that measure, and the conversion of the STrR 
clinical measure (National Quality Forum [NQF] #2979) to a reporting 
measure while we continue to examine concerns raised by stakeholders 
regarding the measure's validity. We are not finalizing our proposal to 
revise the scoring methodology for the MedRec reporting measure and 
will continue to score that measure using the methodology we adopted in 
the CY 2019 ESRD PPS final rule.
    We are also finalizing the performance and baseline periods for the 
PY 2023 ESRD QIP and that, beginning with the PY 2024 payment year, we 
will automatically adopt performance and baseline periods that are 
advanced 1 year from those specified for the previous payment year.
    Finally, we are updating our regulation text so that it better 
informs the public of the Program's requirements.
4. DMEPOS Fee Schedule Payment Rules
a. Establishing Payment Amounts for New DMEPOS Items and Services (Gap-
Filling)
    This rule finalizes a specific methodology for calculating fee 
schedule amounts for new DMEPOS items. The fiscal impact of 
establishing payment amounts for new items based on our proposal cannot 
be estimated as these new items are not identified and would vary in 
uniqueness and costs. However, there is some inherent risk that the 
methodology could result in fee schedule amounts for new items that 
greatly exceed the costs of furnishing the items.
b. Adjusting Payment Amounts for DMEPOS Items and Services Gap-Filled 
Using Supplier or Commercial Prices
    In cases where fee schedule amounts for new DMEPOS items and 
services are gap-filled using supplier or commercial prices, these 
prices may decrease over time. In cases where such prices decrease by 
less than 15 percent within 5 years of establishing the initial fee 
schedule amounts, this rule finalizes a one-time adjustment to the gap-
filled fee schedule amounts. We will not make these price adjustments 
in cases where prices increase.
5. Conditions of Payment To Be Applied to Certain DMEPOS Items
    This rule will streamline the requirements for ordering DMEPOS 
items. It will also develop one Master List of DMEPOS items potentially 
subject to a face-to-face encounter, written orders prior to delivery 
and/or prior authorization requirements under the authority provided 
under sections 1834(a)(1)(E)(iv), 1834(a)(11)(B), and 1834(a)(15) of 
the Act.

C. Summary of Costs and Benefits

    In section X of this final rule, we set forth a detailed analysis 
of the impacts of the finalized changes for affected entities and 
beneficiaries. The impacts include the following:
1. Impacts of the Final ESRD PPS
    The impact chart in section X of this final rule displays the 
estimated change in payments to ESRD facilities in CY 2020 compared to 
estimated payments in CY 2019. The overall impact of the CY 2020 
changes is projected to be a 1.6

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percent increase in payments. Hospital-based ESRD facilities have an 
estimated 2.1 percent increase in payments compared with freestanding 
facilities with an estimated 1.6 percent increase.
    We estimate that the aggregate ESRD PPS expenditures will increase 
by approximately $210 million in CY 2020 compared to CY 2019. This 
reflects a $220 million increase from the payment rate update, a $50 
million increase due to the updates to the outlier threshold amounts, 
and a $60 million decrease due to the change in the basis of payment 
for the TDAPA for calcimimetics from ASP+6 percent to ASP+0 percent. 
These figures do not reflect estimated increases or decreases in 
expenditures based on the refinement to the TDAPA eligibility criteria, 
conditioning the TDAPA on the availability of ASP data, or providing 
the TPNIES. The fiscal impact of these policies cannot be determined 
because the new renal dialysis drugs and biological products eligible 
for the TDAPA and new renal dialysis equipment and supplies eligible 
for the TPNIES are not yet identified and would vary in uniqueness and 
costs. As a result of the projected 1.6 percent overall payment 
increase, we estimate that there will be an increase in beneficiary co-
insurance payments of 1.6 percent in CY 2020, which translates to 
approximately $40 million.
2. Impacts of the Final Payment for Renal Dialysis Services Furnished 
to Individuals With AKI
    The impact chart in section X of this final rule displays the 
estimated change in payments to ESRD facilities in CY 2020 compared to 
estimated payments in CY 2019. The overall impact of the CY 2020 
changes is projected to be a 1.7 percent increase in payments. 
Hospital-based ESRD facilities have an estimated 1.6 percent increase 
in payments compared with freestanding facilities with an estimated 1.7 
percent increase.
    We estimate that the aggregate payments made to ESRD facilities for 
renal dialysis services furnished to AKI patients at the final CY 2020 
ESRD PPS base rate will increase by less than $1 million in CY 2020 
compared to CY 2019.
3. Impacts of the Final ESRD QIP Requirements
    We estimate that the overall economic impact of the PY 2022 ESRD 
QIP will be approximately $229 million as a result of the policies we 
have previously finalized and the proposals we are finalizing in this 
final rule. The $229 million figure for PY 2022 includes costs 
associated with the collection of information requirements, which we 
estimate will be approximately $211 million. We also estimate that the 
overall economic impact of the PY 2023 ESRD QIP will be approximately 
$223 million as a result of the policies we have previously finalized 
and are finalizing beginning with PY 2022. The $229 million figure for 
PY 2023 includes costs associated with the collection of information 
requirements, which we estimate will be approximately $211 million.
4. Impacts of the Final DMEPOS Fee Schedule Payment Rules
a. Establishing Payment Amounts for New DMEPOS Items and Services (Gap-
Filling)
    This final rule establishes a specific methodology for calculating 
fee schedule amounts for new DMEPOS items. The fiscal impact of 
establishing payment amounts for new items based on this methodology 
cannot be estimated as the new DMEPOS items are not identified and 
would vary in uniqueness and costs. However, there is some inherent 
risk that the final methodology could result in fee schedule amounts 
for new items that greatly exceed the costs of furnishing the items.
b. Adjusting Gap-Filled Payment Amounts for DMEPOS Items and Services 
Using Supplier or Commercial Prices
    We are finalizing a one-time adjustment to the gap-filled fee 
schedule amounts in cases where fee schedule amounts for new DMEPOS 
items and services are gap-filled using supplier or commercial prices, 
and these prices decrease by less than 15 percent within 5 years of 
establishing the initial fee schedule amounts. The one-time adjustment 
should generate savings although it will probably be a small offset to 
the potential increase in costs of establishing fee schedule amounts 
based on supplier invoices or prices from commercial payers. The fiscal 
impact for this provision is therefore considered negligible.
5. Conditions of Payment To Be Applied to Certain DMEPOS Items
    This rule streamlines the requirements for ordering DMEPOS items, 
and identifies the process for subjecting certain DMEPOS items to a 
face-to-face encounter and written order prior to delivery and/or prior 
authorization requirements as a condition of payment. The fiscal impact 
of these requirements cannot be estimated as this rule only identifies 
all items that are potentially subject to the face-to-face encounter 
and written order prior to delivery requirements and/or prior 
authorization.

II. Calendar Year (CY) 2020 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.
    On April 1, 2014, the Protecting Access to Medicare Act of 2014 
(PAMA) (Pub. L. 113-93) was enacted. Section

[[Page 60652]]

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 Sec.  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 (IV) 
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). In the CY 2019 ESRD PPS final rule (83 FR 56929 through 
56949), we finalized a policy to make the TDAPA available for all new 
renal dialysis drugs and biological products, not just those in new 
ESRD PPS functional categories, effective January 1, 2020.
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 14, 2018, 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, 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'' 
(83 FR 56922 through 57073) (hereinafter referred to as the CY 2019 
ESRD PPS final rule). In that rule, we updated the ESRD PPS base rate 
for CY 2019, the wage index, and the outlier policy, and we finalized 
revisions to the drug designation process and the low-volume payment 
adjustment. For further detailed information regarding these updates, 
see 83 FR 56922.

B. Summary of the Proposed Provisions, Public Comments, and Responses 
to Comments on the Calendar Year (CY) 2020 ESRD PPS

    The proposed rule, titled ``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) Fee Schedule Amounts, 
DMEPOS Competitive Bidding Program (CBP) Proposed Amendments, Standard 
Elements for a DMEPOS Order, and Master List of DMEPOS Items 
Potentially Subject to a Face-to-Face Encounter and Written Order Prior 
to Delivery and/or Prior Authorization Requirements'' (84 FR 38330 
through 38421), hereinafter referred to as the ``CY 2020 ESRD PPS 
proposed rule,'' was published in the Federal Register on August 6, 
2019, with a comment period that ended on September 27, 2019. In that 
proposed rule, for the ESRD PPS, we proposed to make a number of annual 
updates for CY 2020, including updates to the ESRD PPS base rate, wage 
index, and outlier policy. We also proposed revisions to the drug 
designation process regulation at 42 CFR 413.234 for new renal dialysis 
drugs and biological products that fall within an existing ESRD PPS 
functional category, a change in the basis of payment for the TDAPA for 
calcimimetics, and an average sales price (ASP) conditional policy for 
the application of the TDAPA. In addition, we proposed to establish a 
transitional add-on payment adjustment for certain new and innovative 
renal dialysis equipment and supplies under the ESRD PPS. We also 
proposed to discontinue the application of the erythropoiesis-
stimulating agent (ESA) monitoring policy (EMP) under the ESRD PPS.
    We received approximately 92 public comments on our proposals, 
including comments from ESRD facilities; national renal groups, 
nephrologists and patient organizations; patients and care partners; 
manufacturers; health care systems; and nurses.
    In this final rule, we provide a summary of each proposed 
provision, a

[[Page 60653]]

summary of the public comments received and our responses to them, and 
the policies we are finalizing for the CY 2020 ESRD PPS.
1. Eligibility Criteria for the Transitional Drug Add-On Payment 
Adjustment (TDAPA)
a. Background
    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. 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 
product is no longer oral-only, and a process to include new injectable 
and IV 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 FDA. Additionally, in accordance 
with section 217(c)(2) of PAMA, we codified the drug designation 
process at Sec.  413.234(b). We finalized a policy in the CY 2016 ESRD 
PPS final rule (80 FR 69017 through 69022) that, effective January 1, 
2016, if a new injectable or IV product is used to treat or manage a 
condition for which there is an ESRD PPS functional category, the new 
injectable or IV product is considered included in the ESRD PPS bundled 
payment and no separate payment is available. The new injectable or IV 
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 biological products reflected in the base rate.
    In the CY 2016 ESRD PPS final rule, we also established in Sec.  
413.234(b)(2) that, if the new injectable or IV product is used to 
treat or manage a condition for which there is not an ESRD PPS 
functional category, the new injectable or IV product is not considered 
included in the ESRD PPS bundled payment and the following steps occur. 
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 IV product is used to treat or manage. Next, the new 
injectable or IV product is paid for using the TDAPA described in Sec.  
413.234(c). Then, the new injectable or IV product is added to the ESRD 
PPS bundled payment following payment of the TDAPA.
    In the CY 2016 ESRD PPS final rule, we finalized a policy in Sec.  
413.234(c) to base the TDAPA on pricing methodologies under section 
1847A of the Act and pay the TDAPA until sufficient claims data for 
rate setting analysis for the new injectable or IV product are 
available, but not for less than 2 years. During the time a new 
injectable or IV product is eligible for the TDAPA, it is not eligible 
as an outlier service. Following payment of the TDAPA, the ESRD PPS 
base rate will be modified, if appropriate, to account for the new 
injectable or IV product in the ESRD PPS bundled payment.
    After the publication of the CY 2016 ESRD PPS final rule, we 
continued to hear from the dialysis industry and other stakeholders 
with suggestions for improving the drug designation process. Therefore, 
in CY 2019 ESRD PPS rulemaking, we revisited the drug designation 
process to consider their concerns and we proposed policies that would 
mitigate these issues.
    In the CY 2019 ESRD PPS final rule (83 FR 56929 through 56949), we 
finalized several provisions related to the drug designation process 
and the TDAPA under Sec.  413.234, with an effective date of January 1, 
2020. In particular, we finalized changes to the drug designation 
process regulation to: (1) Reflect that the process applies for all new 
renal dialysis drugs and biological products; (2) establish a 
definition for ``new renal dialysis drug or biological product''; (3) 
expand the eligibility criteria for the TDAPA; (4) change the TDAPA's 
basis of payment; and (5) extend the TDAPA to composite rate drugs and 
biological products that are furnished for the treatment of ESRD. We 
discuss these changes in detail in the next several paragraphs.
    First, we revised the drug designation process regulation at Sec.  
413.234 to reflect that the drug designation process applies for all 
new renal dialysis drugs and biological products that are approved by 
FDA, regardless of the form or route of administration, that are used 
to treat or manage a condition associated with ESRD. In the CY 2019 
ESRD PPS proposed rule (83 FR 34309 through 34312), we described the 
prior rulemakings in which we addressed how new drugs and biological 
products are implemented under the ESRD PPS and how we have accounted 
for renal dialysis drugs and biological products in the ESRD PPS base 
rate since its implementation on January 1, 2011. We explained that the 
drug designation process is dependent upon the ESRD PPS functional 
categories we developed, and is consistent with the policy we have 
followed since the inception of the ESRD PPS.
    However, we noted in the CY 2019 ESRD PPS proposed rule (83 FR 
34311 through 34312) that, because section 217(c)(2) of PAMA only 
required the Secretary to establish a process for including new 
injectable and IV drugs and biological products in the ESRD PPS bundled 
payment, such new products were the primary focus of the regulation we 
adopted at Sec.  413.234. We explained that we did not codify our full 
policy in the CY 2016 ESRD PPS final rule for other renal dialysis 
drugs, such as drugs and biological products with other forms of 
administration, including oral, which by law are included under the 
ESRD PPS (though oral-only renal dialysis drugs are excluded from the 
ESRD PPS bundled payment until CY 2025). Commenters were generally 
supportive of the proposal, and we finalized the changes to codify our 
drug designation policy with regard to all drugs.
    Second, as part of our updates to the drug designation process 
regulation in the CY 2019 ESRD PPS final rule (83 FR 56929 through 
56932), we replaced the definition of ``new injectable or intravenous 
product'' with a definition for ``new renal dialysis drug or biological 
product.'' Under the final definition, effective January 1, 2020, a 
``new renal dialysis drug or biological product'' is an ``injectable, 
intravenous, oral or other form or route of administration drug or 
biological product that is used to treat or manage a condition(s) 
associated with ESRD. It must be approved by the [FDA] on or after 
January 1, 2020, under section 505 of the [FD&C 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 are excluded until January 1, 
2025.''
    Third, we expanded the eligibility criteria for the TDAPA to 
include all new renal dialysis drugs and biological products, not just 
those in new ESRD PPS functional categories, in the CY 2019 ESRD PPS 
final rule (83 FR 56942 through 56843). In the CY 2019 ESRD PPS 
proposed rule (83 FR 34312 through 34314), we discussed a number of 
reasons why we were reconsidering our previous policy to limit the 
TDAPA to products for which there is not an ESRD PPS functional 
category. We

[[Page 60654]]

described the concerns that commenters had raised during the CY 2016 
ESRD PPS rulemaking regarding the eligibility criteria for the TDAPA, 
including concerns about inadequate payment for renal dialysis services 
and hindrance of high-value innovation, and noted that these are 
important issues that we contemplate while determining appropriate 
payment policies. We discussed that when new drugs and biological 
products 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. We recognized that newly launched 
drugs and biological products can be unpredictable with regard to their 
uptake and pricing, which makes these decisions challenging for ESRD 
facilities. Furthermore, we stated that practitioners should have the 
ability to evaluate the appropriate use of a new product and its effect 
on patient outcomes.
    We explained in the CY 2019 ESRD PPS proposed rule that this uptake 
period would be best supported by the TDAPA pathway because it would 
help ESRD facilities transition or test new drugs and biological 
products in their businesses under the ESRD PPS. We stated that the 
TDAPA could provide flexibility and target payment for the use of new 
renal dialysis drugs and biological products during the period when a 
product is new to the market so that we can evaluate if resource use 
can be aligned with payment. We further explained that we believe we 
need to be conscious of ESRD facility resource use and the financial 
barriers that may be preventing uptake of innovative new drugs and 
biological products. Thus, we proposed to revise Sec.  413.234(c) to 
reflect that the TDAPA would apply for all new renal dialysis drugs and 
biological products regardless of whether they fall within an ESRD PPS 
functional category, and, for those products that fall within an 
existing functional category, the payment would apply for only 2 years 
and there would be no subsequent modification to the ESRD PPS base rate 
(83 FR 34314). At the end of the 2 years, the product would be eligible 
for outlier payment unless it is a renal dialysis composite rate drug 
or biological product.
    As we discussed in the CY 2019 ESRD PPS final rule (83 FR 56934 
through 56943), we received a variety of feedback from stakeholders on 
this proposal. Some commenters recommended delaying the expansion of 
the TDAPA and some urged CMS to consider different policy proposals. 
Some commenters were supportive of revising the drug designation 
process regulation to allow more drugs to be eligible for the TDAPA, 
while others expressed that the process needs to be further evaluated 
before any expansion. The Medicare Payment Advisory Commission (MedPAC) 
recommended that we not finalize the policy because it did not require 
that a new drug be more effective than current treatment and could 
undermine competition with existing drugs; or, if we do move forward 
with the policy, that we narrow eligibility to new drugs that fall into 
an existing ESRD PPS functional category only if they substantially 
improve beneficiaries' outcomes.
    Other commenters had similar concerns and recommended that we 
require that the TDAPA apply for new renal dialysis drugs and 
biological products that have clinical superiority over the existing 
products in the existing functional categories, and they provided 
suggestions on clinical value criteria. In addition, some commenters 
believed that the TDAPA should not apply to generic drugs and 
biosimilar biological products. Commenters asserted that generic drugs 
and biosimilar biological products seek to provide the same type of 
treatment and patient outcomes as existing drugs in the ESRD PPS 
bundled payment. Commenters further believed that these types of drugs 
and biological products have no clinically meaningful differences and 
that they should be treated equally in payment and coverage policies. 
We also received several comments on our proposal to apply the TDAPA 
for a new renal dialysis drug or biological product that is considered 
included in the ESRD PPS base rate for 2 years, and to not modify the 
ESRD PPS base rate following payment of the TDAPA (83 FR 56934 through 
56943).
    After considering the public comments, in the CY 2019 ESRD PPS 
final rule, we finalized the expansion of the eligibility criteria for 
the TDAPA to reflect the proposed policy (83 FR 56943). We explained 
that there are 2 purposes of providing the TDAPA. For renal dialysis 
drugs and biological products that fall into an existing ESRD PPS 
functional category, the purpose of the TDAPA is to help ESRD 
facilities to incorporate new drug and biological products and make 
appropriate changes in their businesses to adopt such products; provide 
additional payment for such associated costs, as well as promote 
competition among drugs and biological products within the ESRD PPS 
functional categories. For new renal dialysis drugs and biological 
products that do not fall within an existing ESRD PPS functional 
category and that are not considered to be reflected in the ESRD PPS 
base rate, the purpose of the TDAPA is to be a pathway toward a 
potential base rate modification (83 FR 56935).
    In response to commenters that recommended clinical superiority of 
new renal dialysis drugs and biological products, we explained in the 
CY 2019 ESRD PPS final rule (83 FR 56938) that we believed allowing all 
new drugs and biological products to be eligible for the TDAPA would 
enable new drugs and biological products to compete with other drugs 
and biological products in the market, which could mean lower prices 
for all such products. We also noted our belief that categorically 
limiting or excluding any group of drugs from the TDAPA would reduce 
the competitiveness because there would be less incentive for 
manufacturers to develop lower-priced drugs, such as generic drugs and 
biosimilar biological products, to be able to compete with higher 
priced drugs during the TDAPA period. In addition, we noted the 
question of whether one drug is more effective than another can be 
impacted by characteristics that vary across patients such as age, 
gender, race, genetic pre-disposition and comorbidities. We stated that 
innovation can provide options for those patients who do not respond to 
a certain preferred treatment regimen the same way the majority of 
patients respond.
    In response to commenters who recommended that we not apply the 
TDAPA to generic drugs and biosimilar biological products, we explained 
in the CY 2019 ESRD PPS final rule (83 FR 56938) that the purpose of 
this policy is to foster a competitive marketplace in which all drugs 
within a functional category would compete for market share. We stated 
that we believed including generic drugs and biosimilar biological 
products under the TDAPA expansion would mitigate or discourage high 
launch prices. We further explained that we believed including these 
products would foster innovation of drugs within the current functional 
categories. We also noted that we believed including these products 
would give a financial boost to support their utilization, and 
ultimately lower overall drug costs since these products generally have 
lower prices. Because of this, we stated that we believed that generic 
drugs and biosimilar biological products would provide cost-based 
competition for new higher priced drugs during the TDAPA period and 
also afterward when they are bundled into the ESRD PPS.

[[Page 60655]]

    In response to ESRD facilities that expressed concern regarding 
operational difficulties and patient access issues experienced for 
current drugs paid for using the TDAPA, we elected to make all of the 
changes to the drug designation process under Sec.  413.234 and the 
expansion of the TDAPA eligibility effective January 1, 2020, as 
opposed to January 1, 2019, to address as many of those concerns as 
possible (83 FR 56937). We explained in the CY 2019 ESRD PPS final rule 
that the additional year would provide us with the opportunity to 
address issues such as transitioning payment from Part D to Part B, 
coordinating issues involving Medicaid and new Medicare Advantage 
policies, and working with the current HCPCS process as it applies to 
the ESRD PPS to accommodate the initial influx of new drugs and 
biological products. We also indicated that the additional year would 
allow more time for ESRD facility and beneficiary education about this 
new policy.
    In addition, with regard to the HCPCS process, we explained the 
additional year would help us operationally in working with the HCPCS 
workgroup that manages the HCPCS process as it applies to the ESRD PPS 
to accommodate the initial influx of new renal dialysis drugs and 
biological products. We explained that in collaboration with the HCPCS 
workgroup we would make the determination of whether a drug or 
biological product is a renal dialysis service. We would also determine 
if the new renal dialysis drug or biological product falls within an 
existing functional category or if it represents a new functional 
category (83 FR 56937 through 56938).
    With regard to our proposal to not modify the ESRD PPS base rate 
for new renal dialysis drugs and biological products that fall within 
existing ESRD PPS functional categories, we explained that we believe 
the intent of the TDAPA for these products is to provide a transition 
period for the unique circumstances experienced by ESRD facilities and 
to allow time for the uptake of the new product. We further explained 
that we did not believe it would be appropriate to add dollars to the 
ESRD PPS base rate for new renal dialysis drugs and biological products 
that fall within existing functional categories and that doing such 
would be in conflict with the fundamental principles of a PPS.
    We also explained that the proposal would 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 supporting high-value innovation and allowing 
facilities to adjust or factor in new drugs through a short-term 
transitional payment.
    We stated in the CY 2019 ESRD PPS final rule (83 FR 56940) that 
under our final policy, beginning January 1, 2020, for new renal 
dialysis drugs and biological products that fall within an existing 
functional category, the application of the TDAPA will begin with the 
effective date of subregulatory billing guidance and end 2 years from 
that date.
    For new renal dialysis drugs and biological products that do not 
fall within an existing functional category, we continued the existing 
policy that application of the TDAPA will begin with the effective date 
of subregulatory billing guidance and end after we determine through 
notice-and-comment rulemaking how the drug will be recognized in the 
ESRD PPS bundled payment.
    Fourth, in the CY 2019 ESRD PPS final rule, we changed the TDAPA's 
basis of payment (83 FR 34314 through 34316). We explained that if we 
adopted the proposals to expand the TDAPA eligibility criteria using 
the current basis of payment for the TDAPA--the pricing methodologies 
available under section 1847A of the Act--Medicare expenditures would 
increase, which would result in increases of cost sharing for ESRD 
beneficiaries, since we had not previously provided the TDAPA for all 
new renal dialysis drugs and biological products. We also discussed 
other reasons why we believed it may not be appropriate to base the 
TDAPA strictly on section 1847A of the Act methodologies (83 FR 34315).
    Therefore, we proposed to base the TDAPA on 100 percent of ASP 
(ASP+0) instead of the pricing methodologies available under section 
1847A of the Act (which includes ASP+6). For circumstances when ASP 
data is not available, we proposed that the TDAPA would be based on 100 
percent of Wholesale Acquisition Cost (WAC) and, when WAC is not 
available, the TDAPA would be based on the drug manufacturer's invoice.
    In the CY 2019 ESRD PPS final rule (83 FR 56943 through 56948), we 
discussed several comments received on this proposal. MedPAC supported 
the proposal to use ASP+0, stating that the ESRD PPS accounts for 
storage and administration costs and that ESRD facilities do not have 
acquisition price variation issues when compared to physicians. 
Conversely, industry stakeholders recommended the basis of payment 
remain at ASP+6 since they believe it assists with the administrative 
costs of packaging, handling, and staff. Commenters also recommended 
that CMS consider the impact of bad debt recovery and sequestration on 
payment when determining the basis of payment.
    After considering public comments, in the CY 2019 ESRD PPS final 
rule (83 FR 56948), we finalized the policy as proposed, with one 
revision to change the effective date to CY 2020, and another revision 
to reflect that the basis of payment for the TDAPA for calcimimetics 
would continue to be based on the pricing methodologies available under 
section 1847A of the Act (which includes ASP+6). We explained that we 
believed ASP+0 is reasonable for new renal dialysis drugs and 
biological products 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 explained that we believed 
ASP+0 is a reasonable basis for payment for the TDAPA for new renal 
dialysis drugs and biological products 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 biological products (83 FR 56946).
    Fifth and finally, in the CY 2019 ESRD PPS final rule (83 FR 56948 
through 56949), we finalized a policy to extend the TDAPA to composite 
rate drugs and biological products that are furnished for the treatment 
of ESRD. Specifically, beginning January 1, 2020, if a new renal 
dialysis drug or biological product as defined in Sec.  413.234(a) is 
considered to be a composite rate drug or biological product and falls 
within an existing ESRD PPS functional category, it will be eligible 
for the TDAPA.
    We explained that we believed by allowing all new renal dialysis 
drugs and biological products to be eligible for the TDAPA, we would 
provide an ability for a new drug to compete with other similar drugs 
in the market which could mean lower prices for all drugs. We further 
explained that we believed that new renal dialysis composite rate drugs 
and biological products could benefit from this policy as well. 
Additionally, we explained that we continue to 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. We noted that we 
had not

[[Page 60656]]

proposed to change the outlier policy and therefore these products will 
not be eligible for an outlier payment after the TDAPA period.
b. Basis for Refinement of the TDAPA Eligibility Criteria
    In the CY 2020 ESRD PPS proposed rule (84 FR 38337 through 38339), 
we explained that based on feedback received during and after the CY 
2019 ESRD PPS rulemaking, we were proposing to make further refinements 
to the TDAPA eligibility criteria. As we discussed in the CY 2019 ESRD 
PPS final rule (83 FR 56935) and in section II.B.1.a of this final 
rule, we received many comments from all sectors of the dialysis 
industry and other stakeholders on our proposal in the CY 2019 ESRD PPS 
rulemaking to expand the TDAPA eligibility to all new renal dialysis 
drugs and biological products, and each had their view on the direction 
the policy needed to go to support innovation. We noted in the CY 2020 
ESRD PPS proposed rule (84 FR 38338) that commenters generally agreed 
that more drugs and biological products should be eligible for the 
TDAPA, that is, they agreed that drugs and biological products that 
fall within an ESRD PPS functional category should be eligible for a 
payment adjustment when they are new to the market. However, we noted 
that commenters also had specific policy recommendations for each 
element of the drug designation process, including which drugs should 
qualify for the TDAPA.
    We also noted in the CY 2020 ESRD PPS proposed rule (84 FR 38338) 
that in the CY 2019 ESRD PPS final rule (83 FR 56938) some commenters 
recommended that CMS not apply the TDAPA to generic drugs or to 
biosimilar biological products. These commenters explained that they 
believe the rationale for the TDAPA is to allow the community and CMS 
to better understand the appropriate utilization of new products and 
their pricing. We also noted that commenters asserted that generic 
drugs and biosimilar biological products seek to provide the same type 
of treatment and patient outcomes as existing drugs in the ESRD PPS 
bundled payment. Thus, they expressed that the additional time for 
uptake is unnecessary for these drugs and biological products.
    In addition, we stated in the CY 2020 ESRD PPS proposed rule (84 FR 
38338) that a drug manufacturer had commented on the CY 2019 TDAPA 
proposal (83 FR 56938) that a generic drug is not innovative because it 
must have the same active ingredient, strength, dosage form, and route 
of administration as the innovator drug it references in its 
abbreviated new drug application (ANDA). The drug manufacturer further 
stated that a biosimilar biological product is not innovative because 
it is required under the Public Health Service Act (the PHS Act) to be 
highly similar and have no clinically meaningful differences to the 
reference product and cannot be licensed for a condition of use that 
has not been previously approved for the reference product or for a 
dosage form, strength, or route of administration that differs from 
that of the reference product. We noted that the commenter stated that 
because they have no clinically meaningful differences, biosimilar 
biological products and reference products should be treated equally in 
payment and coverage policies; a biosimilar biological product should 
not be eligible for the TDAPA when its reference product would not 
qualify for the payment.
    We further explained in the CY 2020 ESRD PPS proposed rule (84 FR 
38338), that some commenters on the CY 2019 TDAPA proposal recommended 
that CMS require that the new renal dialysis drug or biological product 
have a clinical superiority over existing drugs in the ESRD PPS bundled 
payment in order to be eligible for the TDAPA, and provided suggestions 
on clinical value criteria. We stated that a dialysis facility 
organization expressed concern that the proposed policy would encourage 
promotion of so called ``me too'' drugs and higher launch prices, even 
if moderated after 2 years. We noted that a drug manufacturer 
recommended that CMS consider when FDA may re-profile a drug and that 
the commenter further explained that re-profiling a drug may occur when 
its utility and efficacy are further elucidated or expanded once on-
market. We also noted that the commenter recommended that CMS establish 
a pathway as part of the drug designation process that would allow for 
manufacturers or other stakeholders to request that CMS reconsider how 
a particular drug is classified with regard to the functional 
categories.
    In the CY 2020 ESRD PPS proposed rule (84 FR 38338) we discussed 
MedPAC's comment from the CY 2019 ESRD PPS final rule (83 FR 56936). 
MedPAC had recommended that CMS not proceed with its proposal to apply 
the TDAPA policy to new renal dialysis drugs that fit into an existing 
functional category for several reasons. For example, MedPAC stated 
that paying the TDAPA for new dialysis drugs that fit into a functional 
category would be duplicative of the payment that is already made as 
part of the ESRD PPS bundle. MedPAC also asserted that applying the 
TDAPA to new dialysis drugs that fit into an existing functional 
category undermines competition with existing drugs included in the PPS 
payment bundle since the TDAPA would effectively unbundle all new 
dialysis drugs, removing all cost constraints during the TDAPA period 
and encouraging the establishment of high launch prices.
    We stated in the CY 2020 ESRD PPS proposed rule (84 FR 38338) that 
since publishing the CY 2019 ESRD PPS final rule, we have continued to 
hear concerns about expanding the TDAPA policy from numerous 
stakeholders, including ESRD facilities and their professional 
associations, beneficiaries and their related associations, drug 
manufacturers, and beneficiary groups.
    We also stated in the CY 2020 ESRD PPS proposed rule (84 FR 38338), 
that our data contractor held a Technical Expert Panel (TEP) in 
December 2018, and gathered input regarding the expanded TDAPA policy 
at that time. More information about the TEP is discussed in section 
VIII.A of the CY 2020 ESRD PPS proposed rule (84 FR 38396 through 
38400), and in section VIII.A of this final rule. We noted that some 
ESRD facility associations participating in the TEP generally expressed 
concern that the TDAPA policy, as finalized in the CY 2019 ESRD PPS 
final rule, would inappropriately direct Medicare dollars to drugs and 
biological products that may be new to the market but not new with 
regard to certain characteristics of the drug itself. For example, 
commenters noted that section 505 of the FD&C Act is broad and includes 
FDA approval of a new drug application (NDA), which is the vehicle 
through which drug sponsors formally propose that FDA approve a new 
pharmaceutical for sale and marketing in the U.S.\1\ We explained that 
section 505 of the FD&C Act, which includes sections 505(b)(1) and 
(b)(2) and 505(j) for generic drugs, includes FDA approval of NDAs for 
drugs that have a new dosage form, a reformulation, or a re-engineering 
of an existing product and that some of these types of drugs are 
referred to in the pharmaceutical industry as line extensions, follow-
on products, or me-too drugs.
---------------------------------------------------------------------------

    \1\ FDA. New Drug Application (NDA). Available at: https://www.fda.gov/drugs/types-applications/new-drug-application-nda.
---------------------------------------------------------------------------

    We stated in the CY 2020 ESRD PPS proposed rule (84 FR 38338) that 
due to the feedback received following publication of the CY 2019 ESRD 
PPS final rule, we had continued to analyze certain aspects of the 
policies finalized

[[Page 60657]]

in the CY 2019 ESRD PPS final rule and therefore we were revisiting 
those issues as part of that rule. Specifically, since ESRD facilities 
and other dialysis stakeholders have expressed concern about the broad 
nature of including all new renal dialysis drugs and biological 
products as eligible for the TDAPA, we were reconsidering whether all 
new renal dialysis drugs and biological products that fall within an 
existing ESRD PPS functional category should be eligible for the TDAPA.
    We stated in the CY 2020 ESRD PPS proposed rule (84 FR 38338) that 
in the CY 2019 ESRD PPS final rule (83 FR 56932) we finalized that 
effective January 1, 2020, a new renal dialysis drug or biological 
product is defined in Sec.  413.234 as ``[a]n injectable, intravenous, 
oral or other form or route of administration drug or biological 
product that is used to treat or manage a condition(s) associated with 
ESRD. It must be approved by the FDA on or after January 1, 2020, under 
section 505 of the [FD&C Act] or section 351 of the [PHS Act], 
commercially available, have an HCPCS application submitted in 
accordance with the official Level II HCPCS coding procedures, and 
designated by CMS as a renal dialysis service under Sec.  413.171. 
Oral-only drugs are excluded until January 1, 2025.'' We noted that 
while there are several parts of this definition, in the proposed rule 
we focused on the requirement that the product be approved by FDA 
``under section 505 of the [FD&C Act] or section 351 of the [PHS 
Act].'' Specifically, we proposed that certain new renal dialysis drugs 
approved by FDA under those authorities would not be eligible for the 
TDAPA under Sec.  413.234(c)(1).
    We explained in the CY 2020 ESRD PPS proposed rule (84 FR 38338 
through 38339) that section 505 of the FD&C Act and section 351 of the 
PHS Act provide the authority to FDA for approving drugs and biological 
products, respectively, and provide several pathways for drug 
manufacturers to submit NDAs and biologics license applications (BLAs). 
We noted that we have consulted with FDA and studied the different 
categories of NDAs and the different biological product pathways to 
consider whether the full breadth of these authorities aligned with our 
goals for the TDAPA policy under the ESRD PPS. As we stated in the CY 
2019 ESRD PPS final rule (83 FR 56935), the purpose of the TDAPA for 
new renal dialysis drugs and biological products that fall within an 
existing functional category is to support innovation and help ESRD 
facilities to incorporate new products and make appropriate changes in 
their businesses to adopt such products; provide additional payment for 
such associated costs, as well as promote competition among drugs and 
biological products within the ESRD PPS functional categories.
    We explained that FDA approves certain new drugs under section 
505(c) of the FD&C Act, which includes NDAs submitted pursuant to 
section 505(b)(1) or 505(b)(2) of the FD&C Act. We further explained 
that section 505(b)(1) of the FD&C Act is a pathway for ``stand-alone'' 
applications and is used for drugs that have been discovered and 
developed with studies conducted by or for the applicant or for which 
the applicant has a right of reference, and are sometimes for new 
molecular entities and new chemical entities that have not been 
previously approved in the U.S.
    We also explained that section 505(b)(2) of the FD&C Act is another 
pathway for NDAs, where at least some of the information for an 
approval comes from studies not conducted by or for the applicant and 
for which the applicant has not obtained a right of reference. A 
505(b)(2) application may rely on FDA's finding of safety and/or 
effectiveness for a listed drug (an approved drug product) or published 
literature provided that such reliance is scientifically justified and 
the 505(b)(2) applicant complies with the applicable statutory and 
regulatory requirements, including patent certification if appropriate. 
(See section 505(b)(2) of the FD&C Act and 21 CFR 314.54.) NDAs 
submitted pursuant to section 505(b)(1) or 505(b)(2) of the FD&C Act 
are divided into categories by FDA.
    We explained in the CY 2020 ESRD PPS proposed rule (84 FR 38339) 
that the Office of Pharmaceutical Quality in FDA's Center for Drug 
Evaluation and Research (CDER) has an NDA categorizing system that 
utilizes NDA Classification Codes. As explained in FDA/CDER Manual of 
Policies and Procedures (MAPP) 5018.2, ``NDA Classification Codes'', 
the codes evolved from both a management and a regulatory need to 
identify and group product applications based on certain 
characteristics, including their relationships to products already 
approved or marketed in the U.S. FDA tentatively assigns an NDA 
Classification Code (that is, Type 1 NDA through Type 10 NDA) by the 
filing date for an NDA and reassesses the code at the time of approval. 
The reassessment is based upon relationships of the drug product 
seeking approval to products already approved or marketed in the U.S. 
at the time of approval. FDA may also reassess the code after approval. 
We stated that the NDA Classification Codes are not necessarily 
indicative of the extent of innovation or therapeutic value that a 
particular drug represents. More information regarding the NDA 
Classification Codes is available in FDA/CDER MAPP 5018.2 on FDA 
website at: https://www.fda.gov/downloads/aboutfda/centersoffices/officeofmedicalproductsandtobacco/cder/manualofpoliciesprocedures/ucm470773.pdf and summarized in Table 1.

                    Table 1--NDA Classification Codes
------------------------------------------------------------------------
           Classification                           Meaning
------------------------------------------------------------------------
Type 1..............................  New molecular entity.
Type 2..............................  New active ingredient.
Type 3..............................  New dosage form.
Type 4..............................  New combination.
Type 5..............................  New formulation or other
                                       differences.
Type 6..............................  New indication or claim, same
                                       applicant [no longer used].
Type 7..............................  Previously marketed but without an
                                       approved NDA.
Type 8..............................  Prescription to Over-the-Counter.
Type 9..............................  New indication or claim, drug not
                                       to be marketed under type 9 NDA
                                       after approval.
Type 10.............................  New indication or claim, drug to
                                       be marketed under type 10 NDA
                                       after approval.
Type \1/4\..........................  Type 1, New molecular entity, and
                                       Type 4, New combination.
Type \2/3\..........................  Type 2, New active ingredient, and
                                       Type 3, New dosage form.
Type \2/4\..........................  Type 2, New active ingredient and
                                       Type 4, New combination.
Type \3/4\..........................  Type 3, New Dosage Form, and Type
                                       4, New combination.
------------------------------------------------------------------------

    We further explained in the CY 2020 ESRD PPS proposed rule (84 FR 
38339) that an ANDA is an application submitted by drug manufacturers 
and approved by FDA under section 505(j) of the FD&C Act for a 
``duplicate'' \2\ of a previously approved drug product. We noted that 
ANDAs are used for generic drugs and rely on FDA's finding that the 
previously approved drug product, that is, the reference listed drug, 
is safe and effective.
---------------------------------------------------------------------------

    \2\ The term duplicate generally refers to a ``drug product that 
has the same active ingredient(s), dosage form, strength, route of 
administration, and conditions of use as a listed drug,'' as a 
previously approved drug product. See 54 FR 28872 (July 10, 1989). 
An exception to this general rule is that FDA may approve ANDAs with 
certain changes from a listed drug regarding active ingredient, 
dosage form, strength, and route of administration if a 
``suitability petition'' has been approved under section 
505(j)(2)(C) of the FD&C Act.
---------------------------------------------------------------------------

    We stated that biological products are licensed by FDA under 
section 351 of the PHS Act. Section 351(a) of the PHS Act is the 
pathway for ``stand-alone BLAs'' that contain all information and data 
necessary to demonstrate that (among other things) the proposed

[[Page 60658]]

biological product is safe, pure and potent. The 351(k) BLA pathway 
requires that the application contain information demonstrating that 
the biological product is biosimilar to or interchangeable with an FDA-
licensed reference product. We noted that FDA does not assign 
classification codes for BLAs like it does for NDAs.
    We stated in the CY 2020 ESRD PPS proposed rule (84 FR 38339) that 
in addition to consulting with FDA, pharmaceutical statisticians within 
CMS have provided insight on the potential outcomes of providing 
payment incentives for promoting competition among drugs and biological 
products within the ESRD PPS functional categories. Specifically, we 
learned that certain unintended consequences could arise from providing 
payment incentives for drugs with innovative qualities (for example, 
new molecular entities) in the same way as drugs with non-innovative 
qualities (for example, generic drugs). For example, more attention 
might be diverted to the less costly duplication of drugs that are 
already available rather than those that may be more expensive to 
develop and bring to market. We noted that we believed this could cause 
an influx of non-innovative drugs to the dialysis space, potentially 
crowding out innovative drugs.
c. Proposed Refinement of the TDAPA Eligibility Criteria
    In the CY 2020 ESRD PPS proposed rule (84 FR 38339 through 38340) 
we explained that we analyzed the information we gathered since 
publishing the CY 2019 ESRD PPS final rule and contemplated the primary 
goal of the TDAPA policy for new renal dialysis drugs and biological 
products that fall within ESRD PPS functional categories, which is to 
support innovation and encourage development of these products. We 
stated that we believed this is accomplished by providing an add-on 
payment adjustment to ESRD facilities during the uptake period for a 
new renal dialysis drug or biological product to help the facilities 
incorporate new drugs and make appropriate changes in their businesses 
to adopt such drugs. We also noted that the TDAPA provides additional 
payment for costs associated with these changes.
    We stated that in addition to supporting innovation, we were 
mindful of the increase in Medicare expenditures associated with the 
expanded TDAPA policy. We noted that the first year in which we paid 
the TDAPA, CY 2018, resulted in an estimated $1.2 billion increase in 
ESRD PPS expenditures for two calcimimetic drugs used by approximately 
25 percent of the Medicare ESRD population. We recognized that the 
policy we finalized in the CY 2019 ESRD PPS final rule would mean that 
each new renal dialysis drug and biological product eligible for the 
TDAPA would result in an increase in Medicare expenditures. However, we 
noted that we were balancing an increase in Medicare expenditures with 
the rationale for fostering a competitive marketplace. We noted that in 
the CY 2019 ESRD PPS final rule (83 FR 56937), we stated our belief 
that by expanding the eligibility for TDAPA to all new drugs and 
biological products we would promote competition among drugs and 
biological products within the ESRD PPS functional categories, which 
could result in lower prices for all drugs.
    We stated in the CY 2020 ESRD PPS proposed rule (84 FR 38340) that 
in response to ESRD facility and other dialysis stakeholders' concerns 
raised during and after the CY 2019 ESRD PPS rulemaking, and after 
conducting a closer study of FDA's NDA process, we were reconsidering 
the eligibility criteria that we finalized effective January 1, 2020. 
Since there are not unlimited Medicare resources, we stated that we 
believed those resources should not be expended on additional payments 
to ESRD facilities for drugs and biological products that are not truly 
innovative, and that such additional payments may facilitate perverse 
incentives for facilities to choose new products simply for financial 
gain. We also noted that we believed that since we have the ability to 
be more selective, through FDA's NDA Classification Codes, with the 
categories of renal dialysis drugs that would be eligible for the TDAPA 
for products in existing ESRD PPS functional categories, we can balance 
supporting innovation, incentivizing facilities with uptake of new and 
innovative renal dialysis products, and fostering competition for renal 
dialysis drugs and biological products that are new and innovative, 
rather than just new.
    We acknowledged that the definition finalized in the CY 2016 ESRD 
PPS final rule (80 FR 69015 through 69027), which includes products 
``approved by [FDA] . . . under section 505 of the [FD&C Act] or 
section 351 of the [PHS Act]'' has been part of the TDAPA eligibility 
criteria since the inception of the policy. We also acknowledged that 
this may be too expansive for purposes of determining eligibility for 
the TDAPA for new renal dialysis drugs and biological products that 
fall within an existing functional category. For example, there may be 
new renal dialysis drugs approved by FDA under section 505 of the FD&C 
Act that may not be innovative.
    We also acknowledged that while dialysis industry stakeholders 
recommended that we adopt significant clinical improvement standards 
for the TDAPA eligibility, we believed that unlike many Medicare 
beneficiaries, the Medicare ESRD beneficiary is significantly complex, 
with each patient having a unique and challenging profile for medical 
management of drugs and biological products. We stated that we believed 
that practitioners should have the opportunity to evaluate the 
appropriate use of a new drug or biological product and its effect on 
patient outcomes and interactions with other medications the patient is 
currently taking. We further noted that the question of whether one 
drug is more effective than another can be impacted by characteristics 
that vary across patients such as age, gender, race, genetic pre-
disposition and comorbidities. We stated that we believed that 
innovation of drugs and biological products can provide options for 
those patients who do not respond to a certain preferred treatment 
regimen the same way the majority of patients respond.
    Therefore, in the CY 2020 ESRD PPS proposed rule (84 FR 38341 
through 38344) we discussed categories of drugs that we proposed to 
exclude from eligibility for the TDAPA and our proposed revisions to 
the drug designation process regulation in Sec.  413.234 to reflect 
those categories.
    We also proposed to rely on, as a proxy, the NDA Classification 
Code, as it exists as of November 4, 2015, which is part of FDA/CDER 
MAPP 5018.2 (84 FR 38340). The FDA/CDER MAPP 5018.2 is available at FDA 
website https://www.fda.gov/media/94381/download. We recognized that 
FDA's NDA Classification Codes do not necessarily reflect the extent of 
innovation or therapeutic advantage that a particular drug product 
represents. However, we stated that we believed FDA's NDA 
Classification Codes would provide an objective basis that we can use 
to distinguish innovative from non-innovative renal dialysis service 
drugs. We noted that we believed that distinguishing drugs would help 
us in our effort to support innovation by directing Medicare resources 
to renal dialysis drugs and biological products that are not 
reformulations or new dosage forms, while simultaneously balancing our 
goal to foster competition within the ESRD PPS functional categories by 
supporting products that

[[Page 60659]]

advance the treatment for ESRD beneficiaries at a lower cost.
    We stated that the classification code assigned to an NDA generally 
describes FDA's classification of the relationship of the drug to drugs 
already marketed or approved in the U.S. We proposed that if FDA makes 
changes to the NDA Classification Codes in FDA/CDER MAPP 5018.2, we 
would assess FDA changes at the time they are publicly available and we 
would analyze those changes with regard to their implications for the 
TDAPA policy under the ESRD PPS (84 FR 38340). We stated that we would 
plan to propose in the next rulemaking cycle, any necessary revisions 
to the exclusions set forth in proposed Sec.  413.234(e). We solicited 
comment on the proposal to rely on, as a proxy, the NDA Classification 
Codes, as it exists as of November 4, 2015, which is part of the FDA/
CDER MAPP 5018.2. We also solicited comments on the proposal that we 
would assess FDA changes to the NDA Classification Codes at the time 
they are publicly available to analyze the changes with regard to their 
implications for the TDAPA policy and propose in the next rulemaking 
cycle, any necessary revisions to the proposed exclusions.
    We explained in the CY 2020 ESRD PPS proposed rule (84 FR 38340) 
that currently, stakeholders must notify the Division of Chronic Care 
Management in our Center for Medicare of the interest for eligibility 
for the TDAPA and provide the information requested (83 FR 56932) for 
CMS to make a determination as to whether the new renal dialysis drug 
or biological product is eligible for the adjustment. We stated that, 
with regard to operationalizing the proposed exclusions, in addition to 
the information currently described on the CMS ESRD PPS TDAPA web page 
under the Materials Required for CMS Determination Purposes,\3\ we 
would request that the stakeholder provide the FDA NDA Type classified 
at FDA approval or state if the drug was approved by FDA under section 
505(j) of the FD&C Act. We explained that if the FDA NDA Type assigned 
at FDA approval changes subsequently to the submission of the TDAPA 
application into CMS, we would expect that the submitter would resubmit 
the TDAPA request, and we would re-evaluate the submission. We noted 
that we plan to have quarterly meetings with FDA to discuss new renal 
dialysis drugs and biological products that are eligible for the TDAPA.
---------------------------------------------------------------------------

    \3\ CMS. ESRD PPS Transitional Drug Add-on Payment Adjustment. 
Available at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ESRDpayment/ESRD-Transitional-Drug.html.
---------------------------------------------------------------------------

    We stated that, as discussed in the CY 2019 ESRD PPS final rule (83 
FR 56932), once the information requested by CMS is received and 
reviewed, for new renal dialysis drugs and biological products eligible 
for the TDAPA, we will issue a change request with billing guidance 
that will provide notice that the product is eligible for the TDAPA as 
of a certain date and guidance on how to report the new drug or 
biological product on the ESRD claim. We noted that the effective date 
of this change request will initiate the TDAPA payment period and, for 
drugs that do not fall within a functional category, the data 
collection period.
    We also noted that for new renal dialysis drugs and biological 
products that are not eligible for the TDAPA, we will issue a change 
request that will provide notice that the drug is included in the ESRD 
PPS base rate, qualifies as an outlier service, and is available for 
use, to help ensure patients have access to the new product.
i. Proposed Exclusions From the TDAPA Eligibility
    In the CY 2020 ESRD PPS proposed rule (84 FR 38341 through 38343), 
using the current categories in FDA/CDER MAPP 5018.2 effective November 
4, 2015, we proposed to exclude Types 3, 5, 7 and 8, Type 3 in 
combination with Type 2 or Type 4, Type 5 in combination with Type 2, 
and Type 9 when the ``parent NDA'' is a Type 3, 5, 7 or 8 from being 
eligible for the TDAPA under Sec.  413.234(b)(1)(ii) and Sec.  
413.234(c)(1). A Type 9 NDA is for a new indication or claim for a drug 
product that is currently being reviewed under a different NDA (the 
``parent NDA''), and the applicant does not intend to market this drug 
product under the Type 9 NDA after approval. We explained that we would 
use the NDA Classification Codes Type identified at FDA approval. If 
FDA changes the classification code Type after we start applying the 
TDAPA with respect to a particular new renal dialysis drug, we would 
re-evaluate TDAPA eligibility. We also proposed to exclude generic 
drugs from being eligible for the TDAPA under Sec.  413.234(b)(1)(ii) 
and Sec.  413.234(c)(1).
    In the following paragraphs we provide our description from the CY 
2020 ESRD PPS proposed rule of each NDA Type, also referred to as NDA 
Classification Codes, and generic drugs that we proposed for exclusion 
and give our justifications for proposing that these products should 
not be eligible for the TDAPA for new renal dialysis drugs and 
biological products that fall within an existing ESRD PPS functional 
category.
(a) Type 3 NDA--New Dosage Form
    As we discussed in the CY 2020 ESRD PPS proposed rule (84 FR 
38341), some dialysis stakeholders expressed concern that we would be 
paying the TDAPA for changes that did not reflect a product being 
significantly innovative, such as a pill size, pill scoring, oral 
solutions and suspensions of drugs that were previously only approved 
as solid oral dosage forms, time-release forms, chewable or 
effervescent pills, orally disintegrating granules or adsorptive 
changes, or routes of administration. In response to these concerns, we 
proposed to exclude Type 3 NDAs, which is for a new dosage form of an 
active ingredient that has been approved or marketed in the U.S. by the 
same or another applicant but has a different dosage form, as well as 
Type 3 in combination with Type 2 or Type 4, from being eligible for 
the TDAPA under Sec.  413.234(b)(1)(ii). In addition, we proposed to 
exclude Type 9 NDAs, as discussed in the CY 2020 ESRD PPS proposed rule 
(84 FR 38345), when the ``parent NDA'' is a Type 3 NDA.
    We explained that FDA's regulation defines an active ingredient as 
a component of the drug product that is intended to furnish 
pharmacological activity or other direct effect in the diagnosis, cure, 
mitigation, treatment, or prevention of disease, or to affect the 
structure or any function of the body of man or other animals (21 CFR 
314.3(b), which is incorporated in FDA/CDER MAPP 5018.2).
    We also explained FDA's regulation defines dosage form as the 
physical manifestation containing the active and inactive ingredients 
that delivers a dose of the drug product (21 CFR 314.3(b), which is 
incorporated in FDA/CDER MAPP 5018.2). This includes such factors as: 
(1) The physical appearance of the drug product, (2) the physical form 
of the drug product prior to dispensing to the patient, (3) the way the 
product is administered, and (4) the design features that affect the 
frequency of dosing.
    We further stated that for Type 3 NDA drugs, the indication does 
not need to be the same as that of the already approved drug product. 
Once the new dosage form has been approved for an active ingredient, 
subsequent applications for the same dosage form and active ingredient 
should be classified as Type 5 NDA.
    We noted that we believed that for purposes of the ESRD PPS, we do 
not want to incentivize the use of one

[[Page 60660]]

dosage form of the drug over another. Even though the original product 
may be innovative, we would not consider making that product into a new 
dosage form to be innovative for purposes of the ESRD PPS. Although 
these drugs may provide an expansion of patient treatment options, we 
believed these changes are not innovative and these drugs should not be 
paid for using the TDAPA. We stated these drugs are still accounted for 
in the ESRD PPS base rate and would be eligible for an outlier payment. 
We noted that this type of research, development and marketing activity 
has been termed ``product hopping'' and can help manufacturers prolong 
revenue streams.\4\ We stated that we did not believe these products 
should be eligible for the TDAPA because we did not want to provide 
perverse incentives for facilities to choose a new dosage form in order 
to obtain the TDAPA. In addition, we did not want to encourage the 
practice of companies moving drug research and development dollars from 
one branded drug to another, very similar drug with a longer patent 
life, thus increasing its market exclusivity for many years. We noted 
that we believed that this practice was counter to our goal of not only 
increasing competition among drugs in the ESRD functional categories so 
there are better drugs at lower cost, but also making the best use of 
Medicare resources and directing of those resources to payment for the 
utilization of high value, innovative drugs. For these reasons, we 
proposed to exclude Type 3 NDA drugs from being eligible for the TDAPA.
---------------------------------------------------------------------------

    \4\ Reed F. Beall et al. New Drug Formulations and Their 
Respective Generic Entry Dates, JMCP. February, 2019, 25(2): 218-
224. Available at: https://www.jmcp.org/doi/pdf/10.18553/jmcp.2019.25.2.218.
---------------------------------------------------------------------------

(b) Type 5 NDA--New Formulation or Other Differences
    As discussed in the CY 2020 ESRD PPS proposed rule (84 FR 38345), 
we proposed to exclude Type 5 NDA drugs, which can be a new formulation 
or new manufacturer, from being eligible for the TDAPA. In addition, we 
proposed to exclude Type 9 NDAs, when the ``parent NDA'' is a Type 5 
NDA. We noted that drugs that are classified as a Type 5 NDA are 
sometimes referred to as reformulations or follow-on products. We 
explained that a Type 5 NDA is for a product, other than a new dosage 
form, that differs from a product already approved or marketed in the 
U.S. because of one of the seven following product characteristics.
    The first characteristic involves changes in inactive ingredients 
that require either bioequivalence studies or clinical studies for 
approval and the product is submitted as an original NDA rather than as 
a supplement by the applicant of the approved product.
    The second characteristic is that the product is a ``duplicate'' of 
a drug product by another applicant same active ingredient, same dosage 
form, same or different indication, or same combination, and requires 
one of the following 4 items: (a) Bioequivalence testing, including 
bioequivalence studies with clinical endpoints, but is not eligible for 
submission as a section 505(j) application; (b) safety or effectiveness 
testing because of novel inactive ingredients; (c) full safety or 
effectiveness testing because the product is one of the following four 
items: (i) Is subject to exclusivity held by another applicant; (ii) is 
a product of biotechnology and its safety and/or effectiveness are not 
assessable through bioequivalence testing, (iii) it is a crude natural 
product, or, (iv) it is ineligible for submission under section 505(j) 
of the FD&C Act because it differs in bioavailability, for example, 
products with different release patterns or (d) the applicant has a 
right of reference to the application.
    The third characteristic is that the product contains an active 
ingredient or active moiety that has been previously approved or 
marketed in the U.S. only as part of a combination. We explained that 
this applies to active ingredients previously approved or marketed as 
part of a physical or chemical combination, or as part of a mixture 
derived from recombinant deoxyribonucleic acid technology or natural 
sources. We also explained that an active moiety is the molecule or 
ion, excluding those appended portions of the molecule that cause the 
drug to be an ester, salt (including a salt with hydrogen or 
coordination bonds), or other noncovalent derivative (such as a 
complex, chelate, or clathrate) of the molecule, responsible for the 
physiological or pharmacological action of the drug substance (21 CFR 
314.3(b)).
    The fourth characteristic is that the product is a combination 
product that differs from a previous combination product by removal of 
one or more active ingredients or by substitution of a new ester or 
salt or other noncovalent derivative of an active ingredient for one of 
more of the active ingredients. We explained that in the case of a 
substitution of a noncovalent derivative of an active ingredient for 
one or more of the active ingredients, the NDA would be classified as a 
Type 2, 5 combination and we proposed to exclude it from eligibility 
for the TDAPA under Sec.  413.234(b)(1)(ii).
    The fifth characteristic is that the product contains a different 
strength of one or more active ingredients in a previously approved or 
marketed combination. We explained that a Type 5 NDA would generally be 
submitted by an applicant other than the holder of the approved 
application for the approved product. We also explained that a similar 
change in an approved product by the applicant of the approved product 
would usually be submitted as a supplemental application.
    The sixth characteristic is that the product differs in 
bioavailability (for example, superbioavailable or different 
controlled-release pattern) and, therefore, is ineligible for 
submission as an ANDA under section 505(j) of the FD&C Act.
    The seventh characteristic is that the product involves a new 
plastic container that requires safety studies beyond limited 
confirmatory testing (see 21 CFR 310.509, Parenteral drugs in plastic 
containers, and FDA/CDER MAPP 6020.2, Applications for Parenteral 
Products in Plastic Immediate Containers).
    In the CY 2020 ESRD PPS proposed rule (84 FR 38342 through 38343) 
we noted that some commenters have characterized the types of drugs 
that are often approved in Type 5 NDAs as reformulations or line 
extensions. We explained that a line extension is a variation of an 
existing product.\5\ The variation can be a new formulation 
(reformulation) of an existing product, or a new modification of an 
existing molecular entity.\6\ We further explained that a line 
extension has been defined as a branded pharmaceutical product that: 
(1) Includes the same active ingredient (either alone or in combination 
with other active ingredients) as an original product, (2) is 
manufactured by the same drug manufacturer that makes the original 
product, or by one of its partners or subsidiaries, and (3) is launched 
after the original product.\7\ An NME is discussed in section 
II.B.1.c.ii.(a) of this final rule. We noted that line extensions were 
few in number prior to 1984, when the Drug Price Competition and Patent 
Term Restoration Act was passed

[[Page 60661]]

following public outcry over high drug prices and rising drug 
expenditures, and following passage of that law, line extensions became 
prevalent in the pharmaceutical drug industry. We also noted that we 
were aware that one of the acknowledged criticisms of pharmaceutical 
line extensions is their use as a strategy to extend the patent 
protections for products that have patents that are about to expire, by 
developing a new formulation and taking out new patents for the new 
formulation.\8\ We stated that it has been noted that line extensions 
through new formulations are not being developed for significant 
therapeutic advantage, but rather for the company's economic 
advantage.\9\
---------------------------------------------------------------------------

    \5\ V Kadiyali et al. Product line extensions and competitive 
market interactions: An empirical analysis. J Econometrics. 1998, 89 
(1-2): 339-63.
    \6\ SH Hong et al. Product Line Extensions and Pricing 
Strategies of Brand-Name Drugs Facing Patent Expirations, J MCP. 
2005, 11(9): 746-754.
    \7\ AC Fowler, October 6, 2017, White Paper--Pharmaceutical Line 
Extensions in the United States, http://www.nber.org/aging/valmed/WhitePaper-Fowler10.2017.pdf.
    \8\ SH Hong et al. Product Line Extensions and Pricing 
Strategies of Brand-Name Drugs Facing Patent Expirations, J MCP. 
2005, 11(9): 746-754.
    \9\ R Collier Drug patents: The evergreening problem. CMAJ. 2013 
Jun11; 185(9):E385-6. doi: 10.1503/cmaj.109-4466. Epub 2013 Apr 29.
---------------------------------------------------------------------------

    We explained that we did not believe the characteristics of Type 5 
NDA drugs would advance the intent of the TDAPA for new renal dialysis 
drugs and biological products that fall within an existing functional 
category. We noted that we believed that while Type 5 NDA drugs may 
have clinical benefits to patients over previously approved products, 
we did not make that assessment as part of ESRD PPS payment policy. We 
stated that we did not believe the types of changes represented by Type 
5 NDAs enhance our goal of increased competition with the overarching 
goal of lowering drug prices. We noted that to the contrary, it seems 
that a goal of line extensions can be to thwart competition. We also 
noted that studies indicate that there is no lowering of prices through 
competition from line extensions. Rather, it has been reported that 
prices remain rigid and are not lowered. In fact, not only can product 
line extensions thwart competition, but they inherit the market success 
of the original brand, sometimes with little quality improvement over 
the original brand.\10\ For these reasons, we explained that we did not 
believe providing a payment adjustment to ESRD facilities to support 
the uptake of a drug that is a line extension in their business model 
is a judicious use of Medicare resources.
---------------------------------------------------------------------------

    \10\ SH Hong et al. Product Line Extensions and Pricing 
Strategies of Brand-Name Drugs Facing Patent Expirations, J MCP. 
2005, 11(9): 746-754.
---------------------------------------------------------------------------

    We noted that a study published in February 2019, concluded that 
the pattern of a considerable subset of reformulations prolonged the 
consumption of costly brand-name products at the expense of timely 
market entry of low cost generics.\11\ We also noted that this and 
other recent publications this past year have been helpful to inform 
policy proposals by demonstrating that reformulations frequently kept 
drug prices high, which does not meet our goal of increased competition 
assisting in the lowering of drug prices, at the expense of Medicare 
resources being directed to innovative drugs that advance the treatment 
of ESRD. Consequently, we noted that we believed it was important to 
propose to install guardrails to ensure that sufficient incentives 
exist for timely innovative drugs for the ESRD patients, that 
competition for lowering drug prices is not thwarted, and that perverse 
incentives do not exist for patients to receive a drug because it is 
financially rewarding, through the TDAPA, for the ESRD facilities. For 
these reasons, we stated that we did not believe Type 5 NDA drugs 
should be eligible for the TDAPA, and we proposed to exclude them in 
new Sec.  413.234(e).
---------------------------------------------------------------------------

    \11\ Reed F. Beall et al. New Drug Formulations and Their 
Respective Generic Entry Dates, JMCP. February, 2019, 25(2): 218-
224. Available at: https://www.jmcp.org/doi/pdf/10.18553/jmcp.2019.25.2.218.
---------------------------------------------------------------------------

(c) Type 7 NDA--Previously Marketed but Without an Approved NDA
    As discussed in the CY 2020 ESRD PPS proposed rule (84 FR 38345), 
we proposed to exclude Type 7 NDA, which is for a drug product that 
contains an active moiety that has not been previously approved in an 
application but has been marketed in the U.S., from being eligible for 
the TDAPA for renal dialysis drugs and biological products in existing 
functional categories. In addition, we proposed to exclude Type 9 NDAs 
when the ``parent NDA'' is a Type 7 NDA. We explained that this 
classification only applies to the first NDA approved for a drug 
product containing this (these) active moiety(ies). They include, but 
are not limited to the following four items: (1) The first post-1962 
application for an active moiety marketed prior to 1938; (2) The first 
application for an active moiety first marketed between 1938 and 1962 
that is identical, related or similar (IRS) to a drug covered by a Drug 
Efficacy Study Implementation (DESI) notice (FDA's regulation at 21 CFR 
310.6(b)(1) states that, ``[a]n identical, related, or similar drug 
includes other brands, potencies, dosage forms, salts, and esters of 
the same drug moiety as well as any of drug moiety related in chemical 
structure or known pharmacological properties''); (3) The first 
application for an IRS drug product first marketed after 1962; and (4) 
The first application for an active moiety that was first marketed 
without an NDA after 1962.
    We stated that we did not believe the characteristics of Type 7 NDA 
drugs would advance the intent of the TDAPA policy because these drugs 
were already on the market. For example, FDA received an application 
for calcium gluconate, which is on the Consolidated Billing List and is 
already recognized as a renal dialysis service included in the ESRD PPS 
base rate. The NDA for calcium gluconate was classified by FDA in 2017 
to be a Type 7 NDA. We stated that we believed this drug was not 
innovative and does not significantly advance the treatment options for 
ESRD. We also noted that we believed that if the Type 7 NDA drug is 
determined to be a renal dialysis service, it is likely it is already 
being used by the facility, so paying the TDAPA for it does not assist 
the facilities in uptake for their business model, which is one of the 
goals of the TDAPA. In addition, we stated that we believed paying the 
TDAPA for Type 7 NDA drugs uses Medicare resources that ultimately 
could be used to pay for innovative drugs and services that result from 
research and development in areas of high value innovation. Therefore, 
we did not consider Type 7 NDA drugs to be eligible for the TDAPA.
(d) Type 8 NDA--Prescription to Over-the-Counter (OTC)
    As discussed in the CY 2020 ESRD PPS proposed rule (84 FR 38345), 
we proposed to exclude Type 8 NDA, which is when a prescription drug 
product changes to an over-the-counter (OTC) drug product, from being 
eligible for the TDAPA. In addition, we proposed to exclude Type 9 NDAs 
when the ``parent NDA'' is a Type 8 NDA. We explained that a Type 8 NDA 
is for a drug product intended for OTC marketing that contains an 
active ingredient that has been approved previously or marketed in the 
U.S. only for dispensing by prescription. We further explained that a 
Type 8 NDA may provide for a different dosing regimen, different 
strength, different dosage form, or different indication from the 
product approved previously for prescription sale.
    We explained that if the proposed OTC switch would apply to all 
indications, uses, and strengths of an approved prescription dosage 
form (leaving no prescription-only products of that particular dosage 
form on the market), then FDA indicates that the application holder 
should submit the change as a supplement to the approved application. 
We noted that if the

[[Page 60662]]

applicant intends to switch only some indications, uses, or strengths 
of the dosage form to OTC status (while continuing to market other 
indications, uses, or strengths of the dosage form for prescription-
only sale), FDA indicates that the applicant should submit a new NDA 
for the OTC products, which would be classified as Type 8 NDA.
    We stated that we did not believe the characteristics of Type 8 NDA 
drugs would advance the intent of the TDAPA policy for renal dialysis 
drugs and biological products in existing functional categories because 
Type 8 NDAs are for drugs transitioning from prescription to OTC, and 
Medicare does not provide coverage of OTC drugs. We noted that we 
believed that although certain innovative approaches may help increase 
access to a broader selection of nonprescription drugs for ESRD 
beneficiaries, we did not consider the transition from prescription to 
OTC to be innovative for purposes of the TDAPA policy. We stated that 
we believed making the TDAPA available for Type 8 NDAs may defeat the 
intent of lowering overall costs for both the ESRD beneficiary and for 
Medicare, and was not needed by the facilities to provide additional 
support during an uptake period so they can be incorporated into the 
business model. We noted that OTC drugs have already gone through 
safety trials if they were previously prescription drugs and their end-
point physiologic activity had been recognized and documented. 
Therefore, we stated that we believed the newness is a reflection of 
accessibility to the general public without having to obtain a 
prescription through a licensed practitioner. We noted that we believed 
these drugs, though new to the market, are not sufficiently innovative 
to qualify for TDAPA eligibility.
(e) Generic Drugs
    We proposed to exclude drugs approved by FDA under section 505(j) 
of the FD&C Act, which are generic drugs, from being eligible for the 
TDAPA. As we discussed in the CY 2020 ESRD PPS proposed rule (84 FR 
38337 through 38339), an ANDA is an application submitted by drug 
manufacturers and approved by FDA under section 505(j) of the FD&C Act 
for a duplicate of a previously approved drug product.
    We explained that an ANDA generally must contain information to 
show that the proposed generic product: (1) Is the same as the 
reference listed drug (RLD) with respect to the active ingredient(s), 
conditions of use, route of administration, dosage form, strength, and 
labeling (with certain permissible differences) and (2) is 
bioequivalent to the RLD. See section 505(j)(2)(A) of the FD&C Act. In 
general, an ANDA would not be appropriate if clinical investigations 
are necessary to establish the safety and effectiveness of the proposed 
product. A drug product approved in an ANDA is presumed to be 
therapeutically equivalent to its RLD. A drug product that is 
therapeutically equivalent to an RLD can be substituted with the full 
expectation that the substituted product will produce the same clinical 
effect and safety profile as the RLD when administered to patients 
under the conditions specified in the labeling.
    We noted that, in the CY 2019 ESRD PPS final rule (83 FR 56931), we 
included generic drugs in the definition of a new renal dialysis drug 
or biological product eligible for the TDAPA because we believed this 
would foster both a competitive marketplace and innovation of drugs 
within functional categories, mitigate high launch prices, and provide 
a financial boost to support utilization. We explained that during the 
CY 2019 ESRD PPS rulemaking, we were aware of the pricing strategies 
being used by certain pharmaceutical companies to block the entry of 
generic drugs into the market in order to keep drug prices high. Though 
generic drugs are not considered innovative products, our primary 
intent in making generic drugs eligible for the TDAPA was to increase 
competition so that drug prices would be lower for the beneficiary. We 
then noted that we have since learned that bringing more generic drugs 
to market, though a significant component in lowering drug prices, is 
not in and of itself the solution.
    We discussed a June 2018 report that examined increased generic 
drug competition as the primary impetus to curtail skyrocketing drug 
prices, and found that though it is helpful, there is a ceiling on its 
impact. It found that generic competition would not affect 46 percent 
of the estimated sales revenue of the top 100 drugs through 2023.\12\
---------------------------------------------------------------------------

    \12\ B Isgur et al., Health Research Institute, The FDA is 
approving more generic drugs than ever before. Faster than ever 
before. Is it enough to lower drug costs? June 2018. Available at: 
https://www.pwc.com/us/en/health-industries/health-research-institute/pdf/pwc-health-research-institute-generic-drug-pricing-june-2018.pdf.
---------------------------------------------------------------------------

    We also discussed a June 2018 article, which noted that competition 
has a limited impact on American health care, particularly when it 
comes to expensive interventions like prescription drugs. The article 
noted that when an expensive drug's competition within the same family 
of drugs came on the market the prices did not go down. Rather, the 
prices increased approximately 675 percent. Each new entrant cost more 
than its predecessors, and their makers then increased their prices to 
match the newcomer's. The article stated that when the first generic 
finally entered the market, its list price was only slightly less at 
539 percent above the original entrant. It stated that economists call 
this ``sticky pricing'' and the article noted that this is common in 
pharmaceuticals, and has raised the prices in the U.S. of drugs for 
serious conditions even when there are multiple competing drugs. 
Compounding this problem, the article stated that companies have 
decided it is not in their interest to compete.\13\
---------------------------------------------------------------------------

    \13\ E Rosenthal, New York Times, Why Competition Won't Bring 
Down Drug Prices. June 21, 2018. Available at: https://www.nytimes.com/2018/06/21/opinion/competition-drug-prices.html.
---------------------------------------------------------------------------

    We stated in the CY 2020 ESRD PPS proposed rule (84 FR 38344) that 
for purposes of the ESRD PPS, we believed that we need to strike a 
balance between enhancing significant renal dialysis drug innovation 
and encouraging competition through support of innovative drugs that 
would become optimal choices for ESRD patients and advance their care 
through improved treatment choices. We noted that we believed that our 
goal in supporting competition among drugs in the ESRD PPS functional 
categories was to ultimately affect the launch price of new drugs. We 
stated that we questioned whether including all new renal dialysis 
drugs and biological products as eligible for the TDAPA would help us 
meet that goal. We expressed that reining in launch prices by placing 
guardrails on line extensions, reformulations and ``sticky pricing'' 
while staying mindful of the Medicare trust fund would better enable us 
to achieve our goals for the TDAPA policy.
    Therefore, we proposed to revise the drug designation process 
regulation at Sec.  413.234 by revising paragraph (b)(1)(ii) and adding 
paragraph (e), effective January 1, 2020, to specify that a new renal 
dialysis drug used to treat or manage a condition for which there is an 
ESRD PPS functional category is not eligible for payment using the 
TDAPA if it is a generic drug or if the NDA for the drug is classified 
by FDA as a certain Type--specifically, if the drug is approved under 
section 505(j) of the FD&C Act or the NDA for the drug is classified by 
FDA as Type 3, 5, 7 or 8, Type 3 in combination with Type 2 or Type 4, 
or Type 4, or Type 5 in combination with Type 2, or Type 9

[[Page 60663]]

when the ``parent NDA'' is a Type 3, 5, 7 or 8.
    We solicited comments as to whether any NDA Types that would remain 
eligible for the TDAPA under our proposal should be excluded, and 
whether any NDA Types that we proposed to exclude should be included, 
for example, within the NDA Type 3 (new dosage form) the inclusion of 
IV to oral route of administration.
ii. Examples of New Renal Dialysis Drugs and Biological Products That 
Would Remain Eligible for the TDAPA
    We stated in the CY 2020 ESRD PPS proposed rule (84 FR 38344) that 
under our proposal, any new renal dialysis drug or biological product 
that we did not propose for exclusion, would continue to be eligible 
for the TDAPA. In the CY 2020 ESRD PPS proposed rule (84 FR 38344 
through 38346), we provided some examples of the types of renal 
dialysis drugs and biological products that we believed would continue 
to be eligible for the TDAPA under our proposal, using the descriptions 
in the NDA Classification Codes referenced in the CY 2020 ESRD PPS 
proposed rule (84 FR 38339 through 38341). We noted that under our 
proposal, BLAs approved by FDA under section 351 of the PHS Act, which 
include biological products and biological products that are biosimilar 
to, or interchangeable with, a reference biological product, also would 
continue to be eligible for the TDAPA.
(a) Type 1 NDA--New Molecular Entity
    In the CY 2020 ESRD PPS proposed rule (84 FR 38344), we explained 
that a Type 1 NDA refers to drugs containing an NME. We further 
explained that an NME is an active ingredient that contains no active 
moiety that has been previously approved by FDA in an application 
submitted under section 505(b) of the FD&C Act or has been previously 
marketed as a drug in the U.S.
    We stated that we believed the new renal dialysis drugs that are 
classified by FDA as a Type 1 NDA should continue to be eligible for 
the TDAPA because they generally fall within the 505(b)(1) pathway 
typically used for novel drugs, meaning they have not been previously 
studied or approved, and their development requires the sponsor to 
conduct all studies needed to demonstrate the safety and efficacy of 
the drug. We noted that unlike the drugs proposed to be excluded from 
the TDAPA as described above, these drugs are generally not line 
extensions of previously existing drugs. We stated that we believed 
there will be expenses with uptake by ESRD facilities of Type 1 NDA 
drugs, and one of the goals of the TDAPA is to provide additional 
support to ESRD facilities during the uptake period for these 
innovative drugs and help incorporate them into their business model.
(b) Type 2 NDA--New Active Ingredient
    In the CY 2020 ESRD PPS proposed rule (84 FR 38344 through 38345), 
we explained that a Type 2 NDA is for a drug product that contains a 
new active ingredient, but not an NME. We further explained that a new 
active ingredient includes those products whose active moiety has been 
previously approved or marketed in the U.S., but whose particular 
ester, salt, or noncovalent derivative of the unmodified parent 
molecule has not been approved by FDA or marketed in the U.S., either 
alone, or as part of a combination product. Similarly, if any ester, 
salt, or noncovalent derivative has been marketed first, the unmodified 
parent molecule would also be considered a new active ingredient, but 
not an NME. Furthermore, if the active ingredient is a single 
enantiomer and a racemic mixture (the name for a 50:50 mixture of 2 
enantiomers) containing that enantiomer has been previously approved by 
FDA or marketed in the U.S., or if the active ingredient is a racemic 
mixture containing an enantiomer that has been previously approved by 
FDA or marketed in the U.S., the NDA will be classified as a Type 2 
NDA. Enantiomers are chiral molecules that are non-superimposable, 
mirror images of one another.
    We stated that we believed the new renal dialysis drugs classified 
by FDA as Type 2 NDAs should be eligible for the TDAPA because, in 
part, it covers a single enantiomer active ingredient for which a 
racemic mixture containing that enantiomer has been approved by FDA. We 
noted that single enantiomer drugs can lead to fewer drug interactions 
in the ESRD population, which already has a significant medication 
burden.\14\ We stated that we believed these drugs are innovative and 
it is important to support their development because of their lower 
development cost burden, coupled with enhancement of patient choice, 
which supports not only innovation, but the ability of the product to 
successfully launch and compete. We noted that we believed having the 
Type 2 NDA drugs be eligible for the TDAPA would support our goal of 
providing support to the ESRD facilities for 2 years while the drug is 
being incorporated into their business model.
---------------------------------------------------------------------------

    \14\ A. Calcaterra and I. D'Acquarica, J Pharmaceutical and 
Biomedical Analysis, ``The market of chiral drugs: Chiral switches 
versus de novo enantiomerically pure compounds,'' 147(2018). Pages 
323-340. Available at: https://www.sciencedirect.com/science/article/pii/S0731708517314838?via%3Dihub.
---------------------------------------------------------------------------

(c) Type 4 NDA--New Combination
    In the CY 2020 ESRD PPS proposed rule (84 FR 38345), we explained 
that a Type 4 NDA is a new drug-drug combination of two or more active 
ingredients. We further explained that an application for a new drug-
drug combination product may have more than one classification code if 
at least one component of the combination is an NME or a new active 
ingredient.
    We proposed that new renal dialysis drugs that are classified as a 
Type 4 NDA should continue to be eligible for the TDAPA if at least one 
of the components is a Type 1 NDA (NME) or a Type 2 NDA (new active 
ingredient), both of which merit the TDAPA as previously discussed. We 
stated that we believed that an added advantage is that while 
introducing an innovative product, which is not the case for Type 3 NDA 
drugs, it reduces the pill burden to a patient population challenged 
with multiple medications and a complex drug regimen. We noted that 
medication adherence is thought to be around 50 percent in the dialysis 
population and reducing this burden can improve adherence and should 
lead to improvement in treatment outcomes.\15\
---------------------------------------------------------------------------

    \15\ K. Parker et al., Medication Burden in CKD-5D: Impact of 
dialysis modality and setting, Clin Kidney J. 2014, 7: 557-561. 
Available at: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4389130/pdf/sfu091.pdf.
---------------------------------------------------------------------------

    We noted that we believed the advantages of Type 1 NDA and Type 2 
NDA drugs, coupled with the possibility of improved adherence, merits 
eligibility for the TDAPA in that it encourages both innovators to 
develop competitive drugs at lower prices for this NDA Type, and ESRD 
facilities to use the products with the boost that the TDAPA will 
provide in facilitating uptake of these new products.
(d) Type 9 NDA--New Indication or Claim, Drug Not To Be Marketed Under 
Type 9 NDA After Approval
    In the CY 2020 ESRD PPS proposed rule (84 FR 38345), we explained 
that a Type 9 NDA is for a new indication or claim for a drug product 
that is currently being reviewed under a different NDA (the ``parent 
NDA''), and the applicant does not intend to market this drug product 
under the Type 9 NDA after approval. We explained that a Type 9 NDA is 
generally submitted as a separate NDA so as to be in

[[Page 60664]]

compliance with the guidance for industry on Submitting Separate 
Marketing Applications and Clinical Data for Purposes of Assessing User 
Fees.\16\ When the Type 9 NDA is submitted, it is given the same NDA 
Type as the pending NDA. When one application is approved, the other 
application will be reclassified as a Type 9 NDA regardless of whether 
it was the first or second NDA actually submitted. After the approval 
of a Type 9 NDA, FDA will ``administratively close'' the Type 9 NDA and 
thereafter only accept submissions to the ``parent'' NDA.
---------------------------------------------------------------------------

    \16\ FDA. Guidance for Industry. Submitting Separate Marketing 
Applications and Clinical Data for Purposes of Assessing User Fees. 
Available at: https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM079320.pdf.
---------------------------------------------------------------------------

    We stated that we believed that since Type 9 NDA is a new clinical 
indication, this suggests that a drug manufacturer is pioneering a new 
approach to provide better pharmacologic care for vulnerable ESRD 
patients with complex medical needs, and we consider this to be 
sufficiently innovative to warrant TDAPA eligibility.
    We noted that we believed renal dialysis drugs that are classified 
as NDA Types 1, 2, and 4 are all innovative and therefore we proposed 
that these drugs should continue be eligible for the TDAPA. We stated 
that when the ``parent NDA'' is Type 1, 2, or 4, Type 9 NDA would be a 
new indication of those innovative drugs. Therefore we expressed that 
the Type 9 NDA, when the ``parent'' is Type 1, 2, or 4, is just as 
innovative as Type 1, 2, or 4 and therefore should also be eligible for 
the TDAPA. We noted that we believed applying the TDAPA with respect to 
Type 9 NDA new renal dialysis drugs would assist ESRD facilities in 
adopting these drugs into their treatment protocols for patients, when 
these drugs are warranted for use in that subset of patients.
(e) Type 10 NDA--New Indication or Claim, Drug To Be Marketed Under 
Type 10 NDA After Approval
    In the CY 2020 ESRD PPS proposed rule (84 FR 38345), we explained 
that a Type 10 NDA is for a drug product that is a duplicate of a drug 
product that is the subject of either a pending or approved NDA, and 
the applicant intends to market the drug product under this separate 
Type 10 NDA after approval. We further explained that a Type 10 NDA is 
typically for a drug product that has a new indication or claim, and it 
may have labeling and/or a proprietary name that is distinct from that 
of the original NDA. When the Type 10 NDA is submitted, it would be 
given the same NDA Type as the original NDA unless that NDA is already 
approved. When one application is approved, the other would be 
reclassified as Type 10 NDA regardless of whether it was the first or 
second NDA actually submitted.
    We stated that we believed renal dialysis drugs with the Type 10 
NDAs are sufficiently innovative and should be eligible for the TDAPA 
because a new indication for a previously submitted drug that is 
applicable to renal dialysis advances the field and suggests the drug 
manufacturer is pioneering a new approach to provide better 
pharmacologic care for vulnerable ESRD patients with complex medical 
needs. We noted that we believed this could provide savings in terms of 
time-to-market and research and development, which could be reflected 
in the launch price of the drug. We further stated that we believed 
applying the TDAPA with respect to Type 10 NDA new renal dialysis drugs 
will assist ESRD facilities in adopting these drugs into their 
treatment protocols for patients when these drugs are warranted for use 
in that subset of patients.
(f) FDA Approvals of BLAs Submitted Under Section 351 of the PHS Act
    In the CY 2020 ESRD PPS proposed rule (84 FR 38346), we stated that 
under our proposal, products that are licensed under section 351 of the 
PHS Act, which occurs for biological products and biological products 
that are biosimilar to, or interchangeable with, a reference biological 
product, would continue to be eligible for the TDAPA.
    We explained that a BLA submitted under section 351(a) of the PHS 
Act is a ``stand-alone BLA'' that contains all information and data 
necessary to demonstrate that (among other things) the proposed 
biological product is safe, pure, and potent.
    We explained that an application for licensure of a proposed 
biosimilar biological product submitted in a BLA under section 351(k) 
of the PHS Act must contain information demonstrating that the 
biological product is biosimilar to a reference product. `Biosimilar' 
means ``that the biological product is highly similar to the reference 
product notwithstanding minor differences in clinically inactive 
components'' and that ``there are no clinically meaningful differences 
between the biological product and the reference product in terms of 
the safety, purity, and potency of the product'' (see section 351(i)(2) 
of the PHS Act).
    We explained that an application for licensure of a proposed 
interchangeable product submitted in a BLA under section 351(k) of the 
PHS Act must meet the standards for ``interchangeability.'' To meet the 
standards for ``interchangeability,'' an applicant must provide 
sufficient information to demonstrate biosimilarity, and also to 
demonstrate that the biological product can be expected to produce the 
same clinical result as the reference product in any given patient and, 
if the biological product is administered more than once to an 
individual, the risk in terms of safety or diminished efficacy of 
alternating or switching between use of the biological product and the 
reference product is not greater than the risk of using the reference 
product without such alternation or switch (see section 351(k)(4) of 
the PHS Act). Interchangeable products may be substituted for the 
reference product without the intervention of the prescribing 
healthcare provider (see section 351(i)(3) of the PHS Act). Further 
information regarding biosimilar biological products is available on 
the FDA website.\17\
---------------------------------------------------------------------------

    \17\ https://www.fda.gov/drugs/therapeutic-biologics-applications-bla/biosimilars.
---------------------------------------------------------------------------

    We stated that CMS continues to support the development and the 
utilization of these products that contain innovative technology for 
the treatment of ESRD. We explained that the process for licensure of 
biosimilar biological products is a different pathway than that for 
generic drugs and has different requirements. We noted that we believed 
that a categorical exclusion from TDAPA eligibility for all biological 
products that are biosimilar to or interchangeable with a reference 
biological product, would disadvantage this sector of biological 
products in a space where we are trying to support technological 
innovation. While the products themselves are highly similar to the 
reference biological product notwithstanding minor differences in 
clinically inactive components; and there are no clinically meaningful 
differences between the biosimilar biological product and the 
biological reference product in terms of the safety, purity, and 
potency of the product, CMS believes the technology used to develop the 
products is sufficiently new and innovative to warrant TDAPA payment at 
this time.
    However, we noted that unlike NDAs submitted pursuant to sections 
505(b)(1) or 505(b)(2) of the FD&C Act, we did not have a categorical 
system to use as a proxy for assistance in determining which types of 
applications would meet

[[Page 60665]]

the intent of the TDAPA policy. Therefore, we proposed to continue to 
allow all biological products that are biosimilar to or interchangeable 
with a reference biological product to remain eligible for the TDAPA 
instead of proposing to exclude all of them.
    In the CY 2020 ESRD PPS proposed rule (84 FR 38346), we noted that 
we were aware that there are similar concerns about providing the TDAPA 
for these products that there are with generic drugs. Specifically, we 
explained that according to a recent report, increased drug class 
competition for biosimilar biological products has not translated into 
pricing reductions, and there was a market failure contributing to the 
rising costs of prescription drugs. The researchers noted that the 
increases were borne solely by Medicare.\18\ We stated that we would 
continue to monitor future costs of biosimilar biological products as 
they pertain to renal dialysis, the TDAPA, and the ESRD PPS.
---------------------------------------------------------------------------

    \18\ A. San-Juan-Rodriguez et al. ``Assessment of Price Changes 
of Existing Tumor Necrosis Factor Inhibitors After the Market Entry 
of Competitors.'' JAMA Intern Med 2019. Feb 18. https://jamanetwork.com/journals/jamainternalmedicine/fullarticle/2724390.
---------------------------------------------------------------------------

    With regard to new renal dialysis drugs and biological products 
that fall within an existing ESRD PPS functional category, we stated 
that we believed continuing to include these drugs and biological 
products as eligible for the TDAPA focuses payment to those products 
that are innovative in a way that meets the intent of the adjustment. 
That is, our intention is to support innovation by helping ESRD 
facilities make appropriate changes in their businesses to adopt such 
products, provide additional payment for such associated costs, 
incorporate these drugs and biological products into their 
beneficiaries' care plans and potentially promote competition among 
drugs and biological products within the ESRD PPS functional 
categories. We stated that we planned to continue to monitor the use of 
the TDAPA for new renal dialysis drugs and biological products that 
fall within an existing functional category and will carefully evaluate 
the products that qualify for the payment adjustment. We noted that for 
new renal dialysis drugs and biological products that do not fall 
within an existing ESRD PPS functional category, the purpose of the 
TDAPA continues to be a pathway toward a potential base rate 
modification.
    We stated in the CY 2020 ESRD PPS proposed rule (84 FR 38344), that 
compared to the TDAPA policy finalized in the CY 2019 ESRD PPS final 
rule, we believed that these proposed revisions would reduce CY 2020 
Medicare expenditures for new renal dialysis drugs and biological 
products, which would also have a better downstream impact for 
beneficiary co-insurance. Specifically, we noted that under the 
expanded policy finalized in the CY 2019 ESRD PPS final rule (83 FR 
56932), effective January 1, 2020, the TDAPA would apply for all new 
renal dialysis drugs and biological products. We stated that we 
believed that since our proposed policy would carve out certain drug 
types from being eligible for the TDAPA and would be more limited than 
the expansive policy finalized in the CY 2019 ESRD PPS final rule for 
CY 2020, there would be lower Medicare expenditures in CY 2020. 
Further, the downstream effect of lower Medicare expenditures is lower 
co-insurance for beneficiaries.
    We stated that based on our past experience and our expectation of 
detailed analysis of future drug product utilization, pricing and 
payment, we anticipated proposing further refinements to the TDAPA 
policy through notice and comment rulemaking in the future.
    Commenters generally supported our proposal to refine the TDAPA 
eligibility criteria to target more innovative drugs and biological 
products. However, they had specific suggestions regarding changes to 
the proposal. For example, commenters provided suggestions for renal 
dialysis drugs and biological products that should be excluded 
(biosimilar biological products), included (first ESRD new indication), 
and other eligibility criteria (SCI).
    The comments and our responses to the comments on our proposal to 
rely on, as a proxy, the NDA Classification Codes, as well as the 
proposal for updating the TDAPA exclusions when FDA makes changes to 
the NDA Classification Codes, are set forth below.
    Comment: MedPAC commended CMS for reconsidering the TDAPA 
eligibility criteria and proposing a standard that is stricter than the 
one the agency adopted in the CY 2019 ESRD PPS rulemaking. Several 
commenters supported the use of the TDAPA for encouraging the adoption 
of new and innovative renal dialysis products by ESRD facilities, and 
encouraged us to finalize the proposal to exclude drugs for which the 
NDA Types are for products that are not truly innovative. They 
recommended that CMS describe when a drug or biological product is 
considered to be truly innovative. If a product qualifies, it should 
receive the TDAPA. One drug manufacturer specifically supported CMS's 
proposal to use NDA Classification Codes to establish TDAPA 
eligibility, and to maintain eligibility for drugs approved through NDA 
Types 1, 2, 4, 9, and 10. One national dialysis association noted that 
the NDA Classification Codes seem to be reasonable proxies for 
exclusion of products from TDAPA that are technically ``new'' but not 
necessarily truly innovative. Commenters who supported the use of the 
NDA Classification Codes recognized that the codes could change and 
understood we would consider potential revisions to the regulatory 
language in that case.
    However, one drug manufacturer noted that the NDA Classification 
Codes are contained in an FDA MAPP that is not subject to public 
notice, input, or comment, and that can be changed at any time by FDA 
without providing notice to or seeking input from stakeholders or from 
CMS. The manufacturer noted that the NDA Classification Codes are not 
codified in any statutory or regulatory provision and were created 
solely for FDA's administrative purposes, without any relevance to 
assessments of innovativeness or therapeutic value.
    A drug manufacturer did not support CMS' proposal to exclude 
certain NDA Types from TDAPA eligibility. The company stated the FDA's 
NDA Classification Codes are a blunt instrument and an inadequate 
standard on which to judge innovativeness. In addition, the company 
stated that the proposal pegs the use of NDA Classification Codes to 
the version dated November 4, 2015 and makes no provision for an 
updated future version of such codes.
    Response: We appreciate the supportive comments regarding our TDAPA 
proposal and specifically our proposed reliance on the FDA NDA 
Classification Codes as a proxy. We also appreciate the supportive 
comments about our proposal to analyze any changes that FDA makes to 
the NDA Classification Codes when they are publicly available and 
propose in the next ESRD PPS rulemaking cycle any necessary revisions 
to the TDAPA exclusions.
    Regarding the comments that FDA created the NDA Classification 
Codes for administrative purposes and they should not be used to assess 
innovativeness or therapeutic value, and the comment requesting that we 
describe when a drug or biological product is considered to be truly 
innovative, we believe FDA's NDA Classification Codes provide an 
objective basis that we can use to distinguish innovative from 
noninnovative renal dialysis drugs and

[[Page 60666]]

biological products. That is, using the NDA Classification Codes will 
help us in our effort to support innovation by directing Medicare 
resources to innovative renal dialysis drugs and biological products, 
while simultaneously balancing our goal to foster competition within 
the ESRD PPS functional categories by supporting products that advance 
the treatment for ESRD beneficiaries at a lower cost.
    We acknowledge that the NDA Classification Codes are not subject to 
public notice, input, or comment, and can be changed at any time by FDA 
without providing notice to or seeking input from stakeholders or from 
CMS. As discussed in section II.B.1.b of the CY 2020 ESRD PPS proposed 
rule, the Classification Codes assigned to an NDA generally describe 
FDA's classification of the relationship of the drug to drugs already 
marketed or approved in the U.S. As we discussed in the CY 2020 ESRD 
PPS proposed rule, if FDA makes changes to the NDA Classification Codes 
in FDA/CDER MAPP 5018.2, we would assess FDA changes at the time they 
are publicly available and we would analyze those changes with regard 
to their implications for the TDAPA policy under the ESRD PPS. We would 
plan to propose any necessary language revisions to the exclusions set 
forth in proposed Sec.  413.234(e) in the next rulemaking cycle.
    Comment: Many commenters appreciated CMS addressing the concerns 
raised by stakeholders regarding the all-inclusive approach to TDAPA 
eligibility finalized in the CY 2019 ESRD PPS final rule. They stated 
we should finalize the use of the FDA NDA Classification Codes as 
proposed, with one modification. Specifically, if a product falls into 
an excluded NDA Type, but obtains FDA approval for its first ESRD new 
indication, regardless of its NDA designation, that product should be 
eligible for TDAPA. These commenters stated that without such 
modification, using the NDA Classification Codes has the significant 
potential to exclude from TDAPA eligibility truly new and innovative 
drugs for ESRD patients.
    Some commenters noted that CMS recognizes in its discussion of the 
Type 10 NDA that a new ESRD indication for a previously approved non-
ESRD drug advances the field and presents a new approach to provide 
care for ESRD patients. The commenters stated that not all products for 
which a manufacturer obtains a new ESRD indication will be approved 
through a Type 10 NDA. For example, a product originally approved for a 
non-ESRD indication through an excluded NDA Type, may have a first ESRD 
new indication added through an NDA supplement to that NDA, thus 
resulting in the new ESRD product being excluded from TDAPA 
eligibility. The commenters asserted that the innovation and investment 
by this manufacturer to obtain the first ESRD new indication is no less 
than that of the manufacturer who submits a Type 10 NDA for a new 
indication, but CMS's proposed criteria would exclude such a drug from 
TDAPA eligibility. The commenters stated that, by definition, a first 
ESRD new indication denotes that the product has not been approved for 
this population previously and is consistent with CMS's intent to limit 
the TDAPA to truly innovative products.
    An ESRD facility and a national dialysis association expressed 
concerns regarding CMS's proposal to exclude FDA NDA Type 5 and Type 7 
from TDAPA eligibility. Regarding Type 5, they believe that new drug 
formulations may offer specific benefits to patients. For example, they 
stated that if phosphate binders currently marketed in tablet form were 
to become available in a topical form, it might offer benefits like 
decreased satiety and decreased pill burden, which could lead to 
improved compliance with the medications and increased protein intake, 
which has been associated with better outcomes for patients with ESRD 
treated by maintenance dialysis. Regarding Type 7, commenters agreed 
with CMS that if a drug is being used by an ESRD facility, there is no 
need for additional payment in the form of TDAPA. However, they believe 
there should be a requirement to verify that use before CMS concludes 
that the drug is not eligible.
    A few commenters noted that the proposed exclusions would remove 
from TDAPA eligibility important therapeutic advances that may happen 
to be new formulations, new indications, and new dosage forms, which 
can make it easier for the patient to adhere to prescribed therapy and 
offer significant value in increased quality of life. Commenters noted 
that the proposal would exclude, for example, a drug that receives a 
new ESRD indication or is a reformulation that results in a patient 
needing only one, rather than several doses a day, requiring the 
patient to be awoken multiple times during the night. They stated that 
to exclude such new drugs and biological products from TDAPA 
eligibility could erect barriers to patient use and chill new research 
into the entire category of ESRD medicine, and would be a great 
disservice to patients, providers, and the Medicare program, as it 
would inhibit the ability of physicians and ESRD facilities to 
incorporate these innovative new therapies into the care of and 
treatment protocols for their patients with ESRD. In contrast, one non-
profit provider association expressed support for CMS's proposal to 
exclude line extensions from TDAPA eligibility.
    One drug manufacturer stated the proposed approach imposes a 
framework that would categorically exclude many types of innovative new 
drugs from TDAPA eligibility. For example, the manufacturer stated that 
a new drug potentially may be assigned a Type 3 or Type 5 NDA by FDA, 
even if FDA reviews and approves the product under an original NDA 
through the 505(b)(1) pathway, and even if the drug reflects innovative 
characteristics and facilitates important benefits, such as improving 
patient outcomes through safety or efficacy advantages, reducing 
harmful complications, or providing patients (including specific 
subpopulations of patients) with new treatment options and/or new 
access options. The drug manufacturer stated that our proposed approach 
would impair providers' ability to evaluate and incorporate these 
important types of innovative new medicines into their practice, and 
would have detrimental access implications for patients. As such, it 
would undermine the goals that CMS seeks to achieve through TDAPA with 
respect to facilitating innovation, competition, and the ability of 
ESRD facilities to test and accommodate new therapies in their care 
plans. The drug manufacturer strongly encouraged CMS to modify the 
proposed criteria to allow for TDAPA eligibility for Type 3 and Type 5 
NDAs, noting that new dosage forms and new formulations (among other 
differences), particularly for IV and injectable products, reflect 
significant innovation and lead to new access options and treatment 
flexibility for patients.
    One drug manufacturer urged CMS to adopt the modification that a 
Type 5 drug should be eligible for TDAPA if it contains a previously 
approved active moiety and obtains approval for an ESRD-related 
indication for which the active moiety was not previously approved. The 
drug manufacturer asserted that, to achieve a new indication, a 
manufacturer will be required to invest the same resources and perform 
the same research and development, whether the new indication is 
approved through a Type 10 NDA or a different pathway, such as a 
supplement to the original NDA.
    The commenter noted that there are a myriad of considerations that 
go into any particular drug's FDA approval

[[Page 60667]]

pathway. Because the reasoning to include ``Type 5'' for a new 
indication is similar to that for including Type 10 NDA, the commenter 
strongly urged CMS to also include Type 5 new indication. The commenter 
stated that providing TDAPA eligibility when a drug containing a 
previously approved active moiety is approved for an ESRD indication 
for which such active moiety was not previously approved--regardless of 
NDA type--would also encourage manufacturers to pursue development 
strategies that capitalize on the benefits of expanding uses for 
current treatments into new indications in the ESRD space. The drug 
manufacturer urged CMS to recognize that a previously approved drug 
product that later becomes approved for an ESRD indication should be 
eligible for TDAPA.
    Response: We thank commenters for the helpful comments and 
suggestions. With regard to the suggestions that we allow new renal 
dialysis drugs and biological products that have a new indication for 
``ESRD'' or ``ESRD-related'' conditions to be eligible for the TDAPA, 
we understand this to mean that the drug was not previously indicated 
for a condition or conditions associated with ESRD, but after clinical 
trials, the drug has been proven to be safe and efficacious for the 
treatment or management of a condition or conditions associated with 
ESRD, and the drug falls within an ESRD PPS functional category.
    At this time, we do not believe that making a first ESRD new 
indication for a Type 5 NDA drug eligible for the TDAPA is consistent 
with CMS's intent to limit the TDAPA to truly innovative products. We 
believe that while Type 5 NDA drugs may have clinical benefits to 
patients over previously approved products, we did not make that 
assessment as part of ESRD PPS payment policy because these are drugs 
that are currently on the market but may have been reformulated or may 
be line-extensions. We do not believe that the characteristics of Type 
5 NDA drugs would advance the intent of the TDAPA for new renal 
dialysis drugs and biological products that fall within an existing 
functional category. As we stated in section II.B.1.c.i.(b) of the CY 
2020 ESRD PPS proposed rule (84 FR 38342), we do not believe that the 
types of changes represented by Type 5 NDAs enhance our goal of 
increased competition with the overarching goal of lowering drug 
prices. To the contrary, it seems that a goal of line extensions can be 
to thwart competition. Studies indicate that there is no lowering of 
prices through competition from line extensions. Rather, it has been 
reported that prices remain rigid and are not lowered. In fact, not 
only can product line extensions thwart competition, but they inherit 
the market success of the original brand, sometimes with little quality 
improvement over the original brand. We believe making Type 5 NDA drugs 
eligible for the TDAPA, even for the first ESRD new indication, may 
cause more attention to be diverted to the less costly duplication of 
drugs that are already available rather than those that may be more 
expensive to develop and bring to market. In addition, this could cause 
an influx of non-innovative drugs to the dialysis space, potentially 
crowding out innovative drugs. For these reasons, we continue to 
believe that providing the TDAPA to ESRD facilities to support the 
uptake of a drug reflected in an ESRD PPS functional category that may 
be a line extension or reformulation in their business model is not a 
judicious use of Medicare resources.
    In response to the commenter suggesting that Type 5 NDA drug 
products are the same as Type 10 NDA drug products, we believe that 
they are distinct in that Type 5 NDAs are reformulations or line 
extensions that are not truly innovative and Type 10 NDA drug products 
are not. As we discussed in the CY 2020 ESRD PPS proposed rule in 
section II.B.1.c.ii.(e) (84 FR 38345), we believed that Type 10 NDA 
drug products are sufficiently innovative because a new indication for 
a previously submitted drug that is applicable to renal dialysis 
advances the field and suggests the drug manufacturer is pioneering a 
new approach to provide better pharmacologic care for vulnerable ESRD 
patients with complex medical needs. We noted that we believed this 
could provide savings in terms of time-to-market and research and 
development, which could be reflected in the launch price of the drug. 
We further stated that we believed applying the TDAPA with respect to 
Type 10 NDA new renal dialysis drugs will assist ESRD facilities in 
adopting these drugs into their treatment protocols for patients when 
these drugs are warranted for use in that subset of patients.
    In addition, as we stated in the CY 2020 ESRD PPS proposed rule (84 
FR 38340), we believe FDA's NDA Classification Codes provide an 
objective basis that we can use to distinguish innovative from 
noninnovative renal dialysis service drugs. We believe that 
distinguishing drugs in this categorical manner helps us in our effort 
to support innovation by directing Medicare resources to renal dialysis 
drugs and biological products that are not reformulations or new dosage 
forms, while simultaneously balancing our goal to foster competition 
within the ESRD PPS functional categories by supporting products that 
advance the treatment for ESRD beneficiaries at a lower cost. We also 
believe that including some characteristics of an NDA Type without 
including others undermines the objective basis of the use of this 
system as a proxy to determine if a new renal dialysis drug or 
biological product is innovative for the purposes of the TDAPA.
    The NDA Classification Code Type 7 is a drug that has been 
previously marketed but without an approved NDA. With regard to the 
suggestion that we verify ESRD facility use of a Type 7 drug before 
deciding that the drug is ineligible for the TDAPA, we do not believe 
the characteristics of Type 7 would advance the intent of the TDAPA 
policy because these drugs are already on the market and may already be 
in use in the ESRD facilities. Thus, providing the TDAPA for Type 7 NDA 
drugs would not assist the facilities in their uptake for their 
business model.
    With regard to the comment about a drug currently marketed in 
tablet form that becomes available in a topical form, we believe the 
commenter is actually referring to Type 3 NDA, which is an NDA 
Classification Code that we are excluding from the TDAPA. Regarding the 
comments about excluding line extensions such as new formulations (Type 
5) and new dosage forms (Type 3), we do not believe these drugs are 
sufficiently innovative to warrant TDAPA eligibility and we do not want 
to provide perverse incentives for ESRD facilities to choose a new 
dosage form in order to obtain the TDAPA. Although these drugs may 
provide an expansion of patient treatment options, we continue to 
believe that these changes are not innovative and should not be 
eligible for the TDAPA for new renal dialysis drugs and biological 
products in existing functional categories.
    Regarding the comments about erecting barriers to patient use, 
chilling new research into ESRD medicine, and inhibiting the ability of 
physicians and ESRD facilities to incorporate these innovative new 
therapies into treatment protocols for their ESRD patients, we note 
that beneficiaries have access to all FDA-approved drugs and biological 
products for renal dialysis services, regardless of whether the ESRD 
facility receives TDAPA or not. The TDAPA eligibility does not prevent 
patient access to any renal dialysis services. ESRD patients currently 
have, and will

[[Page 60668]]

continue to have access to all FDA-approved renal dialysis drugs and 
biological products. Our policy would not prevent a physician from 
determining that the new Type 3 drug facilitates additional benefits. 
Such benefits could include improving patient outcomes through safety 
or efficacy advantages, reducing harmful complications, or providing 
patients with new treatment options over and above what is currently 
available. Then, the physician could include the drug in a patient's 
plan of care for the ESRD facility to furnish to that patient. We note 
that because Type 3 drugs would not eligible for the TDAPA, there would 
be no additional co-insurance for the beneficiary. We continue to 
believe that the TDAPA for renal dialysis drugs and biological products 
that fall within an ESRD PPS functional category should be applied only 
to truly innovative drugs and biological products. We thank and agree 
with the non-profit provider association that expressed support for our 
proposal to exclude line extensions from TDAPA eligibility.
    After careful consideration of the comments, we are finalizing our 
proposal to exclude certain NDA types from TDAPA eligibility. That is, 
we are finalizing to exclude Type 3, 5, 7 or 8, Type 3 in combination 
with Type 2 or Type 4, or Type 5 in combination with Type 2, or Type 9 
when the ``parent NDA'' is a Type 3, 5, 7 or 8.
    Comment: A physician association expressed support for the proposal 
to revise the TDAPA eligibility criteria but stated it is critical for 
CMS to support and specifically focus on innovations that also pertain 
to the pediatric space. The association noted that new products and 
therapies that come to market are not always tested in the pediatric 
population, and policies must be put in place to change this moving 
forward. The association emphasized that children and adolescents are 
not simply ``little adults.'' Rather, they have a unique physiology 
characterized by maturing organ function, body metabolism, and body 
distribution characteristics distinct from what adults manifest. Due to 
these differences, the association noted, the safety and efficacy data 
developed for adults and only studied in adults may not be appropriate 
for pediatric patients. The association recognized that the small 
number of pediatric patients complicates conducting safety, efficacy, 
or interventional trials in children, but noted this data is crucial to 
allow children to also benefit from innovation.
    Response: We thank the physician association for its support for 
the refinement of TDAPA eligibility and for its comments regarding the 
pediatric dialysis population. We recognize that the pediatric dialysis 
population has unique needs and that those needs must be closely 
examined. Our data analysis contractor will be holding a Technical 
Expert Panel meeting in December 2019 and intends to facilitate 
discussions on the topic of pediatric dialysis.
    Comment: Some commenters strongly encouraged CMS and FDA to work 
together to: (i) Provide greater transparency into the NDA Type 
decision; and (ii) develop a process for manufacturer involvement in 
that decision. A commenter also suggested that a formal process be 
adopted to request and appeal NDA Type classification decisions.
    Response: We have been conferring with FDA regarding new and 
innovative renal dialysis products, and intend continue to work with 
FDA in the future to discuss NDA Types as they pertain to new renal 
dialysis drugs and biological products. It is our understanding that 
FDA will meet with drug manufacturers for discussions regarding the NDA 
Types that may be considered for their applications.
    Comment: MedPAC, a professional association and 2 pharmaceutical 
companies commented that they disagreed with and did not support the 
proposal to use the NDA Classification Codes to determine TDAPA 
eligibility for new renal dialysis drugs, arguing that this is not an 
appropriate or well-suited proxy for determining TDAPA eligibility. 
They stated that they did not support CMS's proposed approach to judge 
the innovativeness of drugs. MedPAC commented that an SCI standard 
would be the best way to ensure taxpayer and beneficiary dollars are 
spent to improve patient care or outcomes. MedPAC noted that using a 
clinical improvement standard for the TDAPA policy would be consistent 
with: (1) Medicare's payment for certain new technologies under the 
outpatient PPS (OPPS) and inpatient PPS (IPPS); and (2) CMS's proposal 
to apply the IPPS SCI standard (specified in Sec.  412.87(b)(1)) to the 
add-on payment for new ESRD equipment and supplies.
    MedPAC asserted that to protect the well-being of beneficiaries and 
ensure good value for the Medicare program and taxpayers, Medicare 
should not pay more for drug or biological products that have not yet 
been proven to provide better outcomes for beneficiaries. Therefore, 
MedPAC noted, a new drug or biological product should not qualify for 
the TDAPA if there is no evidence that it is an improvement relative to 
existing care. Similarly, a large dialysis organization (LDO) requested 
a patient-centered approach to TDAPA eligibility with clear evidence of 
an improvement in one or more patient-centered outcomes. The LDO 
suggested that CMS could structure a TDAPA clinical improvement 
standard similar to the standard that the agency uses to pay for new 
technologies under the IPPS (specified in Sec.  412.87(b)(1)).
    MedPAC stated that CMS's approach relies on FDA approval pathways 
using a standard that is less stringent than a clinical improvement 
standard for all drugs and biological products that fit into an ESRD 
functional category, and should not be used, because on its own does 
not necessarily reflect improvements in outcomes nor the 
appropriateness of increased payment for Medicare beneficiaries. The 
Commission also asserted that the Medicare program, not FDA, should 
adjudicate spending determinations based on the specific needs of the 
Medicare population. MedPAC stated that the evaluation of the evidence 
of whether a new drug or biological product improves Medicare 
beneficiaries' outcomes should rest with CMS. One non-profit provider 
association and an LDO suggested the proposed policy could go further 
by also addressing whether new drugs for renal care represent an SCI, 
and that the proposed policy stands in contrast to the more robust 
policy that CMS proposed for new equipment and supplies based on the 
Medicare IPPS new technology add-on payment. These commenters stated 
that while it is expected that some drugs with a new molecular entity 
or new active ingredient will represent an SCI, not all will. They 
urged CMS to also consider whether a new drug or biological product 
addresses the needs of a patient population unresponsive to, or 
ineligible for, currently available treatments, or significantly 
improves clinical outcomes for a patient population compared to 
currently available treatments. They maintained that CMS' TDAPA policy 
should spur innovation by targeting products that do more than offer 
minor, if any, clinical improvement. For example, a drug that 
significantly improves compliance because it is not accompanied by 
complications such as gastrointestinal effects, which can deter patient 
compliance, might warrant eligibility for TDAPA and higher payment. The 
commenters suggested that CMS should consider refining TDAPA 
eligibility based on its own assessment of a product's clinical 
significance, similar to its proposed approach for the TPNIES.

[[Page 60669]]

    One drug manufacturer commented that relying on NDA Classification 
Codes for TDAPA eligibility would significantly discourage investment 
in the ESRD space. The manufacturer argued that the proposed changes 
would create a rigid and narrow set of criteria for TDAPA eligibility 
that would significantly limit the chances for new products to qualify 
for the opportunity to be evaluated and incorporated into ESRD care 
plans. The manufacturer expressed concern that innovators will be 
discouraged from investing time and resources in ESRD research, 
development, and innovation, because product uptake potential will be 
uncertain and unlikely. That, in turn, would also result in reduced 
competition, to the further detriment of ESRD stakeholders and the 
Medicare program, according to the commenter.
    Response: We appreciate the thoughtful and insightful comments from 
MedPAC and other commenters. With regard to MedPAC not supporting our 
proposed approach to judge the innovativeness of drugs, and noting that 
an SCI standard is the best way to ensure taxpayer and beneficiary 
dollars are spent to improve patient care or outcomes, we respectfully 
disagree.
    We believe that using the NDA Classification Codes will help us to 
objectively distinguish drugs that would assist our efforts to support 
innovation by directing Medicare resources to those new renal dialysis 
drugs and biological products. We also believe that our proposed 
approach would promote our goal to foster competition within the ESRD 
PPS functional categories by supporting products that advance the 
treatment for ESRD beneficiaries at a lower cost. Additionally, our 
proposed approach would promote our goal of providing a transition 
period for the unique circumstances experienced by ESRD facilities and 
to allow uptake of the new product. That is, our intention is to 
support innovation by helping ESRD facilities make appropriate changes 
in their businesses to adopt such products, provide additional payment 
for such associated costs, incorporate these drugs and biological 
products into their beneficiaries' care plans and potentially promote 
competition among drugs and biological products within the ESRD PPS 
functional categories. We proposed to narrow the types of new renal 
dialysis drugs and biological products within the ESRD PPS functional 
groups that are eligible for TDAPA, effective January 1, 2020. To do 
so, we proposed to extend TDAPA eligibility to those renal dialysis 
products that are new and innovative, not just new, based on the FDA's 
NDA Classification Code used for investigational product review. As 
detailed in the CY 2020 ESRD PPS proposed rule, we believe that the NDA 
classifications that we are excluding, which includes Type 3 (new 
dosage forms) are not innovative.
    With regard to having an SCI standard, as we discuss in section 
II.B.1.c of this final rule, we continue to believe that unlike many 
Medicare beneficiaries, the Medicare ESRD beneficiary is significantly 
complex, with each patient having a unique and challenging profile, due 
to a variety of causes, including biochemical differences, genetics 
and/or co-morbidities, all of which factor into the medical management 
of drugs and biological products. Practitioners should have the 
opportunity to evaluate the appropriate use of a new drug or biological 
product and its effect on patient outcomes and interactions with other 
medications the patient is currently taking, with other co-morbidities, 
and with what is age-appropriate. Further, unlike the SCI criteria for 
the TPNIES, where biochemical differences in patients rarely have an 
impact, the question of whether one drug is more effective than another 
can be impacted by characteristics that vary across patients such as 
age, gender, race, genetic predisposition and comorbidities. Each 
patient's unique medical profile must be assessed by the patient's 
physician in determining the plan of care, and we believe that, rather 
than being too rigid and limiting investment in new therapies, using 
the NDA Classification Codes for purposes of determining TDAPA 
eligibility will help promote innovative therapies for the ESRD patient 
on dialysis and support ESRD facility uptake.
    Comment: One drug manufacturer stated CMS should be cautious in 
taking any steps to judge the innovativeness of new renal dialysis 
drugs. Beyond the specific proposals to narrow the TDAPA eligibility, 
the company questioned whether CMS should be judging which drugs are or 
are not innovative. The company acknowledged CMS' desire to provide an 
objective basis to distinguish innovative from non-innovative renal 
dialysis service drugs, but asserted that it could be outside our 
authority to judge innovativeness of new drugs, regardless of the 
standard employed. Such a step could contravene section 1801 of the 
Act, which prohibits the Medicare program from interfering in the 
practice of medicine. The commenter states that the choice of 
prescribing any drug, including a new ESRD drug, should be between a 
patient and his or her doctor. As an example, they noted the Part D 
program has exhibited continuously high beneficiary satisfaction and 
costs below estimates, but has explicit prohibitions on government 
involvement in setting any kind of formulary.
    Response: We appreciate this comment and believe that in using the 
FDA NDA Classification Codes, we are not interfering in the practice of 
medicine. We are not dictating what drugs may or may not be used on 
what patients. Rather, all FDA-approved renal dialysis drugs and 
biological products are accessible to all ESRD patients for the 
treatment of ESRD. As noted previously, we believe FDA's NDA 
Classification Codes would provide an objective basis that we can use 
to distinguish innovative from noninnovative renal dialysis service 
drugs for eligibility for the TDAPA for renal dialysis drugs that are 
included in functional categories. Unlike Part D, we are not setting a 
formulary, and we do not prohibit accessibility of any FDA-approved 
drug that is indicated for an ESRD patient for renal dialysis services. 
What we are limiting is eligibility for the TDAPA for new renal 
dialysis drugs and biological products in existing ESRD PPS functional 
categories to truly innovative products. We continue to believe that 
practitioners and their patients should make treatment decisions 
collaboratively.
    Comment: We received comments from 2 pharmaceutical companies and a 
few individuals regarding the exclusion of specific products from TDAPA 
eligibility and the more restrictive eligibility of new renal dialysis 
drugs and biological products in the CY 2020 ESRD PPS proposed rule 
from what was finalized in the CY 2019 ESRD PPS final rule, which 
included all new renal dialysis drugs and biological products. A 
professional association, a drug manufacturer, a physician and an 
individual commenter urged CMS not to finalize the proposed changes to 
the TDAPA eligibility criteria under the CY 2020 ESRD PPS proposed 
rule, and to instead maintain the CY 2019 ESRD PPS final rule's 
expanded eligibility criteria for TDAPA, with an effective date of 
January 1, 2020. They stated that under our current proposal the TDAPA 
eligibility criteria would be too narrowed, resulting in ESRD 
facilities not having the opportunity to incorporate the many new and 
innovative drugs into their care plans and to make appropriate changes 
in their businesses to adopt such products.
    They also commented that, compared to the TDAPA eligibility 
criteria finalized under the CY 2019 ESRD PPS

[[Page 60670]]

final rule, the CY 2020 ESRD proposed rule has significant differences 
that affect what the stakeholders have been expecting, planning, 
relying upon and preparing for since the November 2018 publication of 
the CY 2019 ESRD PPS final rule. The commenter noted that those 
provisions currently are scheduled to take effect on January 1, 2020 
and asserted that changing the TDAPA eligibility criteria would provide 
stakeholders with very little time between issuance of a final rule and 
the proposed effective date to plan for or adapt to any changes. The 
commenters stated that implementing such a significant change so 
quickly would be imprudent and unfair to ESRD stakeholders.
    One drug manufacturer commented that NDA approval pathways, rather 
than NDA Classification Codes, are the clearest method for making TDAPA 
eligibility determinations for new renal dialysis drugs. The same drug 
manufacturer noted that for drug products, approval through FDA's 
statutory 505(b)(1) NDA pathway reflects a rigorous process used for 
new and novel drugs, and requires substantial clinical data and robust 
review. As such, drugs approved under the 505(b)(1) NDA pathway should 
be eligible for TDAPA. The drug manufacturer opined that this is a 
clear standard anchored in statute and not subject to changes based in 
internal FDA policies and procedures created for administrative 
purposes.
    In addition, the drug manufacturer noted that eligibility on the 
basis of NDA approval pathway allows clarity for stakeholders and 
reflects an appropriate balance between the goals CMS has articulated 
in the CY 2020 ESRD PPS proposed rule with respect to incentives for 
innovation and concerns regarding costs. The drug manufacturer 
suggested that CMS should maintain the TDAPA eligibility criteria 
finalized under the CY 2019 ESRD PPS final rule, which would apply the 
TDAPA to all new renal dialysis drugs or biological products approved 
under section 505 of the Federal Food, Drug, and Cosmetic Act or 
section 351 of the PHS Act, effective January 1, 2020. The drug 
manufacturer explained that basing the TDAPA eligibility criteria on 
NDA approval pathway also would be consistent with CMS regulations and 
policies in other contexts that refer to NDA approval pathways. For 
example, the Medicaid program has definitions for innovator drugs that 
focus on NDA approval pathways, and the CMS HCPCS Level II coding 
process involves considerations of FDA approval pathways (as well as 
certain FDA Orange Book designations), among other criteria. The 
commenter further noted that, if CMS does move forward with the 
proposed modifications, the changes should not go into effect until 
January 1, 2021. The commenter urged CMS to re-evaluate and revise both 
the substance of the proposed TDAPA eligibility changes, as well as the 
proposed effective date for any changes that may be finalized.
    Response: Thank you for these comments. As discussed in the CY 2020 
ESRD PPS proposed rule, we re-evaluated the expanded TDAPA policy in 
the CY 2019 ESRD PPS final rule based on numerous calls, 
correspondence, meetings and comments, requesting we narrow TDAPA 
eligibility, as well as based on our overall policy goals for the TDAPA 
and the financial impact of those broad-reaching goals. As the TDAPA 
eligibility policy finalized in the CY 2019 ESRD PPS final rule had not 
been implemented yet, and as we evaluated our goal to support 
innovation and promote competition, while simultaneously being prudent 
with regard to Medicare spending, we weighed all aspects of the current 
and future risks in these areas and carefully made a decision to 
propose to narrow the CY 2019 ESRD PPS TDAPA eligibility policy in the 
most objective way possible. As noted previously, we are finalizing 
this proposal effective January 1, 2020. We do not believe postponing 
the implementation of this new policy to January 1, 2021 is necessary 
and we believe doing so would be operationally challenging.
    With regard to using the FDA approval pathways to determine 
innovation, we found the use of only the 505(b)(1) pathway to be too 
narrow and the 505(b)(2) pathway to be too broad. The commenter 
mentioned using Medicaid's definition of innovator drugs, but that 
definition includes line extensions and generic drugs and we do not 
believe those drugs and biological products to be truly innovative for 
purposes of our TDAPA policy.
    Comment: One commenter requested that CMS review every new FDA 
approved drug for dialysis.
    Response: To date, only one type of renal dialysis drug 
(calcimimetics) has been eligible for the TDAPA. We anticipate that 
additional renal dialysis drugs and biological products will become 
eligible in the future and are exploring the potential use of 
application forms requesting specific information. Consistent with our 
current policy, we will review all requests submitted for the TDAPA.
    We do not agree with the commenter that we should review every new 
FDA approved drug for dialysis. We believe that it is appropriate for 
us to use the process that we discussed in the CY 2016 ESRD PPS final 
rule and on the CMS website \19\ whereby after FDA approves drugs and 
biological products for use in ESRD patients, the products then go 
through a process to establish a billing code, that is, the HCPCS code 
process. When the HCPCS application is submitted and the drug 
manufacturer notifies us of its interest in eligibility for the TDAPA 
we then analyze the information in the FDA-approved labeling and the 
HCPCS application information, including studies submitted as part of 
these two standardized processes. This process provides an approach 
that facilitates a dialogue between the interested stakeholder and CMS 
creating a more robust forum for the evaluation of the eligibility for 
the drug or biological product for the TDAPA under the ESRD PPS.
---------------------------------------------------------------------------

    \19\ https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ESRDpayment/ESRD-Transitional-Drug.html.
---------------------------------------------------------------------------

    Comment: One national dialysis association stated that CMS should 
remain open to future refinements of the TDAPA eligibility 
requirements, including the ability to make exceptions to these rules 
if a drug would be of significant clinical value for the treatment of 
ESRD. They asserted that the excluded NDA Classification Codes are a 
good place to start, but CMS should ensure that this policy is adjusted 
or that exceptions are granted, as needed.
    Response: We appreciate the support and noted in our CY 2020 ESRD 
PPS proposed rule (84 FR 38346) that we would remain open to future 
refinements of the TDAPA eligibility requirements. Specifically, we 
said that based on our past experience and our expectation of detailed 
analysis of future drug product utilization, pricing and payment, CMS 
anticipates proposing further refinements to the TDAPA policy through 
notice and comment rulemaking in the future.
    We received several comments from stakeholders specifically 
supporting the exclusion of generic drugs. The comments and our 
responses to the comments on our proposal to exclude generic drugs are 
set forth below.
    Comment: Some commenters supported our proposal to exclude drugs 
approved by FDA under section 505(j) of the FD&C and drugs for which 
the NDA types are for products that are not truly innovative. MedPAC 
and several

[[Page 60671]]

other commenters supported the exclusion of generic drugs from TDAPA 
eligibility. However, they also stated CMS should exclude biosimilar 
biological products because they would be neither new nor innovative. 
MedPAC questioned our proposal that products that receive FDA approval 
under section 351 of the PHS Act, which occurs for new biological 
products and biological products that are biosimilar to, or 
interchangeable with, a reference biological product, would continue to 
be eligible for the TDAPA, even though we acknowledged that these 
products may not be innovative. MedPAC asserted that CMS should not pay 
more for a new technology without evidence that it improves outcomes 
for Medicare beneficiaries. One non-profit provider association 
recommended CMS revisit its assumptions and conclusions about 
biosimilar biological products in future rulemaking with the benefit of 
more experience.
    Response: We thank commenters for the support regarding the 
exclusion of generic drugs reflected in ESRD PPS functional categories 
from eligibility for the TDAPA. CMS continues to support the 
development and the utilization of these products that contain 
innovative technology for the treatment of ESRD. As we discussed in the 
CY 2020 ESRD PPS proposed rule, the approval process for biosimilar 
biological products is a different pathway than that for generic drugs 
and has different requirements. We believe that a categorical exclusion 
from TDAPA eligibility for all biological products that are biosimilar 
to or interchangeable with a reference biological product, would 
disadvantage this sector of biological products in a space where we are 
trying to support technological innovation. While the products 
themselves may not be innovative, CMS believes the technology used to 
develop the products is sufficiently new and innovative to warrant 
TDAPA payment at this time. However, unlike NDAs submitted pursuant to 
sections 505(b)(1) or 505(b)(2) of the FD&C Act, we do not have a 
categorical system to use as a proxy for assistance in determining 
which types of applications would meet the intent of the TDAPA policy. 
Therefore, we are finalizing our proposal to continue to allow all 
biosimilar to or interchangeable with a reference biological products 
to remain eligible for the TDAPA instead of proposing to exclude all of 
them.
    However, as noted in the CY 2020 ESRD PPS proposed rule, we are 
aware that there are similar concerns about providing the TDAPA for 
these products that there are with generics, that increased drug class 
competition for biosimilar biological products did not translate into 
pricing reductions, and there was a market failure contributing to the 
rising costs of prescription drugs with the increases borne solely by 
Medicare. Therefore, we will monitor future costs of biosimilar 
biological products as they pertain to renal dialysis, the TDAPA, and 
the ESRD PPS, and we may revisit the recommendation to exclude 
biosimilar biological products from TDAPA eligibility in future 
rulemaking.
    Comment: A few commenters asked about TDAPA eligibility for 
specific products and their placement in the ESRD PPS functional 
categories, and requested that CMS permit eligibility for the TDAPA for 
drugs within functional categories with a different mechanism of 
action. One commenter requested that CMS support FDA Breakthrough 
Therapy Designation products.
    Response: Currently, we have established a TDAPA request process 
which is available on the CMS website: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ESRDpayment/ESRD-Transitional-Drug.html. We anticipate establishing a more formal application process 
in the future as more new renal dialysis drugs and biological products 
become available. With regard to TDAPA eligibility for specific 
products, we would need to review the submitted TDAPA request to make 
that determination. We intend to provide further information regarding 
a TDAPA application process in the future.
    Regarding the comment about FDA Breakthrough Therapy Designation 
products, this refers to a drug that is intended alone or in 
combination with one or more other drugs to treat a serious or life-
threatening disease or condition and has preliminary clinical evidence 
indicating that the drug may demonstrate substantial improvement over 
existing therapies on one or more clinically significant endpoints, 
such as substantial treatment effects observed early in clinical 
development. If a drug is granted Breakthrough Therapy Designation by 
FDA, FDA will expedite the development and review of such a drug. The 
FDA does not announce when a drug has been granted Breakthrough Therapy 
Designation. It does not disclose information regarding sponsors who 
submitted requests for or who have been granted or denied Breakthrough 
Therapy Designation. Breakthrough Therapy Designation requests are 
typically submitted to an Investigational New Drug (IND), and the FDA 
cannot disclose the existence of an IND, or any submissions that have 
been submitted to the IND, unless it has previously been publicly 
disclosed or acknowledged per 21 CFR 312.130(a). The restrictions 
discussed previously create an issue for determining TDAPA eligibility 
since this information is not publicly available. To the extent a new 
renal dialysis drug or biological product is designated as a 
Breakthrough Therapy and otherwise meets the eligibility criteria for 
the TDAPA, it would be eligible for the add-on payment adjustment.
    Comment: Numerous stakeholders requested that CMS increase the ESRD 
PPS base rate following any one of the following scenarios: At the end 
of the TDAPA eligibility period; when a new drug is added to the ESRD 
PPS functional category; or, when a new product emerges within a 
functional category or composite rate that is of high clinical value to 
patients and is utilized by a significant number of beneficiaries with 
ESRD where there are simply not sufficient funds allocated within the 
ESRD PPS to cover the cost of the new drug. Counter to this, MedPAC 
asserted CMS should not make duplicative payments for a new product 
assigned to a functional category by providing the TDAPA for 2 years in 
addition to paying for its functional category under the ESRD PPS base 
rate. For example, MedPAC stated, the agency could reduce the TDAPA 
amount to reflect the amount already included in the ESRD PPS base 
rate. MedPAC noted that CMS should consider paying a reduced percentage 
of the estimated incremental cost of the new drug as a way to share 
risk with dialysis providers and provide some disincentive for the 
establishment of high launch prices. MedPAC pointed out that CMS 
proposed a similar approach for the TPNIES. Some commenters suggested 
that CMS should apply funds not expended under the narrower TDAPA 
eligibility policy to make ESRD PPS adjustments when it adds new 
products to the ESRD PPS base rate. These commenters recommended that 
CMS establish a payment adjustment that equals the incremental 
difference between any amounts associated with the functional category 
currently in the base rate attributable to the new product's cost, 
which may result in CMS adding the product's full cost if the ESRD PPS 
base rate does not include any such reimbursement or a lesser amount 
that reflects current dollars in the ESRD PPS base rate.
    Another commenter advocated that CMS create a non-budget neutral 
methodology to incorporate novel or improved technologies, including 
drugs and devices that will better the lives of

[[Page 60672]]

patients with kidney failure, into the ESRD PPS bundled payment and 
that future novel products or technologies for treating patients with 
kidney failure will require different reimbursement pathways than the 
PPS. This commenter stated there needs to be new money for innovative 
drugs and devices, and that a bundled payment works for drugs, devices, 
and care strategies that are used by the vast majority of patients at 
similar doses or that are inexpensive enough to be affordable within a 
highly capitated payment model. However, the commenter does not believe 
that a bundled payment works for drugs, devices, and care strategies 
that are both expensive and used by a minority of patients treated 
within the capitated payment model, particularly when the total number 
of patients within each payment unit are sufficiently small that one or 
2 high utilizers will make a marked difference in margins.
    Response: We appreciate the comments and suggestions of MedPAC and 
the many commenters regarding increasing the base rate in several 
scenarios, including making any additions to it in a non-budget neutral 
manner; reconciling the TDAPA with either what is already in the ESRD 
PPS base rate or with what is in each ESRD PPS functional category; 
making separate, non-PPS reimbursement pathways for new and innovative 
drugs, and fund-shifting from ``would have been'' expenditures under 
the TDAPA eligibility criteria finalized in the CY 2019 ESRD PPS final 
rule to adding those dollars to the base rate. As described previously, 
the comments ranged widely from adding the cost of all new renal 
dialysis drugs to the ESRD PPS base rate to only adding the difference 
to what is currently in the base rate, to still more fiscally 
conservative suggestions of netting out TDAPA expenditures with what is 
already in the base rate.
    As we stated in the CY 2016 ESRD PPS final rule (80 FR 69016), we 
believe we have the authority to add new renal dialysis services to the 
bundle under both sections 1881(b)(14)(B) of the Act and 217(c)(2) of 
PAMA. First, we read section 1881(b)(14)(B)(iii) of the Act as 
requiring the inclusion of a specific category of drugs in the bundle--
that is, drugs and biologicals, including those with only an oral form, 
furnished to individuals for the treatment of ESRD and for which 
separate payment was made prior to January 1, 2011. We also read 
section 1881(b)(14)(B)(iv) of the Act as specifying a different 
category of items that must be included in the bundle--that is, items 
and services, which includes drugs and biologicals, not specified by 
sections 1881(b)(14)(B)(i), (ii), or (iii) of the Act. Second, we read 
the language of section 217(c)(2) of PAMA--``the Secretary of Health 
and Human Services . . . shall establish a process for . . . including 
new injectable and intravenous products into the bundled payment 
system''-- to require us to both define and implement a drug 
designation process for including new injectable and IV products into 
the ESRD PPS bundled payment.
    As we stated in the CY 2019 ESRD PPS final rule (84 FR 56935), we 
do not believe it would be appropriate to add dollars to the ESRD PPS 
base rate for new renal dialysis drugs and biological products that 
fall within existing functional categories and that doing so 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 rate whenever 
something new is made available. Additionally, the statute does not 
require that we add dollars to the ESRD PPS base rate when a new item 
is available. As we explained in that rule, the intent of the TDAPA for 
new renal dialysis drugs and biological products that fall within an 
ESRD PPS functional category 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.
    Through the legal levers available to us, we strive to not only 
support innovation and competition for new renal dialysis drugs and 
biological products that fall within an ESRD PPS functional category, 
but also to align resource use with payment, while simultaneously 
balancing that payment with prudent spending of Medicare dollars. 
Medicare spending on prescription drugs continues to grow at rates far 
in excess of inflation, which poses challenges for both CMS and for 
providers seeking to give patients innovative therapies that can 
improve health outcomes and quality of life but at a cost that both 
patients and providers can afford.
    Comment: One LDO requested that the drug designation process be 
patient centered and not increase patient expense for a new drug 
eligible for the TDAPA in which there is no clear evidence of an 
improvement in one or more patient-centered outcomes. The LDO stated 
that improvements in surrogate outcomes, such as laboratory values, is 
not sufficient. The LDO noted that if a new drug really improves 
patient-centered outcomes, the ESRD PPS base rate should be increased 
to pay for it after the 2 year TDAPA period regardless of whether the 
drug fits into a functional category. However, one national dialysis 
association referenced CMS' assertion that restricting TDAPA 
eligibility would reduce CY 2020 Medicare expenditures, which would 
have a favorable downstream impact on beneficiary co-insurance, and 
argued that patients are willing to accept higher cost sharing in 
exchange for any innovation in the ESRD space.
    Response: We agree with the LDO that all treatment should be 
patient-centered, and encourage drug choices be made in discussion with 
the patient regarding potential improved outcomes weighed against 
additional out-of-pocket cost to the patient. We note that physicians 
are not obligated to prescribe a new drug for a dialysis patient if 
they do not feel it would yield improved clinical outcomes for the 
additional co-insurance obligation of the patient. For any new renal 
dialysis drug or biological product that meets the TDAPA eligibility 
criteria, the 20 percent co-insurance for those drugs is statutorily 
mandated on the ESRD PPS payment amount, which includes the amount for 
the TDAPA.
    Final Rule Action: After consideration of public comments, for CY 
2020, we are finalizing the revisions to the drug designation process 
regulation as proposed. That is, we are finalizing the proposed 
revisions to Sec.  413.234 by revising paragraph (b)(1)(ii) and adding 
paragraph (e), effective January 1, 2020, to specify that a new renal 
dialysis drug used to treat or manage a condition for which there is an 
ESRD PPS functional category is not eligible for payment using the 
TDAPA if it is a generic drug or if the NDA for the drug is classified 
by FDA as a certain type--specifically, if the drug is approved under 
section 505(j) of the FD&C Act or the NDA for the drug is classified by 
FDA as Type 3, 5, 7 or 8, Type 3 in combination with Type 2 or Type 4, 
or Type 5 in combination with Type 2, or Type 9 when the ``parent NDA'' 
is a Type 3, 5, 7 or 8.
    We also proposed a technical change to Sec.  413.234(a) to revise 
the definitions ``ESRD PPS functional category'' and ``Oral-only drug'' 
to be consistent with FDA nomenclature. We proposed to change the 
definition of ``ESRD PPS functional category'' to replace 
``biologicals'' with ``biological products.'' We also proposed to 
change the definition of ``Oral-only drug'' to

[[Page 60673]]

replace ``biological'' with ``biological product.''
    We did not receive any comments on our proposed technical changes 
to Sec.  413.234(a) to revise the definitions. We are therefore 
finalizing these changes as proposed.
d. Modification of the Basis of Payment for the TDAPA for Calcimimetics 
in CY 2020
    In the CY 2016 ESRD PPS final rule (80 FR 69025 through 69026), we 
finalized an exception to the drug designation process for 
calcimimetics. Specifically, we identified phosphate binders and 
calcimimetics as oral-only drugs and, in accordance with Sec.  
413.234(d), 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 FDA. We stated that under Sec.  413.234(b)(1), if 
injectable or IV forms of phosphate binders or calcimimetics are 
approved by FDA, these drugs would be considered reflected in the ESRD 
PPS bundled payment because these drugs are included in an existing 
functional category, so no additional payment would be available for 
inclusion of these drugs.
    However, we recognized the uniqueness of these drugs and finalized 
in the CY 2016 ESRD PPS final rule that we will not apply this process 
to injectable or IV forms of phosphate binders and calcimimetics when 
they are approved because payment for the oral forms of these drugs was 
delayed and dollars were never included in the base rate to account for 
these drugs. We further stated that we intend to use notice-and-comment 
rulemaking to include the oral and non-oral forms of calcimimetics and 
phosphate binders in the ESRD PPS bundled payment after the payment of 
the TDAPA. We explained that when these drugs are no longer oral-only 
drugs, we will pay for them under the ESRD PPS using the TDAPA based on 
the payment methodologies in section 1847A of the Act for a period of 
at least 2 years.
    Change Request 10065, Transmittal 1889 issued August 4, 2017, 
replaced by Transmittal 1999 issued January 10, 2018, implemented the 
TDAPA for calcimimetics effective January 1, 2018. As discussed 
previously, calcimimetics will be paid using the TDAPA for a minimum of 
2 years until sufficient claims data for rate setting analysis is 
available for these products. Since payments have been made beginning 
January 1, 2018, a 2-year period would end December 31, 2019. We are 
still in the process of collecting utilization claims data for both the 
oral and non-oral form of calcimimetics, which will be used for a rate 
setting analysis. Therefore, in the CY 2020 ESRD PPS proposed rule, we 
stated that we will continue to pay for calcimimetics using the TDAPA 
in CY 2020 (84 FR 38347).
    We also discussed in the proposed rule that in the CY 2019 ESRD PPS 
final rule (83 FR 56943), we stated that we would continue to pay the 
TDAPA using the pricing methodologies under section 1847A of the Act 
(which includes ASP+6 percent) until sufficient claims data for rate 
setting analysis for the new injectable or IV product are available, 
but not for less than 2 years. We noted that calcimimetics were the 
first drugs for which we paid the TDAPA (83 FR 56931), and increased 
Medicare expenditures by $1.2 billion in CY 2018. It is clear, 
therefore, that ESRD facilities are furnishing these innovative drugs. 
We explained in the CY 2019 ESRD PPS final rule (83 FR 56943) that one 
of the rationales for the 6 percent add-on to ASP has been to cover 
administrative and overhead costs. We also explained that the ESRD PPS 
base rate has dollars built in for administrative complexities and 
overhead costs for drugs and biological products (83 FR 56944).
    As we stated in the CY 2020 ESRD PPS proposed rule (84 FR 38347), 
we have provided the TDAPA for calcimimetics for 2-full years, and we 
believe that is sufficient time for ESRD facilities to address any 
administrative complexities and overhead costs that may have arisen 
with regard to furnishing the calcimimetics. Therefore, we proposed 
that the basis of payment for the TDAPA for calcimimetics, beginning in 
CY 2020, would be 100 percent of ASP. That is, we proposed to modify 
Sec.  413.234(c) by removing the clause ``except that for calcimimetics 
it is based on the pricing methodologies under section 1847A of the 
Social Security Act.'' We stated that we believed this proposal strikes 
a balance between supporting ESRD facilities in their uptake of these 
products and limiting the financial burden that increased payments 
place on beneficiaries and Medicare expenditures. We also noted that 
this policy would be consistent with the policy finalized for all other 
new renal dialysis drugs and biological products in the CY 2019 ESRD 
PPS final rule (83 FR 56948).
    In addition, we noted that our proposal to condition the 
application of the TDAPA on CMS's receipt of ASP data, discussed in 
section II.B.2.c of this final rule, would also apply with respect to 
calcimimetic products.
    The public comments and our responses to the comments regarding our 
proposal to change the basis of payment for the TDAPA for calcimimetics 
are set forth below.
    Comment: MedPAC supported the proposal and stated that there is 
good rationale to change the basis for the TDAPA from ASP plus 6 
percent to ASP with no percentage add-on. MedPAC noted that the ASP 
plus 6 percent policy was developed to reimburse physicians for the 
cost of drugs that they purchase directly and commonly administer in 
their offices. While the policy never stated what cost the ``+6 
percent'' was intended to cover, MedPAC noted that applying the policy 
to ESRD facilities is considerably different from reimbursing 
physicians. First, the variation in physicians' purchasing power, 
whether they practice solo, as part of a group, or in a health system, 
is likely to result in considerably more variation in the acquisition 
price for a drug compared to the acquisition prices for ESRD 
facilities. If the intent of the ``+6 percent'' was to address 
acquisition price variation, MedPAC asserted that rationale is 
diminished for ESRD facilities. Second, MedPAC noted that the TDAPA is 
an add-on payment adjustment to the ESRD base rate, which already 
includes reimbursement for the cost of storage and administration of 
renal dialysis drugs and biological products. Therefore, if the intent 
of the ``+6 percent'' was to address storage and administration costs, 
MedPAC believed these costs are already addressed through the ESRD PPS 
bundled payment and thus do not warrant the additional 6 percent.
    A national dialysis association disagreed with MedPAC regarding 
ASP+6 in the ESRD facility setting. The commenter stated that while 
ASP+6 is used in physician reimbursement, it is also used across the 
Medicare program as the reimbursement standard for health care 
providers of all types, including providers that are much larger than 
ESRD facilities, such as large hospital systems. This commenter, along 
with another commenter, expressed that recommending that ESRD 
facilities be paid differently than other health care providers for the 
same pharmaceutical products runs counter to MedPAC's longstanding view 
that Medicare should pay similar rates for similar care.
    A drug manufacturer and an LDO expressed similar beliefs as the 
national dialysis association, stating that CMS should maintain parity 
in reimbursement across other settings of care in which ASP-based 
reimbursement is provided at ASP plus

[[Page 60674]]

6 percent. One commenter noted that the 6 percent add-on is important 
for patient access in ESRD facilities, like other health care 
providers. The other commenter noted that other Medicare payment 
systems provide dispensing fees to recognize such costs, and the 
commenter believes ESRD facilities should be compensated for these 
costs as well.
    An LDO and a drug manufacturer were disappointed with CMS' proposal 
to decrease the TDAPA for calcimimetics from ASP+6 to ASP+0. They noted 
that not all ESRD facilities can purchase a drug at the ASP and stated 
that this is particularly the case with calcimimetics. They also 
expressed concern that other policies, including the budget sequester, 
the 20 percent co-insurance exclusion from bad debt, and unpaid cost-
sharing obligations by states, will result in TDAPA payments for 
calcimimetics far below the ASP. One association stated that cutting 
the TDAPA reimbursement for calcimimetics to ASP+0 would actually move 
the baseline reimbursement to, at best, ASP-1.6 after application of 
the ongoing sequester.
    A national dialysis stakeholder organization stated that given the 
amount of money attributed to the ESRD PPS functional categories other 
than anemia management, it is difficult to see how any dollars could be 
used to cover the administrative costs of calcimimetics or any other 
products. A drug manufacturer and a national dialysis organization 
noted that ESRD facilities, like other providers of Part B- covered 
drugs, rely on the 6 percent add-on to help cover the costs of 
acquiring and handling drugs, and in the case of the oral form of the 
calcimimetic, dispensing the drug.
    Another commenter explained that ESRD facilities need the current 6 
percent add-on amount to help pay for the expensive storage, packaging, 
and administration costs associated with products eligible for the 
TDAPA (which require facilities to ensure registered nurses are 
available because they administer calcimimetics to patients). For 
example, such costs include: Shipping medications to the patient's 
home, particularly for homecare and nursing home patients; pharmacy 
dispensing fees, especially in the case of the many small providers 
that do not have pharmacy licenses; storage and utility costs to 
account for the drug's refrigeration requirement; purchasing costs; 
rinse back procedures, which require a registered nurse and the 
facility ensuring that a registered nurse is on-site; pill usage 
accounting; and billing procedures and processes, among others. The 
commenter explained that these costs are especially challenging for 
small and independent providers to bear when considering the fact that 
they also generally experience less favorable drug acquisition pricing 
than LDOs with significant market advantage and negotiating power.
    An LDO explained that it continues to face significant 
administrative and overhead costs resulting from the inclusion of the 
calcimimetics into the ESRD PPS via the TDAPA. The commenter stated 
that these costs not transitional as CMS asserts. The commenter 
explained that it incurs ongoing costs for staff training on clinical 
protocols as well as costs related to internal updates for clinical and 
financial systems. A national dialysis association provided similar 
comments, stating the operational costs associated with furnishing 
calcimimetics to ESRD beneficiaries, such as storing, handling, and 
dispensing the drugs, are ongoing for so long as the drugs are 
furnished under the ESRD PPS and that there is no mechanism through 
which ESRD facilities can address these costs without reimbursement.
    A home dialysis association expressed concern regarding the ESRD 
facility costs associated with home dialysis patients. The commenter 
noted that according to their members, approximately 25 percent of 
patients, both home and in-center, take some form of calcimimetic drug. 
The commenter explained that for home dialysis patients, the costs 
associated with actually getting the drug to the patient is especially 
important given that they are not present in clinic as often as in-
center patients. The commenter stated that ESRD facilities must spend 
considerable time and resources making certain that these patients have 
access to necessary medications, like calcimimetics. Two commenters 
stated that CMS made a commitment in the CY 2016 ESRD PPS final rule, 
and reiterated that commitment in subsequent rulemaking, that it would 
reimburse the TDAPA using the pricing methodologies under section 1847 
of the Act, which includes ASP+6 percent, until sufficient claims data 
for rate setting analysis are available, but not for less than 2 years. 
The commenters noted CMS should maintain this commitment to pay the 
TDAPA for calcimimetics at ASP+6 percent for the duration of the TDAPA 
period.
    Response: The TDAPA is an add-on payment adjustment under the ESRD 
PPS, and is not intended to be a mechanism to make separate payment for 
Part B drugs. Section 1842(o) of the Act, which specifies payment for 
drugs included in a physician's or supplier's bill that are not paid on 
a cost or prospective payment basis as otherwise provided under Part B, 
provides for payment using the methodologies under section 1847A of the 
Act. In our CY 2019 ESRD PPS final rule(83 FR 56948), we stated that 
ASP+0 would be the basis for the TDAPA prospectively for all new renal 
dialysis drugs and biological products effective January 1, 2020. We 
explained that calcimimetics were excluded from this policy and the 
basis of payment for the TDAPA for calcimimetics would continue to be 
based on the pricing methodologies available under section 1847A of the 
Act (which includes ASP+6). We also stated that we believe ASP+0 is a 
reasonable basis for payment for the TDAPA for new renal dialysis drugs 
and biological products 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 noted 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 its June 2015 
report, there is no consensus among stakeholders. We further explained 
that we believe 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 biological products regardless of whether they 
fall within an ESRD PPS functional category strikes a balance between 
the increase to Medicare expenditures (subsequently increasing 
beneficiary co-insurance) and stakeholder concerns, including those 
about incentivizing use of high cost drugs in ESRD facilities.
    We believe that we have flexibility under section 
1881(b)(14)(D)(iv) of the Act to base the amount of the TDAPA on a 
methodology that is not based on a payment methodology under section 
1847A of the Act. There is no requirement to use the payment 
methodologies under section 1847A of the Act for renal dialysis drugs 
under the ESRD PPS. As a result we have reconsidered the use of the 
ASP+6 percent methodology under section 1847A of the Act for the TDAPA 
for calcimimetics and proposed to use ASP+0 instead.
    We agree with MedPAC that the ASP+6 percent policy was developed to 
reimburse physicians for the cost of drugs and that the TDAPA is an 
add-on payment adjustment to the ESRD PPS

[[Page 60675]]

base rate, which already includes reimbursement for the cost of storage 
and administration of ESRD-related drugs. We appreciate MedPAC's 
support for this proposal and agree that ASP+0 is appropriate as the 
basis for the TDAPA for calcimimetics for CY 2020. For all of these 
reasons, we are finalizing the proposal without modification.
    Comment: Some commenters explained that the ASP does not reflect 
the cost of many ESRD facilities who purchase products well above the 
ASP. An LDO noted that not all ESRD facilities can purchase a drug at 
the ASP and that this is particularly the case with calcimimetics. A 
drug manufacturer explained that the ASP is a market-based price that 
reflects the weighted average of all manufacturer sales prices and 
includes most rebates and discounts that are negotiated between 
manufacturers and purchasers in the commercial market. The manufacturer 
explained that not all health care providers receive the same 
discounts, therefore the manufacturer believes that the 6 percent add-
on is important in ensuring patient access across providers. The 
commenter further explained that discounts provided to the supply 
chain--such as wholesalers--may be included in the ASP but may not be 
passed on to ESRD facilities.
    Response: We understand the concerns expressed by the commenters 
about ASP, and the difficulties that may be encountered by small 
dialysis centers unable to negotiate the lower drug prices attributed 
to volume, and inaccessibility to supply chain discounts. The purpose 
of the TDAPA policy is not to offset business losses or to enhance 
business profits. The TDAPA is an add-on payment adjustment under the 
ESRD PPS, and is not intended to be a mechanism to make separate 
payment for Part B drugs. Section 1842(o) of the Act, which specifies 
payment for drugs included in a physician's or supplier's bill that are 
not paid on a cost or prospective payment basis as otherwise provided 
under Part B provides for payment using the methodologies under section 
1847A of the Act. We do, however, continue to believe ASP data is the 
best data available for the purposes of determining the basis of 
payment for the TDAPA since it is commonly used to facilitate Medicare 
payment across care settings and is based on the manufacturer's sales 
to all purchasers (with certain exceptions) and is net of manufacturer 
rebates, discounts, and price concessions. With regard to the 
importance of the six percent add-on, we continue to believe ASP+0 is a 
reasonable basis for payment for the TDAPA for new renal dialysis drugs 
and biological products 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.
    Comment: Some commenters expressed concern that our proposal to 
base the TDAPA payments for calcimimetics at 100 percent of ASP for CY 
2020 could jeopardize patient access to calcimimetics and have 
unintended consequences. One commenter stated that this would 
particularly affect patients treated by small and independent providers 
often in rural and underserved areas with limited resources and low to 
negative Medicare margins. A drug manufacturer commented that basing 
the TDAPA on ASP+0 would disincentivize the adoption of innovative new 
therapies and that policies designed to facilitate patient access to 
innovative new therapies should not reduce the add-on payment to the 
ASP that ensures providers are able to deliver these medicines to 
patients.
    An LDO expressed concern that ESRD facilities will be forced to 
choose between ceasing to provide the calcimimetics or losing 
additional money every time they provide calcimimetics. The LDO also 
expressed concern that the proposal could inhibit generic drug adoption 
and encourage utilization of the branded IV calcimimetic at great 
expense to the Medicare program and its beneficiaries. The LDO stated 
that it is committed to providing patients with the most cost-effective 
option for treatment, which typically results in prioritizing oral 
generic drugs and reserving the IV option for patients who otherwise 
fail to respond to treatment on the oral form. However the LDO strongly 
urged CMS to consider that, at ASP+0, many providers will lose money on 
cinacalcet, which could incentivize a shift in first line treatment to 
the IV version at a much greater cost to the program. A national 
dialysis association expressed similar concerns, stating that the 
proposal could incentivize use of the IV calcimimetic over the generic 
oral calcimimetic as ESRD facilities grapple with choosing the product 
for which they will lose the least amount of money due to declining 
reimbursement.
    An LDO expressed concern that shifting the basis of payment in the 
middle of the TDAPA period for calcimimetics could skew the utilization 
and claims data used to inform post-TDAPA payment and that CMS should 
continue payment at 106 percent of ASP during the third year of TDAPA 
to ensure payment adequacy and consistency in utilization data it is 
collecting.
    Response: As noted previously, we continue to believe that ASP+0 is 
a reasonable basis for payment for the TDAPA for new renal dialysis 
drugs and biological products 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 further believe ASP+0 is 
a reasonable basis for payment for the TDAPA for new renal dialysis 
drugs and biological products 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 
biological products. Regarding the concern that reducing the basis of 
TDAPA payment to ASP+0 for calcimimetics will steer ESRD facilities 
toward not providing the drug, or toward providing an alternative form 
of the drug, we believe that physicians and their patients should make 
the decision together on the appropriate form of the drug for 
treatment. It is not our intent to interfere with that decision making 
process. As the number of drugs within each functional group increases 
and market share competition from the manufacturers is a factor, we 
anticipate easier access, more choices in care and lower prices. We 
acknowledge that payment policies may have unintended consequences as 
identified by the commenters, however, it is our expectation that ESRD 
facilities will follow the physician's plan of care for the patient and 
we will closely monitor drug utilization at the beneficiary and 
facility level for these types of issues.
    With respect to the concern that reducing the basis of payment to 
ASP+0 for calcimimetics will complicate the data we will use when 
considering whether to modify the base rate at the end of the TDAPA 
period, we are currently evaluating potential methodologies for this 
purpose. There are a number options being discussed as a result of 
stakeholder input and at the time we undergo rulemaking, we will 
analyze the data available and input received from stakeholders when 
developing our proposal to incorporate these products into the ESRD PPS 
base rate.
    Comment: Several commenters stated that CMS has indicated in 
previous rules that the ESRD PPS base rate does not include 
administrative costs associated with dispensing oral drugs. One 
commenter noted in addition to the small dollar amounts allocated to 
drugs in most ESRD PPS functional categories,

[[Page 60676]]

CMS has stated that the base rate does not include the cost of oral-
only drugs. Another commenter stated that while CMS indicates that the 
ESRD PPS base rate has dollars built in for administrative complexities 
and overhead costs for drugs and biological products, this statement 
contradicts CMS' earlier statement regarding calcimimetics that dollars 
were never included in the base rate to account for these drugs. The 
commenter noted that CMS acknowledged there are no dollars in the base 
rate for calcimimetics and therefore cannot assert that there are 
dollars in the base rate available to cover administration and overhead 
related to calcimimetics.
    Response: As we discussed in the CY 2019 ESRD PPS final rule (83 FR 
56944 through 56946), with regard to the concerns that ASP+0 will not 
cover the administrative costs associated with bringing a new drug or 
biological product as a therapeutic option in a facility, we pointed 
out that under the current ESRD PPS, new renal dialysis drugs that are 
considered to be in a functional category would not receive any 
additional payment. Payment for these drugs has been included in the 
ESRD PPS bundled payment amount since the inception of the ESRD PPS. 
There is no clear reason for the 6 percent add-on, and, as MedPAC 
discussed in its June 2015 report, there is no consensus among 
stakeholders on the purpose of the 6 percent add-on. We further 
explained that we believe 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 biological products regardless of whether 
they fall within an ESRD PPS functional category strikes a balance 
between the increase to Medicare expenditures (subsequently increasing 
beneficiary co-insurance) and stakeholder concerns discussed in section 
II.B.1.e of the CY 2019 ESRD PPS final rule. We note that since January 
1, 2018, ESRD facilities have been receiving the TDAPA for 
calcimimetics at ASP+6 as part of the ESRD PPS payment amount. We 
continue to believe that 2 full years of paying the TDAPA at ASP+6 is 
sufficient time for ESRD facilities to address any administrative 
complexities and overhead costs that may have arisen with regard to 
furnishing the calcimimetics.
    Comment: A national dialysis association explained that its review 
of the publicly available data on Medicare's spending on calcimimetics 
indicates that Medicare spending has decreased under the TDAPA as 
compared to prior payment policies. The commenter explained that in CY 
2017, prior to CMS moving calcimimetics from Medicare Part D to the 
ESRD PPS under Part B, CMS spent more than $1.4 billion on 
calcimimetics. Between 2013 and 2017, the price per unit of 
calcimimetics increased by an average of 15 percent each year, compared 
to an average increase in patients utilizing calcimimetics of 6 percent 
each year. The commenter asserted that had these trends continued, CMS 
would have paid almost $1.8 billion for calcimimetics in Part D in CY 
2018. The commenter acknowledged that the Part D data set includes all 
beneficiaries using calcimimetics and not just those with ESRD, but 
noted that majority of beneficiaries using calcimimetics are ESRD 
beneficiaries. The commenter stated that it cannot identify a data 
source that supports CMS' claim of a $1.2 billion increase in Medicare 
spending on calcimimetics in CY 2018. On the contrary, the commenter's 
review of the data indicates that Medicare spending on calcimimetics 
decreased under the TDAPA from more than $1.4 billion in CY 2017 to $1 
billion represented in the file containing 85 percent of the claims in 
CY 2018. The commenter believes that that because calcimimetics moved 
from Part D spending to Part B spending in CY 2018, that CMS should not 
claim an increase in Part B spending. The commenter stated that if 
there is another source of data that the public should review in order 
to fully evaluate CMS' claims, then that data should be made available 
along with the rulemaking. The commenter further asserted that if CMS's 
statement of an increase in Medicare spending on calcimimetics is not 
correct or corroborated by the data, it is not adequate justification 
for the proposal to change reimbursement for the TDAPA for 
calcimimetics from ASP+6 to ASP+0 and CMS should not finalize this 
proposal.
    Response: In response to the commenter's questions about the $1.2 
billion increase in Medicare costs for calcimimetics, we clarify that 
the $1.2 billion figure refers to expenditures under the ESRD PPS for 
CY 2018, as reflected in claims, due to the utilization of 
calcimimetics alone.
    We do not believe that it is appropriate to consider expenditures 
in other Medicare or Medicaid funding areas when developing policies 
under the ESRD PPS. These funding areas are not co-mingled or mutually 
interchangeable. In addition, the Part B spending includes the 
injectable form of the calcimimetic which was not covered under Part D. 
We have further reviewed our data for CY 2018 and stand by the stated 
1.2 billion increase to ESRD PPS expenditures.
    Final Rule Action: After careful consideration of public comments, 
we are finalizing our proposal that the basis of payment for the TDAPA 
for calcimimetics, beginning in CY 2020, will be 100 percent of ASP. 
Specifically, we are finalizing the proposed modification to Sec.  
413.234(c) by removing the clause ``except that for calcimimetics it is 
based on pricing methodologies under section 1847A of the Social 
Security Act.''
e. Revision to 42 CFR 413.230
    In the CY 2011 ESRD PPS final rule (75 FR 49200), we added Sec.  
413.230 to 42 CFR part 413, subpart H to codify that the per treatment 
payment amount is the sum of the per treatment base rate established in 
Sec.  413.220, adjusted for wages as described in Sec.  413.231, and 
adjusted for facility-level and patient-level characteristics described 
in Sec. Sec.  413.232 and 413.235; any outlier payment under Sec.  
413.237; and any training adjustment add-on under Sec.  414.335(b). The 
per treatment payment amount is Medicare's payment to ESRD facilities 
under the ESRD PPS for furnishing renal dialysis services to Medicare 
ESRD beneficiaries.
    In the CY 2016 ESRD PPS final rule (80 FR 69024), we codified the 
drug designation process regulation in Sec.  413.234, which provides a 
TDAPA under Sec.  413.234(c) when certain eligibility criteria are met. 
We apply the TDAPA at the end of the calculation of the ESRD PPS 
payment, which is similar to the application of the outlier payment 
(Sec.  413.237(c)) and the training add-on adjustment (Sec.  
413.235(c)). That is, once the ESRD PPS base rate is adjusted by any 
applicable patient- and facility-level adjustments we add to it any 
applicable outlier payment, training add-on adjustment, or TDAPA.
    In CY 2016 ESRD PPS rulemaking, we did not propose a corresponding 
revision to Sec.  413.230 to reflect that the TDAPA is a component in 
the determination of the per treatment payment amount. Therefore, in 
the CY 2020 ESRD PPS proposed rule (84 FR 38347), we proposed a 
revision to Sec.  413.230 to add paragraph (d) to reflect the TDAPA. We 
stated that we believed this modification is necessary so that the 
regulation appropriately reflects all inputs in the calculation of the 
per treatment payment amount. We noted that this revision to the 
regulation would not change how the ESRD PPS per treatment payment 
amount is currently calculated. We also proposed

[[Page 60677]]

to revise Sec.  413.230 to include, as part of the calculation of the 
per treatment payment amount, any TPNIES as discussed in section 
II.B.3.b.iii of this final rule.
    We also proposed a technical change to Sec.  413.230(c) to replace 
``Sec.  414.335(b)'' with a more appropriate reference to the training 
adjustment add-on requirement, which is ``Sec.  413.235(c).'' In the CY 
2011 ESRD PPS final rule (75 FR 49202) we inadvertently referred to 
Sec.  414.335(b), which states, ``After January 1, 2011, a home and 
self-training amount is added to the per treatment base rate for adult 
and pediatric patients as defined in Sec.  413.230'' when finalizing 
Sec.  413.230. Section 413.235(c) similarly states ``CMS provides a 
wage-adjusted add-on per treatment adjustment for home and self-
dialysis training.'' However, as we explained in the CY 2020 ESRD PPS 
proposed rule, Sec.  414.335(b) describes the training adjustment add-
on when erythropoietin (EPO) is furnished to home dialysis patients, 
whereas Sec.  413.235(c) describes the application of the training 
adjustment add-on more generally, even when EPO is not furnished. When 
we finalized Sec.  413.230 in the CY 2011 ESRD PPS final rule, we 
intended for the training adjustment add-on to apply more generally, 
not just when EPO is furnished, and therefore we are proposing to refer 
to Sec.  413.235(c).
    We did not receive any comments on our proposal for technical 
changes to Sec.  413.230. Therefore, we are finalizing the changes as 
proposed.
2. Average Sales Price (ASP) Conditional Policy for the TDAPA
a. Background
    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 a payment methodology for certain 
drugs and biological products not paid on a cost or prospective payment 
basis furnished on or after January 1, 2005. Payments made under this 
methodology are primarily based on quarterly data submitted to CMS by 
drug manufacturers, and most payments under this methodology are based 
on the ASP. ASP-based payments are determined from manufacturer's sales 
to all purchasers (with certain exceptions) net of 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. ASP-based payments are determined for individual HCPCS codes. 
To allow time for manufacturers to submit quarterly data and for CMS to 
determine, check and disseminate payment limits to contractors that pay 
claims, the ASP-based payment limits are subject to a 2 quarter lag, 
which means that sales from January to March are used to determine 
payment limits in effect from July to September.\20\
---------------------------------------------------------------------------

    \20\ ASPE. Issue Brief. Medicare Part B Drugs: Pricing and 
Incentives. March 2016. Available at: https://aspe.hhs.gov/system/files/pdf/187581/PartBDrug.pdf.
---------------------------------------------------------------------------

    Section 1847A(b)(1)(A) of the Act requires that the Medicare 
payment for a multiple source drug included within the same HCPCS code 
be equal to 106 percent of the ASP for the drug products included in 
the HCPCS code. Section 1847A(b)(1)(B) of the Act also requires that 
the Medicare payment 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 (83 FR 
56929). The WAC is defined in section 1847A(c)(6)(B) of the Act as the 
manufacturer's list price for the drug or biological to wholesalers or 
direct purchasers in the U.S., not including prompt pay or other 
discounts, rebates or reductions in price, for the most recent month 
for which the information is available, as reported in wholesale price 
guides or other publications of drug or biological pricing data.
    Section 1847A(c)(4) of the Act further provides a payment 
methodology in cases where the ASP during 1st quarter of sales is 
unavailable, stating that in the case of a drug or biologicals during 
an initial period (not to exceed a full calendar quarter) in which data 
on the prices for sales for the drug or biological product are not 
sufficiently available from the manufacturer to compute an ASP for the 
biological product, the Secretary may determine the amount payable 
under this section for the drug or biological product based on the WAC 
or the methodologies in effect under Medicare Part B on November 1, 
2003, to determine payment amounts for drugs or biological products. 
For further guidance on how Medicare Part B pays for certain drugs and 
biological products, see Medicare Claims Processing Manual (Pub. L. 
100-04) (chapter 17, section 20) (https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/clm104c17.pdf).
    We have used the payment methodology under section 1847A of the Act 
since the implementation of the ESRD PPS when pricing ESRD related 
drugs and biological products previously paid separately under Part B 
(prior to the ESRD PPS) for purposes of ESRD PPS policies or 
calculations (82 FR 50742 through 50743). In the CY 2016 ESRD PPS final 
rule (80 FR 69024), we adopted Sec.  413.234(c), which requires that 
the TDAPA is based on payment methodologies available under section 
1847A of the Act (including 106 percent of ASP). We also use such 
payment methodologies for Part B ESRD related drugs or biological 
products that qualify as an outlier service (82 FR 50745). For the 
purposes of the ESRD PPS, we use ``payment methodology'' 
interchangeably with ``pricing methodology.''
    In the CY 2019 ESRD PPS final rule (83 FR 56948) we finalized a 
revision to Sec.  413.234(c) under the authority of section 
1881(b)(14)(D)(iv) of the Act, to base the TDAPA on 100 percent of ASP 
(ASP+0) instead of the pricing methodologies available under section 
1847A of the Act (which includes ASP+6). We also explained in the CY 
2019 ESRD PPS final rule (83 FR 56944) that there are times when the 
ASP is not available. For example, when a new drug or biological 
product is brought to the market, sales data is not sufficiently 
available from the manufacturer to compute an ASP. Therefore, we 
finalized a change to Sec.  413.234(c) to specify that if ASP is not 
available, the TDAPA is based on 100 percent of WAC (WAC+0) and, when 
WAC is not available, the payment is based on the drug manufacturer's 
invoice. We also modified Sec.  413.234(c) to reflect that the basis of 
payment for the TDAPA for calcimimetics would continue to be based on 
the pricing methodologies available under section 1847A of the Act 
(which includes ASP+6). We specified that these changes to Sec.  
413.234(c) would be effective January 1, 2020.
    In the CY 2019 ESRD PPS final rule (83 FR 56943), we discussed that 
the TDAPA is a payment adjustment under the ESRD PPS and is not 
intended to be a mechanism for payment for new drugs and biological 
products under Medicare Part B. We further explained that we believe it 
may not be appropriate under section 1881(b)(14)(D)(iv) of the Act to 
base the TDAPA strictly on the pricing methodologies under section 
1847A of the Act. We explained that, in the CY 2019 ESRD PPS proposed 
rule (83 FR 34315), we considered options on which to base payment 
under the TDAPA, for example, maintaining the policy as is or

[[Page 60678]]

potentially basing payments on the facility cost of acquiring drugs and 
biological products. We found that while the pricing methodologies 
under 1847A of the Act, and specifically ASP, could encourage certain 
unintended consequences, ASP data continues to be the best data 
available since it is commonly used to facilitate Medicare payment 
across care settings and is based on the manufacturer's sales to all 
purchasers (with certain exceptions) and is net of manufacturer 
rebates, discounts, and price concessions (83 FR 34315).
b. Basis for Conditioning the TDAPA on the Availability of ASP Data
    As we discussed in the CY 2020 ESRD PPS proposed rule (84 FR 
38348), under the change to Sec.  413.234(c) finalized in the CY 2019 
ESRD PPS final rule (83 FR 56948), effective January 1, 2020, the basis 
of payment for the TDAPA is ASP+0, but if ASP is not available, then it 
is WAC+0, and if WAC is not available, then it is based on the drug 
manufacturer's invoice. In the CY 2019 ESRD PPS final rule, we also 
modified Sec.  413.234(c) to reflect that the basis of payment for the 
TDAPA for calcimimetics would continue to be based on the pricing 
methodologies available under section 1847A of the Act (which includes 
ASP+6). As discussed in section II.B.1.d of the CY 2020 ESRD PPS 
proposed rule (84 FR 38330) and section II.B.1.d of this final rule, we 
proposed to modify the basis of payment for the TDAPA for calcimimetics 
for CY 2020 to ASP+0.
    In the CY 2020 ESRD PPS proposed rule (84 FR 38348 through 38349), 
we discussed that, following publication of the CY 2019 ESRD PPS final 
rule, we continued to assess our policy allowing for WAC or invoice 
pricing if ASP is not available, and became concerned that it could 
lead to drug manufacturers who are not otherwise required to submit ASP 
data to CMS to delay submission or withhold ASP data from CMS so that 
ESRD facilities would receive a higher basis of payment for the TDAPA 
and be incentivized to purchase drugs from those manufacturers.
    We stated that calcimimetics were the first drugs for which we paid 
the TDAPA (83 FR 56931), and this increased Medicare expenditures by 
$1.2 billion in CY 2018. We noted that the TDAPA for one form of the 
calcimimetics was based on WAC for 2 quarters, and was more expensive 
than ASP. In addition, there were delays in the submission of ASP data 
for that drug, but we are now receiving ASP data for both 
calcimimetics. We explained that we were concerned about the 
significant increase in Medicare expenditures that resulted from paying 
the TDAPA for calcimimetics, and about this trend continuing with new 
renal dialysis drugs and biological products that become eligible for 
the TDAPA in the future. We therefore believed we needed to limit the 
use of WAC (or invoice pricing) as the basis of the TDAPA to as few 
quarters as practicable to help limit increases to Medicare 
expenditures while maintaining our goals for the TDAPA policy--namely, 
supporting ESRD facilities in their uptake of innovative new renal 
dialysis drugs and biological products for those products that fall 
within a functional category and providing a pathway towards a 
potential base rate modification for those products that do not fall 
within a functional category.
    We also noted that we were concerned that ASP will not be made 
available to CMS by drug manufacturers not currently required by 
statute to do so. Drug manufacturers who have Medicaid Drug Rebate 
Agreements as part of the Medicaid Drug Rebate Program are required by 
section 1927(b)(3) of the Act to submit ASP sales data into CMS 
quarterly. However, we anticipated there could be drugs marketed in the 
future that are eligible for the TDAPA, but may not be associated with 
ASP reporting requirements under section 1927(b) of the Act. While 
manufacturers that do not have Medicaid Drug Rebate Agreements may 
voluntarily submit ASP data into CMS,\21\ we stated that we were 
concerned manufacturers may not elect to do so. MedPAC and the Office 
of the Inspector General (OIG) have both noted concerns about 
manufacturers not reporting ASP data for Part B drugs. As discussed in 
MedPAC's June 2017 Report to Congress,\22\ the OIG found that for the 
3rd quarter of 2012, out of 45 drug manufacturers who were not required 
to submit ASP for Part B drugs, only 22 voluntarily submitted ASP 
data.\23\
---------------------------------------------------------------------------

    \21\ MedPAC. Part B Drugs Payment Systems. October 2017. Page 2. 
Available at: http://www.medpac.gov/docs/default-source/payment-basics/medpac_payment_basics_17_partb_final.pdf?sfvrsn=0.
    \22\ Report to Congress, MedPAC, June 2017, page 42. Available 
at: http://www.medpac.gov/docs/default-source/reports/jun17_reporttocongress_sec.pdf.
    \23\ Limitations in Manufacturer Reporting of Average Sales 
Price Data for Part B Drugs, Office of the Inspector General, page 
7. Available at: https://oig.hhs.gov/oei/reports/oei-12-13-00040.pdf.
---------------------------------------------------------------------------

    We pointed out that even for those drug manufacturers who are 
required to submit ASP data into CMS, not all may fully comply. For the 
same 3rd quarter of 2012, the OIG found that at least 74 out of the 207 
drug manufacturers with Medicaid Drug Rebate Agreements in place did 
not submit all of their required ASP data for their Part B drugs.\24\ 
MedPAC's recommendations in its June 2017 report \25\ would require 
that all Part B drug manufacturers submit ASP data into CMS, whether or 
not those manufacturers have a Medicaid Drug Rebate Agreement. Based on 
this data and our own experience with the calcimimetics, we expressed 
concern that manufacturers may not voluntarily report ASP data into 
CMS. We noted that we continue to believe that ASP is the best data 
currently available for the basis of payment for the TDAPA, because it 
is commonly used to facilitate Medicare payment across care settings 
and is based on the manufacturer's sales to all purchasers (with 
certain exceptions) net of all manufacturer rebates, discounts, and 
price concessions (83 FR 56943). Therefore, we stated that we believed 
conditioning the TDAPA on the availability of ASP data is appropriate 
and necessary to ensure that we are basing the amount of the TDAPA on 
the best data available.
---------------------------------------------------------------------------

    \24\ Limitations in Manufacturer Reporting of Average Sales 
Price Data for Part B Drugs, Office of the Inspector General, pages 
7-8, Available at: https://oig.hhs.gov/oei/reports/oei-12-3-00040.pdf.
    \25\ Report to Congress, MedPAC, June 2017, pages 10-12. 
Available at: http://www.medpac.gov/docs/default-source/reports/jun17_reporttocongress_sec.pdf.
---------------------------------------------------------------------------

    We noted in the CY 2020 ESRD PPS proposed rule (84 FR 38349) that, 
in addition to our concerns about ASP data reporting generally, we were 
concerned that the TDAPA policy finalized in the CY 2019 ESRD PPS final 
rule effective January 1, 2020, could potentially incentivize drug 
manufacturers who do not have a Medicaid Drug Rebate Agreement to delay 
or to never submit ASP data in order for ESRD facilities to receive an 
increased TDAPA for their products. As noted in section II.B.2.a of the 
CY 2020 ESRD PPS proposed rule, under Sec.  413.234(c), effective 
January 1, 2020, if ASP is not available to CMS, the basis of payment 
for the TDAPA is WAC+0 and when WAC is not available, then the TDAPA is 
based on invoice pricing. As MedPAC discussed in its June 2017 Report 
to Congress, WAC-based payments would likely increase Medicare 
expenditures as compared to ASP-based payments. As stated in section 
1847A(c)(5) of the Act, ASP is calculated to include discounts and 
rebates. WAC is ultimately controlled by the manufacturer, and its 
statutory definition in section 1847A(c)(6)(B) of the Act does not 
include the discounts

[[Page 60679]]

that ASP includes.\26\ Similarly, invoice pricing may not reliably 
capture all available discounts and thus may be inflated. This means if 
a drug manufacturer chooses not to submit ASP data into CMS, the TDAPA 
would be based on an inflated amount beyond what the average cost to 
ESRD facilities to acquire those drugs. This additional amount would 
also then increase the co-insurance for the beneficiaries who receive 
those drugs. We explained in the CY 2020 ESRD PPS proposed rule that we 
believed conditioning the TDAPA on the availability of ASP data is 
necessary to mitigate this potential incentive and limit increases to 
Medicare expenditures.
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    \26\ MedPAC. Part B Drugs Payment Systems. October 2017. Pages 
43-44. Available at: http://www.medpac.gov/docs/default-source/reports/jun17_reporttocongress_sec.pdf.
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c. Proposal To Condition the TDAPA Application on the Availability of 
ASP Data
    In the CY 2020 ESRD PPS proposed rule (84 FR 38349), we proposed to 
revise Sec.  413.234(c) to address the following concerns: (1) 
Increases to Medicare expenditures due to the TDAPA for calcimimetics; 
(2) drug manufacturers not reporting ASP data for products eligible for 
the TDAPA; and (3) our TDAPA policy potentially incentivizing drug 
manufacturers to withhold ASP data from CMS. Under our proposed 
revisions, we would no longer apply the TDAPA for a new renal dialysis 
drug or biological product if CMS does not receive a full calendar 
quarter of ASP data within 30 days of the last day of the 3rd calendar 
quarter after we begin paying the TDAPA for the product. We noted in 
the CY 2020 ESRD PPS proposed rule that we were not proposing to modify 
the current ASP reporting process \27\ and our proposals were 
consistent with this process. Since it is possible for a drug 
manufacturer to begin sales of its product in the middle of a calendar 
quarter, it may take approximately 2 to 3 quarters for CMS to obtain a 
full calendar quarter of ASP data. We explained in the CY 2020 ESRD PPS 
proposed rule that we believed that 3-calendar quarters is a reasonable 
amount of time for drug manufacturers to submit a full calendar quarter 
of ASP data to CMS; therefore, we proposed to allow 3-calendar quarters 
for drug manufacturers to make ASP available to CMS to enable ESRD 
facilities to continue to receive the TDAPA for a product.
---------------------------------------------------------------------------

    \27\ CMS. Medicare Part B Drug Average Sales Price. Available 
at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Part-B-Drugs/McrPartBDrugAvgSalesPrice/index.html.
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    As we discussed in section II.B.2.a of the CY 2020 ESRD PPS 
proposed rule, there is a 2 quarter lag between the sales period for 
which ASP is reported and the effective date of the rate based on that 
ASP data. During this period between when the TDAPA is initiated for a 
product and the effective date of the rate based on the full quarter of 
ASP data made available to CMS, consistent with the policy finalized in 
the CY 2019 ESRD PPS final rule (83 FR 56948), the basis of the TDAPA 
would be WAC+0, and if WAC is not available, then invoice pricing. Once 
the drug manufacturer begins submitting ASP data, the basis of the 
TDAPA would be ASP+0. We proposed that if we have not received a full 
calendar quarter of ASP data for a new renal dialysis drug or 
biological product by 30 days after the last day of the 3rd calendar 
quarter of applying the TDAPA for that product, we would stop applying 
the TDAPA within the next 2-calendar quarters. For example, if we begin 
applying the TDAPA on January 1, 2021 for an eligible new renal 
dialysis drug or biological product, and a full calendar quarter of ASP 
data for that product has not been made available to CMS by October 30, 
2021 (30 days after the last day of the 3rd quarter of paying the 
TDAPA), we would stop applying the TDAPA for that product no later than 
March 31, 2022 (2 quarters after the 3rd quarter of paying the TDAPA).
    We therefore proposed to revise the regulatory text at Sec.  
413.234(c) to provide that, notwithstanding the time periods for 
payment of the TDAPA specified in paragraphs (c)(1) and (c)(2), we 
would no longer apply the TDAPA for a new renal dialysis drug or 
biological product if CMS has not received a full calendar quarter of 
ASP data for the product within 30 days after the last day of the 3rd 
calendar quarter after the TDAPA is initiated for the product.
    We noted in the CY 2020 ESRD PPS proposed rule that we expect that 
once drug manufacturers begin submitting ASP data into CMS, they would 
continue to do so for the duration of the TDAPA period as set forth in 
Sec.  413.234(c). We explained that we continue to believe that basing 
the TDAPA on ASP+0, as compared to WAC+0 or invoice pricing, is the 
most appropriate choice for the ESRD PPS, and strikes the right balance 
of supporting ESRD facilities in their uptake of innovative new renal 
dialysis drugs and biological products and limiting increases to 
Medicare expenditures. We stated that if drug manufacturers were to 
stop submitting full quarters of ASP data for products that are 
eligible for the TDAPA, and we had to revert to basing the TDAPA on WAC 
or invoice pricing, we believed we would be overpaying for the TDAPA 
for those products.
    Therefore, we also proposed to revise the regulatory text at Sec.  
413.234(c) to state that we would no longer apply the TDAPA for a new 
renal dialysis drug or biological product if a drug manufacturer 
submits a full calendar quarter of ASP data into CMS within 30 days 
after the close last day of the 3rd calendar quarter after the TDAPA is 
initiated for the product, but at a later point during the applicable 
TDAPA period specified in Sec.  413.234(c)(1) or (c)(2), stops 
submitting a full calendar quarter of ASP data into CMS. We explained 
that we assess pricing for new renal dialysis drugs and biological 
products eligible for the TDAPA on a quarterly basis. Under our 
proposal, once we determine that the latest full calendar quarter of 
ASP is not available, we would stop applying the TDAPA for the new 
renal dialysis drug or biological product within the next 2-calendar 
quarters. For example, if we begin paying the TDAPA on January 1, 2021 
for an eligible new renal dialysis drug or biological product, and a 
full calendar quarter of ASP data is made available to CMS by October 
30, 2021 (30 days after the close of the 3rd quarter of paying the 
TDAPA), but a full calendar quarter of ASP data is not made available 
to CMS as of January 30, 2022 (30 days after the close of the 4th 
quarter of paying the TDAPA), we would stop applying the TDAPA for the 
product no later than June 30, 2022 (2 quarters after the 4th quarter 
of paying the TDAPA).
    The comments and our responses to the comments on our proposal to 
implement an ASP conditional policy for application of the TDAPA are 
set forth below.
    Comment: Several commenters stated that it is unfair to impose this 
condition on the TDAPA because it would reduce the payment amount 
provided to ESRD facilities, while it is the manufacturers who are 
responsible for submitting the ASP data into CMS. One LDO noted that 
ESRD facilities have no ability to influence whether a manufacturer 
submits ASP data into CMS, while another LDO further argued that CMS 
does not have the authority to impose this condition on the TDAPA since 
the facilities do not have control over whether the ASP data is 
submitted into CMS by the manufacturer.
    Response: We have authority under section 1881(b)(14)(D)(iv) of the 
Act to include under the ESRD PPS such other

[[Page 60680]]

payment adjustments as the Secretary determines appropriate, and we 
established the TDAPA for new renal dialysis drugs and biological 
products under this authority. We also have authority to place 
conditions on those payment adjustments, as we have otherwise done for 
the TDAPA by requiring that the renal dialysis drug or biological 
product meet certain eligibility criteria under Sec.  413.234. As we 
explained in the CY 2020 ESRD PPS proposed rule (84 FR 38349), we are 
concerned about (1) increases to Medicare expenditures due to the TDAPA 
for calcimimetics; (2) drug manufacturers not reporting ASP data for 
products eligible for TDAPA; and (3) our TDAPA policy potentially 
incentivizing drug manufacturers to withhold ASP data from CMS. We 
believe conditioning the TDAPA on the availability of ASP data is 
appropriate and necessary to address these concerns and ensure that we 
are basing the amount of the TDAPA on the best data available to 
address these concerns, and not overpaying through WAC or invoice 
pricing. In addition, we do not believe that this policy is unfair 
because we believe that ESRD facilities have the ability to influence 
drug manufacturers to submit ASP data due to the manufacturers' desire 
to have market share. With more choices available through the ESRD PPS 
functional categories, drug manufacturers may want to retain or capture 
more market share with their products as competition increases. ESRD 
facilities are able to have discussions with drug manufacturers as to 
whether they reported the ASP into CMS and, if not, when they plan to 
do so.
    Comment: A drug manufacturer and an LDO stated that we should only 
apply this policy on an individual basis, that is, if a drug is multi-
source, meaning available from a brand-name drug manufacturer and also 
from other manufacturers, we should not penalize all manufacturers of 
the drug if one manufacturer fails to submit ASP data. The drug 
manufacturer further asked us to clarify whether the ASP conditional 
policy will apply to payments made on or after 2020 or to ASP data 
reported in 2020.
    Response: First, we would like to reassure the commenters that the 
intent of our proposal was to apply this policy on an individual 
product basis. That is, under the revisions to Sec.  413.234(c), we 
would condition the TDAPA for an individual renal dialysis drug or 
biological product on the availability of ASP data for that product. We 
would not condition the TDAPA for an individual drug or biological 
product on the availability of ASP data from all manufacturers of that 
drug or biological product. For example, if drug X is manufactured by 
manufacturer A and manufacturer B and manufacturer A does not make ASP 
data available to CMS but manufacturer B does, we would not apply the 
ASP conditional policy to manufacturer B's drug. That is, the ESRD 
facility would not receive the TDAPA when reporting on ESRD facility 
claims drug X from manufacturer A.
    With regard to whether the ASP conditional policy will apply to 
payments made on or after January 1, 2020 or to ASP data reported in 
2020, we note that this policy would become effective January 1, 2020. 
Therefore, for a renal dialysis drug or biological product for which we 
are currently paying the TDAPA and for which ASP data is currently 
being reported, beginning January 1, 2020, if CMS does not receive the 
latest full calendar quarter of ASP data for the product, CMS will no 
longer apply the TDAPA beginning no later than 2-calendar quarters 
after CMS determines that the latest full calendar quarter of ASP data 
is not available.
    Comment: Several commenters were concerned that this policy could 
create consequences such as increased costs to ESRD facilities, which 
is particularly problematic for small and independent facilities, and 
could lead to facilities choosing not to furnish those drugs or 
biological products, which could decrease access for their patients. 
One commenter also argued this policy would complicate the collection 
of utilization data and thereby negatively affect how these drugs and 
biological products would be incorporated into the ESRD PPS bundled 
payment. Another commenter asserted that this proposal would impact the 
continuity of patient care and cause confusion in the billing and 
ordering process. A national dialysis stakeholder organization stated 
that it did not believe this policy would actually increase ASP 
reporting as it is intended to do.
    Response: We understand the commenters' concerns. However, we 
continue to be concerned that drug manufacturers who are not otherwise 
required to submit ASP data to CMS would delay submission or withhold 
ASP data from CMS so that ESRD facilities would receive a higher basis 
of payment for the TDAPA and be incentivized to purchase drugs from 
those manufacturers. Additionally, we believe that this policy will 
incentive ASP reporting and ESRD facilities will want to provide the 
new renal dialysis drugs and biological products that are eligible for 
the TDAPA to their patients. We expect that, as the number of drugs and 
biological products within each ESRD PPS functional category increases 
and market share competition from the manufacturers is a factor, there 
would be easier access, more choices in care and lower prices.
    Comment: Several commenters recognized the issue of underreporting 
of ASP data that CMS was trying to solve, but preferred that CMS use 
other mechanisms to enforce ASP reporting. One commenter suggested CMS 
use Average Manufacturer Price (AMP) after a certain period of time of 
ASP not being reported. One drug manufacturer suggested that we allow a 
temporary deferment or exclusion from the ASP conditional policy when 
manufacturers encounter extraordinary circumstances beyond their 
control.
    Response: We thank the commenters for their suggestions. We have 
the same concern with AMP as we do with WAC and invoice pricing in that 
it is more expensive than ASP. We continue to believe ASP data is the 
best data available for the purposes of the TDAPA since it is commonly 
used to facilitate Medicare payment across care settings and is based 
on the manufacturer's sales to all purchasers (with certain exceptions) 
and is net of manufacturer rebates, discounts, and price concessions. 
We also believe that our policy provides sufficient time to deal with 
extraordinary circumstances, so it is not necessary to establish that 
type of exception. However, we will monitor the effects of this 
proposal and consider these suggestions for future rulemaking.
    Comment: One LDO suggested that CMS's motivation for proposing this 
policy was the perception that ESRD facilities were putting financial 
gain over the wellbeing of the patients. The LDO explained that when 
the new IV and generic oral calcimimetics became available the LDO 
followed the guiding principle that patients deserve access to the 
formulation that best meets their needs, while also remaining mindful 
of overall system costs.
    Response: We appreciate that the commenter is focused on providing 
its patients with access to formulations that best meet their clinical 
needs. However, we believe the comment about our motivation for this 
policy is unfounded. As noted previously, we based this proposal on our 
concerns about (1) increases to Medicare expenditures due to TDAPA for 
calcimimetics; (2) drug manufacturers not reporting ASP data for drugs 
eligible for TDAPA; and (3) our TDAPA policy potentially incentivizing 
drug manufacturers to withhold ASP data from CMS.

[[Page 60681]]

    Comment: MedPAC and a non-profit provider association were 
supportive of conditioning the TDAPA on the availability of ASP data. 
Both suggested CMS consider going further by either requiring all Part 
B drug manufacturers to report ASP data, or by not applying the TDAPA 
to all eligible drugs from a noncompliant manufacturer rather than just 
the new renal dialysis drug or biological product for which the 
manufacturer is not reporting ASP data.
    One national dialysis association supported MedPAC's suggestion 
that CMS take steps to ensure manufacturers report ASP data. However, 
the association specifically disagreed with MedPAC that CMS should 
require all Part B drug manufacturers report ASP data and believed any 
such requirement should be imposed directly on drug manufacturers under 
CMS authorities, and not on ESRD facilities.
    Response: We have authority under section 1881(b)(14)(D)(iv) of the 
Act to include under the ESRD PPS such other payment adjustments as the 
Secretary determines appropriate, and we established the TDAPA for new 
renal dialysis drugs and biological products under this authority. We 
also have authority to place conditions on those payment adjustments, 
as we have otherwise done for the TDAPA by requiring that the renal 
dialysis drug or biological product meet certain eligibility criteria 
under Sec.  413.234. At this time, we believe this policy appropriately 
targets the condition on the particular renal dialysis drug or 
biological product for which CMS has not received ASP data. We will 
take these suggestions under consideration for future rulemaking.
    Comment: A national dialysis association explained that its review 
of the publicly available data on Medicare's spending on calcimimetics 
indicate that Medicare spending has decreased under the TDAPA as 
compared to prior payment policies. The commenter stated that it cannot 
identify a data source that supports CMS' claim of a $1.2 billion 
increase in Medicare spending on calcimimetics in CY 2018. On the 
contrary, the commenter's review of the data indicates that Medicare 
spending on calcimimetics decreased under the TDAPA from more than $1.4 
billion in CY 2017 to $1 billion represented in the file containing 85 
percent of the claims in CY 2018. The commenter believes that because 
calcimimetics moved from Part D spending to Part B spending in CY 2018, 
that CMS should not claim an increase in Part B spending. The commenter 
stated that if there is another source of data that the public should 
review in order to fully evaluate CMS' claims, then that data should be 
made available along with the rulemaking. The commenter further 
asserted that as CMS's statement of an increase in Medicare spending on 
calcimimetics is not correct or corroborated by the data, it is not 
adequate justification for the proposal to condition the TDAPA on the 
provision of ASP data.
    An LDO noted the decrease in expenditures due to calcimimetics 
discussed in the comment from the national dialysis association and 
stated that the data was inconsistent with CMS' analysis in the 
proposed rule.
    Response: In response to the commenter's questions about the $1.2 
billion increase in Medicare costs for calcimimetics, we clarify that 
the $1.2 billion figure refers to expenditures under the ESRD PPS for 
CY 2018, as reflected in claims, due to the utilization of 
calcimimetics alone. We do not believe that it is appropriate to 
consider expenditures in other Medicare or Medicaid funding areas when 
developing policies under the ESRD PPS. These funding areas are not co-
mingled or mutually interchangeable. In addition, the Part B spending 
includes the injectable form of the calcimimetic which was not covered 
under Part D. We have further reviewed our data for CY 2018 and stand 
by the stated 1.2 billion increase to ESRD PPS expenditures.
    Final Rule Action: After consideration of public comments, we are 
finalizing the ASP conditional policy as proposed, effective January 1, 
2020. Under our final policy, the basis of payment for the TDAPA for 
all new renal dialysis drugs and biological products is ASP+0, but if 
ASP is not available then the TDAPA is based on 100 percent of WAC and, 
when WAC is not available, the payment is based on the drug 
manufacturer's invoice. We are revising Sec.  413.234(c) to state that 
notwithstanding the provisions in paragraphs (c)(1) and (2) of that 
section, if CMS does not receive a full calendar quarter of ASP data 
for a new renal dialysis drug or biological product within 30 days of 
the last day of the 3rd calendar quarter after we begin applying the 
TDAPA for the product, CMS will no longer apply the TDAPA for that 
product beginning no later than 2-calendar quarters after we determine 
a full calendar quarter of ASP data is not available. In addition, if 
CMS stops receiving the latest full calendar quarter of ASP data for a 
new renal dialysis drug or biological product during the applicable 
time period specified in paragraph (c)(1) or (2) of Sec.  413.234, CMS 
will no longer apply the TDAPA for the product beginning no later than 
2-calendar quarters after CMS determines that the latest full calendar 
quarter of ASP data is not available.
3. New and Innovative Renal Dialysis Equipment and Supplies Under the 
ESRD PPS
a. Background on Renal Dialysis Equipment and Supplies Under the ESRD 
PPS
    In the CY 2011 ESRD PPS final rule (75 FR 49075), we stated that 
when we computed the ESRD PPS base rate, we used the composite rate 
payments made under Part B in 2007 for dialysis in computing the ESRD 
PPS base rate. These are identified in Table 19 of the CY 2011 ESRD PPS 
final rule (75 FR 49075) as ``Composite Rate Services''. Sections 
1881(b)(14)(A)(i) and 1881(b)(14)(B) of the Act specify the renal 
dialysis services that must be included in the ESRD PPS bundled 
payment, which includes items and services that were part of the 
composite rate for renal dialysis services as of December 31, 2010. As 
we indicated in the CY 2011 ESRD PPS proposed rule (74 FR 49928), the 
case-mix adjusted composite payment system represents a limited PPS for 
a bundle of outpatient renal dialysis services that includes 
maintenance dialysis treatments and all associated services including 
historically defined dialysis-related drugs, laboratory tests, 
equipment, supplies and staff time (74 FR 49928). In the CY 2011 ESRD 
PPS final rule (75 FR 49062), we noted that total composite rate costs 
in the per treatment calculation included costs incurred for training 
expenses, as well as all home dialysis costs.
    Currently, ESRD facilities are required to report their use of 
syringes on claims in order to receive separate payment, as discussed 
in the CY 2011 ESRD PPS final rule (75 FR 49141). However, 
historically, ESRD facilities were not required to report any other 
renal dialysis equipment and supplies on claims (with the exception of 
syringes) because these items were paid through the composite rate and 
did not receive separate payment. As discussed in the Medicare Claims 
Processing Manual (chapter 8, section 50.3), CMS directs ESRD 
facilities to report a dialysis treatment and their charge for the 
treatment. That charge is intended to reflect the cost of the dialysis 
treatment (equipment, supplies, and staff time) as well as routine 
drugs and laboratory tests. This manual is available on the CMS website 
at https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/clm104c08.pdf.

[[Page 60682]]

    In the CY 2019 ESRD PPS final rule (83 FR 56942 through 56943), we 
finalized an expansion of the TDAPA to all new renal dialysis drugs and 
biological products. As part of the CY 2019 ESRD PPS rulemaking, we 
received several comments regarding payment under the ESRD PPS for 
certain new, innovative equipment and supplies used in the treatment of 
ESRD. For example, as we described in the CY 2019 ESRD PPS final rule 
(83 FR 56972), a device manufacturer and device manufacturer 
association asked CMS to establish a transitional add-on payment 
adjustment for new devices that have been granted marketing 
authorization by FDA. They commented on the lack of new devices granted 
marketing authorization by FDA for use in an ESRD facility, 
highlighting the need to promote dialysis device innovation. The 
commenters indicated they believed the same rationale CMS used to 
propose broadening the TDAPA eligibility also would apply to new 
devices. Specifically, the commenters noted that CMS has discretionary 
authority under section 1881(b)(14)(D)(iv) of the Act to adopt payment 
adjustments determined appropriate by the Secretary, and stated that 
precedent supports CMS' authority to use non-budget neutral additions 
to the ESRD PPS base rate for adjustments under specific circumstances.
    A professional association urged CMS and other relevant 
policymakers to prioritize the development of a clear pathway to add 
new devices to the ESRD PPS bundled payment (83 FR 56973). The 
association stated that additional money should be made available to 
appropriately reflect the costs of new devices under the ESRD PPS 
bundled payment. A national dialysis organization and a large dialysis 
organization (LDO) asked CMS to clarify how it incentivizes the 
development of new dialysis devices. The organization asked CMS to 
describe how such a device would be included in the ESRD PPS bundle, 
and suggested the initial application of a pass-through payment, which 
would be evaluated later based on the data. The organization stated 
that this evaluation would determine if the device should be included 
in the ESRD PPS base rate and whether or not additional funds should be 
added to the ESRD PPS bundled payment.
    In addition, as we discussed in the CY 2019 ESRD PPS final rule (83 
FR 56973), an LDO requested CMS plan appropriately for innovative 
devices or other new and innovative products and asked CMS to work with 
the kidney care community to consider if and how new devices or other 
new and innovative products delivering high clinical value, can be made 
available to beneficiaries, whether through the ESRD PPS or through 
other payment systems. A home dialysis patient group also expressed 
concern regarding the absence of a pathway for adding new devices to 
the ESRD PPS bundled payment, stating that it left investors and 
industry wary of investing in the development of new devices for 
patients. In response to these comments, we expressed appreciation for 
the commenters' thoughts regarding payment for new and innovative 
devices, and stated that we did not include any proposals regarding 
this issue in the CY 2019 ESRD PPS proposed rule, so we considered 
these suggestions to be beyond the scope of that rule.
    Also, in the CY 2019 ESRD PPS proposed rule, we solicited comment 
on whether we should expand the outlier policy to include composite 
rate drugs and supplies (83 FR 34332). We noted that under the proposed 
expansion to the drug designation process, such expansion of the 
outlier policy could support 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 
support use of new and innovative devices or items that would otherwise 
be considered in the ESRD PPS bundled payment. We stated that if 
commenters believe such an approach is appropriate, we requested they 
provide input on how we would effectuate such a shift in policy. For 
example, we noted, the reporting of these services may be challenging 
since they have never been reported on ESRD claims previously. We 
specifically requested feedback about how such items might work under 
the existing ESRD PPS outlier framework or whether specific changes to 
the policy to accommodate such items are needed.
    We received mixed feedback in response to the comment solicitation, 
which was summarized in the CY 2019 ESRD PPS final rule (83 FR 56969 
through 56970). Some LDOs and national dialysis organizations stated 
that they would prefer a smaller outlier pool with more money in the 
per treatment base rate while other ESRD facilities agreed that the 
outlier policy should be more comprehensive and expanded to include 
more items and services. In our response, we stated we recognized that 
the commenters' concerns regarding the expansion of outlier eligibility 
to include composite rate drugs and supplies are inextricably linked to 
their views on the effectiveness of our broader outlier policy or other 
payment adjustments. We indicated we would take these views into 
account as we consider the outlier policy and payment adjustments for 
future rulemaking.
    In light of these comments, in the CY 2020 ESRD PPS proposed rule 
(84 FR 38350 through 38357), we considered whether additional payment 
may be warranted for certain new and innovative renal dialysis 
equipment and supplies. In the CY 2020 ESRD PPS proposed rule, we 
provided a general description of the IPPS new technology add-on 
payment (NTAP) and its SCI criteria, and we include that description 
again in sections II.B.3.a.i and II.B.3.a.ii of this final rule. We 
stated that we believe a process similar to the IPPS process for 
establishing SCI for the NTAP could be used to identify the innovative 
renal dialysis equipment and supplies for which commenters were 
requesting additional payment under the ESRD PPS. We noted that we 
believed an NTAP-like payment adjustment under the ESRD PPS would be 
appropriate in order to support innovation while being responsive to 
stakeholders.
i. Add-On Payments for New Technology Under the Inpatient Prospective 
Payment System
    In the CMS Innovators' Guide to Navigating Medicare,\28\ we explain 
that the hospital IPPS makes payments to acute care hospitals for each 
Medicare patient or case treated. Hospitals are paid based on the 
average national resource use for treating patients in similar 
circumstances, not the specific cost of treating each individual 
patient. With few exceptions, Medicare does not pay separately for 
individual items or services. Physicians and hospital staff determine 
the appropriate course of treatment, and hospitals receive a bundled 
payment for the covered inpatient facility services provided to the 
Medicare patient. Hospitals receive one IPPS payment per Medicare case 
at discharge that equates to the total Medicare payment for the 
facility costs of caring for that Medicare patient. More information on 
determining IPPS payment is located on the CMS website: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html.
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    \28\ https://www.cms.gov/Medicare/Coverage/CouncilonTechInnov/Downloads/Innovators-Guide-Master-7-23-15.pdf.
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    Also as discussed in the CMS Innovators' Guide to Navigating 
Medicare,\29\ the IPPS is designed to adapt to changing technology 
through

[[Page 60683]]

year-to-year adjustments in Medicare Severity--Diagnosis Related Groups 
(MS-DRG) weights based on historical cost data. In theory, if new 
technologies lead to better care but are more expensive, or if they 
lead to more efficient care and are less expensive, hospitals will 
eventually receive appropriate payment as the MS-DRG weights are 
adjusted over time to reflect the impact of fluctuating costs. In 
practice, however, there are concerns that the system may be slow to 
react to rapidly evolving technological advancements.
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    \29\ https://www.cms.gov/Medicare/Coverage/CouncilonTechInnov/Downloads/Innovators-Guide-Master-7-23-15.pdf.
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    Hospitals may experience a financial disadvantage as they provide 
more expensive products and services to Medicare beneficiaries while 
waiting for MS-DRG payments to reflect the higher costs. Sections 
1886(d)(5)(K) and (L) of the Act establish a process of identifying and 
ensuring adequate payment for new medical services and technologies 
under the IPPS. As an incentive for hospitals to adopt new technologies 
during the period before their costs are recognized in the MS-DRG 
weights, certain new medical services or technologies may be eligible 
for new technology add-on payments. The new technology add-on payment 
policy provides additional payments for eligible high cost cases 
without significantly eroding the incentives provided by a payment 
system based on averages. To qualify for add-on payments, the 
regulations at 42 CFR 412.87 generally specify a medical service or 
technology must be: (1) New, (2) demonstrate a SCI over existing 
technology, and (3) be high cost such that the MS-DRG payment that 
would normally be paid is inadequate. For a complete discussion on the 
new technology add-on payment criteria, we refer readers to the fiscal 
year (FY) 2012 IPPS/LTCH PPS final rule (76 FR 51572 through 51574).
    Since it can take 2 to 3 years for reflection of cost data in the 
calculation of the MS-DRG weights, technologies generally are 
considered new for 2 to 3 years after they become available. Applicants 
must demonstrate that their product offers SCI and the other NTAP 
requirements.
    Under the cost criterion, consistent with the formula specified in 
section 1886(d)(5)(K)(ii)(I) of the Act, to assess the adequacy of 
payment for a new technology paid under the applicable MS-DRG 
prospective payment rate, we evaluate whether the charges for cases 
involving the new technology exceed the threshold amount for the MS-DRG 
(or the case-weighted average of all relevant MS-DRGs, if the new 
technology could be assigned to many different MS-DRGs).
    Although any interested party may submit an application for a new 
technology add-on payment, applications often come from the 
manufacturer of a new drug or device. Preliminary discussions on 
whether or not new technologies qualify for add-on payments are 
published in the annual IPPS proposed rules and are open to public 
comment.
    The actual add-on payments are based on the cost to hospitals for 
the new technology. A new technology add-on payment is made if the 
total covered costs of the patient discharge exceed the MS-DRG payment 
of the case (including adjustments for indirect medical education (IME) 
and disproportionate share hospital (DSH), but excluding outlier 
payments). The total covered costs are calculated by applying the cost-
to-charge ratio (that is used for inpatient outlier purposes) to the 
total covered charges of the discharge.
    Under Sec.  412.88, if the costs of the discharge exceed the full 
MS-DRG payment, the additional payment amount equals the lesser of the 
following: (1) 50 percent of the costs of the new medical service or 
technology; (2) or 50 percent of the amount by which the total covered 
costs of the case (as determined above) exceed the standard MS-DRG 
payment, plus any applicable outlier payments if the costs of the case 
exceed the MS-DRG, plus adjustments for IME and DSH. More information 
on IPPS new technology add-on payments, including the deadline to 
submit an application, is located on the CMS website at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/newtech.html.
ii. SCI Criteria for the New Technology Add-On Payment Under the IPPS
    Under section 1886(d)(5)(K)(vi) of the Act, a medical service or 
technology will be considered a ``new medical service or technology'' 
if the service or technology meets criteria established by the 
Secretary after notice and an opportunity for public comment. For a 
more complete discussion of the establishment of the current criteria 
for the new technology add-on payment, we refer readers to the IPPS 
final rule published on September 7, 2001 in the Federal Register (66 
FR 46913), referred to as ``FY 2001 IPPS final rule,'' where we 
finalized the ``substantial improvement'' criterion to limit new 
technology add-on payments under the IPPS to those technologies that 
afford clear improvements over the use of previously available 
technologies. Specifically, we stated that we would evaluate a request 
for new technology add-on payments against the following criteria to 
determine if the new medical service or technology would represent a 
SCI over existing technologies:
     The device offers a treatment option for a patient 
population unresponsive to, or ineligible for, currently available 
treatments.
     The device offers the ability to diagnose a medical 
condition in a patient population where that medical condition is 
currently undetectable or offers the ability to diagnose a medical 
condition earlier in a patient population than allowed by currently 
available methods. There must also be evidence that use of the device 
to make a diagnosis affects the management of the patient.
     Use of the device significantly improves clinical outcomes 
for a patient population as compared to currently available treatments. 
We also noted examples of outcomes that are frequently evaluated in 
studies of devices. For example,
    ++ Reduced mortality rate with use of the technology.
    ++ Reduced rate of technology related complications.
    ++ Decreased rate of subsequent diagnostic or therapeutic 
interventions (for example, due to reduced rate of recurrence of the 
disease process).
    ++ Decreased number of future hospitalizations or physician visits. 
More rapid beneficial resolution of the disease process treatment 
because of the use of the device.
    ++ Decreased pain, bleeding, or other quantifiable symptom.
    ++ Reduced recovery time.
    In the FY 2001 IPPS final rule (66 FR 46913), we stated that we 
believed the special payments for new technology should be limited to 
those new technologies that have been demonstrated to represent a 
substantial improvement in caring for Medicare beneficiaries, such that 
there is a clear advantage to creating a payment incentive for 
physicians and hospitals to utilize the new technology. We also stated 
that where such an improvement is not demonstrated, we continue to 
believe the incentives of the DRG system would provide a useful balance 
to the introduction of new technologies. In that regard, we also 
pointed out that various new technologies introduced over the years 
have been demonstrated to have been less effective than initially 
thought, or in some cases even potentially harmful. We stated that we 
believe that it is in the best interest of Medicare beneficiaries to 
proceed very carefully with respect to the incentives created to 
quickly adopt new technology.

[[Page 60684]]

    We noted in the FY 2020 IPPS proposed rule (84 FR 19274 through 
19275), that applicants for add-on payments for new medical services or 
technologies must submit a formal request, including a full description 
of the clinical applications of the medical service or technology and 
the results of any clinical evaluations demonstrating that the new 
medical service or technology represents a SCI, along with a 
significant sample of cost data to demonstrate that the medical service 
or technology meets the cost criterion. Complete application 
information, along with final deadlines for submitting a full 
application, is posted on the CMS website at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/newtech.html.
    Per section 1886(d)(5)(K)(i) of the Act, the Secretary is required 
to establish a mechanism to recognize the costs of new medical services 
and technologies under the payment system after notice and opportunity 
for public comment. The payment rate updates and policy changes 
including new technology add-on payments under the IPPS are completed 
through the annual notice-and-comment rulemaking process with an 
October 1 effective date. In the proposed rule, CMS reviews each 
application and the information and clinical evidence provided by the 
applicant on how it meets each of the new technology add-on payment 
criteria. Regarding SCI, we work with our medical officers to evaluate 
whether a technology represents an SCI. Under the IPPS, public input 
before publication of a notice of proposed rulemaking on add-on 
payments is required by section 1886(d)(5)(K)(viii) of the Act, as 
amended by section 503(b)(2) of Public Law 108-173, and provides for a 
mechanism for public input before publication of a notice of proposed 
rulemaking regarding whether a medical service or technology represents 
a SCI or advancement. In the final rule, we make a determination 
whether an applicant has met the new technology add-on payment criteria 
and is eligible for the add-on payment.
    The IPPS proposed and final rules go on display around April and 
August, respectively, each year. The FY 2020 IPPS proposed rule is 
available on the CMS website at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/IPPS-Regulations-and-Notices-Items/CMS-1716.html?DLPage=1&DLEntries=10&DLSort=2&DLSortDir=descending.
b. Proposed Transitional Add-On Payment Adjustment for New and 
Innovative Renal Dialysis Equipment and Supplies Under the ESRD PPS
    As we stated in the CY 2020 ESRD PPS proposed rule (84 FR 38350 
through 38353), following publication of the CY 2019 ESRD PPS final 
rule (83 FR 56969 through 56970), which discussed the comment 
solicitation on expanding the outlier policy to include composite rate 
drugs and supplies, we received additional information from dialysis 
equipment and supply manufacturers and a TEP meeting held in December 
2018 regarding composite rate equipment and supplies. Discussions of 
the key findings from the TEP meeting can be found in section VIII.A of 
this final rule. In addition, some manufacturers have informed us that 
there is little incentive for them to develop innovative equipment and 
supplies for the treatment of ESRD primarily because ESRD facilities 
have no incentive to adopt innovative dialysis equipment and supplies 
since they are included in the ESRD PPS bundled payment and currently 
no additional payment is made.
    In addition, we stated that we believed innovations in kidney care 
are likely as a result of the Kidney Innovation Accelerator (known as 
KidneyX). KidneyX is a public-private partnership between the 
Department of Health and Human Services and the American Society of 
Nephrology to accelerate innovation in the prevention, diagnosis, and 
treatment of kidney diseases.
    KidneyX seeks to improve the lives of dialysis patients by 
accelerating the development of drugs, devices, biologics and other 
therapies across the spectrum of kidney care including prevention, 
diagnostics, and treatment. KidneyX's first round of prize funding 
focused on accelerating the commercialization of next-generation 
dialysis products, aiming to reduce the risk of innovation by 
streamlining processes, reducing regulatory barriers, and modernizing 
the way we pay for treatment. More than 150 applications were reviewed, 
covering a full-range of innovative proposals, including advances in 
access, home hemodialysis and peritoneal dialysis, adjuncts to current 
in-center dialysis, and proposals for implantable devices, externally-
worn devices and prototypes for an artificial kidney. More information 
regarding KidneyX is available at the following link: http://www.kidneyx.org/.
    We stated that we believed some of the prototypes developed as part 
of the KidneyX will be the type of innovation the commenters requested 
and we want to incentivize ESRD facility use of those products. We 
noted that in order for equipment and supplies awarded through the 
KidneyX to be eligible for the additional payment the items would also 
need to be determined by CMS to be a renal dialysis service and meet 
other eligibility criteria described in section II.B.3.b.i of the CY 
2020 ESRD PPS proposed rule (84 FR 38353 through 38355). We also noted 
that the goals for KidneyX and our proposal are different but 
complementary; KidneyX is focused on accelerating innovation in the 
prevention, diagnosis, and treatment of kidney disease, at the 
beginning stages of the development of an innovative product, while our 
proposals were intended to support uptake of new and innovative renal 
dialysis equipment and supplies after they have been authorized for 
marketing by FDA and meet other requirements, all of which happen after 
the development stage.
    In addition, on July 10, 2019, the President signed an Executive 
Order \30\ aimed at transforming kidney care in America. The Executive 
Order established many initiatives, including the launch of a public 
awareness campaign to prevent patients from going into kidney failure 
and proposals for the Secretary to support research regarding 
preventing, treating, and slowing progression of kidney disease and 
encouraging the development of breakthrough technologies to provide 
patients suffering from kidney disease with better options for care 
than those that are currently available.
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    \30\ https://www.whitehouse.gov/presidential-actions/executive-order-advancing-american-kidney-health/.
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i. Proposed Eligibility Criteria for Transitional Add-On Payment 
Adjustment for New and Innovative Renal Dialysis Equipment and Supplies
    As we stated in the CY 2020 ESRD PPS proposed rule (84 FR 38354 
through 38355), in consideration of the feedback we have received, we 
agree that additional payment for certain renal dialysis equipment and 
supplies may be warranted under specific circumstances. We proposed to 
provide a transitional add-on payment adjustment for new and innovative 
renal dialysis equipment and supplies furnished by ESRD facilities 
(with the exception of capital-related assets). We proposed to call 
this payment adjustment the Transitional Add-on Payment Adjustment for 
New and Innovative Equipment and Supplies or TPNIES.
    Renal dialysis equipment and supplies are medically necessary

[[Page 60685]]

equipment and supplies used to furnish renal dialysis services in a 
facility or in a patient's home. We proposed that ``new'' renal 
dialysis equipment and supplies are those that are granted marketing 
authorization by FDA on or after January 1, 2020. By including FDA 
marketing authorizations on or after January 1, 2020, we intend to 
support ESRD facility use and beneficiary access to the latest 
technological improvements to renal dialysis equipment and supplies. We 
solicited comment on this aspect of our proposal and whether a 
different FDA marketing authorization date--for example, on or after 
January 1, 2019--might be appropriate.
    We stated in the CY 2020 ESRD PPS proposed rule that, for new and 
innovative equipment and supplies, we believed the IPPS SCI criteria 
and the process used to evaluate SCI under the IPPS can be used as a 
proxy for identifying new and innovative equipment and supplies worthy 
of additional payment under the ESRD PPS. We noted that under the IPPS, 
CMS has been assessing new technologies for many years to assure that 
the additional new technology add-on payments to hospitals are made 
only for truly innovative and transformative products, and we stated 
that CMS is proposing to adopt the IPPS SCI criteria under the ESRD PPS 
for the same reason. We explained that we wanted to ensure that the 
add-on payment adjustments made under the ESRD PPS are limited to new 
equipment and supplies that are truly innovative. In addition, since 
renal dialysis services are routinely furnished to hospital inpatients 
and outpatients, we stated that we believed the same SCI criteria 
should be used to assess whether a new renal dialysis equipment or 
supply warrants additional payment under Medicare.
    Therefore, we proposed to adopt IPPS's SCI criteria specified in 
Sec.  412.87(b)(1), including modifications finalized in future IPPS 
final rules, to determine when a new and innovative renal dialysis 
equipment or supply is eligible for the TPNIES under the ESRD PPS. That 
is, we would adopt IPPS's SCI criteria in Sec.  412.87(b)(1) and any 
supporting policy around this criteria as discussed in IPPS preamble 
language. We stated that we believed that by incorporating the IPPS SCI 
criteria for new and innovative renal dialysis equipment under the ESRD 
PPS, we would be consistent with IPPS and innovators would have 
standard criteria to meet for both settings. We also proposed to 
establish a process modeled after IPPS's process of determining if a 
new medical service or technology meets the SCI criteria specified in 
Sec.  412.87(b)(1). That is, we proposed that CMS would use a similar 
process to determine whether the renal dialysis equipment or supply 
meets the eligibility criteria proposed in newly added Sec.  
413.236(b). Similar to how we evaluate whether a new renal dialysis 
drug or biological product is eligible for the TDAPA, as discussed in 
the CY 2016 ESRD PPS final rule (80 FR 69019), we would need to 
determine whether the renal dialysis equipment and supply meets our 
eligibility criteria for the TPNIES.
    We noted that IPPS has additional criteria that is specific to its 
payment system, that is, a high cost criteria relative to the MS-DRG 
payment. We did not propose to adopt the specific IPPS high cost 
criteria requirements under Sec.  412.87(b)(3) under the ESRD PPS since 
the basis of payment is different. Specifically, under the ESRD PPS, 
the basis of payment is the per treatment payment amount that is 
updated annually by the ESRD bundled market basket and the multifactor 
productivity (MFP) adjustment. For this reason we only proposed to 
adopt the SCI criteria in Sec.  412.87(b)(1) and did not consider the 
high cost criteria requirements.
    We proposed to exclude capital-related assets from eligibility for 
the TPNIES, which we would define based on the Provider Reimbursement 
Manual (Pub. L. 15-1) (chapter 1, section 104.1) as assets that a 
provider has an economic interest in through ownership (regardless of 
the manner in which they were acquired). The Provider Reimbursement 
Manual is available on the CMS website at https://www.cms.gov/NoRegulations-and-Guidance/Guidance/Manuals/Paper-Based-Manuals-Items/CMS021929.html. We explained that this would include certain renal 
dialysis equipment and supplies. An examples of a capital-related asset 
for ESRD facilities could include water purification systems. We stated 
that we did not believe that we should provide an add-on payment 
adjustment for capital-related assets because the cost of these items 
are captured in cost reports, depreciate over time, and are generally 
used for multiple patients. Since the costs of these items are reported 
in the aggregate, there is considerable complexity in establishing a 
cost on a per treatment basis. We therefore stated that we believed 
capital-related assets should be excluded from the TPNIES at this time, 
and proposed an exclusion to the eligibility criteria in new Sec.  
413.236(b)(2). However, we noted that capital-related asset cost data 
from cost reports are used by CMS in regression analyses to refine the 
ESRD PPS so that the cost of any new capital-related assets is 
accounted for in the ESRD PPS payment adjustments.
    Under our proposal, in addition to having marketing authorization 
by FDA on or after January 1, 2020, and meeting SCI criteria as 
determined under Sec.  412.87(b)(1), the equipment or supply must be 
commercially available, have a HCPCS application submitted in 
accordance with the official Level II HCPCS coding procedures, and have 
been designated by CMS as a renal dialysis service under Sec.  413.171. 
We proposed that following FDA marketing authorization, in order to 
establish a mechanism for payment, the equipment or supply would then 
go through a process to establish a billing code, specifically a HCPCS 
code. This information is necessary to conform to the requirements for 
both CMS and provider billing systems. Information regarding the HCPCS 
process is available on the CMS website at https://www.cms.gov/medicare/coding/MedHCPCSGenInfo/Index.html.
    Under our proposal, we would model our determination process 
similar to that of IPPS's NTAP. That is, manufacturers would submit all 
information necessary for determining that the renal dialysis equipment 
or supply meets the eligibility criteria listed in Sec.  413.236(b). 
That would include FDA marketing authorization information, the HCPCS 
application information, and studies submitted as part of these two 
standardized processes, an approximate date of commercial availability, 
and any information necessary for SCI criteria evaluation. For example, 
clinical trials, peer reviewed journal articles, study results, meta-
analyses, systematic literature reviews, and any other appropriate 
information sources can be considered.
    We proposed to provide a description of the equipment or supply and 
pertinent facts related to it that can be evaluated through notice-and-
comment rulemaking. We stated that we would consider whether a new 
renal dialysis equipment or supply meets the eligibility criteria 
specified in newly added Sec.  413.236(b) and announce the results in 
the Federal Register as part of our annual updates and changes to the 
ESRD PPS. In order to implement the TPNIES for a particular calendar 
year, we would only consider a complete application received by CMS by 
February 1 prior to the particular calendar year.
    For example, under our proposal, in order to receive the TPNIES 
under the

[[Page 60686]]

ESRD PPS effective January 1, 2022 we would require that a complete 
application meeting our requirements be received by CMS no later than 
February 1, 2021. Then, we would include a discussion of the renal 
dialysis equipment or supply requesting the TPNIES in the CY 2022 ESRD 
PPS proposed rule. Our evaluation of the eligibility criteria would be 
addressed in the CY 2022 ESRD PPS final rule. If the renal dialysis 
equipment or supply qualifies for the TPNIES, payment would begin 
January 1, 2022.
    Alternatively, we considered an application deadline of September 
1, however, we proposed an earlier timeframe so that the TPNIES would 
be implemented sooner. We noted that a September 1 deadline would 
provide more time initially for manufacturers to submit applications. 
We solicited comment on the proposed deadline date for the application.
    To codify the requirements for the TPNIES, including the 
eligibility, we proposed to add Sec.  413.236, Transitional Add-on 
Payment Adjustment for New and Innovative Equipment and Supplies. We 
proposed to add Sec.  413.236(a) to state that the basis for the 
section is to establish a payment adjustment to support ESRD facilities 
in the uptake of new and innovative renal dialysis equipment and 
supplies under the ESRD PPS under the authority of section 
1881(b)(14)(D)(iv) of the Act.
    We proposed to add Sec.  413.236(b) to address the eligibility 
requirements for the TPNIES. Under the proposed paragraph (b), for 
dates of service occurring on or after January 1, 2020, we would 
provide a TPNIES as specified in paragraph (d) that is added to the per 
treatment base rate established in Sec.  413.220, adjusted for wages as 
described in Sec.  413.231, and adjusted for facility-level and 
patient-level characteristics as described in Sec. Sec.  413.232 and 
413.235 to an ESRD facility for furnishing a covered equipment or 
supply only if the item: (1) Has been designated by CMS as a renal 
dialysis service under Sec.  413.171, (2) is new, meaning it is granted 
marketing authorization by FDA on or after January 1, 2020, (3) is 
commercially available, (4) has a Healthcare Common Procedure Coding 
System (HCPCS) application submitted in accordance with the official 
Level II HCPCS coding procedures, (5) is innovative, meaning it meets 
the criteria specified in Sec.  412.87(b)(1) and related guidance, and 
(6) is not a capital-related asset that an ESRD facility has an 
economic interest in through ownership (regardless of the manner in 
which it was acquired).
    We also proposed to add Sec.  413.236(c) to establish a process for 
the TPNIES eligibility determinations and a deadline for consideration 
of new renal dialysis equipment or supply applications under the ESRD 
PPS. That is, we proposed that we would consider whether a new renal 
dialysis supply or equipment meets the eligibility criteria specified 
in Sec.  413.236(b) and announce the results in the Federal Register as 
part of our annual updates and changes to the ESRD PPS. We proposed 
that we would only consider a complete application received by CMS by 
February 1 prior to the particular calendar year, meaning the year in 
which the TPNIES would take effect.
    We solicited comment on the proposed criteria to determine new and 
innovative renal dialysis equipment and supplies that would be eligible 
for TPNIES. In addition, we solicited comment on the use of different 
evaluative criteria and, where applicable, payment methodologies, for 
renal dialysis supplies and equipment that may be eligible for the 
TPNIES under the ESRD PPS. These criteria could include cost thresholds 
for high cost items. We solicited comment on whether any of the IPPS 
SCI criteria would not be appropriate for the ESRD facility setting and 
whether there should be additional criteria specific to ESRD. We sought 
comment on whether to use FDA's pre-market authorization and De Novo 
pathways as a proxy for or in place of the proposed SCI criteria. In 
addition, we solicited comment on potential implementation challenges, 
such as what sources of data that CMS should utilize to assess SCI and 
the proposed process that would be used to determine SCI. Finally, we 
solicited comment on the benefits and drawbacks of the proposed SCI 
criteria.
    The comments and our responses to the comments on our proposals 
regarding eligibility criteria for the TPNIES are set forth below.
    Comment: All of the comments we received supported the 
establishment of the TPNIES to spur innovation for new renal dialysis 
equipment and supplies. Several commenters expressed support for the 
proposed TPNIES definition of ``new'' and ``innovative'' as a device 
granted FDA marketing authorization that demonstrates SCI using 
criteria similar to those applied under the IPPS NTAP. MedPAC and an 
LDO also expressed support for the process outlined in the CY 2020 ESRD 
PPS proposed rule. MedPAC expressed support for transparent and 
predictable processes with established routines for the agency, 
stakeholders, and the public. MedPAC pointed out that the proposed 
annual process of review for TPNIES eligibility provides manufacturers 
a forum for feedback and questions, and it provides other stakeholders 
with opportunities to participate in the process.
    Response: We appreciate the commenters' support.
    Comment: A physician association stated that it is critical to 
support innovation in kidney care, but stressed that there must also be 
a specific focus on innovations that also pertain to the pediatric 
space. New products and therapies that come to market are not always 
tested in the pediatric population or are even appropriate for 
children, and. policies must be put in place to change this moving 
forward. The association emphasized that children and adolescents are 
not simply ``little adults.'' Rather, they have a unique physiology 
characterized by maturing organ function, body metabolism, and body 
distribution characteristics distinct from what adults manifest. Due to 
these differences, the safety and efficacy data of equipment and 
supplies developed for adults and only studied in adults may not be 
appropriate for pediatric patients. The association acknowledged that 
the small number of pediatric patients complicates conducting safety, 
efficacy, or interventional trials in children, but stated that the 
importance of this data is crucial to allow children to also benefit 
from innovation.
    Response: We hope that by providing the TPNIES, equipment and 
supply manufacturers will develop new and innovative renal dialysis 
products for pediatric patients as well as adult patients and that the 
clinical trials conducted for such products include pediatric patients. 
By establishing the TPNIES for new and innovative renal dialysis 
equipment and supplies, we believe that manufacturers will be 
encouraged to develop new products, including new and innovative 
products for pediatric patients. We note that our data analysis 
contractor will be holding a TEP meeting in December 2019 and intends 
to address the topic of pediatric dialysis.
    Comment: Most stakeholders expressed concern that the TPNIES 
proposal excludes capital-related assets. A national dialysis 
stakeholder organization and an LDO requested that CMS propose in the 
next rulemaking a pathway for accounting for new capital equipment in 
the ESRD PPS. The organization pointed out that the IPPS NTAP payment 
for new devices does not address capital equipment because those costs 
are incorporated in the base rates using other mechanisms linked to

[[Page 60687]]

the cost reports. As there is no similar mechanism under the ESRD PPS, 
the organization asked that CMS propose in the CY 2021 ESRD PPS 
proposed rule a mechanism that would adjust the ESRD PPS base rate to 
account for the cost of innovative renal dialysis capital equipment as 
well. The organization stated that this policy is important because 
many innovative devices, including some that the President has 
highlighted, would be capital equipment. A device manufacturer also 
recommended that we propose to include purchased capital equipment in 
the CY 2021 ESRD PPS proposed rule.
    An LDO stated that the proposed eligibility for the TPNIES is 
overly narrow, and does not address the need and potential for 
achieving innovations in the most central component of dialysis care. A 
professional association agreed, noting that significant innovation and 
technology improvement is occurring in the area of dialysis machines 
and peritoneal dialysis cyclers and that innovation in the efficiency 
and effectiveness of water systems would both improve patient quality 
of care, as well as reduce costs for facilities and help to preserve 
the nation's water supply.
    Another LDO also recommended that CMS eliminate the exclusion for 
capital-related assets from the TPNIES criteria. The LDO noted it is 
sensitive to the operational challenges highlighted by CMS that would 
emerge if capital-related assets were eligible for the TPNIES. The LDO 
expressed appreciation for CMS' desire to arrive at a policy that is 
operationally simple but maintained that the challenges cited by CMS in 
applying the TPNIES to capital-related assets can be overcome. 
Alternatively, the LDO recommended that CMS consider a separate add-on 
payment methodology to capture the costs of capital-related assets 
under its existing authority to include other payment adjustments in 
the ESRD PPS as the Secretary determines appropriate.
    MedPAC stated that the proposal is unclear about whether capital-
related assets that are leased are excluded from eligibility for the 
TPNIES. MedPAC pointed out that in the proposed rule, the definition of 
a capital-related asset refers to the Provider Reimbursement Manual 
(Chapter 1, Section 104.1), which does not distinguish between capital-
related items that are purchased versus those that are leased. MedPAC 
requested that we clarify in the CY 2020 ESRD PPS final rule whether a 
capital-related asset that is leased would be eligible for the TPNIES.
    A health services company recommended that CMS clarify that 
equipment or supplies used for home dialysis are not subject to the 
``capital-related asset'' criteria and confirm that a leased home 
dialysis device would not be a capital-related asset. The company 
stated that our proposal uses the hospital cost reporting definition of 
a depreciable asset, which it strongly believes should not apply in the 
case of home dialysis equipment or supplies that are not used by 
multiple patients in a facility but rather are used exclusively by a 
single patient in the patient's home. The company indicated that this 
change to the eligibility criteria would help better align the TPNIES 
with the Administration's bold goals for moving kidney care away from 
its current reliance on in-center dialysis to more availability and use 
of home dialysis. A device manufacturer stated that including leased 
capital equipment is feasible under the currently proposed payment 
approach, leveraging existing coding mechanisms and the proposed 
invoice-based payment process.
    An LDO acknowledged that the cost report design may make it 
difficult to differentiate capital-related assets on a per treatment 
basis and that is why CMS proposed to exclude capital-related assets. 
However, the LDO stated that in doing so, in effect, CMS is only 
creating a payment adjustment for renal dialysis supplies. Until the 
work can be accomplished to differentiate capital related assets on 
cost reports, the commenter suggested that CMS only exclude capital-
related assets generally used for multiple patients. The commenter 
stated that by allowing single patient use equipment, CMS would be 
fostering more patient-engaged solutions like those found in the Kidney 
X prize competition and for home modalities.
    A patient advocacy organization stated that while it appreciates 
the complexity involved in establishing a payment adjustment for 
capital-related assets on a per-treatment basis, the organization 
believes it is critically important to implement incentives that may 
result in lighter and easier to use home dialysis machines, especially 
given the Administration's efforts to increase the uptake of home 
dialysis. The organization stated that home dialysis machines are both 
leased and purchased by facilities, so it believes both types of 
machines should ultimately be eligible for the TPNIES, though it 
supports CMS' efforts to begin with considering leased equipment for 
eligibility.
    Response: As we stated in the CY 2020 ESRD PPS proposed rule, we do 
not believe that we should provide the TPNIES for capital-related 
assets because the cost of these items is captured in cost reports, 
depreciate over time, and are generally used for multiple patients. 
Additionally, since the costs of these items are reported in the 
aggregate, there is considerable complexity in establishing a cost on a 
per treatment basis. Therefore, we proposed to exclude capital-related 
assets from eligibility for the TPNIES in new Sec.  413.236(b)(6). 
Further, we believe providing the TPNIES for capital-related assets is 
complex given the various leasing arrangements and depreciation.
    While we acknowledge that significant innovation and technology 
improvement is occurring with dialysis machines and peritoneal dialysis 
cyclers, as well as innovation in the efficiency and effectiveness of 
water systems, at this time we do not have enough information regarding 
current usage of the various financial and leasing arrangements, such 
as those involving capital-leases for depreciable assets versus 
operating leases recorded as operating expenses. In addition, 
methodological issues regarding depreciation need to be assessed in 
order to determine whether TPNIES eligibility for these items would be 
appropriate. We need to further study the specifics of the various 
business arrangements for equipment related to renal dialysis services. 
This would include items that are: (1) Purchased in their entirety and 
owned as capital-related assets; (2) assets that are acquired through a 
capital-lease arrangement; (3) equipment obtained through a finance 
lease and recorded as an asset per the Financial Accounting Standards 
Board (FASB) guidance on leases (Topic 842) effective for fiscal years 
beginning after December 15, 2018,\31\ or (4) equipment obtained 
through an operating lease and recorded as an operating expense. In 
addition to the variety of business arrangements, there are unknown 
issues relating to ownership of the item and who retains title, which 
flows into the equipment's maintenance expenses for capital-related 
assets. Further, there is the question of the definition of single use 
versus multiple use for equipment used for renal dialysis services. For 
example, capital-related assets used in-center and in the home may be 
used by multiple patients over their useful lifetime. Specifically, 
equipment classified as capital-related assets may be refurbished and 
used by another patient. At this

[[Page 60688]]

time, we are unable to adequately assess the eligibility of these items 
for the TPNIES. We intend to gather additional information about how 
ESRD facilities obtain their capital-related equipment in future 
meetings with the TEP.
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    \31\ FASB Accounting Standards Update: No. 2016-02, February 
2016; Leases (Topic 842); An Amendment of the FASB Accounting 
Standards Codification. https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176167901010&acceptedDisclaimer=true.
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    With regard to capital-lease equipment for home dialysis, we note 
that historically we have always supported patient choice with regard 
to dialysis modality and we support the Administration's initiatives 
for home dialysis. However, we did not intend for capital-lease assets 
to be eligible for the TPNIES at this time. We note that regulations at 
Sec.  413.130(b)(1) ``Introduction to capital-related costs,'' 
specifies that leases and rentals are includable in capital-related 
costs if they relate to the use of assets that would be depreciable if 
the provider owned them outright. In the future, we will be closely 
examining the treatment of capital-related assets under Medicare, 
including our regulations at Sec.  412.302 regarding capital costs in 
inpatient hospitals and Sec.  413.130, as they relate to accounting for 
capital-related assets, including capital-lease and the newly 
implemented guidance for finance lease arrangements, to determine if 
similar policies would be appropriate under the ESRD PPS.
    Comment: A device manufacturers' association pointed out that since 
most medical equipment is purchased as a capital-related asset, the 
TPNIES effectively would exclude the innovative equipment identified in 
the title of the adjustment. The association noted that meaningful 
clinical improvements and patient experience improvements are arguably 
more likely to come from innovation outside single-use supplies. The 
association stated that expanding the TPNIES to include medical 
equipment, regardless of how it is purchased by the provider, would 
stimulate greater investment in a broader array of new technologies for 
ESRD patients.
    Response: We recognize that accounting for renal dialysis service 
equipment can vary depending on the individual ESRD facility's business 
model. For example, when the owner of the capital-related asset retains 
title, then the renal dialysis service equipment is a depreciable asset 
and depreciation expense could be itemized. When there is no ownership 
of the renal dialysis service equipment, then the item is recorded as 
an operating expense. We disagree with the commenter and believe that 
there could be new and innovative equipment that are not capital-
related assets and could therefore be eligible for the TPNIES. For 
example, there could be a supply or piece of equipment that is 
purchased outright by the ESRD facility that may be able to withstand 
repeated use over the treatment month and lasts less than a year, that 
does not fall under the definition of capital-related asset in Sec.  
413.236(b)(6).
    Comment: A device manufacturer recommended that CMS change the 
definition of the TPNIES from new and innovative equipment and supplies 
to new and innovative equipment, supplies, and services. The 
manufacturer stated that this modification would align the ESRD PPS 
TPNIES definition with the IPPS NTAP and would clarify that the TPNIES 
would apply not only to new technologies, but also to new services that 
meet the SCI requirements. In addition to aligning the TPNIES 
definition with that of the IPPS NTAP, the manufacturer noted, this 
modification would clarify that non-technology services that benefit 
ESRD patients can also qualify for the TPNIES if they meet the SCI 
criteria. The manufacturer stated that this is important because 
innovations to address care of ESRD patients are not limited solely to 
new technology. For example, novel home dialysis educational programs 
or remote monitoring services could create real benefit for ESRD 
beneficiaries, but would not necessarily be defined as technologies.
    Response: Our proposal was limited to renal dialysis supplies and 
equipment that receive FDA marketing authorization, so we are unable to 
adopt this recommendation to include services in the definition of 
TPNIES for CY 2020.
    Comment: A national dialysis stakeholder organization, a national 
dialysis association, an LDO and other commenters asked that CMS shift 
the application deadline for the TPNIES to later in the year. They 
expressed concern that the February 1 deadline may be difficult to 
meet, but the September deadline might not provide enough time for CMS 
to apply the TPNIES in the next calendar year.
    Many commenters recommended that CMS adopt timelines that provide 
maximum flexibility to manufacturers in meeting the application 
deadline, particularly in the first year of the program and asked that 
CMS extend the February 1, 2020 application deadline to April or May. 
They stated that manufacturers would benefit from additional time in 
the first year of the program because the process will be new and 
manufacturers were not able to prepare for it during development of 
their products. More importantly, several commenters urged CMS to allow 
manufacturers to file applications for products that are expected to 
receive FDA authorization for marketing before the next calendar year, 
but not require that marketing authorization take place prior to the 
application deadline. The commenter pointed out that this approach is 
allowed for the NTAP application, which requires only that a product is 
pending marketing authorization at the FDA at the time of filing the 
NTAP application.
    Response: The commenters are correct that finalizing a September 1 
deadline for submission of an application for the TPNIES would delay 
payment of the TPNIES for an entire year. In order to obtain public 
comment on the TPNIES application through the ESRD PPS rulemaking 
process, we would need to receive a complete application with 
sufficient information to include in the annual ESRD PPS proposed rule 
by February 1. We agree that a February 1 deadline, particularly for CY 
2020, may not provide sufficient time for manufacturers with products 
in FDA review to meet the new requirements of Sec.  413.236(c). 
However, our goal is to support uptake of new and innovative equipment 
and supplies for those manufacturers that are ready to supply ESRD 
facilities with these innovative products. Therefore, for CY 2020 we 
are finalizing the February 1 application deadline because we want to 
provide the opportunity for expedited payment of the TPNIES. We note 
that otherwise ESRD facilities would not receive the TPNIES for any 
equipment and supplies in CY 2021. We are clarifying that submissions 
to FDA for marketing authorization must have been submitted to FDA by 
the time the TPNIES application is submitted to CMS, that is, February 
1. The FDA marketing authorization need not occur until September 1 of 
the same year so that we are able to finalize the TPNIES in the annual 
ESRD PPS final rule. We are revising Sec.  413.236(c) to clarify that 
FDA marketing authorization must occur by September 1 in order for the 
product to be eligible for the TPNIES on January 1 of the following 
year. More information regarding TPNIES application submissions in CY 
2020 is discussed later in this section.
    Comment: As explained previously, we proposed to define new renal 
dialysis equipment and supplies as those that are granted marketing 
authorization by FDA on or after January 1, 2020. However, we solicited 
comment on whether a different FDA marketing authorization date, for 
example, on or after January 1, 2019, might be appropriate. Many 
commenters, including a device

[[Page 60689]]

manufacturers association, a device manufacturer, a medical technology 
company, a national dialysis stakeholder organization, a national 
dialysis association, an LDO, and a home dialysis association expressed 
support for a January 1, 2019 FDA marketing authorization date.
    One of the commenters suggested that CMS eliminate the newness 
criterion. The commenter stated that while little innovation has 
occurred in ESRD in decades, there are a limited number of products 
developed that have been unsuccessful in entering the market because of 
reimbursement barriers. The commenter asserted that the proposed 
January 1, 2020 date would encourage use of technologies that are 
currently in development, but have not yet entered the market, putting 
earlier innovators at a disadvantage. The commenter maintained that the 
same incentive for use should be applied to technologies that have 
recently gained approval and have had limited market uptake, in many 
cases because they are more costly than existing technologies, despite 
presenting substantial clinical improvement.
    A software development company stated that it is important that CMS 
implement the TPNIES in a manner that maintains a level playing field. 
In other words, CMS must work collaboratively with FDA to ensure all 
new market entrants undergo the appropriate regulatory oversight prior 
to marketing their equipment and supplies. The company stated that CMS 
must also implement the TPNIES in a manner that avoids rewarding 
technology vendors for achieving overdue FDA marketing authorization. 
Further, technologies that have already completed the regulatory 
oversight process should be able to access the same incentives, that 
is, the new add-on payment adjustment.
    The company encouraged CMS to ensure the eligibility of 
technologies that have already obtained FDA marketing authorization, 
and are not reimbursed under the ESRD PPS, for the TPNIES. This 
approach would assist CMS in achieving greater competition and 
innovation, as opposed to making eligible just those products granted 
marketing authorization by the FDA on or after January 1, 2020, as 
envisioned by the proposed rule.
    Another commenter expressed similar concerns and recommended that 
CMS extend eligibility for the TPNIES to products receiving marketing 
authorization on or after January 1, 2019, and even consider on or 
after January 1, 2018 as the criterion. The commenter stated that this 
would allow a technology to be eligible for the TPNIES if it recently 
received marketing authorization but has struggled with market adoption 
because of financial disincentives in the ESRD PPS.
    Another commenter recommended that CMS extend the eligibility for 
the TPNIES back to a January 1, 2018 FDA marketing authorization date. 
This would give new devices (and drugs) that may be eligible to 
participate in IPPS' NTAP or OPPS' pass-through, a 2-year window from 
the regulatory date of approval, or when the product is introduced to 
market, to participate in the respective programs. The commenter also 
noted that there have been highly innovative products, which could 
significantly benefit the Medicare population, which have been approved 
over the last 2 years. The commenter stated there are a limited number 
of recently approved highly innovative products for the ESRD patient 
population and encouraged CMS to grant as much flexibility as possible 
related to the FDA marketing authorization date.
    However, a non-profit provider association stated that a 
prospective, rather than retrospective, date is appropriate, since part 
of the basis for providing additional payment is to spur innovation, 
which industry stakeholders have said has been thwarted.
    Response: After careful consideration of these comments, we have 
decided to finalize the proposed definition of new to mean granted 
marketing authorization by FDA on or after January 1, 2020. While we 
appreciate that manufacturers of renal dialysis equipment and supplies 
that were granted FDA marketing authorization in prior years would want 
these products to be eligible for the TPNIES, our goal is not to 
provide a payment adjustment for all the products that have received 
FDA marketing authorization or for products that have had limited 
market uptake, but rather to establish an add-on payment adjustment for 
certain new and innovative products in order to support uptake by ESRD 
facilities of new and innovative renal dialysis equipment and supplies. 
In addition, we appreciate the complex issues the commenters raised if 
we were to select an earlier FDA marketing authorization date, and 
believe our approach will avoid the need to address those issues. We 
note that the ESRD PPS is a prospective payment system, in which 
changes are generally made prospectively, including eligibility 
requirements for add-on payment adjustments. In addition, this 
marketing authorization date of January 1, 2020 or later is consistent 
with the TDAPA's definition of a new renal dialysis drug or biological 
product.
    Comment: Many commenters recommended that all FDA marketing 
authorizations under the PMA, De Novo, and 510(k) products that 
represent SCI should be eligible to receive the TPNIES. Given the 
shortage of new and innovative technologies in this disease area and 
the many differences between dialysis care and acute hospital services 
that often receive NTAP payment, they recommended that CMS consider 
deeming FDA's marketing authorization under the PMA or De Novo pathways 
as a criterion that would meet the SCI requirement. Additionally, they 
recommended adding a policy that would allow all approved and cleared 
FDA Breakthrough Therapy Designation products to meet the criteria.
    A device manufacturers association and a device manufacturer and 
others made a similar recommendation based on their concern that the 
requirement that all products undergo the SCI determination process 
will delay patient access to needed therapies. They pointed out that 
products that receive FDA marketing authorization under the PMA or De 
Novo pathways must undergo more stringent regulatory review and provide 
FDA with more data than a 510(k) submission and have demonstrated a 
level of clinical effectiveness and newness that products cleared under 
the 510(k) process have not.
    They believe that this policy modification would have a negligible 
effect on the cost of the TPNIES program to the Federal Government, but 
it would have a tremendous effect on encouraging innovation. The 
commenters pointed out that no new devices for use in an ESRD facility 
were authorized by the FDA under a PMA or De Novo application from 2013 
to 2017.
    A medical technology company agreed, recommending that we allow 
devices, including capital equipment, that have made significant 
improvements upon an existing approved device be eligible for the 
TPNIES when delivering product updates that meet SCI or patient 
preference criteria. The company stated that this approach would 
encourage significant innovation that is achievable in a relatively 
short time period, reaching today's patients.
    However, MedPAC stated that CMS should not use FDA's marketing 
authorization processes, including PMA and De Novo pathways, as a proxy 
for or in place of the proposed SCI criteria. They maintain that the 
Medicare program, not the FDA, should adjudicate spending 
determinations

[[Page 60690]]

based on the specific needs of the Medicare population. MedPAC stated 
that FDA's role in the drug and device development process as a 
regulator is distinct and separate from the role of CMS as a payer. 
MedPAC noted that FDA regulates whether a device or pharmaceutical is 
``safe and effective'' for its intended use by consumers. The FDA 
marketing authorization process may or may not include the new device 
or pharmaceutical's safety or effectiveness with regard to the Medicare 
population.
    MedPAC also pointed out that there have been many examples where 
devices approved through expedited FDA marketing authorization have not 
resulted in improvements in care relative to existing technologies, and 
in fact many have been recalled.
    Response: In the CY 2020 ESRD PPS proposed rule, we referenced the 
SCI criteria in Sec.  412.87(b)(1) and did not propose the alternative 
pathway described in Sec.  412.87(c) which includes devices that have 
FDA marketing authorization and are part of FDA's Breakthrough Devices 
Program (which can include De Novo and PMA) that is deemed to meet the 
conditions specified in Sec.  412.87(b)(1), that is, the SCI criterion. 
For this reason, we are unable to adopt this change in this final rule. 
In addition, we believe that instead of limiting eligibility for the 
TPNIES to PMA and De Novo as several commenters suggested, the SCI 
policy will provide an opportunity for a product that has no predicate 
product, that is, is not the first of its kind but offers SCI, to 
receive the TPNIES. Additionally, with regard to the comment regarding 
SCI delaying patient access to therapies, we believe that this is 
balanced with our opportunity to review more applications for TPNIES 
eligibility which may lead to more treatment choice for patients.
    Comment: A device manufacturers association and 2 device 
manufacturers stated that CMS should finalize the proposal to adopt the 
IPPS SCI criteria specified including modifications finalized in future 
IPPS rules. They pointed out that on August 2, 2019, in the FY 2020 
IPPS final rule, CMS finalized changes to the SCI criteria so that 
manufacturers can now present a wider variety of information to support 
the NTAP application. These changes were made to introduce greater 
flexibility in the SCI decision making process. Although they believe 
that adoption by reference is implied, they recommended that CMS 
explicitly adopt the new SCI criteria in the final rule and, 
ultimately, in the TPNIES application itself.
    Response: We acknowledge that revised criteria for assessing SCI 
was published in the FY 2020 IPPS final rule (84 FR 42180 through 
42181). In accordance with the proposed reference to Sec.  
412.87(b)(1), which we are finalizing in new Sec.  413.236(b)(5), we 
have adopted the FY 2020 IPPS changes to the SCI criteria, and any 
future changes to the SCI criteria, by reference, unless and until we 
make any changes to the criteria through notice and comment rulemaking.
    Specifically, CMS will use the following criteria to evaluate SCI 
for purposes of the TPNIES under the ESRD PPS (see Sec.  412.87(b)(1) 
and Sec.  413.236(b)), based on the IPPS SCI criteria and related 
guidance:
    A new renal dialysis equipment or supply represents an advance that 
substantially improves, relative to renal dialysis services previously 
available, the diagnosis or treatment of Medicare beneficiaries. First, 
and most importantly, the totality of the circumstances is considered 
when making a determination that a new renal dialysis equipment or 
supply represents an advance that substantially improves, relative to 
renal dialysis services previously available, the diagnosis or 
treatment of Medicare beneficiaries.
    Second, a determination that a new renal dialysis equipment or 
supply represents an advance that substantially improves, relative to 
renal dialysis services previously available, the diagnosis or 
treatment of Medicare beneficiaries means:
     The new renal dialysis equipment or supply offers a 
treatment option for a patient population unresponsive to, or 
ineligible for, currently available treatments; or
     The new renal dialysis equipment or supply offers the 
ability to diagnose a medical condition in a patient population where 
that medical condition is currently undetectable, or offers the ability 
to diagnose a medical condition earlier in a patient population than 
allowed by currently available methods, and there must also be evidence 
that use of the new renal dialysis service to make a diagnosis affects 
the management of the patient; or
     The use of the new renal dialysis equipment or supply 
significantly improves clinical outcomes relative to renal dialysis 
services previously available as demonstrated by one or more of the 
following: A reduction in at least one clinically significant adverse 
event, including a reduction in mortality or a clinically significant 
complication; a decreased rate of at least one subsequent diagnostic or 
therapeutic intervention; a decreased number of future hospitalizations 
or physician visits; a more rapid beneficial resolution of the disease 
process treatment including, but not limited to, a reduced length of 
stay or recovery time; an improvement in one or more activities of 
daily living; an improved quality of life; or, a demonstrated greater 
medication adherence or compliance; or,
     The totality of the circumstances otherwise demonstrates 
that the new renal dialysis equipment or supply substantially improves, 
relative to renal dialysis services previously available, the diagnosis 
or treatment of Medicare beneficiaries.
    Third, evidence from the following published or unpublished 
information sources from within the U.S. or elsewhere may be sufficient 
to establish that a new renal dialysis equipment or supply represents 
an advance that substantially improves, relative to renal dialysis 
services previously available, the diagnosis or treatment of Medicare 
beneficiaries: Clinical trials, peer reviewed journal articles; study 
results; meta-analyses; consensus statements; white papers; patient 
surveys; case studies; reports; systematic literature reviews; letters 
from major healthcare associations; editorials and letters to the 
editor; and public comments. Other appropriate information sources may 
be considered.
    Fourth, the medical condition diagnosed or treated by the new renal 
dialysis equipment or supply may have a low prevalence among Medicare 
beneficiaries.
    Fifth, the new renal dialysis equipment or supply may represent an 
advance that substantially improves, relative to services or 
technologies previously available, the diagnosis or treatment of a 
subpopulation of patients with the medical condition diagnosed or 
treated by the new renal dialysis equipment or supply.
    Comment: An LDO recommended that CMS finalize its proposal to adopt 
SCI as an eligibility criteria for the TPNIES, clarify and provide 
further guidance on how it intends to apply the new criteria, and 
establish a process that includes at least one reviewer of TPNIES 
applications with clinical expertise in ESRD care.
    Response: We intend to establish a workgroup of CMS medical and 
other staff to review the studies and papers submitted as part of the 
TPNIES application, the public comments we receive, and the FDA 
marketing authorization and HCPCS application information and assess 
the extent to which the product provides SCI over current technologies. 
Our intent is to

[[Page 60691]]

obtain input from a nephrologist along with other subject matter 
experts throughout our decision making process for determining TPNIES 
eligibility.
    Comment: Several commenters, including a patient advocacy 
organization, a medical technology company, and a medical technology 
association requested that CMS expand on the SCI criteria for the 
TPNIES to include patient preference data, and clarify at least some of 
the elements that would be considered as improved quality of life. The 
commenters noted that the Kidney Health Initiative Renal Replacement 
Therapy Roadmap outlines the elements that should constitute improved 
quality of life for patients and they believe CMS should include and 
apply these elements in the CY 2020 ESRD PPS final rule. They also 
recommended that patient preference data should be considered for 
evaluating SCI. They stated that it is critically important for TPNIES 
approvals to reflect the preferences of ESRD patients and empower their 
choice to do home dialysis or self-care. The organization offered to 
work with CMS to define a process for evaluating improvements in one or 
more activities of daily living and improved quality of life. The 
organization stated that such a process is especially important because 
patient preference and patient reported outcome data are not always 
available at the time that marketing authorization is granted by FDA. 
They want to ensure that equipment or supplies that represent a 
meaningful advance for ESRD patients, but where the patient's 
preferences have not yet been formally evaluated at the time of FDA 
marketing authorization, would be eligible for TPNIES.
    Response: As stated in section II.B.1.a of the CY 2020 ESRD PPS 
proposed rule (84 FR 38354), since renal dialysis services are 
routinely furnished to hospital inpatients and outpatients, we believe 
the same SCI criteria should be used to assess whether a new renal 
dialysis equipment or supply warrants additional payment under the ESRD 
PPS. We intend to study in the future how patient preference 
information could be used to inform SCI determinations under the ESRD 
PPS to determine if we should establish any criteria that are specific 
to the ESRD PPS. In the interim, since TPNIES applications will be 
described in the annual ESRD PPS proposed rules, we urge ESRD patients 
and patient advocacy organizations to provide the patient perspective 
on the TPNIES applications in comments on the proposed rule. We note 
that the CMS determinations on the TPNIES applications will be issued 
in the annual ESRD PPS final rules based on the totality of the 
information provided, including public comments receiving during the 
rulemaking process.
    Comment: A health services company pointed out that CMS did not 
provide a definition for commercially available and asked that we 
eliminate the requirement in the final rule. The company pointed out 
that neither the IPPS add-on payment nor OPPS pass through payment 
rules require that the equipment or supply be commercially available 
and the CY 2020 ESRD PPS proposed rule provided no rationale for 
including this eligibility requirement.
    Response: We included the eligibility requirement that a new and 
innovative renal dialysis equipment or supply be commercially available 
for the reasons set forth below, not to be consistent with the IPPS 
NTAP or OPPS pass-through payment. Regarding the request that we define 
commercially available, we are clarifying that commercially available 
means available for sale to ensure that manufacturing or other delays 
do not significantly delay patient access to the new equipment or 
supply.
    We expect that if an application for the TPNIES is submitted by 
February 1, 2020 for the equipment or supply, the equipment or supply 
would be available to be sold by January 1, 2021, when the TPNIES 
period begins, if we determine the item is eligible. In addition, we 
note that the TPNIES period for a product begins on January 1 and ends 
2 years later on December 31. We would expect that manufacturers would 
want to capitalize on the marketing opportunity available during the 
TPNIES period and ensure that the equipment or supply is commercially 
available on January 1. We are concerned that if the equipment or 
supply is not commercially available on January 1, there may be 
confusion from ESRD facilities over when the TPNIES period starts and 
ends. Therefore, we believe this is an important criteria for 
eligibility for the TPNIES. If the equipment or supply is not 
commercially available on January 1, the manufacturer would not meet 
one of the eligibility criteria for TPNIES and no TPNIES payments 
should be made. For this reason, we expect for the manufacturer to 
notify CMS by September 1 if the equipment or supply will not be 
commercially available by January 1. If the manufacturer is unable to 
have market availability by January 1, 2021, the equipment or supply is 
not eligible for TPNIES in CY 2021.
    Final Rule Action: After consideration of public comments, for CY 
2020 we are finalizing the addition of Sec.  413.236, Transitional Add-
on Payment Adjustment for New and Innovative Equipment and Supplies, 
with 5 modifications. First, we are clarifying that applicants must 
receive FDA marketing authorization by September 1 and not February 1; 
second, we are clarifying what commercially available means and when it 
needs to occur; third, we are clarifying when the HCPCS application 
needs to be submitted; fourth, we are clarifying what particular 
calendar year means; and fifth; we are taking out the reference to the 
application of the TPNIES in the calculation of the per treatment 
payment amount because we do not believe it is necessary in light of 
our changes to Sec.  413.230. We are finalizing the addition of Sec.  
413.236(a) to state that the basis for the TPNIES is to establish an 
add-on payment adjustment to support ESRD facilities in the uptake of 
new and innovative renal dialysis equipment and supplies under the ESRD 
PPS under the authority of section 1881(b)(14)(D)(iv) of the Act.
    We also are finalizing the addition of Sec.  413.236(b) to state 
that a renal dialysis equipment or supply meet the following 
eligibility criteria in order to receive the TPNIES: (1) Has been 
designated by CMS as a renal dialysis service under Sec.  413.171, (2) 
is new, meaning it is granted marketing authorization by FDA on or 
after January 1, 2020, (3) is commercially available by January 1 of 
the particular calendar year, meaning the year in which the payment 
adjustment would take effect, (4) has a Healthcare Common Procedure 
Coding System (HCPCS) application submitted in accordance with the 
official Level II HCPCS coding procedures by September 1 of the 
particular calendar year (5) is innovative, meaning it meets the 
criteria specified in Sec.  412.87(b)(1) and related guidance, and (6) 
is not a capital-related asset that an ESRD facility has an economic 
interest in through ownership (regardless of the manner in which it was 
acquired).
    We are also finalizing the addition of Sec.  413.236(c) to 
establish a process for the TPNIES determination and deadline for 
consideration of new renal dialysis equipment or supply applications 
under the ESRD PPS. That is, we are finalizing that we will consider 
whether a new renal dialysis supply or equipment meets the eligibility 
criteria specified in Sec.  413.236(b) and announce the results in the 
Federal Register as part of our annual updates and changes to the ESRD 
PPS. We are finalizing that we will only consider a complete 
application received by CMS by February 1 prior to the particular 
calendar year, meaning the year in which the payment adjustment would

[[Page 60692]]

take effect, and that FDA marketing authorization for the equipment or 
supply must occur by September 1 prior to the particular calendar year.
ii. Pricing of New and Innovative Renal Dialysis Equipment and Supplies
    In the CY 2020 ESRD PPS proposed rule (84 FR 38355), we stated 
that, with respect to the new and innovative renal dialysis equipment 
and supplies, we were not aware of pricing compendia currently 
available to price these items for the transitional add-on payment 
adjustment proposal discussed in this section. We also noted that, 
unlike new renal dialysis drugs and biological products eligible for 
the TDAPA, ASP and WAC pricing do not exist for renal dialysis 
equipment and supplies. Unlike the IPPS NTAP methodology, which uses 
MS-DRG payment and cost-to-charge ratios in its high cost criteria 
payment calculation, the ESRD PPS has a single per treatment payment 
amount. Therefore, we proposed to establish a pricing method in the 
absence of data indicating a true market price.
    In accordance with ESRD billing instructions of the Medicare Claims 
Processing Manual (chapter 8, section 50.3), we proposed that ESRD 
facilities would report the HCPCS code, when available, and their 
corresponding charge for the item. We explained that, in accordance 
with the Provider Reimbursement Manual (chapter 22, section 2203), 
Medicare does not dictate a provider's charge structure or how it 
itemizes charges but it does determine whether charges are acceptable 
for Medicare purposes. Charges should be reasonably and consistently 
related to the cost of services to which they apply and are uniformly 
applied. In addition, the Provider Reimbursement Manual (chapter 22, 
section 2202.4) specifies that charges refer to the regular rates 
established by the provider for services rendered to both beneficiaries 
and to other paying patients. Charges should be related consistently to 
the cost of the services and uniformly applied to all patients whether 
inpatient or outpatient. All patients' charges used in the development 
of apportionment ratios should be recorded at the gross value; that is, 
charges before the application of allowances and discounts deductions.
    Since we require charges to be reported at the gross value, we did 
not propose to use charges as the basis of payment. The ESRD PPS does 
not have a charge structure or a gap-filling policy similar to the 
DMEPOS policy. As a result, we proposed to obtain a pricing indicator 
that requires the item to be priced by Medicare Administrative 
Contractors (MACs). We proposed to adopt a process that utilizes 
invoiced-based pricing. We noted that there are instances in which 
invoice pricing is also used for DMEPOS. Specifically, in the Medicare 
Claims Processing Manual (chapter 23, section 60.3), we state that 
``potential appropriate sources for such commercial pricing information 
can . . . include verifiable information from supplier invoices.''
    In addition, we noted that in the CY 2019 Physician Fee Schedule 
final rule (83 FR 59663), we discussed that invoice based pricing is 
used to pay for Part B drugs and biologicals in certain circumstances 
as described in the Medicare Claims Processing Manual (chapter 17, 
section 20.1.3). For example, if a payment allowance limit for a drug 
or biological is not included in the quarterly ASP Drug Pricing File or 
Not Otherwise Classified Pricing File, MACs are permitted to use 
invoice pricing. MACs may also use invoice based pricing for new drugs 
and biologicals that are not included in the ASP Medicare Part B Drug 
Pricing File or Not Otherwise Classified Pricing File. The new drug 
provision may be applied during the period just after a drug is 
marketed, that is, before ASP data has been reported to CMS. We stated 
that we believed using invoices for new drugs and drugs without 
national pricing is a similar situation to addressing new and 
innovative renal dialysis equipment and supplies that do not have a 
national price.
    We stated that we believed that an invoice-based approach could be 
applied to the renal dialysis equipment and supplies that are the focus 
of our proposal. As noted previously, ESRD facility charges are gross 
values; that is, charges before the application of allowances and 
discounts deductions. We stated that we believed the MAC-determined 
price should reflect the discounts, rebates and other allowances the 
ESRD facility (or parent company) receives. These terms are defined in 
the Provider Reimbursement Manual (chapter 8).\32\ If the MAC-
determined price does not reflect discounts, rebates and other 
allowances, the price would likely exceed the facility's cost for the 
item and result in higher co-insurance obligations for beneficiaries. 
For this reason, we noted that it is important for MACs to develop a 
payment rate taking into consideration the invoice amount, the 
facility's charge for the item on the claim, discounts, allowances, 
rebates, the price established for the item by other MACs and the 
sources of information used to establish that price, payment amounts 
from other payers and the information used to establish those payment 
amounts, and information on pricing for similar items used to develop a 
payment rate. We explained that we believe the information that ESRD 
facilities would supply to the MACs should be verifiable, so that we 
can more appropriately establish the actual facility cost of the items.
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    \32\ Medicare Provider Reimbursement Manual. Chapter 8. 
Available at: https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/Downloads/R450PR1.pdf.
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    Under our proposal, the specific amounts would be established for 
the new and innovative renal dialysis equipment or supply HCPCS code 
using verifiable information from the following sources of information, 
if available: The invoice amount, facility charges for the item, 
discounts, allowances, and rebates; the price established for the item 
by other MACs and the sources of information used to establish that 
price; payment amounts determined by other payers and the information 
used to establish those payment amounts; and charges and payment 
amounts, required for other equipment and supplies that may be 
comparable or otherwise relevant.
    We stated that once there is sufficient payment data across MACs, 
we would consider establishing a national price for the item through 
notice and comment rulemaking. We invited public comment on this 
proposed approach for pricing new and innovative renal dialysis 
equipment and supplies for the transitional add-on payment adjustment 
proposal discussed in section II.B.3.b.iii of this final rule. We also 
solicited comment on other pricing criteria and other verifiable 
sources of information that should be considered.
    To mitigate the Medicare expenditures incurred as a result of the 
TPNIES proposal discussed later in this section of the final rule, we 
proposed to base the additional payment on 65 percent of the MAC-
determined price. We noted that in the FY 2020 IPPS proposed rule (84 
FR 19162) a 50 percent capped add-on amount was considered low with 
regard to providing hospitals with a sufficient incentive to use the 
new technology. In that rule, we proposed to modify the current payment 
mechanism to increase the amount of the maximum add-on payment amount 
to 65 percent. In the FY 2020 IPPS final rule (84 FR 42048), the 
percentage was revised to be 65 percent. In the CY 2020 ESRD PPS 
proposed rule (84 FR 38356), we stated we believed that we have the 
same goal as IPPS with regard to supporting ESRD facility use of new 
and innovative renal dialysis equipment and supplies. Therefore, we 
proposed to base the TPNIES on 65 percent of the

[[Page 60693]]

MAC-determined price. We also solicited comment on whether we should 
explicitly link to the IPPS NTAP mechanism's maximum add-on payment 
amount percentage so that any change in that percentage would also 
change for the proposed TPNIES paid to ESRD facilities for furnishing 
new and innovative renal dialysis equipment and supplies.
iii. Proposed Use of a Transitional Add-On Payment Adjustment for New 
and Innovative Renal Dialysis Equipment and Supplies
    In the CY 2020 ESRD PPS proposed rule, we acknowledged that ESRD 
facilities have unique challenges with regard to implementing new renal 
dialysis drugs and biological products as discussed in section II.B.1.b 
of this final rule, and we stated that we believed that the same issues 
would apply with respect to incorporating new and innovative equipment 
and supplies into their standards of care. For example, when new and 
innovative equipment and supplies are introduced to the market, ESRD 
facilities would need to analyze their budgets and engage in 
contractual agreements to accommodate the new items into their care 
plans. Newly marketed equipment and supplies 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 product and its effect 
on patient outcomes. We stated that we believed this uptake period 
would be supported by the proposed TPNIES because it would help 
facilities transition or test new and innovative equipment and supplies 
in their businesses under the ESRD PPS. The proposed TPNIES would 
target payment for the use of new and innovative renal dialysis 
equipment and supplies during the period when a product is new to the 
market.
    We proposed to apply the TPNIES for 2-calendar years from the 
effective date of the change request, which would coincide with the 
effective date of the CY ESRD PPS final rule. We also proposed that 
after the TPNIES period ends, the item would become an eligible outlier 
service as provided in Sec.  413.237. Therefore, we proposed revisions 
to Sec.  413.237(a)(1) to reflect outlier eligibility for the new renal 
dialysis equipment or supply once the TPNIES period ends. We stated 
that we believed that 2 years would be a sufficient timeframe for ESRD 
facilities to set up or adjust business practices so that there is 
seamless access to the new and innovative equipment and supplies. In 
addition, historically when we have implemented policy changes whereby 
facilities need to adjust their system modifications or protocols, we 
have provided a transition period. We noted that we believed that this 
2-year timeframe is similar in that facilities are making changes to 
their systems and care plans to incorporate the new renal dialysis 
equipment and supplies into their standards of care and this could be 
supported by a transition period.
    Further, we stated that we believed providing the TPNIES for 2 
years would address the stakeholders' concerns regarding additional 
payment to account for higher cost of more new and innovative equipment 
and supplies that they believe may not be adequately captured by the 
dollars allocated in the ESRD PPS base rate. That is, the TPNIES would 
give the new and innovative equipment and supplies a foothold in the 
market so that when the timeframe is complete, they are able to compete 
with the other equipment and supplies also accounted for in the ESRD 
PPS base rate. Once the 2-year timeframe is complete, we proposed that 
the equipment or supply would then qualify as an outlier service, if 
applicable, and the facility would no longer receive the TPNIES for 
that particular item. Instead, in the outlier policy space, there is a 
level playing field where products could gain market share by offering 
the best practicable combination of price and quality.
    We noted that this proposal would increase Medicare expenditures, 
which would result in increases to ESRD beneficiary co-insurance, since 
we have not previously provided a payment adjustment for renal dialysis 
equipment and supplies in the past. However, to support agency 
initiatives and to be consistent with both our TDAPA policy and IPPS 
payment policies, we noted that we believed that the proposed TPNIES 
would be appropriate to support ESRD facility uptake in furnishing new 
and innovative renal dialysis equipment and supplies.
    We stated that the intent of the TPNIES would be to provide a 
transition period for the unique circumstances experienced by ESRD 
facilities when incorporating certain new and innovative equipment and 
supplies into their businesses and to allow time for the uptake of the 
new and innovative equipment and supplies. We explained that, at this 
time, we do not believe that it would be appropriate to add dollars to 
the ESRD PPS base rate for new and innovative renal dialysis equipment 
and supplies because, as noted previously, the ESRD PPS base rate 
includes the cost of equipment and supplies used to furnish a dialysis 
treatment. As we have stated in CY 2019 ESRD PPS proposed rule (83 FR 
34314), we believe that increasing the base rate for these items could 
be in conflict with the fundamentals of a PPS. That is, under a PPS, 
Medicare makes payments based on a predetermined, fixed amount that 
reflects the average cost and the facility retains the profit or 
suffers a loss resulting from the difference between the payment rate 
and the facility's resource use which creates an incentive for 
facilities to control their costs. It is not the intent of a PPS to add 
dollars to the base rate whenever a new product is made available.
    Therefore, we also proposed to add Sec.  413.236(d) to provide a 
transitional add-on payment adjustment for new and innovative renal 
dialysis equipment or supply based on 65 percent of the MAC-determined 
price, as described in proposed Sec.  413.236(e). The TPNIES would be 
paid for 2-calendar years. Following payment of the TPNIES, the ESRD 
PPS base rate would not be modified and the new and innovative renal 
dialysis equipment or supply would be an eligible outlier service as 
provided in Sec.  413.237.
    We also proposed to add Sec.  413.236(e) to require that the MAC on 
behalf of CMS would establish prices for the new and innovative renal 
dialysis equipment and supplies described in newly added Sec.  
413.236(b), and that we would use these prices for the purposes of 
determining the TPNIES. The specific amounts would be established for 
the new and innovative renal dialysis equipment or supply HCPCS code 
using verifiable information from the following sources of information, 
if available: The invoice amount, facility charges for the item, 
discounts, allowances, and rebates; the price established for the item 
by other MACs and the sources of information used to establish that 
price; payment amounts determined by other payers and the information 
used to establish those payment amounts; and charges and payment 
amounts, required for other equipment and supplies that may be 
comparable or otherwise relevant.
    We also proposed to add paragraph (e) to Sec.  413.230, Determining 
the per treatment payment amount, to reflect the TPNIES. We stated that 
we believed this modification is necessary so the regulation 
appropriately reflects all inputs in the calculation of the per 
treatment payment amount.
    Since we were proposing to add paragraphs (d) (discussed in section 
II.B.1.e of this final rule) and (e) to Sec.  413.230, we also proposed 
a technical change to remove ``and'' from the end of

[[Page 60694]]

Sec.  413.230(b). We proposed that the ``and'' would be added to the 
end of Sec.  413.230(d).
    In addition, we proposed to revise the definition of ESRD outlier 
services at Sec.  413.237(a)(1) by adding a new paragraph (a)(1)(v) to 
include renal dialysis equipment and supplies that receive the TPNIES 
as specified in Sec.  413.236 after the payment period has ended. We 
proposed to redesignate existing paragraph (a)(1)(v) as paragraph 
(a)(1)(vi) and revise the paragraph to state ``As of January 1, 2012, 
the laboratory tests that comprise the Automated Multi-Channel 
Chemistry panel are excluded from the definition of outlier services.'' 
We proposed this technical edit to reflect an order in the definition 
of ESRD outlier services as first, items and services included and 
second, items and services that are excluded.
    We also proposed technical changes to Sec.  413.237(a)(1)(i) 
through (iv) to replace the phrases ``ESRD-related'' and ``used in the 
treatment of ESRD'' with ``renal dialysis'' to reflect the current 
terminology used under the ESRD PPS and to replace the word 
``biologicals'' with ``biological products'' to reflect FDA's preferred 
terminology.
    The comments and our responses to the comments on our proposals 
regarding pricing of new and innovative renal dialysis equipment and 
supplies and the proposed changes to ESRD PPS regulations are set forth 
below. We did not receive comments on our proposal to add paragraph (e) 
to Sec.  413.230 to reflect the TPNIES, for a technical change to 
remove ``and'' from the end of Sec.  413.230(b), for a technical change 
to include ``and'' to the end of Sec.  413.230(d), or the technical 
changes to Sec.  413.237(a)(1)(i) through (iv) to replace the phrases 
``ESRD-related'' and ``used in the treatment of ESRD'' with ``renal 
dialysis'' to reflect the current terminology used under the ESRD PPS 
and to replace the word ``biologicals'' with ``biological products'' to 
reflect FDA's preferred terminology. We are therefore finalizing these 
revisions to the regulation text as proposed.
    Comment: Most commenters, including a national dialysis stakeholder 
organization, an LDO, a nursing association, a device manufacturers 
association and a patient advocacy organization expressed concern that 
after the 2-year TPNIES period, we did not propose to make changes to 
the base rate. Rather, we proposed to make these items eligible for 
outlier payments. Several commenters asked that CMS adjust the base 
rate to include dollars for the incremental difference of the cost of 
the new device and what may be reflected in the ESRD PPS base rate 
already. They asserted that this comprehensive approach is the best way 
to align the TPNIES policy with the President's goal to incentive the 
adoption of new innovations in the ESRD program. In addition, MedPAC 
stated that CMS should not make duplicative payments for new ESRD-
related equipment and supplies by paying under the TPNIES for 2 years 
and paying for an item with a similar purpose or use that is already 
paid under the ESRD PPS base rate. For example, CMS could reduce the 
TPNIES payment amount to reflect the amount already included in the 
base rate. An LDO also made this suggestion.
    The LDO suggested that CMS should apply funds not expended under 
the narrower TDAPA eligibility policy to make ESRD PPS adjustments when 
it adds new products to the ESRD PPS base rate. An adjustment could be 
established that equals the incremental difference between any amounts 
associated with the functional category currently in the base rate 
attributable to the new product's cost. The LDO noted that this might 
result in CMS adding the product's full cost if the base rate does not 
include any such reimbursement or a lesser amount that reflects current 
dollars in the base rate. The LDO also recommended that CMS make 
similar adjustments to ensure that the base rate reflects costs 
associated with a new device after a TPNIES ends.
    A device manufacturer suggested that, at the end of the TPNIES 
period, CMS positively adjusts the ESRD PPS base rate to reflect the 
added value of the TPNIES product. For example, CMS could adjust the 
ESRD PPS via a value-based modifier adjustment by exercising its 
authority under section 1881(b)(14)(D)(iv) of the Act to adjust 
payments under the ESRD PPS for value-enhancing medical products 
following the expiration of the transitional pass-through period. The 
value-based modifier could be derived from the demonstrated value of a 
given TPNIES product--for example, a device's demonstrated impact on 
averting hospitalizations and other additional resources. The 
manufacturer suggested that value could be shared between facilities 
using the new device and the Medicare program.
    The patient advocacy organization expressed concern that by leaving 
a funding ``cliff'' at the end of the 2-year TPNIES period, clinics may 
not test new products. The organization also expressed concern that if 
the device reduces complications and thereby reduces the total cost of 
care for ESRD patients, but that these savings are not reflected in the 
fee-for-service (FFS) payment system, the device will be offered to 
Medicare Advantage enrollees but not to FFS beneficiaries.
    Another commenter recommended collection of use data similar to 
that collected under the TDAPA policy for new renal dialysis drugs and 
biological products that are in new ESRD PPS functional categories, and 
if a product is used by a sufficient proportion of Medicare 
beneficiaries, CMS should increase the ESRD PPS base rate.
    A national dialysis association, a device manufacturers association 
and a device manufacturer also recommended that at the end of the 
TPNIES period, CMS positively adjust the ESRD PPS base rate to reflect 
the added value of the TPNIES product. The commenters stated that 
failure to positively adjust the ESRD PPS base rate after the TPNIES 
period will result in a situation where providers must absorb the costs 
of the new product after the expiration of the add-on payment 
adjustment. This could discourage providers from adopting the new 
device in the first instance or from using the device for the long-
term. The commenters noted that both outcomes would hinder innovation 
and stall improvements in patient care, which undercuts the fundamental 
purpose of the TPNIES. The organization stated that the outlier pool 
was never designed to provide comprehensive reimbursement for new, 
high-cost products to a significant number of beneficiaries. The 
outlier pool cannot function as a substitute for thoughtfully building 
dollars into the base rate to cover expected care.
    An LDO disagreed that it would be inappropriate to add new dollars 
to the ESRD PPS base rate at the end of the TPNIES timeframe. The LDO 
is concerned that the TPNIES will encourage uptake of high-cost new 
technologies and then leave providers without a way to cover the costs 
above the amount accounted for in the base rate after the 2-year window 
closes. The LDO stated that the outlier policy does not address this 
funding shortfall and would exclude lower cost innovative supplies that 
do not exceed the FDL threshold. In addition, although the LDO has 
longstanding concerns with the outlier mechanism, the LDO agreed that 
device technologies (like drugs) should be part of the outlier payment 
mechanism, as they are for other Medicare providers, to address 
individual high cost cases.
    While the LDO agrees that it is not the intent of the PPS to add 
new money whenever something new is made available, the LDO expressed 
concern that the current policy does not leave

[[Page 60695]]

CMS any flexibility to do so when appropriate and is a significant 
disincentive for technology developers to enter the ESRD space. The LDO 
recommended that CMS establish a process for adding dollars into the 
base rate, where appropriate, to ensure PPS payments are sufficient to 
reflect improved technologies once the TPNIES timeframe ends. In 
addition, CMS should finalize its proposal to add TPNIES-eligible 
products to its definition of ESRD outlier services to account for 
individual high cost cases.
    Response: We appreciate the concerns raised by the stakeholders 
with regard to our proposal to not adjust the ESRD PPS base rate after 
the end of the TPNIES period. As we explained in the CY 2020 ESRD PPS 
proposed rule, sections 1881(b)(14)(A)(i) and 1881(b)(14)(B) of the Act 
specify the renal dialysis services that must be included in the ESRD 
PPS bundled payment, which includes items and services that were part 
of the composite rate for renal dialysis services as of December 31, 
2010. When implementing the ESRD PPS for CY 2011, we used the composite 
rate payments made under Part B in 2007 for dialysis in computing the 
ESRD PPS base rate (75 FR 49075). Therefore, we believe the ESRD PPS 
base rate currently reflects the renal dialysis equipment and supplies 
that will be eligible for TPNIES.
    Moreover, as we have explained with respect to the TDAPA for drugs 
already reflected in the ESRD PPS functional categories, we believe 
adding dollars to the ESRD PPS base rate for items that are already 
reflected in the ESRD PPS base would be inappropriate and 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 rate whenever 
something new is made available. Additionally, the statute does not 
require that we add dollars to the ESRD PPS base rate when a new item 
is available.
    With regard to the comment about CMS using a value-based modifier 
adjustment, as we explained in the CY 2020 ESRD PPS proposed rule, the 
intent of the TPNIES for new and innovative equipment and supplies is 
to provide a transition period for the unique circumstances experienced 
by ESRD facilities when incorporating certain new and innovative 
equipment and supplies into their businesses and to allow time for the 
uptake of the new and innovative equipment and supplies. For example, 
when new and innovative equipment and supplies are introduced to the 
market, ESRD facilities would need to analyze their budgets and engage 
in contractual agreements to accommodate the new items into their care 
plans. Newly marketed equipment and supplies 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 product and its effect 
on patient outcomes. We believe this uptake period would be supported 
by the TPNIES because it would help facilities transition or test new 
and innovative equipment and supplies in their businesses under the 
ESRD PPS.
    We appreciate the suggestion of reducing the TPNIES payment by the 
amount already included in the ESRD PPS base rate, however, ESRD 
facilities have historically not reported on claims the utilization of 
composite rate items and services, which is what these products are 
considered to be. Therefore we do not have the data sufficient to make 
these calculations at this time. We note that we included a request for 
this information in section VIII.A of the CY 2020 ESRD PPS proposed 
rule on how to collect this data. In response some commenters stated 
that the composite rate components to price the cost of dialysis 
treatment was outmoded and unnecessary concept and counter to the 
objective of the bundled system instituted with the ESRD PPS in CY 
2011.
    We are concerned about the comment stating that ESRD facilities 
will choose to not adopt new and innovative equipment and supplies. We 
do not agree with these commenters because we believe that innovative 
products that are competitively priced and that add value will be able 
to be successfully marketed and that ESRD facilities will want to use 
them. In addition, since we collect monitoring data, we will be aware 
of utilization and behavior trends and will be able to use this data to 
inform future policies.
    Comment: Most provider organizations including a national dialysis 
stakeholder organization, an LDO, a professional association, a nursing 
association and a national dialysis association requested that we 
provide the TPNIES for 2-full calendar years of cost and utilization 
data. They stated that patients and providers take time to integrate 
new technologies and innovation into ongoing care practice. To ensure 
that cost and utilization data are accurate, they recommended that CMS 
extend the TPNIES period for the time required to collect 2 full years 
of cost and utilization data.
    However, a device manufacturer association and a medical technology 
company requested that we extend the TPNIES period to 4 years. They 
opined that a 2-year period would discourage small start-up companies 
from developing innovative equipment and supplies, as building the 
support and distribution infrastructure nationwide to support new 
technology implementation takes far longer. They stated that extending 
the coverage period to 4 years would help level the playing field 
between small innovators and large, global manufacturers with an 
existing support and distribution footprint. Several other commenters 
recommended a 3-year TPNIES period because facilities need several 
years to set up system modifications and adjust business practices. 
They stated they believe that at least 3 years is an appropriate 
timeframe based on CMS' experience with other new technology add-on 
payment mechanisms.
    Response: In providing an add-on payment, that is, the TPNIES, for 
new and innovative renal dialysis equipment and supplies that are 
accounted for in the ESRD PPS base rate, we did not propose to 
incorporate these products into the ESRD PPS base rate when the TPNIES 
period ends. The purpose for the TPNIES is to provide a transition 
period for the unique circumstances experienced by ESRD facilities when 
incorporating certain new and innovative equipment and supplies into 
their businesses and to allow time for the uptake of the new and 
innovative equipment and supplies. For example, when new and innovative 
renal dialysis equipment and supplies are introduced to the market, 
ESRD facilities would need to analyze their budgets and engage in 
contractual agreements to accommodate the new items into their care 
plans. Newly marketed equipment and supplies 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 product and its effect 
on patient outcomes. We believe this uptake period would be supported 
by the TPNIES because it would help facilities transition or test new 
and innovative equipment and supplies in their businesses under the 
ESRD PPS. The TPNIES would target payment for the use of new and 
innovative renal dialysis equipment and supplies during the

[[Page 60696]]

period when a product is new to the market.
    Further, we believe that the 2-year period gives the ESRD facility 
the opportunity to incorporate the product into their business model if 
they choose. The facility would be comparing a product currently in use 
with a new and innovative product and making a choice if the increased 
cost would be commensurate with increased clinical value to the 
beneficiary. We continue to believe providing the TPNIES for 2 years is 
appropriate for new and innovative products and that a longer timeframe 
to establish the product's uptake is not necessary, particularly since 
the ESRD PPS base rate includes money for these products. We are not 
expanding the duration of the TPNIES period because we believe that 2 
years strikes the appropriate balance of supporting innovation while 
protecting the Medicare expenditures. We note that the TPNIES period 
begins on January 1, the effective date of the annual ESRD PPS final 
rule in which we announce our determinations with regard to TPNIES 
applications, and ends on December 31, that is, 2 years later.
    Comment: Many comments expressed support for the proposal to base 
payment for the TPNIES on the price established by the MACs using 
information from invoices and other relevant sources of information. 
However, MedPAC expressed support for the proposal but only for the 
first 2-calendar quarters after CMS begins applying the TPNIES. 
Thereafter, MedPAC recommended that CMS should set the price of new 
equipment and supplies using a method based on pricing data collected 
directly from each manufacturer, similar to how CMS establishes the 
average sales price (ASP) for Part B drugs.
    The Commission pointed out that the ASP for a Part B drug reflects 
the average price realized by the manufacturer for its sales broadly 
across different types of purchasers and for patients with different 
types of insurance coverage. It is based on the manufacturer's sales to 
all purchasers (with certain exceptions) net of manufacturer rebates, 
discounts, and price concessions. There is a 2-quarter lag in the data 
used to set ASP-based payment rates. MedPAC stated that an approach 
similar to how CMS collects ASP data would increase the consistency of 
pricing data and should lead to more accurate payment rates for items 
paid under the TPNIES. In establishing a process for collection of 
average sales price data for equipment and supplies, the Commission 
recommended that, similar to the TDAPA for new renal dialysis drugs and 
biological products, CMS should link payment of the TPNIES to a 
requirement that equipment and supply manufacturers submit ASP-like 
data to CMS.
    Other commenters, including a device manufacturer, a device 
manufacturers association, and a patient advocacy organization 
recommended that, instead of the invoice-based pricing process at the 
MAC level, with possible national-level rates set once there is enough 
data across multiple MACs, CMS adopt a rate determination process like 
the NTAP. Under this process, TPNIES applicants, when providing SCI 
data and other information in their application, can also provide 
information on the cost of the product. Then, when CMS discusses the 
application in the ESRD PPS proposed rule, CMS could discuss the cost 
information provided by the applicant and ask stakeholders (including 
providers, innovation leaders and patient-centered advocacy 
organizations) for comments. The national payment rate could then be 
finalized in the ESRD PPS final rule when CMS accepts or denies the 
TPNIES application. The commenters indicated that this change in 
process would elevate the principle and practice transparency and 
provide far greater certainty for ESRD providers and, more importantly, 
limit the impact of the TPNIES administrative process on patient 
access.
    A national dialysis stakeholder organization and an LDO asked that 
CMS ensure that the pricing for the TPNIES is transparent and provides 
predictability and consistency in pricing. A professional association 
stated that by their very nature, MACs make local coverage and 
reimbursement decisions that can vary by region. To ensure consistency 
and adequacy in pricing and reimbursement, they urged CMS to ensure 
that the proposed MAC pricing process is transparent and understandable 
for all stakeholders. Another LDO agreed and requested that CMS specify 
in the CY 2020 ESRD PPS final rule that MACs must disclose the sources 
of information relied on (without disclosing proprietary information) 
so stakeholders can understand the basis for pricing determinations as 
well as any variations in prices jurisdictions.
    A national dialysis association recommended that the MACs should 
use a transparent, notice-and-comment process in order to establish the 
reimbursement associated with the TPNIES. The association stated that 
if the MACs cannot accommodate a notice-and-comment process, then CMS 
should consider an alternative process for the establishment of 
reimbursement policy that would ensure the opportunity for notice-and-
comment to the public.
    Response: As we stated in the CY 2020 ESRD PPS proposed rule, at 
this time, we do not have the data to set a price for new and 
innovative renal dialysis equipment and supplies. We note that there 
are other times when items and services do not have fee schedule 
payment rates assigned to them that are paid under Medicare via a MAC-
determined value, for example, when new drugs do not have an ASP. We 
agree with the commenters that transparency and predictability is 
important, however, we would need time to develop a national price for 
a particular product. We note that in comparison to IPPS's NTAP policy, 
we do not apply the ESRD PPS outlier policy during the TPNIES period, 
which makes process we have laid out for determining the price more 
predictable than the IPPS. With regard to MedPAC's suggestion for an 
ASP-like data reporting system, we do not have sufficient data at this 
time to develop such a system, but will take the comment into 
consideration for future rulemaking.
    With regard to the comments that we rely solely on the 
manufacturer's estimated cost to the facility and public comments to 
establish a national payment amount for a TPNIES equipment or supply, 
we are requesting that manufacturers estimate the cost of the equipment 
or supply to the facility on a per treatment basis in the application. 
However, while we believe this information from the manufacturer is one 
factor in the MAC price determination process, we do not believe it 
would be appropriate to set a national price based solely on that 
information. As we explained in the CY 2020 ESRD PPS proposed rule (84 
FR 38355), the MAC-determined price would be established using 
verifiable information from the following sources of information, if 
available: The invoice amount, facility charges for the item, 
discounts, allowances, and rebates; the price established for the item 
by other MACs and the sources of information used to establish that 
price; payment amounts determined by other payers and the information 
used to establish those payment amounts; and charges and payment 
amounts, required for other equipment and supplies that may be 
comparable or otherwise relevant.
    We did not propose to establish a national price because we do not 
have historical cost data and we are only in the initial phases of 
developing a

[[Page 60697]]

process to evaluate cost criteria. However, we will consider this idea 
for future rulemaking.
    Comment: While most commenters expressed support for the TPNIES 
proposal to pay 65 percent of the MAC-determined price, an organization 
of LDOs and an LDO suggested that CMS consider whether or not the 
innovation replaces a product currently reflected in the ESRD PPS base 
rate and take a more customized approach in establishing a product's 
TPNIES amount. They also stated that the proposed TPNIES payment of 65 
percent of prices obtained from invoices or other relevant data sources 
might be sufficient for a product that replaces one included in the 
ESRD PPS bundled payment. However, they noted it will likely fall short 
in covering the costs of a completely new and innovative product. The 
commenters stated that with ESRD facilities' negative margins, 
facilities will have little room to absorb these costs, which will 
compromise the adoption of, and beneficiaries' access to, truly 
innovative products. They further stated that it is possible that for 
new devices, 65 percent of the MAC-determined price will sufficiently 
cover facility costs. They asked that CMS monitor this policy and leave 
open the possibility of amendments, as needed, to ensure that 
clinically valuable, new technology can actually reach beneficiaries.
    A device manufacturer and a device manufacturers association and 
others urged CMS to pay 100 percent of the cost of the new product to 
ensure maximum adoption of the new TPNIES product, and to compensate 
for any unforeseen costs associated with that product. The commenters 
stated that the ESRD PPS bundled payment for thrice-weekly dialysis 
care is a model that encourages efficiency among existing services and 
inputs but discourages investment in new technologies that offer a new 
value proposition. They asserted that providing 65 percent of the known 
costs of the new device through TPNIES does not provide payment for any 
unanticipated costs of the new technology such as additional staff 
training, product administration, or facility handling.
    In addition, the commenters pointed out that there is a significant 
lag in payment that requires facilities to assume liability for any 
excess costs associated with a new device above the ESRD PPS bundled 
payment amount. Thus, the commenters opined that new devices create a 
dilemma for providers under the ESRD PPS: Either absorb the costs 
associated with a new technology to advance the standard of care or 
forego the new technology despite its clinical benefits. For these 
reasons, they urged CMS to set the payment adjustment at 100 percent of 
the cost of the new TPNIES approved product.
    However, MedPAC expressed support for the proposal to pay a reduced 
percentage of the new item's cost as a way to share risk with dialysis 
providers and provide some disincentive for the establishment of high 
launch prices. MedPAC also recommended that CMS not explicitly link the 
ESRD PPS TPNIES payment percentage to the IPPS NTAP mechanism's maximum 
add-on payment percentage. The Commission pointed out that CMS would 
have greater flexibility about any future changes to the ESRD PPS 
payment percentage if it was not explicitly linked to the IPPS payment 
percentage.
    Response: We appreciate the support for the proposal to pay 65 
percent of the MAC-determined price and agree with MedPAC that this 
would disincentivize high launch prices. At this time, we are not 
finalizing a policy to explicitly tie the ESRD PPS to future changes to 
the IPPS NTAP policy with regard to the IPPS NTAP mechanism's maximum 
add-on payment amount percentage. However, we believe that we have the 
same goal as the IPPS with regard to supporting ESRD facility use of 
new and innovative renal dialysis equipment and supplies. In addition, 
we agree with MedPAC that the TPNIES amount needs to be a value that is 
enough to incentivize uptake of the new and innovative equipment or 
supply by ESRD facilities but believe that we need to balance this with 
sharing risk for the new product. We agree with commenters with regard 
to monitoring utilization of these products that are eligible for the 
TPNIES and we note that any future changes to this policy would be 
addressed through notice and comment rulemaking.
    Comment: MedPAC stated that CMS should publish in the final rule an 
estimate of the increase in beneficiaries' and taxpayers' spending due 
to the proposed policy change and the method used to develop the 
estimate.
    Response: As we explain in section X of this final rule, the fiscal 
impact of Medicare and beneficiary spending cannot be determined due to 
the uniqueness of the new renal dialysis equipment and supplies 
eligible for the TPNIES and their costs.
    Final Rule Action: After consideration of public comments, for CY 
2020 we are finalizing the addition of Sec.  413.236(d) to provide a 
payment adjustment for a new and innovative renal dialysis equipment or 
supply based on 65 percent of the MAC-determined price, as described in 
newly added Sec.  413.236(e). The TPNIES will be paid for 2-calendar 
years. Following payment of the TPNIES, the ESRD PPS base rate will not 
be modified and the new and innovative renal dialysis equipment or 
supply will be an eligible outlier service as provided in Sec.  
413.237.
    We are also finalizing the addition of Sec.  413.236(e) to require 
that the MAC on behalf of CMS will establish prices for the new and 
innovative renal dialysis equipment and supplies described in newly 
added Sec.  413.236(b), and that we will use these prices for the 
purposes of determining the TPNIES. The MAC will use verifiable 
information from the following sources of information, if available: 
(1) The invoice amount, facility charges for the item, discounts, 
allowances, and rebates; (2) the price established for the item by 
other MACs and the sources of information used to establish that price; 
(3) payment amounts determined by other payers and the information used 
to establish those payment amounts; and (4) charges and payment amounts 
required for other equipment and supplies that may be comparable or 
otherwise relevant.
    In addition, we are finalizing the proposed revision to the 
definition of ESRD outlier services at Sec.  413.237(a)(1) by adding a 
new paragraph (a)(1)(v) to include renal dialysis equipment and 
supplies that receive the TPNIES as specified in Sec.  413.236 after 
the payment period has ended. We are finalizing the redesignation of 
existing paragraph (a)(1)(v) as paragraph (a)(1)(vi) and the revision 
of the paragraph to state ``As of January 1, 2012, the laboratory tests 
that comprise the Automated Multi-Channel Chemistry panel are excluded 
from the definition of outlier services.''
iv. Implementation Process for CY 2020
    We intend to develop an electronic application for the TPNIES over 
the next year. In the meantime, in order to implement the TPNIES for CY 
2020 and provide an opportunity for equipment and supply manufacturers 
to apply for TPNIES payment for CY 2021, we are providing in this final 
rule certain technical instructions for applications submitted in CY 
2020. In addition, we will provide these instructions on a new CMS web 
page under development for the TPNIES.
Deadline
    Submit a complete application with a response to each question 
below no later than February 1, 2020. An application is considered 
complete when all of the information requested has been submitted by 
the date specified and when questions related to the

[[Page 60698]]

submission have been answered by the applicant.
Address To Send Applications
    Mail four copies of the completed applications to the following 
address: ESRD PPS TPNIES Application, Division of Chronic Care 
Management, Centers for Medicare and Medicaid Services, M/S C5-05-07, 
7500 Security Blvd., Baltimore, MD 21244-1850.
    Additionally, submit an electronic version of the application via 
email to [email protected]. Emailed versions of the materials 
must be compatible with standard CMS software such as Adobe Acrobat DC 
for 2015 or Microsoft Word 2010. The subject line of the email must say 
ESRD PPS TPNIES application. Total attachments in one email must not 
exceed 20 megabytes. If necessary, send multiple emails with 
attachments less than 20 megabytes. Questions pertaining to the TPNIES 
process may also be sent to the electronic mailbox noted above.
Required Information
    Applications must include a response to each question below. CMS 
may request other information to evaluate specific TPNIES requests. A 
separate application is required for each distinct equipment or supply 
included in the TPNIES request.
    1. Name, address, telephone number, and email address for the 
primary and backup contact for the application. If using a consultant, 
provide a contact from the manufacturer in addition to the consultant's 
contact information.
    2. Trade/brand name of the equipment or supply.
    3. Describe the technology in general terminology--What is it? What 
does it do? How is it used? Also, submit relevant descriptive booklets, 
brochures, package inserts, as well as copies of published peer-
reviewed articles relevant to the new equipment or supply.
    4. Have you submitted an application for pass-through payments 
under the Medicare outpatient prospective payment system or new 
technology payments under the IPPS? If so, please provide the tracking 
number or, if it was approved, please provide the date of approval.
    5. Under what pathway are you seeking marketing authorization from 
FDA? What is the date of anticipated FDA marketing authorization for 
the equipment or supply? Provide a copy of the FDA marketing 
authorization. If marketing authorization has not yet been granted, 
provide a copy of the authorization to CMS immediately after it becomes 
available.
    Per 42 CFR 413.236(c), an applicant for the TPNIES must receive FDA 
marketing authorization for its new equipment or supply by September 1 
prior to the beginning of the calendar year (CY) for which the TPNIES 
would be effective (for CY 2021 payment, not later than September 1, 
2020).
    6. List the name and telephone number or email address of a contact 
at FDA who is knowledgeable about the submission for marketing 
authorization for the new equipment or supply listed above.
    7. Will the equipment or supply be available on the market 
immediately after FDA marketing authorization? If not, provide the date 
that the equipment or supply came on the market (that is, first sales 
or availability) and an explanation and documentation of any 
anticipated delay (for example, manufacturing issues or other reasons). 
If commercial availability has not yet occurred, provide proof of 
commercial availability to CMS immediately after it becomes available, 
for example, a manufacturer's bill of sale. Note that the manufacturer 
must inform CMS by September 1 if the equipment or supply will not be 
available by January 1.
    8. Is there an investigational device exemption number from the FDA 
assigned to the equipment or supply? If yes, please provide this code. 
Refer to http://www.fda.gov/MedicalDevices/DeviceRegulationandGuidance/HowtoMarketYourDevice/InvestigationalDeviceExemptionIDE/ucm051480.htm 
for more details.
    9. What class (I, II, or III) was/is assigned to the equipment or 
supply? Refer to http://www.fda.gov/MedicalDevices/DeviceRegulationandGuidance/overview/default.htm for more details.
    10. Has an application for an HCPCS code been submitted? If not, 
please note that submission of the HCPCS application is required by 
September 1, 2020, so that we are able to use information from the 
HCPCS application in our determination process. Refer to http://www.cms.gov/Medicare/Coding/MedHCPCSGenInfo/index.html for more 
information.
    11. What is the anticipated cost of the equipment or supply to the 
ESRD facility, per treatment? Provide a breakdown of how the cost of 
the new equipment or supply is calculated.
    12. What is the anticipated Medicare and Non-Medicare volume of 
this equipment or supply for the 2 years in the TPNIES period? Describe 
how you arrived at this estimate. This estimate should be based on the 
actual or projected sales of your equipment or supply, not the total 
population eligible for the equipment or supply.
    Note: Applicants are not required to submit proprietary or 
confidential information as part of the application. However, an 
applicant may choose to include such information to support its 
request. Applicants should note that information they include in an 
application is not explicitly protected from disclosure in response to 
a Freedom of Information Act (FOIA) request. However, FOIA does include 
an exemption for trade secrets and commercial and financial information 
obtained from a person that is privileged or confidential.
    Once the information requested by CMS is received and reviewed, for 
equipment and supplies eligible for the TPNIES, we will issue a change 
request with billing guidance that will provide notice that the 
equipment or supply is eligible for the TPNIES as of January 1 and 
technical instructions on how to report the equipment or supply on the 
ESRD claim. This change request will initiate the TPNIES period and it 
will end 2 years from the change request's effective date.
c. Comment Solicitation on Payment for Renal Dialysis Humanitarian Use 
Devices (HUD)
    Medical devices and related innovations are integral in meeting the 
needs of patients, especially the most vulnerable patients, such as 
ESRD patients and those with rare medical conditions. While FDA 
determines which devices are authorized for marketing, public 
healthcare programs such as Medicare determine how these products will 
be covered and paid, which can affect patient access to new and 
innovative products.
    In the CY 2020 ESRD PPS proposed rule (84 FR 38357), we solicited 
comments on Medicare payment for renal dialysis services that have a 
Humanitarian Use Device (HUD) designation. Under FDA regulations (21 
CFR 814.3(n)), a HUD is a ``medical device intended to benefit patients 
in the treatment or diagnosis of a disease or condition that affects or 
is manifested in not more than 8,000 individuals in the United States 
per year.'' We explained in the CY 2020 ESRD PPS proposed rule that 
Medicare has no specific rules, regulations or instructions with regard 
to HUDs. We noted that we were particularly interested in receiving 
comments on HUDs that would be considered renal dialysis services under 
the ESRD PPS, any barriers to payment encountered, and past experience 
in obtaining

[[Page 60699]]

Medicare payment for these items through the MACs.
    We received 7 comments on this solicitation. The comments and our 
response are set forth below.
    Comment: We received comments from a device manufacturer, a medical 
device manufacturing association, a drug manufacturer, a non-profit 
provider, a professional society, a national dialysis stakeholder 
organization and a patient advocacy organization.
    The commenters noted that in 1990, Congress created the HUD program 
to encourage the research, development and marketing of innovative 
devices for the treatment of rare diseases or conditions where no 
comparable devices are available to those patients. They stated that 
lack of Medicare reimbursement for HUDs impedes access to these 
treatments for Medicare beneficiaries. They also stated that CMS should 
ensure that HUDs are eligible for Medicare reimbursement, and suggested 
that a Congressional directive that HUDs be sold by manufacturers at 
cost indicates that CMS should establish Medicare payment for HUDs at 
invoice.
    A medical device manufacturing association and a patient advocacy 
organization noted that there should be Medicare coverage of HUDs and 
payment for these devices under the ESRD benefit if such devices are 
required to be used in the ESRD facility, whether they are for the 
treatment of ESRD or for the treatment of other conditions related to 
renal dialysis.
    A drug manufacturer noted its understanding that the HUD program is 
a specific FDA program, but encouraged CMS to work with the company and 
other innovators to protect access to innovative products that treat a 
disease or condition affecting a very small number of individuals in 
the U.S. annually. The company noted that drugs that are administered 
to a small percentage of patients cannot be accounted for properly in a 
bundled payment system. If dollars are allocated across all patients, 
then those who require the drug may not receive the care they need 
because the providers administering it will not have sufficient funds, 
while those providers who do not provide the product will see a small 
increase in their base rate. The company stated that money should 
follow the patient in these circumstances to protect access to drugs 
that benefit a small number of patients.
    A device manufacturer urged CMS to promulgate a regulation 
clarifying that HUDs are within the definition of renal dialysis 
services or dialysis services depending on the device's function, and 
explicitly define that HUDs should be reimbursed based on invoice given 
that Congress has already addressed the invoice price to be charged. A 
patient advocacy group urged CMS to ensure a reimbursement pathway for 
devices with a HUD designation.
    Response: We appreciate the range of comments we received on this 
issue. We will consider these comments carefully as we contemplate 
future policies related to HUDs.
4. Discontinuation of the ESA Monitoring Policy (EMP) Under the ESRD 
PPS
a. Background
    In the CY 2011 ESRD PPS final rule (75 FR 49067, 49145 through 
49147), CMS adopted the ESA monitoring policy (EMP) under the ESRD PPS 
for purposes of calculating the base rate and for establishing the 
outlier policy's percentage and thresholds.
    For purposes of calculating the CY 2011 ESRD PPS base rate, 
payments for ESAs were capped based on determined dose limits as 
discussed in the Medicare Claims Processing Manual (chapter 8, section 
60.4.1). Payments for epoetin alfa in excess of 500,000 units per month 
in 2007 were capped at 500,000 units and a similar cap was applied to 
claims for darbepoetin alfa, in which the caps were based on 1,500 mcg 
per month in 2007 (75 FR 49067).
    As we explained in the CY 2020 ESRD PPS proposed rule (84 FR 38357 
through 38358) with regard to the application of the outlier policy, 
since ESAs are considered to be an ESRD outlier service under Sec.  
413.237(a)(1)(i), covered units are priced and considered toward the 
eligibility for outlier payment consistent with Sec.  413.237(b). That 
is, we apply dosing reductions and ESA dose limits consistent with the 
EMP prior to any calculation of outlier eligibility. Medicare 
contractors apply a 25 percent reduction in the reported ESA dose on 
the claim when the hemoglobin (or hematocrit) level exceeded a certain 
value, unless the ESRD facility reported a modifier to indicate the 
dose was being decreased. Also under the EMP, ESRD facilities are 
required to report other modifiers to indicate a patient's 3-month 
rolling average hemoglobin (or hematocrit) level so that the Medicare 
contractor knows when to apply a 50 percent reduction in the reported 
ESA dose on the claim. In addition to these dosing reductions, we apply 
ESA dose limits as discussed in the Medicare Claims Processing Manual 
(chapter 8, section 60.4.1) prior to any calculation of outlier 
eligibility.
    When we adopted the EMP for the ESRD PPS in the CY 2011 ESRD PPS 
final rule, we explained that the continued application of the EMP 
would help ensure the proper dosing of ESAs and provide a safeguard 
against the overutilization of ESAs, particularly where the consumption 
of other separately billable services may be high, in order to obtain 
outlier payments (75 FR 49146). In the CY 2020 ESRD PPS proposed rule, 
we explained that due to implementation of the ESRD PPS and FDA 
relabeling of epoetin alfa, which stated that the individualized dosing 
should be that which would achieve and maintain hemoglobin levels 
within the range of 10 to 12 g/dL, we no longer believed application of 
the EMP is necessary to control utilization of ESAs in the ESRD 
population. That is, the impact of no longer paying separately for 
ESAs, which discourages overutilization, along with practitioners 
prescribing the biological product to maintain a lower hemoglobin 
level, has resulted in a decline in its utilization and a stringent 
monitoring of the biological product's levels in patients.
b. Discontinuing Application of the EMP to Outlier Payments Under the 
ESRD PPS
    CMS proposed that, effective January 1, 2020, we would no longer 
apply the EMP under the ESRD PPS. As we explained in the CY 2020 ESRD 
PPS proposed rule, since the implementation of the ESRD PPS, ESA 
utilization has decreased significantly because the structure of the 
PPS removed the incentives to overuse these biological products. Under 
our proposal, ESRD facilities would no longer be required to report the 
EMP-related modifiers and Medicare contractors would no longer apply 
dosing reduction or dose limit edits to ESA dosing. Therefore, these 
edits would no longer be applied prior to calculation of outlier 
eligibility and would no longer be reflected in outlier payments.
    We stated that we would continue to require ESRD facilities to 
report all necessary information for the ESRD Quality Incentive 
Program, and noted that, as part of managing the ESRD PPS, CMS has a 
monitoring program in place that studies the trends and behaviors of 
ESRD facilities under the ESRD PPS and the health outcomes of the 
beneficiaries who receive their care.\33\ We stated that if we finalize 
this proposal, we would continue to monitor the utilization of

[[Page 60700]]

ESAs to determine if additional medically unlikely edits are necessary. 
In addition, we noted that with the increased use of certain phosphate 
binders that have the secondary effect of anemia management, CMS would 
closely monitor ESA usage in conjunction with phosphate binder 
prescribing and usage.
---------------------------------------------------------------------------

    \33\ ESRD PPS Claims-Based Monitoring Program. Available at: 
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ESRDpayment/ESRD-Claims-Based-Monitoring.html.
---------------------------------------------------------------------------

    We stated in the CY 2020 ESRD PPS proposed rule that we believed 
discontinuing this policy would reduce burden for ESRD facilities 
because the EMP provides an opportunity for appeal to address those 
situations where there might be medical justification for higher 
hematocrit or hemoglobin levels. Beneficiaries, physicians, and ESRD 
facilities are required to submit additional documentation to justify 
medical necessity, and any outlier payment reduction amounts are 
subsequently reinstated when documentation supports the higher 
hematocrit or hemoglobin levels. Thus, we explained that this proposal 
would reduce the documentation burden on ESRD facilities because they 
would no longer have to go through the EMP appeal process and submit 
additional documentation regarding medical necessity.
    The comments and our responses to the comments on our proposal to 
discontinue the application of the EMP under the ESRD PPS are set forth 
below.
    Comment: Several commenters were supportive of the proposal to no 
longer apply the EMP under the ESRD PPS. The commenters agreed with the 
underlying rationale that the EMP is no longer needed because ESAs have 
been incorporated into the ESRD PPS. Some of the commenters asked that 
we confirm that hemoglobin or hematocrit value codes are still required 
on Medicare claims.
    Response: We appreciate the commenters' support. With regard to the 
reporting of hemoglobin or hematocrit value codes, ESRD facilities are 
required to continue to report all necessary information for the ESRD 
Quality Incentive Program under the ESRD PPS, which includes hemoglobin 
or hematocrit values.
    Comment: MedPAC and a software company opposed the proposal. The 
software company stated that in its efforts to better manage hemoglobin 
cycling in the ESRD population, the company has found there is an 
opportunity to further reduce overutilization, cut drug waste, and 
decrease hospitalizations. The company strongly encouraged CMS to 
preserve the EMP for this reason.
    MedPAC stated that the implementation of the ESRD PPS created 
incentives for ESRD facilities to furnish services more efficiently. 
MedPAC stated that under the ESRD PPS, in which all renal dialysis 
drugs and biological products are included in the payment bundle, ESRD 
facilities have been more judicious in providing all drugs, including 
ESAs. For example, MedPAC stated that between 2010 and 2017, use of all 
renal dialysis drugs and biological products paid under the ESRD PPS 
has declined by 12 percent per year. MedPAC noted that the decline in 
the use of ESRD drugs under the PPS has occurred without any negative 
effect on clinical outcomes.
    MedPAC stated that by contrast, the TDAPA, which is an add-on 
payment adjustment for nearly all renal dialysis drugs and biological 
products that FDA approves on or after January 1, 2020, may promote 
excess provision of renal dialysis drug products (to the extent 
clinically possible). MedPAC explained that paying according to the 
number of units administered gives ESRD facilities greater profits from 
larger doses than smaller doses (as long as Medicare's payment rate 
exceeds providers' costs). MedPAC expressed concern that in addition to 
increased and unnecessary spending for beneficiaries and taxpayers, 
overuse of drugs can have negative clinical consequences. MedPAC stated 
that because of the incentive for potential overuse of drugs paid under 
the TDAPA policy, CMS should not discontinue the EMP. MedPAC urged CMS 
to establish a formal monitoring policy for all renal dialysis drugs 
and biological products that are paid under the TDAPA to address their 
potential for overuse.
    Response: We appreciate the software company's comment that there 
may still be an opportunity to further reduce overutilization, cut drug 
waste, and decrease hospitalizations. According to the ESRD PPS 
monitoring data \34\ that is available to the public on the CMS 
website, we have found that ESA utilization has declined since the 
implementation of the ESRD PPS with no sustained negative changes in 
beneficiary health status. We believe that this finding indicates, 
overall, that patients are not suffering negative health consequences 
and that the EMP adds a layer of unnecessary burden for ESRD facilities 
at this time.
---------------------------------------------------------------------------

    \34\ https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ESRDpayment/ESRD-Claims-Based-Monitoring.html.
---------------------------------------------------------------------------

    With regard to MedPAC's concern that renal dialysis drugs and 
biological products eligible for the TDAPA may increase unnecessary 
spending for beneficiaries and taxpayers, in addition to potential 
negative clinical consequences, we will take these concerns into 
consideration for future monitoring policies. We believe that with 
near-real-time claims monitoring we have the ability to closely track 
ESRD facility behaviors and can take action if we see something 
concerning.
    Final Rule Action: After consideration of public comments, we are 
finalizing the proposal to no longer apply the EMP under the ESRD PPS 
effective January 1, 2020. We will issue administrative guidance to 
provide instructions on the technical changes to the claims processing 
requirements.
5. CY 2020 ESRD PPS Update
a. CY 2020 ESRD Bundled (ESRDB) Market Basket Update, Productivity 
Adjustment, and Labor-Related Share for ESRD PPS
    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). In the CY 2015 ESRD PPS final rule we rebased 
and revised the ESRDB input price index to reflect a 2012 base year (79 
FR 66129 through 66136). Subsequently, in the CY 2019 ESRD PPS final 
rule, we finalized a rebased ESRDB input price index to reflect a 2016 
base year (83 FR 56951 through 56962).
    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.

[[Page 60701]]

    We proposed to use the CY 2016-based ESRDB market basket as 
finalized and described in the CY 2019 ESRD PPS final rule (83 FR 56951 
through 56962) to compute the CY 2020 ESRDB market basket increase 
factor based on the best available data. Consistent with historical 
practice, we proposed to estimate the ESRDB market basket update based 
on IHS Global Inc.'s (IGI) most recently available forecast. IGI is a 
nationally recognized economic and financial forecasting firm that 
contracts with CMS to forecast the components of the market baskets. 
Using this methodology and the IGI first quarter 2019 forecast of the 
CY 2016-based ESRDB market basket (with historical data through the 
fourth quarter of 2018), the proposed CY 2020 ESRDB market basket 
increase factor was 2.1 percent.
    Under section 1881(b)(14)(F)(i) of the Act, for CY 2012 and each 
subsequent year, the ESRD market basket percentage increase factor 
shall be reduced by the productivity 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. We finalized the detailed methodology for 
deriving the MFP projection in the CY 2012 ESRD PPS final rule (76 FR 
40503 through 40504). The most up-to-date MFP projection methodology is 
available on the CMS website at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-andReports/MedicareProgramRatesStats/Downloads/MFPMethodology.pdf. Using this 
methodology and the IGI first quarter 2019 forecast, the proposed MFP 
adjustment for CY 2020 (the 10-year moving average of MFP for the 
period ending CY 2020) was projected to be 0.4 percent.
    As a result of these provisions, the proposed CY 2020 ESRD market 
basket adjusted for MFP was 1.7 percent. This market basket increase is 
calculated by starting with the proposed CY 2020 ESRDB market basket 
percentage increase factor of 2.1 percent and reducing it by the 
proposed MFP adjustment (the 10-year moving average of MFP for the 
period ending CY 2020) of 0.4 percent.
    The comments and our responses to the comments on the proposed 
productivity-adjusted market basket annual update and MFP adjustment 
for CY 2020 are set forth below.
    Comment: One commenter expressed appreciation for the proposed 
increase to the ESRD PPS base rate for CY 2020, but expressed concern 
that the proposed amount will not fully cover costs associated with 
providing high-quality care to patients, particularly by small and 
independent providers with limited resources offering care in many 
cases to patients in rural and underserved areas where access 
challenges may be present.
    Response: We appreciate the commenter's concern that the proposed 
annual update factor may not be sufficient to cover the cost of care 
for small independent providers or those in rural areas. The annual 
update factor is intended to account for the overall increase in cost 
of care at the national level. The patient case-mix payment adjustments 
and the facility level adjustments, such as the rural adjustment and 
low-volume payment adjustment account for differences in both patient 
and facility characteristics. These payment adjustments are provided to 
address the variation of costs of a particular facility relative to the 
national standard.
    Comment: One LDO reiterated its concerns submitted in response to 
the CY 2019 ESRD PPS proposed rule (83 FR 56961) related to the ability 
of ESRD facilities to achieve and maintain high levels of productivity 
gains. The LDO noted that several factors impact the potential for 
productivity gains including required staffing level minimums and the 
unique nature of contracted versus employed labor in the ESRD setting. 
The commenter stated that the current MFP adjustment is a crude measure 
that does not reflect circumstances unique to ESRD facilities. The LDO 
further stated that it seeks to engage with CMS to support developing 
an ESRD-specific MFP in collaboration with Congress and the Bureau of 
Labor Statistics (BLS).
    Response: Section 1881(b)(14)(F)(i) of the Act requires the 
application of the MFP adjustment, described in section 
1886(b)(3)(B)(xi)(II) of the Act, to the ESRD PPS market basket update 
for 2012 and subsequent years. The statute does not provide the 
Secretary with the authority to apply a different adjustment. We will 
continue to monitor the impact of the payment updates, including the 
effects of the MFP adjustment, on ESRD provider margins as well as 
beneficiary access to care as reported by MedPAC. However, as noted 
previously, any changes to the MFP adjustment would require a change to 
current law.
    The March 2019 MedPAC Report to Congress finds, ``Most of our 
indicators of payment adequacy are positive, including beneficiaries' 
access to care, the supply and capacity of providers, volume of 
services, quality of care, and access to capital. Providers have become 
more efficient in the use of dialysis drugs under the PPS.'' (http://www.medpac.gov/docs/default-source/reports/mar19_medpac_ch6_sec.pdf?sfvrsn=0).
    While we understand that the kidney care community is interested in 
an adjustment more specific to ESRD facilities, we encourage commenters 
to discuss the feasibility of such measures with the BLS, the agency 
that produces and publishes industry-level MFP. CMS is unable to 
estimate MFP for ESRD facilities since the publicly available data for 
the NAICS 621492 Kidney Dialysis Centers is insufficient to develop an 
estimate using a similar methodology used to estimate Hospital sector 
MFP in the November 2006 Health Care Financing Review article, `` 
`Hospital Multifactor Productivity: A Presentation and Analysis of Two 
Methodologies' ''. We would also encourage the kidney care community to 
make available to CMS any research into alternative methods and data 
sources that could be used to estimate ESRD-specific MFP. Specifically, 
we would be interested in any information on how cost report data 
submitted to CMS could be utilized to better understand the operating 
conditions facing ESRD facilities.
    Based on public comments and in accordance with section 
1881(b)(14)(F)(i) of the Act, we are finalizing the CY 2020 update to 
the ESRD facilities as proposed. Also, as noted in the proposed rule 
and consistent with CMS general practice, if more recent data are 
subsequently available (for example, a more recent estimate of the 
market basket update or MFP adjustment), we proposed to use such data 
to determine the final CY 2020 market basket update and/or MFP 
adjustment. Therefore, using the IGI third quarter 2019 forecast of the 
CY 2016-based ESRDB market basket (with historical data through the 
second quarter of 2019), the final CY 2020 ESRDB market basket increase 
factor is projected to be 2.0 percent. The final MFP adjustment for CY 
2020 (the 10-year moving average of MFP for the period ending CY 2020) 
is projected to be 0.3 percent. The final CY 2020 ESRD market basket 
adjusted for MFP is projected to be 1.7 percent. This market basket 
increase is calculated by starting with the CY 2020 ESRDB market basket 
percentage increase factor of 2.0 percent and reducing it by the MFP 
adjustment (the 10-year moving average of MFP for the period ending CY 
2020) of 0.3 percent.
    For the CY 2020 ESRD payment update, we proposed to continue using 
a labor-related share of 52.3 percent for the ESRD PPS payment, which 
was finalized in the CY 2019 ESRD PPS final

[[Page 60702]]

rule (83 FR 56963). We did not receive any public comments on this 
proposal and therefore are finalizing the continued use of a 52.3 
percent labor-related share.
b. 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) core-based statistical area (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 2020, we updated the wage indices to account for updated 
wage levels in areas in which ESRD facilities are located using our 
existing methodology. We used 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 final CY 2020 wage index values 
for urban areas are listed in Addendum A (Wage Indices for Urban Areas) 
and the final CY 2020 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 website 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 the 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). As we discussed 
in the CY 2020 ESRD PPS proposed rule (84 FR 38359), beginning in CY 
2020, the statewide urban average based on the average of all urban 
areas within the state also will be applied to the Carson City, Nevada 
CBSA.
    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 policy 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 stated that 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 ESRD PPS 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 ESRD PPS 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.
    In the CY 2019 ESRD PPS final rule (83 FR 56964 through 56967), we 
finalized an increase to the wage index floor from 0.4000 to 0.5000 for 
CY 2019 and subsequent years. We explained that we revisited our 
evaluation of payments to ESRD facilities located in the lowest wage 
areas to be responsive to stakeholder comments and to ensure payments 
under the ESRD PPS are appropriate. We provided statistical analyses 
that supported a higher wage index floor and finalized an increase from 
0.4000 to 0.5000 to safeguard access to care in those areas. We further 
explained that we believe a wage index floor of 0.5000 strikes an 
appropriate balance between providing additional payments to areas that 
fall below the wage floor while minimizing the impact on the ESRD PPS 
base rate. 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.
    A facility's wage index is applied to the labor-related share of 
the ESRD PPS base rate. In the CY 2019 ESRD PPS final rule (83 FR 
56963), we finalized a labor-related share of 52.3 percent, which is 
based on the 2016-based ESRDB market basket. Thus, for CY 2020, the 
labor-related share to which a facility's wage index would be applied 
is 52.3 percent.
    As discussed in the CY 2020 ESRD PPS proposed rule (84 FR 38360), 
we were made aware of a minor calculation

[[Page 60703]]

error in the file used to compute the ESRD PPS wage index values for 
the proposed rule. We posted the corrected wage index values on the 
ESRD PPS payment page and used the corrected values when computing the 
ESRD PPS wage index values and payment rates for this final rule.
    CMS received several comments on the wage index. The comments and 
our responses are set forth below.
    Comment: One LDO and one national dialysis association stated that 
CMS noted in the proposed rule that it was made aware of a ``minor 
calculation error'' in the file used to compute the ESRD PPS wage index 
values. The agency has since published a corrected file on the ESRD PPS 
payment web page.
    They expressed concern that CMS has not published information to 
inform stakeholders about the impact of the updated ESRD wage index 
values on the ESRD PPS base rate. They stated that they believe a 
revised wage index budget neutrality factor, based on the revised wage 
indices, may result in a downward effect on the proposed base rate. As 
the labor-related share represents such a significant component of 
facility payment, they noted the importance of transparency and 
accuracy in proposed rates published by CMS so that providers and other 
stakeholders can understand the impact of proposed policy changes and 
provide input during the regulatory comment period. They recommended 
that CMS retain the prior year's wage indices to ensure consistency and 
transparency for stakeholders.
    While the national dialysis association stated that it was able to 
run the complex calculations to determine the likely, corrected base 
rate and associated reimbursement factors, other stakeholders may not 
be able to utilize the technical files and available methodological 
information to re-run calculations and derive a corrected base rate. 
The association stated that independent analysis indicates that the 
wage index error published in the CY 2020 ESRD PPS proposed rule 
understated the wage adjustment amount by 0.84 percent across all 
calculations. The association stated that in the final rule, CMS should 
correct this error and simultaneously apply a corresponding, corrected 
budget neutrality factor that will reduce the proposed base rate by 
approximately $1 per treatment, resulting in approximately $41 million 
less for dialysis care in CY 2020 than was indicated in the CY 2020 
ESRD PPS proposed rule.
    The commenter suggested that if CMS discovers an error in the wage 
indices after publication of the proposed rule, the agency should 
provide the public with complete information, including the corrected 
wage indices, wage index budget neutrality factor, and revised ESRD PPS 
base rate.
    Response: We thank the commenter for its comment that we 
understated the wage adjustment amount by 0.84 percent across all 
calculations. We note that the minor calculation error was that the 
wage and hour data for CBSA 31084 were inadvertently doubled. This 
caused an error in the national average hourly wage, which factors into 
the calculation of all wage index values. We have changed the 
programming logic to correct this error. In addition, we corrected the 
classification of one provider in North Carolina that was erroneously 
identified as being in an urban CBSA. We also standardized our 
procedures for rounding, to ensure consistency.
    We also note that it is not uncommon for the ESRD PPS wage index 
values to change between the proposed and final rules. In this specific 
case, the proposed rule correction resulted in a wage index budget 
neutrality adjustment factor that lowered the base rate, but in the 
time between the proposed and final rule with updated wage index data, 
the wage index budget neutrality adjustment factor changed and the ESRD 
PPS base rate was increased. We make every effort to be fully 
transparent in our calculations and will continue to do so in the 
future.
    Comment: Several health insurance organizations in Puerto Rico 
commented on the wage index for Puerto Rico, expressing that the 
historical downward trending of the ESRD PPS wage index is having a 
negative impact on the funding of Puerto Rico's dialysis program. The 
commenters stated that despite the 0.10 increase in 2019, there still 
remains a disparity gap. Currently, the USVI maintains a 0.70 ESRD wage 
index. The commenters noted that a movement towards parity funding 
between the two territories would be a significant step in narrowing 
the disparity-funding gap.
    The commenters asserted that a wage index floor of 0.70 would 
result in rates that more accurately reflect actual cost per treatment 
based on costs after Hurricane Maria for the years 2018 and 2019. They 
believe that the average in-center hemodialysis costs for independent 
facilities in Puerto Rico is $232.25 per treatment using CMS data from 
2017. They asserted that this number is significantly higher than the 
average FFS payment rate for Puerto Rico and significantly lower than 
the rates contracted by Medicare Advantage companies for the same 
service. They noted that in-center hemodialysis represents the majority 
of the treatments for Puerto Rico ESRD patients. In future reforms to 
the ESRD PPS wage index system, they suggested that CMS should use 
adjusted inpatient facility (Part A) wage index values to reverse the 
wage index ``downward spiral'' consistently across all Medicare payment 
systems. In addition, they stated that CMS should consider basing the 
ESRD PPS wage index on a new survey of ESRD outpatient facility wage 
costs. Finally, they recommended that CMS assure that the corresponding 
adjustment in Medicare Advantage benchmarks for ESRD is made to reflect 
any adjustments in FFS ESRD payments.
    Response: We thank commenters for sharing their concerns regarding 
Puerto Rico's wage index and their opinion of an existing disparity 
gap, along with the recommendation of a wage index for Puerto Rico of 
0.70 and their concern regarding the Medicare Advantage benchmarks for 
ESRD. We will take these thoughtful suggestions into consideration when 
considering future rulemaking.
    Final Rule Action: We are finalizing the CY 2020 ESRD PPS wage 
indices based on the latest hospital wage data as proposed. For CY 
2020, the labor-related share to which a facility's wage index is 
applied is 52.3 percent.
c. Final CY 2020 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 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

[[Page 60704]]

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 Transmittal 2134, dated January 14, 2011, 
which included one technical correction.
    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 in the following paragraphs) plus the 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 2020, we proposed that the outlier services MAP amounts and 
FDL amounts would be derived from claims data from CY 2018. 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 proposed the outlier 
thresholds for CY 2020 would be based on utilization of renal dialysis 
items and services furnished under the ESRD PPS in CY 2018. We stated 
in the CY 2020 ESRD PPS proposed rule (84 FR 38361) that 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.
i. CY 2020 Update to the Outlier Services MAP Amounts and FDL Amounts
    For this final rule, the outlier services MAP amounts and FDL 
amounts were updated using 2018 claims data. In the CY 2020 ESRD PPS 
proposed rule (84 FR 38361), we noted that, beginning in CY 2020, the 
total expenditure amount includes add-on payment adjustments made for 
calcimimetics under the TDAPA policy (calculated to be $21.15 per 
treatment). For this final rule, we project that for each dialysis 
treatment furnished, the average amount attributed to the TDAPA is 
$21.03.
    The impact of the final rule update is shown in Table 2, which 
compares the outlier services MAP amounts and FDL amounts used for the 
outlier policy in CY 2019 with the updated estimates for this final 
rule. The estimates for the final CY 2020 outlier policy, which are 
included in Column II of Table 2, were inflation adjusted to reflect 
projected 2020 prices for outlier services.
BILLING CODE 4120-01-P

[[Page 60705]]

[GRAPHIC] [TIFF OMITTED] TR08NO19.059

BILLING CODE 4120-01-C

    As demonstrated in Table 2, the estimated FDL amount per treatment 
that determines the CY 2020 outlier threshold amount for adults (Column 
II; $48.33) is lower than that used for the CY 2019 outlier policy 
(Column I; $65.11). The lower threshold is accompanied by a decrease in 
the adjusted average MAP for outlier services from $38.51 to $35.78. 
For pediatric patients, there is a decrease in the FDL amount from 
$57.14 to $41.04. There is a corresponding decrease in the adjusted 
average MAP for outlier services among pediatric patients, from $35.18 
to $32.32.
    We estimate that the percentage of patient months qualifying for 
outlier payments in CY 2020 will be 10.38 percent for adult patients 
and 11.35 percent for pediatric patients, based on the 2018 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. For 
this final rule and based on the 2018 claims, outlier payments 
represented approximately 0.5 percent of total payments, which is below 
the 1 percent target due to declines in the use of outlier services. 
Recalibration of the thresholds using 2018 data is expected to result 
in aggregate outlier payments close to the 1 percent target in CY 2020.
    We believe the update to the outlier MAP and FDL amounts for CY 
2020 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 final 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.
    The comments and our responses to the comments on our proposed 
updates to the outlier policy are set forth below.
    Comment: MedPAC requested that CMS clarify the reference to 
calcimimetic payments being included in total expenditure amounts in 
the CY 2020 ESRD PPS proposed rule discussion of updating the outlier 
services MAP and FDL amounts. MedPAC stated that it is not clear how 
CMS is using calcimimetic expenditure data to estimate the CY 2020 MAP 
and FDL amounts. MedPAC noted that CMS has previously said that drugs 
eligible for the TDAPA (including calcimimetics) are not eligible for

[[Page 60706]]

outlier payments and that the 1 percent target for outlier payments is 
based on total ESRD PPS expenditures.
    MedPAC stated that given that CMS has said that total ESRD 
expenditure amounts for 2020 include TDAPA expenditures for 
calcimimetics, they believe CMS proposed to target 1 percent of total 
expenditures, including TDAPA expenditures in 2020, when establishing 
the FDL amount. However, MedPAC noted, the outlier pool has been funded 
through a 1 percent reduction in the base rate (that was applied in 
2011 and has remained in effect in each subsequent year by applying all 
annual updates to the reduced base rate) and therefore does not account 
for the TDAPA expenditures for calcimimetics, which are currently an 
add-on payment adjustment to the base rate. MedPAC stated that CMS has 
not proposed a budget-neutral method for funding the outlier policy in 
2020 that accounts for the additional ESRD expenditures from add-on 
payment adjustments for calcimimetics under the TDAPA policy. MedPAC 
suggested that CMS should maintain a budget-neutral outlier policy 
either by excluding the TDAPA expenditures for calcimimetics from the 
total ESRD expenditures so that the 1 percent outlier payment target 
does not include the TDAPA expenditures (that is, the policy applied to 
the TDAPA payments for calcimimetics in 2018 and 2019), or by reducing 
the TDAPA expenditures by 1 percent so that funding for the outlier 
policy accounts for the TDAPA expenditures for calcimimetics. One 
national dialysis association expressed support for MedPAC's analysis, 
but did not support MedPAC's alternative recommendation that CMS 
consider reducing the TDAPA payments by 1 percent so that funding for 
the outlier policy accounts for the TDAPA expenditures for 
calcimimetics.
    Several commenters expressed concern that CMS has proposed to 
include the TDAPA costs for calcimimetics in the outlier calculation, 
even though the drugs eligible for the TDAPA are not eligible for an 
outlier payment. A national dialysis stakeholder organization noted 
that while the statute requires CMS to include as part of the single 
payment amount for the ESRD PPS a payment adjustment for high cost 
outliers due to unusual variations in the type or amount of medically 
necessary care, it does not provide specifics as to how the outlier 
pool is determined or paid out. The organization acknowledged CMS's 
position that the TDAPA is part of the ESRD PPS single payment amount 
but expressed concerned that the calcimimetics should be included in 
the outlier pool. The organization noted that the CY 2020 ESRD PPS 
proposed rule estimated that more than $21 per treatment is removed 
from the base rate by including these drugs in the outlier 
calculations; yet, there is no ability to recover the dollars and they 
are permanently removed from the program. The organizations further 
commented that Congress established an outlier pool so that ESRD 
facilities treating extraordinarily costly patient are not 
disincentivized from doing so, but interpreting the statute to 
incorporate an add-on payment adjustment into the outlier calculation 
is inconsistent with this intent.
    Another LDO and a national dialysis association expressed concern 
with CMS' proposal to include TDAPA spending on calcimimetics in the 
outlier pool for CY 2020. They stated that they see no justification in 
the rule for CMS to significantly increase the outlier target for CY 
2020 by including calcimimetics when it is not statutorily required to 
do so and when the outlier target has not been achieved under the ESRD 
PPS in any year since implementation. The commenters stated that this 
has a decreasing effect on the base rate while increasing the 
likelihood that CMS will not actually spend these additional dollars on 
high cost cases, given that calcimimetics do not even qualify for 
outlier payments in CY 2020. They further stated that it seems 
incongruous to include calcimimetics expenditures in the outlier pool, 
given what they called the separate treatment of calcimimetics outside 
the base rate under the TDAPA and the fact that, under Medicare 
regulations, these drugs do not qualify toward the outlier calculation 
while they are eligible for the TDAPA. They recommended that rather 
than increasing the amount of funding withheld from providers that they 
are unlikely to see in outlier payments, CMS should exclude 
calcimimetics (which are not eligible for outlier payment during the 
TDAPA) from the target percentage for CY 2020.
    One national dialysis association opposed CMS' methodology 
described in the proposed rule to include the TDAPA expenditures for 
calcimimetics in the calculation for the outlier pool, noting that CMS 
proposed to add more than $21 per treatment to the ESRD PPS base rate 
and then withhold 1 percent of this for the outlier pool. They stated 
this will result in CMS withholding an even greater amount of dollars 
from the ESRD PPS that, based on the long history of poor performance 
in the outlier pool, will not be repaid to facilities. The association 
stated that CMS's proposal is particularly concerning because drugs 
paid through the TDAPA (including calcimimetics) and devices paid 
through the proposed TPNIES are not eligible for the outlier pool. 
Therefore, the association stated, any increase in the withhold for the 
outlier pool as a result of the TDAPA and the proposed TPNIES will have 
no correlation to utilization of the outlier pool. The association 
objected to CMS increasing the withhold for the outlier pool knowing 
that the withheld dollars will not be returned to the system for 
patient care.
    The association does not believe that CMS should finalize the 
proposed outlier methodologies that would include expenditures for the 
TDAPA or the proposed TPNIES in the outlier calculation. The 
association stated that CMS has sufficient statutory authority to 
exclude both the TDAPA and the proposed TPNIES from the outlier pool 
calculation and should do so in the final rule for CY 2020 and beyond. 
The association noted that there is no statutory requirement that the 
outlier pool include the ESRD PPS base rate plus the TDAPA or TPNIES. 
Nor does the ESRD PPS statute require the outlier pool to be based on 
the total payments made under the ESRD PPS.
    Response: We recognize the confusion by the commenters regarding 
our discussion of calcimimetics and the outlier policy, and we would 
like to clarify we did not propose any changes to the outlier policy 
methodology in the CY 2020 ESRD PPS proposed rule, nor did we make any 
changes to the methodology when calculating the FDL amounts published 
in the CY 2020 ESRD PPS proposed rule. The projected total ESRD PPS 
outlier payment for CY 2020 is 1 percent of the sum of ESRD PPS base 
rate expenditures and TDAPA expenditures. We acknowledge that including 
the TDAPA expenditures in this calculation results in a larger than 
expected outlier payment compared to a scenario in which these TDAPA 
expenditures are not included. However, the TDAPA is a part of the ESRD 
PPS, and expenditures for the TDAPA are ESRD PPS expenditures. Because 
of this, these amounts are used when updating the outlier thresholds. 
We also note that other renal dialysis items and services, such as 
composite rate items and services, are not eligible outlier services 
but their expenditures are included in the overall ESRD PPS 
expenditures and are therefore taken into account when calculating the 
FDL amounts. We will take these concerns into consideration for future 
rulemaking.

[[Page 60707]]

    Comment: An LDO expressed concern about extending outlier payment 
eligibility subsequent to applying a TDAPA or TPNIES as the sole 
payment mechanism for new treatments. They noted that CMS has 
recognized that outlier payments address ``unusual variations in the 
type or amount of medically necessary care'' related to patient 
conditions such as frailty, obesity, and comorbidities, such as cancer. 
The LDO asserted that using the outlier pool in this manner goes beyond 
its intent and design, and will always lead to lower reimbursement 
relative to the TDAPA and TPINES. The LDO stated that there is no 
guarantee that a facility would receive any payment for the new 
treatment. The LDO suggested that an ESRD facility would at best 
receive the equivalent of ASP-20 percent less the sequestration's 
impact for a drug or biological product. The LDO stated that any relief 
under this policy would likely be further compromised by the lack of 
outlier payment pool parity.
    Some commenters also suggested that CMS adjust the outlier 
percentage to more accurately represent the percentage of total 
payments that have been historically paid under the outlier policy or 
otherwise address what appears to be weakness in CMS' approach. 
Finally, they recommended that CMS establish a mechanism in the ESRD 
PPS to return unpaid amounts withheld from providers as part of the 
target percentage when it does not achieve the 1 percent outlier policy 
in a given year.
    Response: We appreciate the commenters' concerns regarding the 
incorporation of TDAPA or TPNIES products into the outlier policy after 
the respective add-on payment adjustments end. As we have stated in the 
TDAPA and TPNIES sections above, these add-on payment adjustment are to 
support the ESRD facilities in the uptake of new and innovative drugs 
and biological products and equipment and supplies. We believe that 
once these products complete the TDAPA or TPNIES period that they 
compete in the outlier space. However, we note that the TEP will 
address the outlier policy as part of its efforts to refine the ESRD 
PPS. In addition, we will take these concerns into consideration for 
future rulemaking.
    Comment: A physician association commented on the proposed 
pediatric adjustment for outlier payments of 8.2 percent. The 
association noted that the pediatric outlier amount is decreasing as a 
result of a decrease in utilization of these services in the pediatric 
population. The association expressed concern that the outlier 
calculation does not currently capture all of the services pediatric 
ESRD patients require, including management of co-morbidities seen in 
many pediatric dialysis patients such as failure to thrive and seizure 
disorder. Additional unique costs are for care coordination, as the 
pediatric dialysis unit frequently functions as the child's medical 
home. The association stated that CMS should ensure that the pediatric 
outlier policy recognizes conditions and services unique to the 
pediatric population, and requested that CMS examine the accuracy of 
its data in capturing pediatric co-morbidities before implementing any 
cuts to the pediatric outlier services. The association also noted that 
any pediatric modifiers should be based on actual cost data from 
pediatric dialysis facilities for recent years. Without adjustments 
based on accurate cost data, the association maintained, the long-term 
economic viability of pediatric dialysis units will be jeopardized, and 
adult units will be further disincentivized to meet the special needs 
of their pediatric patients who are unable to access specialized 
pediatric dialysis units.
    Response: We note that outlier payments are based on services 
billed on claims. As a result, the pediatric thresholds are based upon 
reported data. In addition, the reduction to the FDL amount reflects 
that outlier payments did not reach the 1 percent target percentage. 
When that occurs, the FDL amount is lowered so that more claims qualify 
for outlier payment so that 1 percent of total ESRD PPS payments are 
outlier payments. In response to the physician association's suggestion 
that we capture all of the services pediatric ESRD patients require, 
including management of comorbidities seen in many pediatric dialysis 
patients such as failure to thrive and seizure disorder, we intend to 
address data issues through the next TEP meeting which will inform the 
next refinement of the ESRD PPS.
    Final Rule Action: After considering the public comments, we are 
finalizing the updated outlier thresholds for CY 2020 displayed in 
Column II of Table 2 of this final rule and based on CY 2018 data.
d. Final Impacts to the CY 2020 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, the 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, training adjustment add-on, and the 
TDAPA (as finalized in section II.B.1.e of this final rule). Beginning 
in CY 2020 the per-treatment payment amount also will be adjusted for 
any applicable TPNIES (as finalized in section II.B.3.b.iii of this 
final rule).
ii. Annual Payment Rate Update for CY 2020
    The ESRD PPS base rate for CY 2020 is $239.33. 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 2020 projection for the final 
ESRDB market basket is 2.0 percent. In CY 2020, 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 previously, the final 
MFP adjustment for CY 2020 is 0.3 percent, thus yielding a final update 
to the base rate of 1.7 percent for CY 2020. Therefore, the ESRD PPS 
base rate for CY 2020 before application of the wage index budget-
neutrality adjustment factor would be $239.27 ($235.27 x 1.017 = 
$239.27).
     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 2020, we did not

[[Page 60708]]

propose 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 final CY 2020 wage index budget-neutrality 
adjustment factor using treatment counts from the 2018 claims and 
facility-specific CY 2019 payment rates to estimate the total dollar 
amount that each ESRD facility would have received in CY 2019. The 
total of these payments became the target amount of expenditures for 
all ESRD facilities for CY 2020. Next, we computed the estimated dollar 
amount that would have been paid for the same ESRD facilities using the 
ESRD wage index for CY 2020. The total of these payments became the new 
CY 2020 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 2020 amount. When we multiplied the wage 
index budget-neutrality factor by the applicable CY 2020 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 Medicare 
payments with respect to changes in wage index updates.
    The final CY 2020 wage index budget-neutrality adjustment factor is 
1.000244, based on the updated wage index data. This application would 
yield a final CY 2020 ESRD PPS base rate of $239.33 ($239.27 x 1.000244 
= $239.33).
    The comments and our responses to the comments on our proposals to 
update the ESRD PPS base rate for CY 2020 are set forth below.
    Comment: A professional association expressed appreciation for the 
proposed increase to the ESRD PPS base rate for CY 2020, but noted that 
the proposed amount will not fully cover costs associated with 
providing high-quality care to patients, particularly by small and 
independent providers with limited resources offering care in many 
cases to patients in rural and underserved areas where access 
challenges may be present. The commenter stated that the proposed 
payment increase will not sufficiently cover the annual growth in costs 
for ESRD facilities necessary to offer high-quality care to pediatric 
and adult ESRD patients. Particularly with respect to the provision of 
home dialysis, the association underscored that only 2 vendors 
currently offer home dialysis equipment and supplies. They further 
stated that the home dialysis equipment and supplies have increased in 
cost by 20 percent to 30 percent. The commenter asserted that the ESRD 
PPS does not reflect these significant cost increases in home dialysis 
equipment and supplies. The association noted that MedPAC reported an 
overall -1.1 percent Medicare margin for ESRD facilities in its 2019 
March Report to Congress, including a -5.5 percent margin for rural 
facilities and a -21.3 percent margin for facilities in the lowest 
quintile by volume.
    Response: We appreciate these comments. As we stated in section 
II.B.3.d.i of this final rule, we established an ESRD PPS base rate 
that reflected the lowest per patient utilization data as required by 
statute. This amount is adjusted for patient specific case-mix 
adjustments, applicable facility adjustments, and geographic difference 
in area wage levels which are reflective of facility costs since cost 
data is used to derive the adjustment factors. The CY 2016 ESRD PPS 
final rule discusses the methodology for calculating the patient and 
facility-level adjustments (80 FR 68972 through 69004). In addition, 
the ESRD PPS base rate is adjusted for any applicable outlier payment, 
training add-on payment, and the TDAPA to arrive at the per treatment 
payment amount. The ESRD PPS base rate is annually updated by the ESRDB 
market basket and adjusted for productivity and wage index budget 
neutrality.
    For these reasons, we believe that the CY 2020 ESRD PPS base rate 
is appropriate despite the challenges some ESRD facilities experience. 
We also continue to believe that the payment adjustments help mitigate 
the challenges faced by those facilities that are eligible for the 
adjustments. We note that the ESRDB market basket for CYs 2015 through 
2018 was reduced in accordance with section 217(b)(2) of PAMA but for 
CY 2019 and CY 2020, ESRD facilities are getting the full productivity-
adjusted ESRDB market basket update, which results in increased per 
treatment payments.
    Final Rule Action: We are finalizing a CY 2020 ESRD PPS base rate 
of $239.33.

C. Miscellaneous Comments

    We received many comments from beneficiaries, physicians, 
professional organizations, renal organizations, and manufacturers 
related to issues that were not the subject of proposals and therefore, 
were out of scope of the CY 2020 ESRD PPS proposed rule. These comments 
and our responses are summarized below:
    Comment: MedPAC noted that PAMA required that the Secretary conduct 
audits of Medicare cost reports beginning in 2012 for a representative 
sample of freestanding and hospital-based facilities furnishing 
dialysis services, consistent with a prior MedPAC recommendation. 
MedPAC noted that in September 2015, CMS awarded a contract to conduct 
the audit. MedPAC requested that CMS release the final results of the 
audit.
    MedPAC noted that in the CY 2019 ESRD PPS final rule, CMS said that 
the audit process is complete and the audit staff are reviewing the 
findings. MedPAC emphasized the importance of auditing the cost reports 
that ESRD facilities submit to CMS to ensure that the data are 
accurate. First, inaccurate cost report data could affect the ESRD 
PPS's payment adjustment factors and ESRD market basket index, which 
are derived from this data source. Second, accurate accounting of costs 
is essential for assessing facilities' financial performance under 
Medicare. The Medicare margin is calculated from this data source, and 
policymakers consider the margin (and other factors) when assessing the 
adequacy of Medicare's payments for dialysis services. MedPAC noted 
that if costs are overstated, then the Medicare margin is understated. 
Third, it has been more than 15 years since cost reports were audited, 
and in 2011, the outpatient dialysis payment system underwent a 
significant change, which might have affected how facilities report 
their costs. Fourth, historically, facilities' cost reports have 
included costs that Medicare does not allow.
    Response: We appreciate MedPAC's thoughts and suggestions on our 
cost reports and audits. As we stated in the CY 2019 ESRD PPS final 
rule (83 FR 56973), the audit process is complete. CMS is conducting 
follow-up activities related to the audit to obtain summary results and 
investigating what adjustments were made on the cost reports of 
specific ESRD facilities. We will discuss the results when these 
follow-up activities are available in a future rule.
    Comment: A professional association suggested that CMS implement 
changes to Medicare cost reports, claims, and Explanation of Benefits 
(EOB) forms to allow for separate identification, coding, and 
reimbursement of the TDAPA-eligible products so that providers and CMS 
can more easily track use of and spending on these therapies. The 
professional association stated that currently, many facilities do not 
have a clear understanding of how much reimbursement they receive 
specifically for each calcimimetic claim because the Medicare EOBs do 
not separate out calcimimetic reimbursement. To remedy this, the 
professional association

[[Page 60709]]

recommended that Medicare EOBs should reflect separately all 
procedures, pharmaceutical products, laboratory tests, etc. so that 
these items are able to receive separate reimbursement and able to be 
appropriately tracked and reported on CMS Provider Statistical & 
Reimbursement Reports and facility cost reports.
    Responses: We appreciate the commenter's suggestion for 
transparency of payment directly related to the TDAPA. While this add-
on payment adjustment is one component of the ESRD PPS payment amount 
as described in the newly revised Sec.  413.230, in Change Request 
10065,\35\ we included instruction for the contractors to capture the 
payment amount directly related to the TDAPA and make this information 
available in reports. Therefore the CMS Provider Statistical & 
Reimbursement Report is capturing this value.
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    \35\ https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/2018-Transmittals-Items/R1999OTN.html?DLPage=1&DLEntries=10&DLFilter=10065&DLSort=1&DLSortDir=ascending.
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    Comments: Several commenters suggested refinements to the ESRD PPS 
with regard to the case-mix adjusters. A patient advocacy organization 
requested that CMS ensure the patient case mix adjusters are serving 
their intended purpose. The organization is concerned that using cost 
reports as the data source for the age, weight, BSA, and BMI case mix 
adjusters are neither reliable nor reflecting the patient 
characteristics that clinicians believe are drivers of higher costs. 
The organization stated that it agrees with MedPAC and supports the 
elimination of the co-morbid case-mix adjusters for pericarditis, 
gastrointestinal tract bleeding with hemorrhage, hereditary hemolytic 
or sickle cell anemia, and myelodysplastic syndrome. The organization 
noted that the documentation of these conditions can be burdensome, and 
it has found limited benefit to the use of information collected. The 
organization stated that misaligned payment adjusters can negatively 
impact a facility's ability to provide individualized high-quality care 
to pediatric and adult ESRD patients, and this is concerning, as it 
creates greater financial risk for ESRD facilities, particularly for 
small and independent facilities with limited resources, that are 
bearing financially burdensome costs for costly patients. The 
organization stated that returning the funding to the ESRD PPS base 
rate will benefit patient care. The organization urged CMS to eliminate 
comorbidity adjustments from the payment system until the agency 
develops appropriate adjusters that accurately capture variance in 
costs of care for particularly high-cost, high-acuity patients, and 
work quickly with clinicians to revise the patient adjusters to ensure 
they serve their purpose of accounting for higher cost patients.
    An LDO commented on the shortcomings of the case-mix adjusters. The 
LDO provided a detailed analysis of internal treatment run time data, 
showing that costs comprising nearly 40 percent of the market basket 
rate, wages, salaries, and benefits, had virtually no correlation to 
age. The LDO stated that it focused on these costs because there is no 
patient-level variation in housekeeping and operations, administration, 
and capital expenses, and thus no age correlation. Although costs for 
pharmaceuticals and laboratory services do vary minimally by patient, 
their correlation to age is ambiguous due to confounding with the BSA, 
BMI, and outlier adjustments. Given the consistency in treatment run 
times across age groups, the LDO noted that it was difficult to 
understand the nearly 15 percent swing in relative costs between 
patients aged 45 to 59 and patients aged 70 to 79 under the 2011 and 
2016 models. The LDO further noted that it, along with other members of 
the kidney care community, and MedPAC have consistently raised concerns 
about the use of facility cost report data in developing patient-level 
adjusters. The LDO stated that the mean treatment run time analysis may 
not be achieving the intended purpose.
    A professional association noted that during the December 8, 2018 
ESRD PPS Technical Expert Panel (TEP) meeting convened by CMS, the 
panelists shared the same concerns as the LDO about alignment of 
resource use with payment with regard to patient-level adjusters.. The 
association stated that even when pressed to try to identify additional 
new adjusters, the vast majority indicated that very few adjusters are 
truly necessary for the ESRD population.
    Some commenters noted concern with the low-volume and rural 
adjustments, and referenced MedPAC's concern about the overlapping 
nature of the low-volume and rural adjusters in its most recent 
Commission meetings. Commenters described MedPAC's April 2019 meeting, 
in which the staff presented an example of a single low-volume and 
isolated (LVI) facility adjuster that would better target payments. 
Some professional associations stated that they conceptually support 
such an approach. The structure of the low-volume payment adjustment 
(LVPA) and rural payment adjuster resulted in more than 50 percent of 
ESRD facilities that received the LVPA also claiming the rural 
adjuster. Commenters noted that MedPAC's analysis to date supports a 
conclusion that these adjusters have not led to an efficient 
distribution of resources or had much impact in improving a low-volume 
or rural ESRD facility's financial position. An LDO said CMS should 
explore modifying the low-volume and rural adjusters, such as creating 
a 2-tiered low-volume adjuster as MedPAC has discussed, and by 
considering a rural ESRD facility's coverage mix. One healthcare 
provider urged CMS to consider additional ways to appropriately 
reimburse low volume, rural facilities. The healthcare provider noted 
CMS should be aware of several closures of small rural facilities in 
the Midwest and stated that these closures are directly related to 
operational losses sustained by the ESRD facilities over a period of 
several years. The healthcare provider urged CMS to evaluate the base 
rate and rural and low volume adjusters to ensure ESRD facilities are 
reimbursed at a rate that covers the cost of care in rural communities. 
The healthcare provider stated that appropriate reimbursement rates 
will allow facilities to maintain high quality care and maintain local 
access to dialysis services.
    A national dialysis stakeholder organization commented on the 
overall underfunding of ESRD facilities due to patient-level, facility 
level, add-on payment and outlier adjustments. The organization 
asserted that the application of these current policies results in the 
actual dollars CMS pays out for ESRD care to be significantly less than 
what the Congress had indicated it should be. The organization stated 
that while sequestration continues to be a driving source of 
underpayments, the underpayment amount attributable to other factors, 
which are due to a mismatch among adjusters frequencies assumed by the 
standardization factor compared to actual payment increased 
substantially in 2018, remains high. The organization noted that 
estimations indicate that, taken together, the total underpayment for 
the PPS per treatment in 2018 was $11.11. The organization further 
stated that the underpayment due to the outlier pool was $1.54 per 
treatment. Sequestration accounted for $4.45 per treatment, with the 
ESRD QIP taking out 25 cents per treatment. The organization stated 
that the remainder of the underpayment appears to be due to the fact 
that CMS has incorporated the expenditures for calcimimetics into the 
outlier pool calculation. The commenter strongly objected to this 
inclusion. The commenter stated that given the

[[Page 60710]]

negative margins, each dollar that comes out of the program reduced the 
funding available to support patient care and innovation.
    Response: We appreciate the concerns raised by stakeholders 
regarding the technical nature of the ESRD PPS model. We intend to 
address these issues through the next TEP meeting which will inform the 
next refinement of the ESRD PPS. We will also consider these concerns 
for future rulemaking.
    Comment: An LDO expressed appreciation for CMS' response to 
comments on the CY 2019 ESRD PPS proposed rule regarding the challenges 
ESRD facilities encounter when trying to obtain information on a 
patient's comorbid conditions. The LDO agreed that this information is 
important in developing comprehensive, effective treatment plans. The 
LDO also agreed that collecting these data should not be burdensome or 
cumbersome for ESRD facilities, but stated that it is finding it 
particularly difficult to get these data when a patient overwhelmed by 
a health crisis that requires a hospitalization forgets to provide 
necessary contact information. In these situations, despite several 
attempts, the LDO states that it frequently cannot obtain discharge 
instructions/summaries, pending laboratory results, and other relevant 
information on its patients' behalf. The LDO noted that this lack of 
communication complicates dialysis providers' ability to submit 
documentation necessary to receive comorbidity adjustments, which when 
left unclaimed lead to inappropriate reductions in ESRD PPS payments. 
The LDO disagreed with CMS's suggestion that in the absence of data 
necessary to receive a comorbidity adjustment, receiving funds through 
the outlier pool is an acceptable alternative.
    The LDO suggested that, rather than a work-around through the 
outlier policy, CMS should take steps to ensure that the comorbidity 
adjusters perform as intended. The LDO stated that without an explicit 
requirement to do so, some providers rarely, if ever, make the 
necessary information available to ESRD facilities. The LDO recommended 
that CMS should require hospitals, particularly those using certified 
health information technology, to send the following information to 
other providers involved in an ESRD patient's care: (1) Discharge 
instructions and discharge summary within 48 hours; (2) pending test 
results within 72 hours of their availability; and (3) all other 
necessary information specified in the ``transfer to another facility'' 
requirements.
    Response: We appreciate the LDO's concerns regarding the 
difficulties of obtaining documentation. We note that the agency has 
addressed this concern in the final rule entitled, ``Medicare and 
Medicaid Programs; Revisions to Requirements for Discharge Planning for 
Hospitals, Critical Access Hospitals, and Home Health Agencies, and 
Hospital and Critical Access Hospital Changes to Promote Innovation, 
Flexibility, and Improvement in Patient Care'' (84 FR 51836).\36\
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    \36\ https://www.federalregister.gov/documents/2019/09/30/2019-20732/medicare-and-medicaid-programs-revisions-to-requirements-for-discharge-planning-for-hospitals.
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    Comments: Two commenters noted that unrecovered bad debt cuts into 
reimbursement. One professional association suggested that we make the 
TDAPA-eligible products eligible for bad debt reimbursement. The 
commenter stated that the TDAPA-eligible products are expensive for 
both the ESRD facilities that administer them and the Medicare 
beneficiaries who pay 20 percent co-insurance with their use. Small and 
independent facilities with limited resources face especially 
significant challenges in providing the TDAPA-eligible products to 
patients when they risk not receiving full payment, inclusive of 
beneficiary cost-sharing, for the costs associated with acquiring, 
storing, and administering these therapies. The association emphasized 
that all ESRD Medicare beneficiaries should have access to the 
medications they need to treat their ESRD-related medical conditions to 
improve or maintain their health and prevent hospitalizations or other 
costly therapies and interventions without concern for their 
affordability.
    Several commenters provided suggestions on the incorporation of 
calcimimetics into the ESRD PPS base rate. Commenters urged CMS to work 
with stakeholders when developing a mechanism that does not result in 
facilities that provide the drugs used by only a small percentage of 
dialysis patients do so at a significant loss, while facilities that do 
not provide these drugs receive additional payments because the amount 
added to the base rate is distributed evenly across all payments. 
Commenters requested that before CMS incorporates costs for these drugs 
into the ESRD PPS base rate, it consider how their limited utilization 
will impact the distribution of dollars that will be added.
    One drug manufacturer suggested that CMS should have the option to 
lengthen the duration of the TDAPA payment period for new renal 
dialysis drugs and biological products in existing ESRD PPS functional 
categories beyond 2 years, and use the language ``at least 2 years'' 
for these products similar to the language for products in new ESRD PPS 
functional categories. An LDO and a national dialysis association 
commented that CMS should ensure accurate expense accounting by 
including the ESRD network fee on cost reports. The association noted 
that the composite rate has been replaced by the ESRD PPS, but the 50 
cents reduction has remained intact. The commenters noted that when 
Congress first created the ESRD Networks in 1978, the programs were 
funded through the appropriations process, with the goal of 
establishing funding for the programs through a network fee that 
reduced payments to dialysis facilities was to ensure stable funding 
for these programs. They noted that the history is silent as to whether 
this ESRD network fee should be accounted for on the ESRD cost reports. 
The association recommended CMS account for the ESRD network fee as a 
``revenue reduction'' on the Cost Report. This addition could influence 
policymakers to increase the payment rate over time, better aligning 
cost reporting with the basis of payment. However, they do not think 
adding this information will affect the payment rate directly. They 
noted that since Medicare based rates on total historic payments, then 
use of actual historic payments means the reduction has already been 
included in its data. The association maintained that the cost reports 
(1) have not been used in calculating payment rates in a way that would 
affect the payment rates, and (2) have been used in the regression 
analysis to estimate adjuster values, but this change should not affect 
these analyses as the revenue reductions do not vary with any patient, 
facility or modality characteristic.
    A dialysis organization encouraged CMS to include the $0.50 ESRD 
network fee in dialysis facilities' cost reports, noting that the fee's 
exclusion understated facilities' costs by more than $20 million in 
2017. The organization asserted that since neither the Omnibus Budget 
Reconciliation Act of 1986 (OBRA 86), which established the network 
fee, nor accompanying House report address the fee's inclusion or 
exclusion, CMS has the necessary authority to implement this policy 
change, and the organization encouraged CMS to explore other policy 
guidance avenues to add the network fee as a revenue reduction on 
Worksheet D effective with CY 2020 ESRD facility cost reports.
    Two LDOs and a national dialysis organization requested CMS change 
its TDAPA billing guidance for ESRD facilities to report oral drugs on 
a claim

[[Page 60711]]

from the amount consumed (or amount according to the plan of care) to 
the amount dispensed. The LDO stated that documenting the amount 
consumed is overly burdensome and creates a significant challenge to 
dialysis providers, and ultimately cannot be proven for medications 
taken by patients at home.
    The commenters noted that this creates a significant challenge for 
ESRD facilities. Over the course of a treatment, a lower or higher dose 
than initially recommended may be needed due to changes in a patient's 
condition. Other practical matters, such as a patient's relocation that 
necessitates the delivery of services at a different, geographically 
closer facility, make the requirement even more complicated and 
impractical. The commenters noted that the policy leads to losses for 
facilities that are not incurred by other provider types or Part D 
pharmacies and also makes facilities unfairly financially responsible 
for the entire amount dispensed. For oral drugs delivered through the 
ESRD PPS, the commenters stated, there is a disconnect between oral 
drugs prescribed for daily use, including days that do not include a 
dialysis treatment, and the ``per treatment'' payment methodology. This 
disconnect can result in ESRD facilities being unable to report oral 
drug utilization on days without a dialysis treatment. The commenters 
noted that current CMS policies require providers to attest in good 
faith on claims the amount of certain oral drugs consumed by 
beneficiaries, but this is not possible for dialysis providers, who 
cannot track beneficiary conduct in their homes on non-treatment days. 
The commenters therefore urged CMS to allow the reporting of the amount 
of dispensed but not consumed by beneficiaries as a more accurate and 
fair representation of what is under the control of the facility.
    The commenters stated that this change would align the reporting 
requirement with those applied to other sectors including a skilled 
nursing facility (SNF) providing immunosuppressants and a hospital 
outpatient department providing patients with more than a 1-day supply 
of an anti-cancer drug. The commenters maintained that this 
modification also would ensure that CMS remains neutral with respect to 
providers' prescribing decisions and that patients have good access to 
the formulation that best meets their clinical needs. They also 
suggested that CMS provide guidance and appropriate reimbursement for a 
pharmaceutical product that must be discarded due to patient death, 
prescription change, facility transfer, hospitalization, 
transplantation or other circumstances that are outside the control of 
the ESRD facility. The commenters suggested that CMS provide guidance 
for product that, despite best efforts, has been lost in delivery, or 
misplaced by the beneficiary, and allow the facility to submit, and be 
reimbursed for, the second supply, perhaps through use of a modifier or 
similar system.
    One national dialysis stakeholder organization and 1 drug 
manufacturer urged CMS in the coming year to work with the industry to 
find a better price proxy for non-ESAs that are not over the counter 
(OTC) vitamins. Specifically, they recommended that CMS use the BLS 
Series ID: WPS063 Series Title: PPI Commodity data for Chemicals and 
allied products--Drugs and pharmaceuticals, seasonally adjusted. They 
noted that the current category references ``vitamins,'' in a way that 
does not appropriately capture the price of drugs that fall within this 
category. Currently, the drugs in this category represent a small 
portion of the overall cost of providing dialysis services; however, 
the need for a more accurate and appropriate price proxy for oral and 
non-ESA drugs should be addressed now. Vitamin D analogs in this 
category, such as doxercalciferol and paricalcitol, are synthesized 
hormones that suppress PTH without inducing severe hypercalcemia, 
distinguishing them from OTC vitamins. They stated that these products 
are all unique chemical entities, FDA-approved, available by 
prescription only, and indicated for the treatment of secondary 
hyperparathyroidism (SHPT) which contributes to the development of bone 
disease. Moreover, these prescription drugs are classified by the U.S. 
Pharmacopeia in the Medicare Model Guidelines, a classification system 
that supports drug formulary development by Medicare Part D 
prescription drug plans, as ``Metabolic Bone Disease Agents,'' not 
vitamins.
    The commenters stated that the creation of the TDAPA for new renal 
dialysis drugs and biological products will likely result in a shift in 
drug mix within the bundle, as well as introduce new oral products that 
deserve an accurate price proxy for updating. They noted that there are 
new drugs in the pipeline currently that, if the ESRD PPS does not 
create disincentives for their continued development, will likely be 
added to the ESRD PPS bundled payment during the next 2 to 3 years. The 
association recommended that CMS establish an alternative price proxy 
for these other drugs that is based on prescription drugs rather than 
vitamins and that would include fewer OTC drugs.
    A drug manufacturer asked CMS to clarify how it will evaluate new 
products to determine whether they will fall within the definition of a 
``renal dialysis service.''
    An LDO commented that the absence of adequate and sustained 
payments in the ESRD PPS bundled payment for new treatments will not 
just affect ESRD beneficiaries in Medicare FFS, but will also flow 
into, and lower, Medicare Advantage (MA) ESRD payments. The LDO urged 
CMS to consider this impact and how it will affect ESRD beneficiaries, 
who will have the opportunity starting in 2021 to enroll in an MA plan 
just like other beneficiaries.
    A physician association stated that it continued to have 
significant concerns about the pediatric case mix adjuster and the 
undervaluation of pediatric ESRD supplies and services. The association 
noted that it has previously requested that CMS evaluate pediatric 
facility Medicare cost reports and ensure that the Medicare claims 
forms and CROWNWeb data accurately reflect what is required to deliver 
quality care to pediatric patients. The association stated that the 
data CMS is using fail to reflect the necessary resources and 
associated costs of delivering pediatric ESRD care. In particular, the 
association stated that there is not a good mechanism to report some of 
the costs uniquely associated with pediatric patients, such as costs 
associated with the allied health team. The association recommended 
that CMS look beyond the currently required report data and consider 
what expenses unique to pediatric dialysis should be included to 
appropriately reflect the costs of pediatric ESRD care, and to improve 
the completeness and accuracy of pediatric data being reported.
    The association listed certain unique expenses related to pediatric 
dialysis care that should be reflected in any pediatric ESRD facility 
payment formula, including: (1) Increased reliance on registered nurses 
to provide dialysis care; (2) developmental/behavioral specialists; (3) 
more frequent assessment by pediatric dieticians; (4) social workers, 
teachers, and designated liaisons to interface regularly with schools; 
and, (5) a broad array of dialysis supplies.
    The commenter noted that without accurate reimbursement to 
pediatric facilities, those who are specially trained to care for this 
unique patient population, as well as pediatric ESRD patients 
themselves, face an uncertain future. The commenter stated there is 
already a shortage of pediatric

[[Page 60712]]

nephrologists and inadequate reimbursement will further exacerbate this 
shortage and result in limited access of pediatric dialysis patients to 
specialized facilities with pediatric personnel trained to care for 
their unique needs. The commenter noted that the result will likely be 
worse health outcomes for children with ESRD, with the potential for 
higher costs of care when these children mature to adulthood. The 
commenter stated that the ultimate goal should be to ensure that 
reimbursement is appropriate so that pediatric facilities and providers 
can continue to provide high quality services to those in need.
    Response: We appreciate receiving these comments regarding issues 
affecting ESRD facilities and beneficiaries. However, we did not 
include any proposals regarding these topics in the CY 2020 ESRD PPS 
proposed rule, and therefore we consider these suggestions to be beyond 
the scope of this rule. We will consider these comments and issues when 
developing ESRD PPS policies in the future.

III. CY 2020 Payment for Renal Dialysis Services Furnished to 
Individuals With Acute Kidney Injury (AKI)

A. Background

    The Trade Preferences Extension Act of 2015 (TPEA) (Pub. L. 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 an 
ESRD 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. Summary of the Proposed Provisions, Public Comments, and Responses 
to Comments on the CY 2020 Payment for Renal Dialysis Services 
Furnished to Individuals With AKI

    The proposed rule, titled ``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) Fee Schedule Amounts, 
DMEPOS Competitive Bidding Program (CBP) Proposed Amendments, Standard 
Elements for a DMEPOS Order, and Master List of DMEPOS Items 
Potentially Subject to a Face-to-Face Encounter and Written Order Prior 
to Delivery and/or Prior Authorization Requirements'' (84 FR 38330 
through 38421), hereinafter referred to as the ``CY 2020 ESRD PPS 
proposed rule,'' was published in the Federal Register on August 6, 
2019, with a comment period that ended on September 27, 2019. In that 
proposed rule, we proposed to update the AKI dialysis payment rate. We 
received approximately 4 public comments on our proposal, including 
comments from ESRD facilities; national renal groups, transplant 
organizations; and nurses.
    In this final rule, we provide a summary of the proposed 
provisions, a summary of the public comments received and our responses 
to them, and the policies we are finalizing for CY 2020 payment for 
renal dialysis services furnished to individuals with AKI.

C. Annual Payment Rate Update for CY 2020

1. CY 2020 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.5.d of the CY 2020 ESRD PPS proposed 
rule (84 FR 38362), the CY 2020 proposed ESRD PPS base rate was 
$240.27, which reflected the proposed market basket, multifactor 
productivity adjustment, and CY 2020 wage index budget-neutrality 
adjustment factor. Therefore, we proposed a CY 2020 per treatment 
payment rate of $240.27 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.5.b of the CY 
2020 ESRD PPS proposed rule (84 FR 38359 through 38360). 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. We proposed a CY 2020 AKI dialysis 
payment rate of $240.27, adjusted by the ESRD facility's wage index.
    The comments and our responses to the comments regarding the AKI 
dialysis payment proposal are set forth below.
    Comment: Some commenters noted that they support the proposed AKI 
payment rate for CY 2020. They noted that in the CY 2017 ESRD PPS final 
rule, CMS announced that it would be developing a formal monitoring 
program for AKI dialysis payments, but the specifics have yet to be 
published. They said they would also find it helpful to

[[Page 60713]]

understand how CMS is monitoring the AKI benefit. They stated their 
support for CMS's plan to develop a program to monitor utilization of 
dialysis and all separately billable items and services furnished to 
beneficiaries with AKI. They reiterated their interest in maintaining a 
dialogue as part of this monitoring program to ensure that the payments 
for AKI patients are adequate and stated that it may be necessary for 
CMS to establish an ``AKI adjustment'' to the payment rate to address 
the differences in the services provided to AKI patients from those 
provided to ESRD patients. They encouraged CMS to make the AKI 
benefit's monitoring plan and any insight obtained to date available to 
stakeholders, noting that transparency regarding this information is 
crucial to supporting our shared objectives of ensuring AKI payment 
adequacy.
    Response: We thank the commenters for their support of the AKI 
payment rate. We are in the process of evaluating the methodology to be 
used for determining significant differences in resource use with AKI 
patients in contrast to ESRD patients. We have met with dialysis center 
physicians affiliated with academic medical centers to discuss 
differences in care requirements for the AKI patient and the ESRD 
patient. The stated that they separate their AKI patients from their 
ESRD patients and monitor their treatment, recovery, or progression to 
ESRD. Along with our in-house medical officers, our data contractor 
employs 2 nephrologists with whom we are consulting on differences in 
treatment of AKI patients and ESRD patients in order to evaluate 
resource use and a potential AKI adjustment. Such resource use would 
include time on dialysis machine, frequency of dialysis, drug 
requirements and lab tests, treatment protocols and additional 
practitioner time to evaluate medical status. In addition, CMS has an 
ESRD monitoring and evaluation team in the Centers for Clinical 
Standards and Quality clinical monitoring, that regularly discusses the 
monitoring of ESRD beneficiaries. We continue to be interested in 
feedback and data from the public regarding AKI patients and we intend 
to continue researching these issues and potentially addressing them 
through rulemaking and other mechanisms in the future.
    Comment: One nursing association emphasized the critical role of 
nephrology nurses and the increased responsibilities that are placed on 
them when managing the complex nursing and care needs of patients with 
AKI. The association stated that the unique and distinct 
characteristics of the ESRD and AKI patient populations require 
critical differences in treatment protocols. The association noted that 
AKI patients require more vigilant monitoring, particularly in 
infection prevention, blood pressure management, more frequent 
laboratory testing, additional medication administration, and increased 
educational needs. The care of an AKI patient often requires more care 
coordination of the interdisciplinary team. The association stated that 
these are not patient care responsibilities that can be delegated to 
technicians or other staff; only specialized nephrology nurses can 
provide the type of highly intensive and coordinated care that is 
necessary for these patients to achieve improved health outcomes. Given 
the increased nursing time required to provide high-quality care to AKI 
patients, the commenter urged CMS to recognize the specialized high-
quality nursing care that nephrology nurses offer as CMS considers 
modifications to the AKI payment policy.
    Response: We thank the commenter for noting the differences such as 
increased monitoring of signs for infection, infection prevention, 
blood pressure management, more frequent laboratory testing and 
increased nursing time in the AKI patients. As we noted previously, we 
are aware of these differences and would encourage the association to 
continue to share information with us as we evaluate the differences in 
resource use of the ESRD and AKI patient. We will take all the cited 
examples into consideration for AKI monitoring and for future 
rulemaking.
    Comment: One commenter suggested that AKI payments be competitive 
with ESRD PPS payments. The commenter noted that transplant recipients 
often have AKI early after transplant surgery and require dialysis 
support until transplant function is established. The commenter stated 
that currently, outpatient dialysis centers can receive payment for 
patients that are dialyzed for the diagnosis of AKI, however, most 
centers are not dialyzing these patients. The commenter stated that it 
suspects this is because the ESRD facilities do not want to give up a 
chronic spot to an acute patient that may only require treatment for a 
limited time. The commenter stated that the chronic ESRD patient is a 
guaranteed bundled payment patient. Physicians typically see the AKI 
patient weekly for 4 weeks. The commenter stated that if a patient is 
only in the unit 1 week as an acute patient, the reimbursement is much 
less and therefore, the units tend to not want these patients in the 
chronic chairs.
    Response: We thank the commenter for sharing this insight into the 
post-transplant scenario when it involves AKI patients. 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.
    Final Rule Action: We are finalizing the AKI payment rate as 
proposed, that is, the AKI payment rate is based on the finalized ESRD 
PPS base rate. Specifically, the final CY 2020 ESRD PPS base rate is 
$239.33. Accordingly, we are finalizing a CY 2020 payment rate for 
renal dialysis services furnished by ESRD facilities to individuals 
with AKI as $239.33.

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 following final rules: 75 FR 49030, 76 FR 628, 76 FR 70228, 77 
FR 67450, 78 FR 72156, 79 FR 66120, 80 FR 68968, 81 FR 77834, 82 FR 
50738, and 83FR 56922. We have also codified many of our policies for 
the ESRD QIP at 42 CFR 413.177 and 413.178.

B. Summary of the Proposed Provisions, Public Comments, Responses to 
Comments, and Finalized Policies for the ESRD QIP

    The proposed rule, titled ``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) Fee Schedule Amounts, 
DMEPOS Competitive Bidding Program (CBP) Proposed Amendments, Standard 
Elements for a DMEPOS Order, and Master List of DMEPOS Items 
Potentially Subject to a Face-to-Face Encounter and Written Order Prior 
to Delivery and/or Prior Authorization Requirements'' (84 FR 38330 
through 38421), hereinafter referred to as the ``CY 2020 ESRD PPS 
proposed rule,'' was published in the Federal Register on August 6, 
2019, with a comment period that ended on September 27, 2019. In that 
rule, for the ESRD QIP, we proposed updates to the ESRD QIP, including 
for PY 2022 and

[[Page 60714]]

PY 2023. We received approximately 29 public comments on our proposal, 
including comments from large dialysis organizations, renal dialysis 
facilities, national renal groups, nephrologists, patient 
organizations, patients and care partners, health care systems; nurses, 
and other stakeholders. In this final rule, we provide a summary of 
each proposed provision, a summary of the public comments received and 
our responses to them, and the policies we are finalizing for the ESRD 
QIP.
    The comments and our responses to the comments on the ESRD QIP are 
set forth below.
    Comment: Commenters provided feedback on adding new measures to the 
ESRD QIP. Commenters' suggestions for new measures included NQF-
endorsed measures of dialysis adequacy, different Kt/V measures for 
different dialysis patient demographics, an NQF-endorsed alternative to 
the ESRD QIP's Ultrafiltration reporting measure, and a depression 
measure specific to the ESRD community.
    Response: We thank the commenters for their recommendations and 
welcome feedback on ways to improve the program, including the adoption 
of new or revised measures. However, we note that these comments are 
not responsive to a proposal included in the CY 2020 ESRD PPS proposed 
rule, and therefore, are considered beyond the scope of the CY 2020 
ESRD PPS proposed rule. We refer readers to the CY 2019 ESRD PPS final 
rule (83 FR 56982 through 57016), CY 2018 ESRD PPS final rule (82 FR 
50767 through 50769), the CY 2017 ESRD PPS final rule (81 FR 77898 
through 77906) and the CY 2016 ESRD PPS final rule (80 FR 69052) for 
discussions of the measures that we have previously adopted for the 
ESRD QIP.

C. Updates to Regulation Text

    We proposed to revise the requirements at Sec.  413.178 by 
redesignating paragraphs (d) through (f) as paragraphs (e) through (g), 
respectively. In addition, we proposed to add a new paragraph (d) to 
specify the data submission requirements for calculating measure 
scores. Specifically, we proposed to codify the requirement that 
facilities must submit measure data to CMS on all measures. We stated 
that this proposed regulation text would codify previously finalized 
policies and would make it easier for the public to locate and 
understand the Program's quality data submission requirements.
    Additionally, we stated that the proposed text in new paragraph 
(d)(2) would codify our proposed policy (discussed more fully in 
section IV.E.2 of this final rule) to adopt the performance period and 
baseline period for each payment year automatically by advancing 1 year 
from the previous payment year. At Sec.  413.178(d)(3) through (d)(7), 
we proposed to codify requirements for the Extraordinary Circumstances 
Exception (ECE) process, including a new option for facilities to 
reject an extraordinary circumstance exception granted by CMS under 
certain circumstances. We stated that this new option would provide 
facilities with flexibility under the ECE process. We also proposed 
this provision to provide clear guidance to the public on the scope of 
our ECE process. We invited public comments on these proposals.
    The comments and our responses regarding the proposed regulation 
text are set forth below.
    Comment: Commenter expressed support for the proposal to codify the 
requirement that facilities must submit measure data to CMS on all 
measures. Commenter noted its appreciation of the predictability that 
will result from CMS codifying its previously finalized policies.
    Response: We appreciate and thank the commenter for its support.
    Comment: Commenters expressed support for CMS's proposal to codify 
its requirements for the ECE process, including a new option for 
facilities to reject an ECE granted by CMS under certain circumstances.
    Response: We appreciate and thank the commenters for their support.
    Final Rule Action: After consideration of the public comments we 
received, we are finalizing our proposed regulation text with one 
technical change. Section 413.178(d)(5) now clarifies that CMS will not 
consider an ECE request unless the facility making the request has 
complied with the requirements in Sec.  413.178(d)(4).

D. Requirements Beginning With the PY 2022 ESRD QIP

    The PY 2022 ESRD QIP measure set includes 14 measures, which are 
described in Table 3. For more information on these measures, including 
the two measures that are new beginning with PY 2022 (the Percentage of 
Prevalent Patients Waitlisted (PPPW) clinical measure and the 
Medication Reconciliation for Patients Receiving Care at Dialysis 
Facilities (MedRec) reporting measure), please see the CY 2019 ESRD QIP 
final rule (83 FR 57003 through 57010).
---------------------------------------------------------------------------

    \37\ We are finalizing in section IV.D.2.b of this final rule 
that beginning with the PY 2022 ESRD QIP, the STrR measure will be 
scored as a reporting measure.

                  Table 3--PY 2022 ESRD QIP Measure Set
------------------------------------------------------------------------
                 NQF No.                   Measure title and description
------------------------------------------------------------------------
0258....................................  In-Center Hemodialysis
                                           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 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.
2979....................................  Standardized Transfusion Ratio
                                           (STrR), a reporting
                                           measure.\37\
                                          Risk-adjusted STrR for all
                                           adult Medicare dialysis
                                           patients.
                                          Ratio of the 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.....................................  (Kt/V) Dialysis Adequacy
                                           Comprehensive, a clinical
                                           measure.
                                          A measure of dialysis adequacy
                                           where K is dialyzer
                                           clearance, t is dialysis
                                           time, and V is total body
                                           water volume. 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 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.

[[Page 60715]]

 
2978....................................  Hemodialysis Vascular 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 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 Hospitalization
                                           Ratio (SHR), a clinical
                                           measure.
                                          Risk-adjusted SHR of the
                                           number of observed
                                           hospitalizations to the
                                           number of expected
                                           hospitalizations.
Based on NQF #0418......................  Clinical Depression Screening
                                           and Follow-Up, a reporting
                                           measure.
                                          Facility reports in CROWNWeb
                                           one of six conditions for
                                           each qualifying patient
                                           treated during performance
                                           period.
N/A.....................................  Ultrafiltration Rate, 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 Infection
                                           (BSI) in Hemodialysis
                                           Patients, a clinical measure.
                                          Standardized Infection Ratio
                                           (SIR) of BSIs will be
                                           calculated among patients
                                           receiving hemodialysis at
                                           outpatient hemodialysis
                                           centers.
N/A.....................................  NHSN Dialysis Event reporting
                                           measure.
                                          Number of months for which
                                           facility reports NHSN
                                           Dialysis Event data to CDC.
N/A.....................................  Percentage of Prevalent
                                           Patients Waitlisted (PPPW), a
                                           clinical measure.
                                          Percentage of patients at each
                                           dialysis facility who were on
                                           the kidney or kidney-pancreas
                                           transplant waitlist averaged
                                           across patients prevalent on
                                           the last day of each month
                                           during the performance
                                           period.
2988....................................  Medication Reconciliation for
                                           Patients Receiving Care at
                                           Dialysis Facilities (MedRec),
                                           a reporting measure.
                                          Percentage of patient-months
                                           for which medication
                                           reconciliation was
                                           performance and documented by
                                           an eligible professional.
------------------------------------------------------------------------

    The comments and our response to the comments regarding our 
continuing measures are set forth below.
    Comment: Commenters provided feedback on various aspects of 
measures that are continuing in PY 2022. These comments included 
recommendations to keep or remove continuing measures from the Program, 
recommendations to modify continuing measures (for example, by revising 
the Kt/V clinical measure's pooled approach in combining multiple 
dialysis patient populations into a single dialysis adequacy measure or 
by creating an additional exclusion for the PPPW clinical measure), and 
recommendations to change the ICH CAHPS survey to improve patients' 
response rates and reduce the associated provider burden by changing 
its administration. Commenters also urged CMS to be cognizant of the 
reporting burden imposed by quality measures and recommended aligning 
quality measures with other programs, using a single website to track 
and report performance data, and improving EHR data sharing.
    Response: We thank the commenters for their recommendations and 
welcome feedback on ways to improve the program, including the adoption 
of new or revised measures. However, we note that these comments are 
not responsive to a proposal included in the CY 2020 ESRD PPS proposed 
rule, and therefore, are considered beyond the scope of the proposed 
rule.
1. Performance Standards for the PY 2022 ESRD QIP
    Section 1881(h)(4)(A) of the Act requires the Secretary to 
establish performance standards with respect to the measures selected 
for the ESRD QIP for a performance period with respect to a year. The 
performance standards must include levels of achievement and 
improvement, as required by section 1881(h)(4)(B) of the Act, and must 
be established prior to the beginning of the performance period for the 
year involved, as required by section 1881(h)(4)(C) of the Act. We 
refer readers to the CY 2013 ESRD PPS final rule (76 FR 70277) for a 
discussion of the achievement and improvement standards that we have 
established for clinical measures used in the ESRD QIP. We recently 
codified definitions for the terms ``achievement threshold,'' 
``benchmark,'' ``improvement threshold,'' and ``performance standard'' 
in our regulations at Sec.  413.178(a)(1), (3), (7), and (12), 
respectively.
    In the CY 2019 ESRD PPS final rule (83 FR 57010), we set the 
performance period for the PY 2022 ESRD QIP as CY 2020 and the baseline 
period as CY 2018. In the CY 2020 ESRD PPS proposed rule (84 FR 38364), 
we estimated the achievement thresholds, 50th percentiles of the 
national performance, and benchmarks for the PY 2022 clinical measures 
using data from 2016 and 2017, as shown in Table 4. We also stated that 
we had proposed in the CY 2020 ESRD PPS proposed rule to convert the 
STrR measure from a clinical measure to a reporting measure and that if 
that proposal was finalized, we would not update these standards for 
the STrR measure.
BILLING CODE 4120-01-P

[[Page 60716]]

[GRAPHIC] [TIFF OMITTED] TR08NO19.060

BILLING CODE 4120-01-C
    We are now updating the achievement thresholds, 50th percentiles of 
the national performance, and benchmarks for the PY 2022 clinical 
measures as shown in Table 5, using the most recently available data, 
which includes CY 2018 data.\38\ As discussed more fully in section 
IV.D.2.b of this final rule, we are finalizing our proposal to convert 
the STrR measure from a clinical measure to a reporting measure. 
Accordingly, we did not include the STrR clinical measure in Table 5.
---------------------------------------------------------------------------

    \38\ In the CY 2020 ESRD PPS proposed rule (84 FR 38364), we 
inadvertently stated that the updated values would appear in the CY 
2019 ESRD PPS final rule, instead of this final rule.
---------------------------------------------------------------------------

BILLING CODE 4120-01-P

[[Page 60717]]

[GRAPHIC] [TIFF OMITTED] TR08NO19.061

BILLING CODE 4120-01-C
    In addition, we have summarized in Table 6 our finalized 
performance standards for the reporting measures in the PY 2022 ESRD 
QIP.
BILLING CODE 4120-01-P

[[Page 60718]]

[GRAPHIC] [TIFF OMITTED] TR08NO19.062

     
---------------------------------------------------------------------------

    \39\ In section IV.D.2.b of this final rule we finalized a 
policy to convert the STrR measure from a clinical measure to a 
reporting measure.
---------------------------------------------------------------------------

BILLING CODE 4120-01-C
2. Update to the Scoring Methodology Previously Finalized for the PY 
2022 ESRD QIP
a. Update to the Scoring Methodology for the National Healthcare Safety 
Network (NHSN) Dialysis Event Reporting Measure
    We stated in the CY 2020 ESRD PPS proposed rule that there were two 
similar measures in the ESRD QIP that assess dialysis events: (1) The 
National Healthcare Safety Network (NHSN) Bloodstream Infection (BSI) 
clinical measure, and (2) the NHSN Dialysis Event reporting measure. We 
stated that for the NHSN BSI clinical measure, facilities must be 
eligible to report 12 months of data to the NHSN on a

[[Page 60719]]

quarterly basis in order to receive a score on the measure, and are 
scored based on whether they submitted data for that 12-month period 
and how many dialysis events they reported during that 12-month period. 
We stated that for the NHSN Dialysis Event reporting measure, 
facilities must enroll in the NHSN, complete any required training, and 
report monthly dialysis event data on a quarterly basis to the NHSN. We 
stated that the current scoring methodology for the NHSN Dialysis Event 
reporting measure was finalized in the CY 2017 ESRD PPS final rule (81 
FR 77881), and it was selected for two reasons. First, due to the 
seasonal variability of bloodstream infection rates, we stated that we 
wanted to incentive facilities to report the full 12 months of data and 
reward reporting consistency over the course of the entire performance 
period. Second, we stated that from the perspective of national 
prevention strategies and internal quality improvement initiatives, 
there was still value in collecting fewer than 12 months of data from 
facilities. For those reasons, we finalized a policy in the CY 2017 
ESRD PPS final rule to award facilities 10 points for submitting 12 
months of data, 2 points for reporting between 6 and 11 months of 
dialysis event data, and 0 points for reporting fewer than 6 months of 
data. See Table 7 for the scoring distribution finalized in the CY 2017 
ESRD PPS final rule.
[GRAPHIC] [TIFF OMITTED] TR08NO19.063

    We stated in the CY 2020 ESRD PPS proposed rule (84 FR 38365) that 
as we have accumulated experience with this policy, we were concerned 
that new facilities and facilities for which CMS grants an ECE for part 
of the performance period that applies for a payment year were not 
eligible to receive a score on the NHSN Dialysis Event reporting 
measure because they were not eligible to report data for the full 12-
month period. We stated that as a result, we did not believe that this 
policy appropriately accounted for the effort made by these facilities 
to report these data for the months in which they were eligible to 
report. For example, for PY 2020, the number of new facilities 
certified during the performance year (CY 2018) was 390 and the number 
of facilities granted an ECE during CY 2018 was 31, but none of those 
facilities was eligible to receive a score on the measure. We also 
stated our concern that if a facility was aware that it would not be 
eligible to receive a score on the NHSN Dialysis Event reporting 
measure, the facility would not be incentive to report data at all for 
that payment year.
    We stated that as a result of these concerns, we reconsidered our 
policy. We proposed to remove the NHSN Dialysis Event reporting 
measure's exclusion of facilities with fewer than 12 eligible reporting 
months. Beginning with the PY 2022 ESRD QIP, we also proposed to assess 
successful reporting based on the number of months facilities are 
eligible to report the measure. Under this proposal, facilities would 
receive credit for scoring purposes based on the number of months they 
successfully report data out of the number of eligible months. For 
example, if a facility had 10 eligible reporting months because it was 
granted an ECE for 2 months of the performance period, and reported 
data for those 10 eligible months, the facility would receive a score, 
whereas under the current policy, the facility would not receive a 
score. To accommodate this proposed change and to ensure that our 
scoring methodology appropriately incentive facilities to report data 
on the NHSN Dialysis Event reporting measure, even if they are not 
eligible to report data for all 12 months of a performance period, we 
also proposed to assign scores for reporting different quantities of 
data as summarized in Table 8.
[GRAPHIC] [TIFF OMITTED] TR08NO19.064

    We stated our belief that it was important to encourage new 
facilities and facilities with an approved ECE to report complete and 
accurate dialysis event data to the NHSN for all the months in which 
they are eligible to submit data so that we would have as comprehensive 
as possible a view of these facilities' performance on this important 
clinical topic. We stated our belief that complete and accurate 
reporting of NHSN data was critical to maintaining the integrity of the 
NHSN surveillance system, enabled facilities to implement their own 
quality improvement initiatives, and enabled the Centers for Disease 
Control and Prevention (CDC) to design and disseminate prevention 
strategies. We stated our belief that the fairest way to balance these 
goals was to adopt a new NHSN Dialysis Event reporting measure policy 
focused more specifically on considering reporting successful based

[[Page 60720]]

on the number of months that a facility is eligible to report the 
measure. We did not propose changes to the NHSN BSI clinical measure's 
scoring methodology and stated that we will continue to require that 
facilities report data for the full 12 months of data in order to 
receive a score on that measure.
    The comments and our responses to the comments on the proposed 
updates to the NHSN Dialysis Event reporting measure's scoring 
methodology are set forth below.
    Comment: Some commenters expressed support for the proposed change 
to remove the NHSN Dialysis Event reporting measure's exclusion of 
facilities with fewer than 12 eligible reporting months. One commenter 
also supported CMS's proposal to assess successful reporting based on 
the number of months facilities are eligible to report the measure, 
stating that it is important to encourage facilities to submit dialysis 
event data that is as complete and accurate as possible. Another 
commenter recognized the importance of having complete NHSN data and 
incentivizing all facilities to submit data regardless of the number of 
months they are eligible to report. This commenter further agreed that 
there is value in having new facilities and facilities with an approved 
ECE report data. One commenter suggested that we submit the measure to 
NQF for its review.
    Response: We thank the commenters for their support.
    Comment: One commenter recommended that CMS not finalize the 
proposed scoring distribution for the NHSN Dialysis Event reporting 
measure and recommended that CMS amend the scoring distribution for the 
NSHN Dialysis Event reporting measure so that facilities earn 10 points 
for 100 percent of eligible months; 8 points for reporting 80 percent 
or more eligible months but less than 100 percent of eligible months; 4 
points for reporting 50 percent or more eligible months but less than 
80 percent of eligible months; and 0 points for reporting fewer than 50 
percent of eligible months. Commenter stated that a facility that 
misses only 1 month of reporting will earn two points instead of the 
full ten points under the proposed scoring distribution and that such 
facilities should not be penalized so drastically. However, the 
commenter appreciates CMS' decision to allow facilities to receive 
credit on this measure based on the number of months they successfully 
report data out of the number of eligible months instead of penalizing 
new facilities unable to report for the full year and facilities with 
an approved ECE.
    Response: We thank the commenter for its overall support of the 
proposal to allow new facilities and facilities with an approved ECE to 
receive credit for reporting data. We also thank the commenter for its 
suggested scoring distribution. However, we believe that the scoring 
methodology recommended by the commenter would allow facilities to be 
awarded too many points for reporting fewer than 100 percent of 
eligible months and could encourage facilities to pick and choose which 
months they want to report. We believe that our proposed methodology 
better incentivizes facilities to report data for all 12 months while 
also discouraging the selective suppression of data.
    Final Rule Action: After considering public comments, we are 
finalizing the update to the scoring methodology for the NHSN Dialysis 
Event reporting measure as proposed.
b. Conversion of the Standardized Transfusion Ratio (STrR) Clinical 
Measure to a Reporting Measure
    In the CY 2015 ESRD PPS final rule (79 FR 66192 through 66197) we 
finalized the adoption of the Standardized Transfusion Ratio (STrR) 
clinical measure to address gaps in the quality of anemia management, 
beginning with the PY 2018 ESRD QIP. We also finalized policies to 
score facility performance on the STrR clinical measure based on 
achievement and improvement in the PY 2018 ESRD QIP final rule (79 FR 
66209). We finalized identical scoring policies for the STrR clinical 
measure in the PY 2019 ESRD QIP and the PY 2020 ESRD QIP in the CY 2016 
ESRD PPS final rule (80 FR 69060 through 69061) and the CY 2017 ESRD 
PPS final rule (81 FR 77916), respectively.
    After finalizing the STrR clinical measure in the CY 2015 ESRD PPS 
final rule, we submitted the measure to the NQF for consensus 
endorsement, but the Renal Standing Committee did not recommend it for 
endorsement, in part due to concerns that variability in hospital 
coding practices with respect to the use of 038 and 039 revenue codes 
might unduly bias the measure rates. Upon reviewing the committee's 
feedback, we revised the STrR clinical measure's specifications to 
address those concerns. The updated measure specifications for the STrR 
clinical measure contain a more restricted definition of transfusion 
events than was previously used in the STrR clinical measure. 
Specifically, the revised definition excludes inpatient transfusion 
events for claims that include only 038 or 039 revenue codes without an 
accompanying International Statistical Classification of Diseases and 
Related Health Problems--9 (ICD-9) or ICD-10 procedure code or value 
code. As a result, the measure can identify transfusion events more 
specifically and with less bias related to regional coding variation, 
which means that the measure assesses a smaller number of events as 
well as a smaller range of total events.
    Following this revision, we resubmitted the STrR clinical measure 
(NQF #2979) to NQF for consensus endorsement. The NQF endorsed the 
revised STrR clinical measure in 2016, and in the CY 2018 ESRD PPS 
final rule (82 FR 50771 through 50774), we finalized changes to the 
STrR clinical measure that aligned the measure specifications used for 
the ESRD QIP with the measure specifications that NQF endorsed in 2016 
(NQF #2979), beginning with the PY 2021 ESRD QIP. We also finalized 
policies to score facility performance on the revised STrR clinical 
measure based on achievement and improvement (82 FR 50779 through 
50780), and we subsequently finalized that those policies would 
continue for PY 2022 and in subsequent payment years (83 FR 57011).
    Commenters to the CY 2019 ESRD PPS proposed rule raised concerns 
about the validity of the modified STrR measure (NQF #2979) finalized 
for adoption beginning with PY 2021. Commenters specifically stated 
that due to the new level of coding specificity required under the ICD-
10-CM/PCS coding system, many hospitals are no longer accurately coding 
blood transfusions. The commenters further stated that because the STrR 
measure is calculated using hospital data, the rise of inaccurate blood 
transfusion coding by hospitals has negatively affected the validity of 
the STrR measure (83 FR 56993 through 56994).
    In the CY 2020 ESRD PPS proposed rule (84 FR 38366), we stated that 
we are in the process of examining the concern raised by commenters 
about the validity of the modified STrR measure, and we stated that we 
had considered three alternatives for scoring the measure until we 
complete that process: (1) Assign the score that a facility would need 
to earn if it performed at the 50th percentile of national ESRD 
performance during the baseline year to every facility that would 
otherwise earn a score during the performance period below that median 
score, (2) align the measure specifications with those used for the 
measure prior to the PY 2021 ESRD QIP, and (3) convert the STrR 
clinical measure to a reporting measure.
    We stated that we had considered the second alternative because the 
previously adopted measure

[[Page 60721]]

specifications for the STrR clinical measure include a more expansive 
definition of transfusions. However, we rejected the second policy 
alternative because that version of the STrR clinical measure was not 
endorsed by the NQF due to the concern expressed by the Renal Standing 
Committee that variability in hospital coding practices with respect to 
the use of 038 and 039 revenue codes might unduly bias the measure 
rates. We stated that we are in the process of evaluating the concern 
raised by commenters to the CY 2019 ESRD PPS proposed rule, and we 
stated our intention to present our analyses and measure changes to the 
NQF under an ad hoc review of the STrR clinical measure later in the 
year before making a final decision regarding implementation in the 
ESRD QIP. Additionally, we stated that any substantive changes to the 
STrR measure that result from this process might require a MAP review 
prior to any future implementation effort. We stated that under the 
first policy alternative, the Program would continue use of a measure 
endorsed by NQF, and if a facility did receive a payment reduction, it 
would not be due to its performance on the STrR clinical measure. 
Facilities would have to score below the median score used in the 
minimum TPS (mTPS) for a different measure in order to receive a 
payment reduction. If a facility scored at the median used in the mTPS 
calculation for all measures, it would receive the same TPS as the mTPS 
and therefore would not receive a payment reduction. However, we stated 
that we rejected the first policy alternative because it would score 
facilities based on their performance on a measure whose validity we 
are currently examining.
    We stated that under the third policy alternative, we would be 
using a reporting measure that is based on an NQF-endorsed measure, but 
we would not be scoring facilities on the measure based on their 
performance. While the concerns regarding measure validity might call 
into question the capacity for current data to adequately capture 
transfusion rates attributable to facilities, we stated our belief that 
the transfusions captured by the measure are a conservative estimate of 
the number of events that actually occur, and that those events 
represent an undesirable health outcome for patients that is 
potentially modifiable by the dialysis facility through appropriate 
anemia management.
    In light of the concerns raised about the validity of the STrR 
clinical measure, we stated that we are continuing to examine this 
issue. We stated our desire to ensure that the Program's scoring 
methodology results in fair and reliable STrR measure scores because 
those scores are linked to dialysis facilities' TPS and possible 
payment reductions. We stated our belief that the most appropriate way 
to continue fulfilling the statutory requirement to include a measure 
of anemia management in the Program while ensuring that dialysis 
facilities are not adversely affected during our continued examination 
of the measure is to convert the STrR clinical measure to a reporting 
measure for the reasons discussed above.
    We also proposed that, beginning with PY 2022, we would score the 
STrR reporting measure as follows: Facilities that meet previously 
finalized minimum data and eligibility requirements would receive a 
score on the STrR reporting measure based on the successful reporting 
of data, not on the values actually reported. We proposed that in order 
to receive 10 points on the measure, a facility would need to report 
the data required to determine the number of eligible patient-years at 
risk and have at least 10 eligible patient-years at risk. We stated 
that a patient-year at risk was a period of 12-month increments during 
which a single patient is treated at a given facility. A patient-year 
at risk can be comprised of more than 1 patient if, when added 
together, their time in treatment equals a year. For example, if 1 
patient is treated at the same facility for 4 months and a second 
patient is treated at a facility for 8 months, then the two patients 
would combine to form a full patient year.
    We stated our belief that this scoring adjustment policy would 
enable us to retain an anemia management measure in the ESRD QIP 
measure set while we continue to examine the measure's validity 
concerns raised by stakeholders.
    The comments and our responses to the comments on the proposal to 
convert the STrR measure from a clinical measure to a reporting 
measures are set forth below.
    Comment: To ensure reporting accuracy of the STrR reporting 
measure, a commenter suggested that CMS apply an approach similar to 
that proposed for the NHSN Dialysis event measure. Commenter suggested 
that the STrR reporting measure should be based on the number of months 
a facility is eligible to report the measure.
    Response: Unlike the NHSN Dialysis Event reporting measure, which 
is calculated using monthly data, the STrR reporting measure is 
calculated based on if a facility has at least 10 eligible patient-
years at risk over a full year. Consequently, it is not feasible to 
calculate the STrR reporting measure using the number of months a 
facility is eligible to report the data.
    Comment: Some commenters supported CMS's examination into the 
validity of the STrR measure and the proposal to convert it to a 
reporting measure. One commenter advised CMS to seek NQF review of the 
STrR clinical measure. Another commenter requested that CMS clarify and 
specify the STrR reporting requirements, including those pertaining to 
data elements, information submission, and the reporting schedule. One 
commenter suggested that the STrR clinical measure should only include 
patients who receive CKD anemia-related transfusions, given the number 
of acute and chronic conditions suffered by ESRD patients which may 
also necessitate a transfusion.
    Response: We thank the commenter for its support of our proposal to 
convert the STrR clinical measure to a reporting measure. We agree with 
the commenter's recommendation to seek NQF review of the STrR clinical 
measure and have submitted the measure to NQF for review. Information 
gleaned from the review will be used to help support any future 
policies related to the STrR clinical measure. We acknowledge the 
commenter's recommendation to provide additional clarity regarding the 
scoring methodology for the STrR reporting measure and have provided 
additional details below. We note that the measure specifications for 
the STrR reporting measure remain the same as those finalized in the CY 
2015 ESRD PPS final rule (79 FR 66192 through 66197). However, because 
we are finalizing that we will now score the measure as a reporting 
measure, we will no longer score the measure based on the actual 
clinical values reported by facilities. Rather, for the STrR Reporting 
measure, facilities with at least 10 patient-years at risk will receive 
a score of 10; facilities with fewer than 10 patient-years at risk will 
not be eligible to receive a score on the STrR reporting measure. 
Specifically, the calculation of a patient-year at risk excludes the 
time periods when:
    1. Patients are less than 18 years old.
    2. Patients are on ESRD treatment for fewer than 90 days.
    3. Patients are on dialysis at the facility for fewer than 60 days.
    4. Time during which patients have a functioning kidney transplant 
(exclusion begins 3 days prior to the date of transplant).
    5. Patients have not been treated by any facility for a year or 
longer.

[[Page 60722]]

    6. Patients with a Medicare claim (Part A inpatient, home health, 
hospice, and skilled nursing facility claims; Part B outpatient and 
physician supplier) for one of the following conditions in the past 
year: Hemolytic and aplastic anemia, solid-organ cancer (breast, 
prostate, lung, digestive tract and others), lymphoma, carcinoma in 
situ, coagulation disorders, multiple myeloma, myelodysplastic syndrome 
and myelofibrosis, leukemia, head and neck cancer, other cancers 
(connective tissue, skin, and others), metastatic cancer, or sickle 
cell anemia.
    7. Patient-months not within two months of a month in which a 
patient has $900 of Medicare-paid dialysis claims or at least one 
Medicare inpatient claim.
    8. Patients beginning 60 days after they recover renal function or 
withdraw from dialysis.
    We also thank the commenter for its recommendation to include only 
patients who receive CKD anemia-related transfusions in the STrR 
clinical measure. We will assess the feasibility of this recommendation 
during our review of the STrR clinical measure.
    Comment: Commenter expressed concern regarding the reliability and 
accuracy of the STrR clinical measure for small dialysis facilities, 
stating that it was often inappropriately scored. Commenter proposed 
removing the measure from the ESRD QIP until such issues are resolved.
    Response: We thank the commenter for highlighting its concerns 
regarding the impact of the STrR clinical measure on small dialysis 
facilities. We will take this into account as we continue to examine 
the STrR clinical measure. In recognition of stakeholder concerns, we 
proposed to convert the STrR clinical measure to a reporting measure 
until all issues are resolved. We believe this approach allows us to 
continue assessing facilities on anemia management and avoid an adverse 
financial impact on facilities.
    Comment: Commenter expressed concern regarding the validity of the 
STrR measure as a reporting measure, due to the accuracy difficulties 
presented by hospital coding practices. Commenter suggested that CMS 
adopt a risk-standardized rate measure as a potential alternative to 
submit for NQF endorsement.
    Response: We disagree that variations in hospital coding practices 
would adversely impact facility performance on the STrR reporting 
measure. Based on the scoring methodology for the STrR reporting 
measure, facilities will receive 10 points on the measure if the 
facility successfully reports data on the measure and has at least 10 
patient-years at risk during the performance period. We disagree with 
the commenter's suggestion to consider a risk-standardized rate instead 
of a ratio for the STrR clinical measure. Placing a facility's risk 
adjusted rate in context requires reference to a standard rate that 
applies to the population as a whole. The utilization of a ratio allows 
us to compare the ratio of the facility-adjusted rate to the standard 
rate. The ratio is also a scientifically valid approach and, in our 
experience, most people find the ratio to be understandable and to 
sufficiently convey the rates.
    Comment: Several commenters recommended that CMS examine whether a 
hemoglobin threshold measure could be used as possible alternative to 
the STrR clinical measure in the ESRD QIP to satisfy its statutory 
anemia management measure requirement. Some commenters recommended 
replacing the STrR clinical measure with a measure of hemoglobin less 
than 10 g/dL. The commenters stated that a hemoglobin less than 10 g/dL 
measure is supported by considerable evidence, is most actionable for 
dialysis providers, and is operationally feasible. One commenter stated 
that hemoglobin is routinely measured, and its elevation is the most 
proximate effect of ESA administration. The commenter further stated 
that low hemoglobin is a predictor of transfusion risk, and that a 
hemoglobin of 10 g/dL is an effective level for reducing the need for 
transfusions. Commenter stated that CMS's removal of the hemoglobin 
measure from the ESRD QIP in 2012 was due to inconsistency with ESA 
labeling that was revised in June 2011 and that while the measure's 
standard became inappropriate, the measure is valid and places adequate 
anemia treatment under dialysis facility control.
    Response: Use of a hemoglobin threshold measure has been previously 
considered and was not implemented based on several concerns. First, 
studies reporting results of anemia management in chronic dialysis 
settings typically result in hemoglobin distributions with relatively 
large outcome variation, creating concern that attempts at achievement 
of a specific target will result in a substantial minority of treated 
patients either well above or below the target at any point in time. 
Given the significant concerns about potential clinical risks of 
overtreatment with ESAs, implementation of a hemoglobin threshold could 
result in increased risk of ESA-related complication for the subset of 
patients above the threshold. One major consequence of under treatment 
is increased transfusion risk. Emphasis on minimizing avoidable 
transfusions in this population focuses on avoiding a major consequence 
of under-treatment without explicitly contributing to the risks 
associated with over-treatment with ESAs. This approach is consistent 
with the Food and Drug Administration (FDA) guidance for use of ESAs in 
this population. In addition, the available literature has not clearly 
established a minimum hemoglobin threshold that reliably maximizes the 
primary outcomes of survival, hospitalization, and quality of life for 
most patients. If new evidence becomes available, we will reassess the 
feasibility of replacing the STrR clinical measure with a hemoglobin 
measure as part of our future measure development work.
    Comment: Commenter expressed concerns about the proposal to convert 
the STrR clinical measure to a reporting measure. Commenter agreed that 
facilities should not be adversely affected while CMS investigates the 
measure's validity concerns. However, the commenter expressed concerned 
about giving facilities credit for reporting a measure that is derived 
using hospital claims data and not values collected and reported in the 
facility. The commenter expressed concern that this approach stretches 
the ESRD QIP's statutory requirement to include a measure of anemia 
management to its limit. Commenter stated that CMS should examine 
anemia management practices in clinics through random audits or 
validation surveys to monitor compliance and identify signs of 
stinting.
    Response: Anemia is a complication of end-stage renal disease that 
can be avoided if a patient's dialysis facility is undertaking proper 
anemia management. When anemia is not managed patients are subjected to 
unnecessary transfusions that increase morbidity and mortality. The 
STrR measure is calculated using data reported by hospitals because 
poor anemia management results in transfusions that most often occur in 
hospitals and not dialysis facilities. The commenter's recommendation 
to conduct random audits of anemia management practices is not feasible 
because we do not have the authority to examine anemia management 
practices in clinics through our validation activities. However, we 
will assess the feasibility of gathering more data about anemia 
management practices in clinics through our monitoring and evaluation 
work.
    Comment: Commenter expressed concern that CMS may consider 
eliminating the STrR clinical measure

[[Page 60723]]

from the ESRD QIP. Commenter advocated preserving the STrR clinical 
measure in the ESRD QIP in PY 2022 and beyond, emphasizing the 
importance of a measure monitoring anemia management. Acknowledging 
accuracy issues associated with the current STrR clinical measure, 
commenter suggested that CMS determine an appropriate measure of anemia 
management to incentivize reducing the need for transfusions.
    Response: We agree that it is important to include a measure 
monitoring anemia management in the program. However, in light of 
concerns regarding the STrR clinical measure, we do not believe it is 
appropriate to potentially penalize facilities for their performance on 
the clinical measure while we examine concerns raised by stakeholders. 
We believe that converting the STrR clinical measure to a reporting 
measure is appropriate to ensure that facilities are not penalized for 
their performance. If we conclude that the concerns about the STrR 
clinical measure raised by stakeholders are not supported by the 
evidence, we will consider reintroducing the measure or an updated 
version of the measure into the program through the rulemaking process.
    Final Rule Action: After considering public comments, we are 
finalizing our proposals to convert the STrR clinical measure to a 
reporting measure and to update the scoring methodology as proposed.
c. MedRec Reporting Measure Scoring Methodology
    In the CY 2019 ESRD PPS final rule (83 FR 57011), we finalized a 
policy to score the MedRec reporting measure using the following 
equation, beginning with the PY 2022 ESRD QIP.
[GRAPHIC] [TIFF OMITTED] TR08NO19.065

We also stated that this equation was similar to the equation used for 
the Ultrafiltration reporting measure (81 FR 77917):
[GRAPHIC] [TIFF OMITTED] TR08NO19.066

However, we stated in the CY 2020 ESRD PPS proposed rule (84 FR 38367) 
that we inadvertently used the term ``patient-months'' in the MedRec 
reporting measure's scoring equation. We stated that we calculate a 
subset of our clinical measures using patient-months (the Kt/V 
Comprehensive clinical measure, the Standard Fistula Rate clinical 
measure, the Catheter Rate clinical measure, and the Hypercalcemia 
clinical measure) because patient-months is the unit of analysis based 
on their measure specifications. We stated that facility-months are 
generally used for a reporting measure because they assess the 
proportion of months in a year that a facility reported to CMS the data 
necessary to calculate the measure.
    We stated that the use of facility-months for the MedRec reporting 
measure is also consistent with the scoring methodology we have used 
for all other reporting measures which require monthly reporting, 
including the Anemia Management reporting measure (finalized for 
removal beginning with the PY 2021 ESRD QIP), the Serum Phosphorus 
reporting measure (finalized for removal beginning with the PY 2021 
ESRD QIP measure), and the Ultrafiltration reporting measure.
    We therefore proposed to revise the scoring equation for the MedRec 
reporting measure so that the scoring methodology accurately describes 
our intended policy. We proposed to score the MedRec reporting measure 
using the following equation, beginning with the PY 2022 ESRD QIP. We 
solicited public comments on this proposal.
[GRAPHIC] [TIFF OMITTED] TR08NO19.067

    Additionally, we stated that in section IV.B.4 of the CY 2019 ESRD 
PPS final rule, we had finalized a requirement for PY 2021 and beyond 
for facilities to begin collecting 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 CMS Certification Number (CCN) 
becomes effective (83 FR 56999 through 57000). In section IV.C.4.c of 
the CY 2019 ESRD PPS final rule, we also finalized a policy for the 
MedRec reporting measure to begin scoring facilities with a CCN Open 
Date before the January 1st of the performance period (83 FR 57011). In 
section IV.C.6 of the CY 2019 ESRD PPS final rule (83 FR 57013 through 
57014), we applied the updated reporting requirement for new facilities 
finalized in section IV.B.4 of the CY 2019 ESRD PPS final rule to the 
MedRec reporting measure eligibility requirements finalized in section 
IV.C.4.c of the CY 2019 ESRD PPS final rule. We specified in Table 23 
of the CY 2019 ESRD PPS final rule that facilities with a CCN Open Date 
before October 1, 2019 would meet the

[[Page 60724]]

eligibility requirements for the MedRec reporting measure.
    In order to ensure that there is no confusion regarding these 
requirements, we clarified in the CY 2020 ESRD PPS proposed rule (84 FR 
38367) that for the MedRec reporting measure, facilities with a CCN 
Open Date before the October 1st prior to the performance period 
(which, for the PY 2022 ESRD QIP, would be a CCN Open Date before 
October 1, 2019) must begin collecting data on that measure.
    The comments and our responses regarding the MedRec reporting 
measure's scoring methodology updates are set forth below.
    Comment: Some commenters expressed concerns with our proposal to 
change the term ``patient-months'' in the MedRec reporting measure's 
scoring equation to the term ``facility months.'' Commenters stated 
that the term ``patient-months'' is more consistent with the NQF's 
definition, and disagreed with CMS's assertion that using ``facility 
months'' is more appropriate for a reporting measure. One commenter 
noted that this change could potentially result in lower scores for 
facilities that fail to perfectly report for all patients in all 
months. This commenter suggested that CMS use the ``patient-month'' 
metric used in the NQF-endorsed measure, or alternatively allow room 
for less than perfect reporting in the scoring equation.
    Response: We acknowledge commenters' concerns and thank them for 
their feedback. While we reiterate our desire to align the scoring 
methodologies of all reporting measures, we also recognize the value of 
alignment with NQF measure specifications when possible and the 
incorporation of more outcomes focused measures in ESRD QIP. As such, 
we have been persuaded by commenters' concerns and given that 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, 
we have decided to use ``patient-months'' instead of ``facility 
months'' when calculating ``eligible months'' for the MedRec measure. 
We believe this approach supports our desire to incorporate more 
outcomes-based measures in the ESRD QIP and is responsive to 
stakeholder concerns. We also plan to reevaluate other reporting 
measures for opportunities to more closely align them with NQF measure 
specifications.
    Comment: One commenter supported the proposed change to the MedRec 
reporting measure scoring equation. Commenter agreed that MedRec is a 
reporting measure and should be scored like other reporting measures.
    Response: We thank the commenter for its support of our proposal to 
score the MedRec measure consistent with how other reporting measures 
are scored. However, in recognition of stakeholder concerns regarding 
misalignment with the NQF endorsed measure specifications in addition 
to our desire to focus on more outcome-based measures, we plan to 
calculate the measure using patient months instead of facility months. 
This approach is aligned with our policy finalized in the CY 2019 ESRD 
PPS final rule (83 FR 57008 through 57010) and consistent with the NQF 
approved version of the measure.
    Final Rule Action: After considering public comments, we are not 
finalizing the proposed update to the MedRec reporting measure's 
scoring methodology.
3. Update to the Eligibility Requirements for the PY 2022 ESRD QIP
    In the CY 2019 ESRD PPS final rule, we finalized a policy where, 
with respect to the NHSN Dialysis Event reporting measure, facilities 
are required to have a CCN Open Date on or before the October 1 prior 
to the performance period to be eligible to receive a score, beginning 
with the PY 2021 ESRD QIP (83 FR 56999 through 57000). In section 
IV.B.3.a of the CY 2020 ESRD PPS proposed rule, we proposed to remove 
the NHSN Dialysis Event reporting measure's exclusion of facilities 
with fewer than 12 eligible reporting months and to assess successful 
reporting based on the number of months facilities were eligible to 
report the measure, beginning with the PY 2022 ESRD QIP. To accommodate 
this proposed policy, we proposed to remove the requirement that, to be 
eligible to receive a score on the NHSN Dialysis Event reporting 
measure, new facilities must have a CCN Open Date before October 1 
prior to the performance period that applies to the payment year. We 
stated that Table 9 summarized the ESRD QIP's minimum eligibility 
requirements for scoring, including the proposed change to the 
eligibility requirement for the NHSN Dialysis Event reporting measure.
BILLING CODE 4120-01-P

[[Page 60725]]

[GRAPHIC] [TIFF OMITTED] TR08NO19.068

BILLING CODE 4120-01-C
    The comments and our responses regarding the minimum eligibility 
requirements are set forth below.
    Comment: One commenter supported the removal of the CCN Open Date 
requirement for the Dialysis Event reporting measure. The commenter 
appreciated the interest in accurately capturing dialysis event data.
    Response: We thank the commenter for its support of our proposal to 
remove the CCN Open Date requirement for the Dialysis Event reporting 
measure.
    Comment: One commenter recommended that CMS give facilities a 
minimum of 90 days before being subject to the ESRD QIP's reporting 
requirements and exclude all facilities from ESRD QIP participation for 
the first 90 days after Medicare certification. Another commenter 
stated that new facilities have significant obligations when beginning 
operations and that they should not be penalized if they are unable to 
comply with CMS's reporting requirements.
    Response: Under our current policy, which was finalized in the CY 
2019 ESRD PPS final rule (83 FR 56669), new facilities are required 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. We believe that this policy 
gives new facilities the flexibility they need to put into place the 
mechanisms needed in order to successfully participate in the ESRD QIP.
    Final Rule Action: After considering public comments, we are 
finalizing as proposed the update to the NHSN Dialysis Event reporting 
measure's minimum eligibility requirements, which apply for the PY 2022 
ESRD QIP and beyond.
4. Payment Reduction for the PY 2022 ESRD QIP
    We stated in the CY 2020 ESRD PPS proposed rule that under our 
current policy, a facility will not receive a payment reduction in 
connection with its performance in the ESRD QIP for a payment year if 
it achieves a TPS that is at or above the minimum TPS that we establish 
for the payment year. We have defined the minimum TPS in our 
regulations at Sec.  413.178(a)(8) as, with respect to a payment year, 
the TPS that an ESRD facility would receive if, during the baseline 
period, it performed at the 50th percentile of national performance on 
all clinical measures and the median of national ESRD

[[Page 60726]]

facility performance on all reporting measures.\40\
---------------------------------------------------------------------------

    \40\ We recently codified definitions for the terms 
``achievement threshold,'' ``benchmark,'' ``improvement threshold,'' 
and ``performance standard'' in our regulations at 42 CFR 
413.178(a)(1), (3), (7), and (12), respectively. When we codified 
the definition of the ``performance standard,'' we declined to 
include a reference to the 50th percent of national performance in 
that definition because the term ``performance standards'' applies 
more broadly to levels of achievement and improvement and is not a 
specific reference to the 50th percentile of national performance. 
Instead, we have incorporated the concept of the 50th percentile of 
national performance into the recently codified definition of the 
minimum TPS.
---------------------------------------------------------------------------

    We also stated that our current policy, which is codified at Sec.  
413.177 of our regulations, is also to implement the payment reductions 
on a sliding scale using ranges that reflect payment reduction 
differentials of 0.5 percent for each 10 points that the facility's TPS 
falls below the minimum TPS (76 FR 634 through 635).
    For PY 2022, we estimated using available data that a facility must 
meet or exceed a minimum TPS of 53 in order to avoid a payment 
reduction. We noted that the mTPS estimated in the CY 2020 ESRD PPS 
proposed rule was based on data from CY 2017 instead of the PY 2022 
baseline period (CY 2018) because CY 2018 data were not yet available.
    We referred the reader to Table 4 for the estimated values of the 
50th percentile of national performance for each clinical measure. We 
stated in the CY 2020 ESRD PPS proposed rule that under our current 
policy, a facility that achieves a TPS below 53 would receive a payment 
reduction based on the TPS ranges indicated in Table 10.

         Table 10--Estimated Payment Reduction Scale for PY 2022
------------------------------------------------------------------------
                                                               Reduction
                   Total performance score                        (%)
------------------------------------------------------------------------
100-53......................................................           0
52-43.......................................................         0.5
42-33.......................................................         1.0
32-23.......................................................         1.5
22-0........................................................         2.0
------------------------------------------------------------------------

    We stated our intention to update the minimum TPS for PY 2022, as 
well as the payment reduction ranges for that payment year, in the CY 
2020 ESRD PPS final rule.
    The comments and our responses regarding the mTPS and payment 
reduction scale are set forth below.
    Comment: One commenter stated that ESRD QIP penalties do not align 
with actual performance and are problematic in a program designed to 
only apply payment penalties. The commenter also expressed concern 
about the percentage of facilities anticipated to face penalties in PY 
2020 and PY 2021 given that facility performance is improving overall.
    Response: We thank the commenters for their feedback. However, we 
disagree that ESRD QIP penalties do not align with actual performance 
as our measure set assesses the degree to which evidence-based 
treatment guidelines are followed and assess the results of care. While 
we recognize the commenters concerns regarding the increase in payment 
penalties, our adoption of several outcome and patient experience of 
care measures (such as the STrR measure and the ICH CAHPS survey) with 
large variation in aggregate performance and room for improvement in 
more recent years of the QIP has contributed to an increase in the 
number of facilities that are receiving payment reductions. We also 
proposed domain weights changes to reflect the ESRD QIP's changing 
measure set. These changes have included alignment with our meaningful 
measures initiative and measure removal criteria (83 FR 56983 through 
56989). We believe that some increases in payment penalties are 
inevitable as the Program's measure set changes, particularly as we 
accumulate sufficient data on reporting measures and convert them to 
more outcomes based measures or as actual performance data on new 
measures become available to establish real and not estimated 
performance standards. Because of these policy changes, we believe it 
is reasonable for the payment reductions to shift even if performance 
on some measures is comparatively high. Nevertheless, we will continue 
monitoring the amount of payment penalties imposed on facilities and 
facilities performance on our quality measures.
    Comment: One commenter recommended that CMS share details about the 
methodology used to project payment adjustments. Commenter expressed 
concern regarding the lack of transparency in CMS's methodology for 
penalty projections. Commenter expressed concerns that the ESRD QIP has 
grown more complex over time and that relatively small changes to the 
Program can significantly change the distribution of payment penalties. 
Commenter stated that its analysis of the STrR proposal, for example, 
shows that the proposal resulted in a significant change in the number 
of facilities projected to receive a penalty in PY 2022. Commenter 
noted that CMS has implicitly acknowledged validity concerns based on 
its proposal to make data validation activities permanent.
    Response: We describe the methodology used to project payment 
adjustments for the ESRD QIP in the Regulatory Impact Analysis section 
of both the ESRD PPS proposed and final rules each year. The most 
recent analyses, which apply to the PY 2022 and PY 2023 ESRD QIP, 
appeared in section XI.B.3.a of the CY 2020 ESRD QIP proposed rule and 
is in section X.B.3.b of this final rule. We calculate our projections 
by using the most recently available CROWNWeb and Medicare claims data. 
The list of eligible facilities is determined using the most recently 
published PPS eligible facility list. Simulated achievement scores are 
calculated using the achievement threshold and benchmark for each 
clinical measure. We use the achievement threshold and benchmark from 
the previous calendar year final rule rather than the standards 
published in the most current rule in order to simulate improvement in 
performance that we observe for some of the clinical measures from one 
year to the next. Improvement scores are calculated using the same 
methodology comparing the facility's performance year measure rate to 
the rate in the year prior. In the simulation, the performance year is 
based on the most recently available data, which will be at least 2 
years prior to the actual performance year. Once the facility-level 
achievement and improvement scores are calculated, the measure weights 
are applied and the Total Performance Score is calculated. If a 
facility is missing one or more measures, then the measure weight(s) 
for the missing measures are redistributed to the other measures, based 
on the methodology proposed in the rule. For PY 2022 and PY 2023, the 
measure weights are redistributed equally among all other measures in 
the same domain. If we do not have data for a measure that is new to 
the ESRD QIP (for example, MedRec for PY 2022), we set the measure 
score to missing for all facilities and redistribute that weight 
equally among all other eligible measures in the same domain.
    Finally, payment reductions are estimated using the mTPS that we 
calculate using the performance standards published in the previous 
year's final rule. Oftentimes the simulated mTPS is the same as the 
final mTPS proposed in the current rule, but we use an estimated 
simulated mTPS in order to simulate the differences in performance in 
prior years. Additionally, the methodology used to estimate 
performances scores is consistent with how the actual facility payment 
reductions are determined,

[[Page 60727]]

which use the mTPS, achievement threshold, and benchmark that are 
determined using data from the same year.
    At the time the proposed rule was published, the most recently 
available data for a complete year was CY 2017. We have now updated the 
payment reductions that will apply to the PY 2022 ESRD QIP using CY 
2018 data. The mTPS for PY 2022 will be 54, and the updated payment 
reduction scale is shown in Table 11.

  Table 11--Finalized Payment Reduction Scale for PY 2022 Based on the
                      Most Recently Available Data
------------------------------------------------------------------------
                                                               Reduction
                   Total performance score                        (%)
------------------------------------------------------------------------
100-54......................................................           0
53-44.......................................................         0.5
43-34.......................................................         1.0
33-24.......................................................         1.5
23-0........................................................         2.0
------------------------------------------------------------------------

5. Data Validation for PY 2022 and Beyond
    In the CY 2020 ESRD PPS proposed rule (84 FR 38368), we stated that 
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. 
We stated that the ESRD QIP includes two validation studies for this 
purpose: The CROWNWeb data validation study (OMB Control Number 0938-
1289) and the NHSN validation study (OMB Control Number 0938-1340). In 
the CY 2019 ESRD PPS final rule, we adopted the CROWNWeb data 
validation study as a permanent feature of the Program (83 FR 57003). 
We stated that under that policy, we will continue validating CROWNWeb 
data in PY 2022 and subsequent payment years, and we will deduct 10 
points from a facility's TPS if it is selected for validation but does 
not submit the requested records.
    We also adopted a methodology for the PY 2022 NHSN validation 
study, which targets facilities for NHSN validation by identifying 
facilities that are at risk for under-reporting. A sample of 300 
facilities will be selected, and each facility will be required to 
submit 20 patient records covering 2 quarters of data reported in the 
performance year (for PY 2022, this would be CY 2020). For additional 
information on this methodology, we referred readers to the CY 2018 
ESRD PPS final rule (82 FR 50766 through 50767).
    In the CY 2020 ESRD PPS proposed rule, we proposed to continue 
using this methodology for the NHSN validation study for PY 2023 and 
subsequent years because based on a recent statistical analysis 
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. We stated that 
this sample size would produce results with a 95 percent confidence 
level and a 1 percent margin of error. Based on those results and our 
desire to ensure that dialysis event data reported to the NHSN for 
purposes of the ESRD QIP are accurate, we proposed to continue use of 
this methodology in the PY 2023 NHSN validation study and for 
subsequent years.
    Additionally, as we finalized for CROWNWeb validation, we proposed 
to adopt NHSN validation as a permanent feature of the ESRD QIP with 
the methodology we first finalized for PY 2022 and proposed to continue 
for PY 2023 and subsequent years. We stated our belief that the purpose 
of our validation programs is to ensure the accuracy and completeness 
of data that are scored under the ESRD QIP and that validating NHSN 
data using this methodology achieves that goal. Now that we have 
adopted a larger sample size of 300 facilities for the NHSN validation 
study and have thus ensured enough precision within the study, we 
believe that making the validation study permanent will show our 
commitment to accurate reporting of the important clinical topics 
covered by the NHSN measures that we have adopted. We welcomed public 
comments on these proposals.
    The comments and our responses to the comments on our data 
validation proposals are set forth below.
    Comment: Some commenters supported continued use of the CROWNWeb 
validation study and the 10-point non-compliance penalty. One commenter 
also supported the permanent adoption of the NHSN validation 
methodology and the continued use of the PY 2022 methodology in future 
payment years.
    Response: We thank the commenters for their support.
    Comment: One commenter recommended that CMS adopt an alternative 
data validation approach, such as requesting data that only applies to 
the specific area of the validation, giving facilities more time to 
comply with data requests, and using electronic data exchange. The 
commenter expressed concerns about the burden placed on facilities to 
conduct data validation activities. The commenter also stated that CMS 
is not considering facility burden for validation activities.
    Response: We will consider these recommendations during future 
rulemaking. Our validation studies are conducted within a timeframe 
that is consistent with our operational schedule. Currently facilities 
are given 60 days to respond to data request. We do not believe that 
increasing the time is feasible because our goal is to provide 
facilities with timely feedback about reporting accuracy. We disagree 
with the characterization that CMS is not taking facility burden into 
consideration for these validation activities. Each year we calculate 
facility burden associated with our validation activities and submit 
this information as part of our Paperwork Reduction Act (PRA) 
submission package. For example, in our most recent PRA package, we 
estimated that the burden associated with the collection of information 
for our PY 2022 NHSN validation activities is 10 hours annually and 
$423 per facility, which we believe is a minimal burden on facilities. 
Additionally, given that our validation activities are widely supported 
by stakeholders and encourage improvements in data completeness and 
accuracy, we believe the value of our validation activities outweigh 
the current estimated burden posed on facilities. Currently, our 
validation activities are restricted to measures that utilize CrownWeb 
or NHSN as their primary data sources. If we impose further 
restrictions on data collected for validation actions, our ability to 
measure the accuracy of data submitted to CROWNWeb or NHSN will be 
severely limited. We also encourage facilities to submit data 
electronically through our secured transfer file system instead of 
submitting hard copies of requested records. We believe this approach 
is more efficient and effective for facilities.
    Final Rule Action: After consideration of public comments we 
received, we are finalizing as proposed the continuation of the PY 2022 
NHSN validation study methodology in PY 2023 and subsequent years as 
well as adoption of the NHSN validation study as a permanent feature of 
the Program.

E. Requirements for the PY 2023 ESRD QIP

1. Continuing Measures for the PY 2023 ESRD QIP
    In the CY 2020 ESRD PPS proposed rule (84 FR 38369), we stated 
that, under our previously adopted policy, we were continuing all 
measures from the PY 2022 ESRD QIP for PY 2023. We did not propose to 
adopt any new measures beginning with the PY 2023 ESRD QIP.

[[Page 60728]]

2. Proposed Performance Period for the PY 2023 ESRD QIP and Subsequent 
Years
    In the CY 2020 ESRD PPS proposed rule (84 FR 38369), we stated our 
continued belief that 12-month performance and baseline periods would 
provide us sufficiently reliable quality measure data for the ESRD QIP. 
We therefore proposed to establish CY 2021 as the performance period 
for the PY 2023 ESRD QIP for all measures. Additionally, we proposed to 
establish CY 2019 as the baseline period for the PY 2023 ESRD QIP for 
all measures for purposes of calculating the achievement threshold, 
benchmark, and minimum TPS, and CY 2020 as the baseline period for the 
PY 2023 ESRD QIP for purposes of calculating the improvement threshold. 
Beginning with PY 2024, we proposed to adopt automatically a 
performance and baseline period for each year that is 1-year advanced 
from those specified for the previous payment year. For example, under 
this policy, we would automatically adopt CY 2022 as the performance 
period for the PY 2024 ESRD QIP. We would also automatically adopt CY 
2020 as the baseline period for purposes of calculating the achievement 
threshold, benchmark, and minimum TPS and CY 2021 as the baseline 
period for purposes of calculating the improvement threshold, for the 
PY 2024 ESRD QIP. We welcomed public comments on these proposals.
    The comments and our responses to the comments on our proposals for 
establishing the performance and baseline periods are set forth below.
    Comment: One commenter expressed support for CMS's proposal to 
codify the automatic adoption of a baseline period and a performance 
period for each payment year that is 1-year advanced from those 
specified for the previous payment year. The commenter also expressed 
its appreciation for the predictability and efficiency provided by this 
proposal.
    Response: We thank the commenter for its support.
    Final Action Decision: After considering public comments received, 
we are finalizing our proposals for establishing the performance and 
baseline periods as proposed.
3. Performance Standards for the PY 2023 ESRD QIP and Subsequent Years
    Section 1881(h)(4)(A) of the Act requires the Secretary to 
establish performance standards with respect to the measures selected 
for the ESRD QIP for a performance period with respect to a year. The 
performance standards must include levels of achievement and 
improvement, as required by section 1881(h)(4)(B) of the Act, and must 
be established prior to the beginning of the performance period for the 
year involved, as required by section 1881(h)(4)(C) of the Act. In the 
CY 2020 ESRD PPS proposed rule (84 FR 38369), we referred readers to 
the CY 2013 ESRD PPS final rule (76 FR 70277) for a discussion of the 
achievement and improvement standards that we have established for 
clinical measures used in the ESRD QIP. We stated that we recently 
codified definitions for the terms ``achievement threshold,'' 
``benchmark,'' ``improvement threshold,'' and ``performance standard'' 
in our regulations at Sec.  413.178(a)(1), (3), (7), and (12), 
respectively.
a. Performance Standards for Clinical Measures in the PY 2023 ESRD QIP
    In the CY 2020 ESRD PPS proposed rule (84 FR 38369), we stated that 
at that time, we did not have the necessary data to assign numerical 
values to the achievement thresholds, benchmarks, and 50th percentiles 
of national performance for the clinical measures because we did not 
have CY 2019 data. We stated our intention to publish these numerical 
values, using CY 2019 data, in the CY 2021 ESRD PPS final rule.
b. Performance Standards for the Reporting Measures in the PY 2023 ESRD 
QIP
    In the CY 2019 ESRD PPS final rule, we finalized the continued use 
of existing performance standards for the Screening for Clinical 
Depression and Follow-Up reporting measure, the Ultrafiltration Rate 
reporting measure, the NHSN Dialysis Event reporting measure, and the 
MedRec reporting measure (83 FR 57010 through 57011). In the CY 2020 
ESRD PPS proposed rule (84 FR 38369), we stated that we would continue 
use of those performance standards in PY 2023.
4. Scoring the PY 2023 ESRD QIP
a. Scoring Facility Performance on Clinical Measures
    In the CY 2014 ESRD PPS final rule, we finalized policies for 
scoring performance on clinical measures based on achievement and 
improvement (78 FR 72215 through 72216). In the CY 2019 ESRD PPS final 
rule, we finalized a policy to continue use of this methodology for 
future payment years (83 FR 57011) and we codified these scoring 
policies at Sec.  413.178(d).\41\
---------------------------------------------------------------------------

    \41\ Please note that we are finalizing our proposal to 
redesignate Sec.  413.178(d) as Sec.  413.178(e) in this final rule.
---------------------------------------------------------------------------

    In the CY 2020 ESRD PPS proposed rule (84 FR 38369), we stated that 
we were not proposing to change these scoring policies.
b. Scoring Facility Performance on Reporting Measures
    In the CY 2019 ESRD PPS final rule, we codified our policy for 
scoring performance on reporting measures at Sec.  413.178(d),\42\ and 
we finalized the continued use of existing policies for scoring 
performance on the Ultrafiltration Rate reporting measure and the 
MedRec reporting measure (83 FR 57011). In the CY 2020 ESRD PPS 
proposed rule (84 FR 38369), we stated that we would continue use of 
the Ultrafiltration Rate reporting measure's scoring policy in PY 2023. 
In section IV.B.3.c of the CY 2020 ESRD PPS proposed rule, we proposed 
to use facility-months instead of patient-months when scoring the 
MedRec reporting measure and clarified our intention to begin scoring 
new facilities with a CCN Open Date before the October 1st of the year 
prior to the performance period rather than before the January 1st of 
the performance period. We stated in the CY 2020 ESRD PPS proposed rule 
that those proposals, if finalized, would apply to PY 2023 and 
subsequent payment years. In Section IV.D.2.c of this final rule, we 
did not finalize our proposal to update the scoring methodology for the 
MedRec reporting measure, so that measure will be scored in accordance 
with the methodology we finalized in the CY 2019 ESRD PPS final rule. 
(83 FR 57008 through 57010).
---------------------------------------------------------------------------

    \42\ Please note that we are finalizing our proposal to 
redesignate Sec.  413.178(d) as Sec.  413.178(e) in this final rule.
---------------------------------------------------------------------------

5. Weighting the Measure Domains and the TPS for PY 2023
    In the CY 2020 ESRD PPS proposed rule (84 FR 38369), we stated that 
under our current policy, we have assigned the Patient & Family 
Engagement Measure Domain a weight of 15 percent of the TPS, the Care 
Coordination Measure Domain a weight of 30 percent of the TPS, the 
Clinical Care Measure Domain a weight of 40 percent of the TPS, and the 
Safety Measure domain a weight of 15 percent of the TPS, for the PY 
2022 ESRD QIP (83 FR 57011 through 57012).
    In the CY 2019 ESRD PPS final rule, we finalized a policy to assign 
weights to individual measures and a policy to redistribute the weight 
of unscored measures in the PY 2022 ESRD QIP (83 FR 57011 through 
57012). In the CY 2020 ESRD PPS proposed rule (84 FR 38370), we 
proposed to continue use of

[[Page 60729]]

the PY 2022 measure weights for the PY 2023 ESRD QIP and subsequent 
payment years. We also proposed to continue use of the PY 2022 measure 
weight redistribution policy in the PY 2023 ESRD QIP and subsequent 
payment years. We solicited public comments on these proposals.
    We also noted that under our current policy, a facility must be 
eligible to be scored on at least one measure in two of the four 
measures domains in order to be eligible to receive a TPS (83 FR 
57012).
    The comments and our responses to the comments on our measure 
weight assignments and weight redistribution proposals are set forth 
below.
    Comment: One commenter expressed concern with the weight of the 
MedRec reporting measure within the Safety Measure Domain, and its 
application to home dialysis facilities. The commenter noted that 
because other measures within the domain do not apply to home dialysis 
facilities, the MedRec reporting measure effectively has more weight in 
the ESRD QIP TPS than otherwise intended. To remedy this concern, 
commenter suggested that CMS move the MedRec reporting measure from the 
Safety Measure Domain to the Care Coordination Measure Domain. The 
commenter also suggested that CMS add the following patient-level 
exclusions for home dialysis facilities: (1) Patients not assigned to 
the facility for the entire reporting month, and (2) patient-months 
where there is a more than one treatment modality.
    Response: In the CY 2019 ESRD PPS final rule (83 FR 57003 through 
57010), we finalized the MedRec reporting measure for the ESRD QIP 
measure set, beginning with PY 2022. The MedRec reporting measure 
assesses whether a facility has appropriately evaluated a patient's 
medications, an important safety concern for the dialysis patient 
population because those patients typically take a large number of 
medications. Inclusion of the MedRec measure in the ESRD QIP measure 
set aligns with the Meaningful Measure Initiative priority area of 
making care safer by reducing harm caused by care delivery. As noted in 
the CY 2019 ESRD PPS final rule, while we agree that medication 
reconciliation can be considered a measure of care coordination, we 
believe that it is more properly aligned with patient safety because 
patients can be harmed by medication errors. While it is possible that 
MedRec will be weighted more for home dialysis facilities, we do not 
believe this is inappropriate because regardless of the facility type, 
all facilities are required to provide high quality services to 
patients that do not cause harm. Additionally, in accordance with our 
monitoring and evaluation efforts, we plan to monitor the impact of 
measures on dialysis facilities and the quality of care provided to 
facilities and propose any changes we think are warranted. We thank the 
commenter for its recommendation regarding patient-level exclusions to 
the measure; however these comments are out of scope given that we are 
not proposing to make any updates to the underlying measure 
specifications. Nevertheless, we will review and assess the feasibility 
of the commenter's recommendation and if warranted, consider in future 
rulemaking.
    Comment: One commenter expressed concern that the current weighting 
of measure domains, given the increasing number of quality measures, 
may dilute the importance of each individual measure and potentially 
result in decreased quality of care. The commenter recommended that we 
continually reevaluate the ESRD QIP to ensure that the measures 
included are all meaningful. Another commenter stated that the 
weighting assigned to the SRR and SHR measures (12 percent each) is too 
high given the amount of control that dialysis facilities have over 
admissions and readmissions to the hospital. The commenter stated that 
we should reduce the weights assigned to those measures and increase 
the weighting applied to measures in the Clinical Care and Safety 
domains.
    Response: We disagree that our current measure domains and 
weighting dilutes the importance of each individual measure and 
decreases quality of care. We believe our core set of measures 
addresses areas that are agency priorities, safeguard public health, 
and are meaningful to patients. Further, we take numerous factors into 
account when determining appropriate domain and measure weights, 
including clinical evidence, opportunity for improvement, clinical 
significance, patient and provider burden) the number of measures and 
measure topics in the domain, how much experience facilities have had 
with the measures and measure topics in the domain, and how well the 
measures align with CMS's highest priorities for quality improvement 
from patients receiving dialysis. We also continuously review our 
existing measures and weights and propose changes that we think are 
warranted. We disagree with the commenter's recommendation to reduce 
the weight of SHR and SRR. We believe that our weights for SRR and SHR 
are appropriate given that reducing hospitalizations and readmission is 
a top policy goal for CMS. We also continue to believe that the SHR and 
SRR measures, along with other measures in the ESRD QIP, ensure that 
dialysis facilities fulfill their shared responsibilities to coordinate 
with other types of providers to provide the best possible care and 
ensure their patients' continued health.
    Comment: Commenter requested clarification on how the TPS would be 
reweighted for facilities that are unable to reach the required 30 ICH-
CAHPS survey count. Commenter suggested that many facilities will not 
receive ICH-CAHPS scores and noted that the additional clarity would be 
helpful to those facilities.
    Response: In the CY 2019 ESRD PPS final rule (83 FR 56998), we 
finalized a policy that would redistribute the weights of any measures 
for which the facility does not receive a score to the remaining 
measures proportionately based on their measure weight as a percent of 
the TPS. This redistribution would occur across all measures regardless 
of their domain. If a facility did not receive an ICH CAHPS score, one-
third of the Patient & Family Engagement Domain's weight of 15 percent 
would be distributed to each of the three remaining domains and evenly 
split among measures within each domain. We believe this approach 
addresses concerns that certain facilities could receive a TPS that is 
dominated by the scores of only a few measures.
    Final Rule Action: After considering the public comments we 
received, we are finalizing as proposed continuation of the PY 2022 
measure weights in PY 2023 and subsequent payment years as well as our 
continued use of the PY 2022 weight redistribution policy in PY 2023 
and subsequent payment years.

V. Establishing Payment Amounts for New Durable Medical Equipment, 
Prosthetics, Orthotics and Supplies (DMEPOS) Items and Services (Gap-
Filling)

A. Background

1. Calculating Fee Schedule Amounts for DMEPOS Items and Services
    Section 1834(a) of the Act mandates payment based on the lesser of 
the supplier's actual charge or a fee schedule amount for DME other 
than customized items defined at 42 CFR 414.224 and items included in a 
competitive bidding program and furnished in a competitive bidding area 
under section 1847(a) of the Act. Section 1834(h) of the Act mandates 
payment based on the lesser of the supplier's actual charge or a fee 
schedule amount for most prosthetic

[[Page 60730]]

devices, orthotics, and prosthetics other than off-the-shelf orthotics 
included in a competitive bidding program in a competitive bidding area 
under section 1847(a) of the Act. Section 1834(i) of the Act mandates 
payment based on the lesser of the supplier's actual charge or a fee 
schedule amount for surgical dressings. Section 1833(o)(2)(A) of the 
Act mandates payment based on the lesser of the supplier's actual 
charge or a fee schedule amount in accordance with section 1834(h) of 
the Act for custom molded shoes, extra-depth shoes, and inserts. 
Section 1842(s) of the Act authorizes payment based on the lesser of 
the supplier's actual charge or a fee schedule amount for parenteral 
and enteral nutrients, equipment, and supplies (PEN), other than 
enteral nutrients, equipment, and supplies included in a competitive 
bidding program in a competitive bidding area under section 1847(a) of 
the Act, and medical supplies, including splints and casts and 
intraocular lenses inserted in a physician's office. The fee schedule 
amounts established for these items and services are based on payments 
made previously under the reasonable charge payment methodology, which 
is set forth in section 1842(b) of the Act and in our regulations at 42 
CFR 405.502. Generally, reasonable charge determinations are based on 
customary and prevailing charges derived from historic charge data. The 
fee schedule amounts for DME, prosthetic devices, orthotics, 
prosthetics, and custom molded shoes, extra-depth shoes, and inserts 
are based on average reasonable charges from 1986 and 1987. The fee 
schedule amounts for surgical dressings are based on average reasonable 
charges from 1992. The fee schedule amounts for PEN are calculated on a 
nationwide basis and are the lesser of the reasonable charges for 1995, 
or the reasonable charges that would have been used in determining 
payment for these items in 2002 under the former reasonable charge 
payment methodology (Sec.  414.104(b)). The fee schedule amounts for 
splints and casts are based on reasonable charges for 2013 and the fee 
schedule amounts for intraocular lenses inserted in a physician's 
office are based on reasonable charges for 2012. Pursuant to sections 
1834(a)(14)(L), 1834(h)(4)(xi), and 1842(s)(1)(B)(ii) of the Act, the 
DMEPOS fee schedule amounts are generally adjusted annually by the 
percentage increase in the CPI-U for the 12-month period ending with 
June 30 of the preceding year reduced by a productivity adjustment. The 
Medicare payment amount for a DMEPOS 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 Medicare 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.
    The statute does not specify how to calculate fee schedule amounts 
when the base reasonable charge data does not exist. As discussed later 
on, since 1989, we have used a process referred to as ``gap-filling'' 
to fill the gap in the reasonable charge data for new DMEPOS items, 
which are newly covered items or technology. The gap-filling process is 
used to estimate what Medicare would have paid for the item under the 
reasonable charge payment methodology during the period of time from 
which reasonable charge data is used to calculate the fee schedule 
amounts, or the fee schedule ``base period'' (for example, 1986 and 
1987 for DME). Various methods have been used by CMS and its 
contractors to gap-fill DMEPOS fee schedule amounts including use of 
fees for comparable items, supplier prices, manufacturer's suggested 
retail prices (MSRPs), wholesale prices plus a markup percentage to 
convert the prices to retail prices, or other methods. In any case 
where prices are used for gap-filling, the prices are deflated to the 
fee schedule base period by the percentage change in the consumer price 
index for all urban consumers (CPI-U) from the mid-point of the year 
the price is in effect to the mid-point of the fee schedule base 
period. Program guidance containing instructions for contractors 
(mainly for use by the Durable Medical Equipment Medicare 
Administrative Contractors (DME MACs)) for gap-filling DMEPOS fee 
schedule amounts is found at section 60.3 of chapter 23 of the Medicare 
Claims Processing Manual (Pub. L. 100-04). The instructions indicate 
that the DMEPOS fee schedule for items for which reasonable charge data 
were unavailable during the fee schedule base period are to be gap-
filled using the fee schedule amounts for comparable items or supplier 
price lists with prices in effect during the fee schedule base period. 
The instructions specify that supplier price lists include catalogs and 
other retail price lists (such as internet retail prices) that provide 
information on commercial pricing for the item. Potential appropriate 
sources for such commercial pricing information can also include 
verifiable information from supplier invoices and non-Medicare payer 
data (for example, fee schedule amounts comprised of the median of the 
commercial pricing information adjusted as described below). Mail order 
catalogs are suitable sources of routinely available price information 
for items such as urological and ostomy supplies which require frequent 
replacement. We issued Transmittal 4130, Change Request 10924 dated 
September 14, 2018 which updated the manual instruction to clarify that 
supplier price lists can include internet retail prices or verifiable 
information from supplier invoices and non-Medicare payer data. Prior 
to 2018, non-Medicare payer data had not been included to establish 
gap-filled DMEPOS fee schedule amounts. CMS and its contractors have 
used internet retail prices in the past in addition to catalog prices, 
as well as wholesale prices plus a retail price mark up, and on one 
occasion hospital invoices plus a 10 percent markup as a source for 
commercial pricing information.
    In 2015, when revising the DME MAC statement of work, CMS clarified 
to the DME MACs that MSRP should not be used for gap-filling due to 
CMS's concerns that MSRPs may not represent routinely available 
supplier price lists, which are incorporated for supplier charges in 
calculating fee schedule amounts that the statute mandates be based on 
historic reasonable charges. Although MSRPs were used in certain cases 
in the past to gap-fill DMEPOS fee schedule amounts, our experience has 
revealed the retail prices suggested by manufacturers often are 
inflated and do not reflect commercial competitive pricing, or a price 
that is paid to a supplier for furnishing items and services. Using 
MSRPs to gap-fill DMEPOS fee schedule amounts led to excessive fee 
schedule amounts compared to fees established for other DMEPOS items 
paid for in 1986, 1987, 1992, 2001, or other fee schedule base periods. 
In some cases, a single manufacturer may produce a new item, and 
pricing information may therefore be limited to the MSRP. In these 
cases, unlike other items and services paid for under Medicare, there 
is not yet independently substantiated pricing information. In 
addition, similar items may not be available to create competition and 
to potentially limit the price a sole source manufacturer charges for 
the new item. We believe the MSRP may represent the amount the 
manufacturer charges to Medicare and other health insurance payers 
before pricing is established in a competitive market by suppliers 
furnishing the product and competitor products.
    Currently, when we release our program instruction announcing

[[Page 60731]]

updates to the DMEPOS fee schedule, we include a list of new Healthcare 
Common Procedure Coding System (HCPCS) codes, which are added to the 
DMEPOS fee schedule. Also, we release updated DMEPOS fee schedule 
amounts in fee schedule files to our contractors and available online 
at: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/DMEPOSFeeSched/DMEPOS-Fee-Schedule.html.
    If a HCPCS code for a new item is added and takes effect, and the 
fee schedule amounts for the new code have not yet been added to the 
DMEPOS fee schedule file, our contractors establish payment on an 
interim basis using local fee schedule amounts gap-filled in accordance 
with the program instructions at section 60.3 of chapter 23 of the 
Medicare Claims Processing Manual until the fee schedule amounts on the 
national files are available.
2. Coding for New DMEPOS Items
    The HCPCS is a standardized coding system used to process claims 
submitted to Medicare, Medicaid, and other health insurance programs. 
Level I of the HCPCS codes is comprised of Current Procedural 
Terminology (CPT) codes identifying primarily medical services and 
procedures furnished by physicians and other health care practitioners, 
published and maintained by the American Medical Association. Level II 
of the HCPCS codes primarily identifies items, supplies, services and 
certain drugs used outside the practitioner setting. Assignment of a 
HCPCS code is not a coverage determination and does not imply that any 
payer will cover the items in the code category.
    In 2001, section 531(b) of the Medicare, Medicaid, and SCHIP 
Benefits Improvement and Protection Act of 2000 (BIPA) (Pub. L. 106-
554) mandated the establishment of procedures for coding and payment 
determinations for new DMEPOS items under Medicare Part B that permit 
public consultation in a manner consistent with the procedures 
established for implementing ICD-9-CM coding modifications. As a 
result, beginning in 2002, after the HCPCS Workgroup has developed its 
preliminary decision, these preliminary decisions are made available to 
the public via our website and public meetings are scheduled to receive 
public comment on the preliminary decisions.
    Following the HCPCS public meetings, we make a final decision on 
each new DMEPOS code request and payment category. Then, we prepare and 
release the HCPCS and DMEPOS fee schedule files and program 
instructions for the next update (annual or quarterly) to our 
contractors and via our website for public access. Also, a summary of 
the final coding and payment category decisions is made available on 
our website. See the following websites for more information:
     HCPCS Files: https://www.cms.gov/Medicare/Coding/HCPCSReleaseCodeSets/Alpha-Numeric-HCPCS.html;
     DMEPOS Fee Schedule Files: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/DMEPOSFeeSched/DMEPOS-Fee-Schedule.html;
     Program Instructions: https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/index.html; and
     Public Meeting Summaries: https://www.cms.gov/Medicare/Coding/MedHCPCSGenInfo/HCPCSPublicMeetings.html.
    Typically, more than 100 applications are submitted to the CMS 
HCPCS Workgroup each year, with approximately one-third requesting new 
or revised DMEPOS codes. The list of approved new DMEPOS codes is not 
finalized until shortly before the release of the updated HCPCS file, 
which in some cases, leaves very short timeframes to prepare and 
release the updated DMEPOS fee schedule.
3. Continuity of Pricing
    Instructions for contractors addressing how to establish DMEPOS 
payment amounts following updates to HCPCS codes are contained at 
section 60.3.1 of chapter 23 of the Medicare Claims Processing Manual. 
When an item receives a new HCPCS code, it does not necessarily mean 
that Medicare payment on a fee schedule basis has never been made for 
the item described by the new code. If a new code is established, CMS 
and our contractors follow the instructions in section 60.3.1 to make 
every effort to determine whether the item has a pricing history. If 
there is a pricing history, that is, the item(s) and services described 
by the new code were paid for in the past under existing codes based on 
the fee schedule amounts for these codes, the fee schedule amounts 
previously used to pay for the item are mapped or cross walked to the 
new code(s) for the item to ensure continuity of pricing. Since there 
are different kinds of coding changes, there are various ways pricing 
is cross walked from old codes to new codes, which are addressed in our 
program instructions at section 60.3.1 of chapter 23 of the Medicare 
Claims Processing Manual. For example, when the code for an item is 
divided into multiple codes for the components of that item, the total 
of the separate fee schedule amounts established for the components 
must not be higher than the fee schedule amount for the original item. 
However, when there is a single code that describes two or more 
distinct complete items (for example, two different but related or 
similar items), and separate codes are subsequently established for 
each item, the fee schedule amounts for the single code are applied to 
each of the new codes. Conversely, when the codes for the components of 
an item are combined in a single global code, the fee schedule amount 
for the new code is established by totaling the fee schedule amounts 
used for the components (that is, the total of the fee schedule amounts 
for the components is used to determine the fee schedule amount for the 
global code). However, when the codes for several different items are 
combined into a single code, the fee schedule amounts for the new code 
are established using the average (arithmetic mean), weighted by 
allowed services, of the fee schedule amounts for the formerly separate 
codes. These instructions are used to ensure continuity of pricing 
under the Medicare program, but do not apply to items when a pricing 
history does not exist, that is, in situations where an item was not 
paid for under a HCPCS code or codes with an established DMEPOS fee 
schedule amount(s). The gap-filling process only applies to items not 
assigned to existing HCPCS codes with established fee schedule amounts 
and items that were not previously paid for by Medicare under either a 
deleted or revised HCPCS code.
4. Authority for Establishing Special Payment Limits
    Section 1842(b)(8) of the Act authorizes CMS to adjust payment 
amounts if, subject to the factors described in the statute and the 
regulations, CMS determines that such payment amounts are grossly 
excessive or grossly deficient, and therefore are not inherently 
reasonable. CMS may make a determination that would result in an 
increase or decrease of more than 15 percent of the payment amount for 
a year only if it follows all of the requirements under paragraphs (B), 
(C), and (D) of section 1842(b)(8) of the Act. Under these 
requirements, CMS must take certain factors into account, such as 
whether the payment amount does not reflect changing technology. In 
addition, section 1842(b)(9) of the Act mandates a specific process 
that CMS must follow when using this ``inherent reasonableness'' 
authority (IR authority) to adjust payment amounts by more

[[Page 60732]]

than 15 percent a year. CMS has established the methodology and process 
for using the IR authority at Sec. Sec.  405.502(g) and (h). Use of the 
IR authority involves many steps mandated under sections 1842(b)(8) and 
(9) of the Act, which can include consulting with supplier 
representatives before making a determination that a payment amount is 
not inherently reasonable; publishing a notice of a proposed 
determination in the Federal Register which explains the factors and 
data taken into account; a 60-day comment period; and publishing a 
final notice, again explaining the factors and data taken into account 
in making the determination. Medicare can only make payment adjustments 
for ``inherent reasonableness'' that would result in a change of more 
than 15 percent per year by going through the process outlined in the 
statute and at Sec. Sec.  405.502(g) and (h). As a result, the 
requirements under sections 1842(b)(8) and (9) of the Act regarding 
``inherent reasonableness'' adjustments are applicable to special 
payment limits established in cases where supplier or commercial prices 
used for gap-filling decrease by more than 15 percent.
    Examples of factors that may result in grossly excessive or grossly 
deficient payment amounts are set forth at Sec.  405.502(g)(1)(vii) and 
include, but are not limited to, the following:
     The market place is not competitive.
     Medicare and Medicaid are the sole or primary sources of 
payment for a category of items and services.
     The payment amounts for a category of items and services 
do not reflect changing technology, increased facility with that 
technology, or changes in acquisition, production, or supplier costs.
     The payment amounts for a category of items or services in 
a particular locality are grossly higher or lower than payment amounts 
in other comparable localities for the category of items or services.
     Payment amounts for a category of items and services are 
grossly higher or lower than acquisition or production costs for the 
category of items and services.
     There have been increases in payment amounts for an item 
or service that cannot be explained by inflation or technology.
     Payment amounts for a category of items or services are 
grossly higher or lower than payments made for the same category of 
items or services by other purchasers in the same locality.
     A new technology exists which is not reflected in the 
existing payment allowances.
    Prior to making a determination pursuant to section 1842(b)(8) of 
the Act that would result in an increase or decrease of more than 15 
percent in a payment amount for a year, CMS is required to consult with 
representatives of suppliers or other individuals who furnish an item 
or service. In addition, section 1842(b)(8)(D) of the Act mandates that 
CMS consider the potential impact of a determination pursuant to 
section 1842(b)(8) that would result in a payment amount increase or 
decrease of more than 15 percent for a year on quality, access, 
beneficiary liability, assignment rates, and participation of 
suppliers. In establishing a payment limit for a category of items or 
services, we consider the available information relevant to the 
category of items or services in order to establish a payment amount 
that is realistic and equitable. Under Sec.  405.502(g)(2), the factors 
we may consider in establishing a payment limit include the following:
     Price markup. The relationship between the retail and 
wholesale prices or manufacturer's costs of a category of items and 
services. If information on a particular category of items and services 
is not available, we may consider the price markup on a similar 
category of items and services and information on general industry 
pricing trends.
     Differences in charges. The differences in charges for a 
category of items and services made to non-Medicare and Medicare 
patients or to institutions and other large volume purchasers.
     Costs. Resources (for example, overhead, time, acquisition 
costs, production costs, and complexity) required to produce a category 
of items and services.
     Use. Imputing a reasonable rate of use for a category of 
items or services and considering unit costs based on efficient use.
     Payment amounts in other localities. Payment amounts for a 
category of items and services furnished in another locality.
    In determining whether a payment amount is grossly excessive or 
grossly deficient, and in establishing an appropriate payment amount, 
we use valid and reliable data. To ensure the use of valid and reliable 
data, we must meet the criteria set forth at Sec.  405.502(g)(4), to 
the extent applicable. This includes, but is not limited to, 
considering the cost of the services necessary to furnish a product to 
beneficiaries if wholesale costs are used.
    If we make a determination that a special payment limit is 
warranted to adjust a grossly excessive or grossly deficient payment 
amount for a category of items and services by more than 15 percent 
within a year, we must publish in the Federal Register a proposed and 
final notice of any special payment limits before we adopt the limits, 
with at least a 60-day period for public comments on the proposed 
notice. The proposed notice must explain the factors and data 
considered in determining the payment amount is grossly excessive or 
deficient and the factors and data considered in determining the 
special payment limits. The final notice must explain the factors and 
data considered and respond to public comment.
5. The 2006 Proposed Rule and 2018 Solicitation of Comments on Gap-
Filling
    On May 1, 2006, we published several proposed changes for the gap-
filling process in our rule titled ``Medicare Program; Competitive 
Acquisition for Certain Durable Medical Equipment, Prosthetics, 
Orthotics, and Supplies (DMEPOS) and Other Issues'' (71 FR 25687 
through 25689). The May 2006 proposed rule discussed the existing gap-
filling process and the results of pilot assessments conducted by two 
CMS contractors to assess the benefits, effectiveness, and costs of 
several products. The purpose of the pilot assessments was to compile 
the technical information necessary to evaluate the technologies of the 
studied products with the objective of making payment and HCPCS coding 
decisions for new items. The contractors evaluated the products based 
on: (1) A functional assessment; (2) a price comparison analysis; and 
(3) a medical benefit assessment. The functional assessment involved 
evaluating a device's operations, safety, and user documentation 
relative to the Medicare population. The price comparison analysis 
involved determining how the cost of the product compared with similar 
products on the market or alternative treatment modalities. The medical 
benefit assessment focused on the effectiveness of the product in doing 
what it claims to do.
    As a result of the pilot studies, we proposed to use what we 
referred to as the ``functional technology assessment'' process, in 
part or in whole, to establish payment amounts for new items (71 FR 
25688). We also suggested that we would make every effort to use 
existing fee schedule amounts or historic Medicare payment amounts for 
new HCPCS codes; that we would retain the method of using payment 
amounts for comparable items (properly calculated fee schedule amounts, 
or supplier price lists); but that we would discontinue the

[[Page 60733]]

practice of deflating supplier prices and manufacturer suggested retail 
prices to the fee schedule base period. In response to our proposal, 
many commenters recommended a delay for finalizing regulations for the 
gap-filling process due to an overwhelming number of new proposals in 
the rule, including the DMEPOS competitive bidding program. In our 
final rule published on April 10, 2007 in the Federal Register titled 
``Medicare Program; Competitive Acquisition for Certain Durable Medical 
Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) and Other 
Issues,'' we did not finalize our proposals for regulations for the 
gap-filling process, as a result of commenters feedback. We stated that 
we would address comments and regulations for the gap-filling process 
in future rulemaking (72 FR 17994).
    In our CY 2019 ESRD PPS proposed rule titled ``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'', we issued a request for information on the gap-
filling process for establishing fees for newly covered DMEPOS items 
paid on a fee schedule basis. We solicited 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 items' technologies in a way that satisfies the payment rules 
for DMEPOS items and services, while preventing excessive overpayments 
or underpayments for new technology items and services. In the final 
rule, we summarized the comments received and stated we would consider 
these comments carefully as we contemplate future policies (83 FR 57046 
through 57047). The majority of the comments focused on the aspects of 
transparency, sources of information, and comparable items in the gap 
filling process. Overall, the commenters recommended that CMS increase 
transparency for stakeholders during the gap-filling process for 
establishing fees for new DMEPOS items and revise the process for 
filling the gap in the data due to the lack of historic reasonable 
charge payments by estimating what the historic reasonable charge 
payments would have been for the items from a base year of 1986 and 
1987 and inflating to the current year. Also, some commenters did not 
want CMS to include internet or catalog pricing in the 
gap[hyphen]filling process unless there is evidence that the price 
meets all Medicare criterion and includes all Medicare required 
services. The commenters stated that internet and catalog prices do not 
reflect the costs to suppliers of compliance with the many Medicare 
requirements such as supplier accreditation, in[hyphen]the[hyphen]home 
assessment, beneficiary training, and documentation, and thereby do not 
contribute to a reasonable payment level. Furthermore, commenters 
suggested developing additional guidelines and definitions for 
determining whether a Medicare covered DMEPOS item is comparable to a 
new item for the purpose of assigning a fee schedule amount to a new 
item. The commenters elaborated that in order for an item to be 
comparable to another item, both should have similar features and 
function, should be intended for the same patient population, for the 
same clinical indicators, and to fill the same medical need. In 
addition, some commenters endorsed the addition of a weighting 
calculation to apply to a median price that would factor in the 
existing market demand/share/utilization of each product and price 
included in the array of retail prices used for gap-filling using 
supplier price lists. Also, the commenters expressed concern that the 
current gap[hyphen]filling methodology does not always incorporate 
comparability analysis and assumes that all products within a given 
HCPCS code have equal characteristics, minimum specifications, and the 
gap-filling method does not account for relative quality, durability, 
clinical preference, and overall market demand.

B. Current Issues

    In the CY 2020 DMEPOS proposed rule (84 FR 38373-38375), we 
discussed that concerns have been raised by manufacturers and 
stakeholders about CMS' processes for establishing fees for new DMEPOS 
items. In particular, our process for reviewing information and data 
when establishing fee schedule amounts for new DMEPOS items in some 
instances has led to confusion among some stakeholders. For example, 
some manufacturers have been confused in the past about why fee 
schedule amounts for comparable items are sometimes used to establish 
fee schedule amounts for new items and how CMS determines that new 
items are comparable to other DMEPOS items. Some have asked for a 
process that is more predictable in determining the sources of data CMS 
would use to establish fee schedule amounts for new DMEPOS items and 
services, given the amount of time and money associated with investing 
in the development of new technology for DMEPOS items and services.
    Major stakeholder concerns related to gap-filling DMEPOS fee 
schedule amounts have been: (1) How CMS determines that items and 
services are comparable; (2) sources of pricing data other than fees 
for comparable items; (3) timing of fee schedule calculations and use 
of interim fees; (4) public consultation; (5) pricing data and 
information integrity; and (6) adjustment of newly established fees 
over time.
1. Code or Item Comparability Determinations
    A major stakeholder concern that we have heard frequently from 
manufacturers is that they do not agree that their newly developed 
DMEPOS item is comparable to older technology DMEPOS items and services 
(84 FR 38374). Our program instructions set forth a process to 
establish DMEPOS payment amounts following updates to HCPCS codes in 
section 60.3.1 of chapter 23 of the Medicare Claims Processing Manual. 
Under this process, using fee schedule amounts for comparable items to 
establish fee schedule amounts for new items can involve a number of 
pricing combinations including, but not limited to: (1) A one to one 
mapping where the fees for one code are used to establish the fees for 
a new code, (2) the use of fees for a combination of codes with 
established fee schedule amounts; (3) the use of fees for one or more 
codes minus the fees for one or more other codes identifying a missing 
feature(s) the newer item does not include; or (4) the use of one or 
more codes plus additional amounts for the costs of an additional 
feature(s) the newer items has that the older item(s) does not include. 
The benefit of using fee schedule amounts for comparable items, 
especially items that CMS paid for during the fee schedule base period, 
is that average reasonable charge data or pricing data that is closer 
to the fee schedule base period is used in establishing the fee 
schedule amounts, and this better reflects the requirements of the 
statute than using more recent supplier prices as a proxy for 
reasonable charge data from the past. In addition, establishing fees 
for a new item that are significantly higher than fees for

[[Page 60734]]

comparable items based on reasonable charge data can result in a 
competitive advantage for the new item because the suppliers of the 
older item are paid considerably less than the suppliers of the new 
item even though the new item is comparable to the older item. This 
could create an incentive for suppliers to furnish the new item more 
often than the older item, which would create an unfair advantage for 
the manufacturer(s) of the new item.
    As explained in the CY 2020 DMEPOS proposed rule (84 FR 38374), in 
an effort to consider the concerns about our process for establishing 
payment amounts for new DMEPOS item and services, we undertook a review 
of the major components and attributes of DMEPOS items that we evaluate 
when determining whether items are comparable in order to develop and 
propose a standard for when and how fees for comparable items would be 
used to establish fees for new items. We identified five main 
categories upon which new DMEPOS items can be compared to older DMEPOS 
items: Physical components; mechanical components; electrical 
components (if applicable); function and intended use; and additional 
attributes and features.
    As shown in Table 12, a comparison can be based on, but not limited 
to, these five main components and various attributes falling under the 
five main components. When examining whether an item is comparable to 
another item, the analysis can be based on the items as a whole or its 
subcomponents. A new product does not need to be comparable within each 
category, and there is no prioritization of the categories. The 
attributes listed in Table 12 under the five main components are 
examples of various attributes CMS evaluates within each category. We 
believe that establishing a framework and basis for identifying 
comparable items in regulation would improve the transparency and 
predictability of establishing fees for new DMEPOS items.

                   Table 12--Comparable Item Analysis
   [Any combination of, but not limited to, the categories below for a
                      device or its subcomponents]
------------------------------------------------------------------------
          Components                           Attributes
------------------------------------------------------------------------
Physical Components..........  Aesthetics, Design, Customized vs.
                                Standard, Material, Portable, Size,
                                Temperature Range/Tolerance, Weight.
Mechanical Components........  Automated vs. Manual, Brittleness,
                                Ductility, Durability, Elasticity,
                                Fatigue, Flexibility, Hardness, Load
                                Capacity, Flow-Control, Permeability,
                                Strength.
Electrical Components........  Capacitance, Conductivity, Dielectric
                                Constant, Frequency, Generator,
                                Impedance, Piezoelectric, Power, Power
                                Source, Resistance.
Function and Intended Use....  Function, Intended Use.
Additional Attributes and      ``Smart'', Alarms, Constraints, Device
 Features.                      Limitations, Disposable Parts, Features,
                                Invasive vs. Non-Invasive.
------------------------------------------------------------------------

    We believe that by establishing a basis for comparability, 
stakeholders would be better informed on how these analyses are 
performed, creating a more transparent process that stakeholders would 
better understand and which would facilitate a more efficient exchange 
of information between stakeholders and CMS on the various DMEPOS items 
and services, both old and new. We believe this would also help avoid 
situations where comparable DMEPOS items have vastly different fee 
schedule amounts or where items that are not comparable have equal fee 
schedule amounts.
2. Sources of Pricing Data Other Than Fees for Comparable Items
    We also reviewed the concerns about our process for establishing 
payment amounts for new DMEPOS item and services when CMS is 
establishing the fee schedule amount for a new item that lacks a 
Medicare pricing history and CMS is unable to identify comparable items 
with existing fee schedule amounts (84 FR 38374). In these cases, other 
sources of pricing data must be used to calculate the DMEPOS fee 
schedule amount for the new item.
    Current program instructions in section 60.3 of chapter 23 of the 
Medicare Claims Processing Manual set forth a process for obtaining the 
main source of pricing data when establishing the fee schedule amount 
for a new item that lacks a Medicare pricing history. The instructions 
at section 60.3 of chapter 23 of the Medicare Claims Processing Manual 
specify that supplier price lists may be used in these cases, and that 
supplier price lists can include catalogs and other retail price lists 
(such as internet retail prices) that provide information on commercial 
pricing for the item. In 2018, we clarified in the instructions in 
section 60.3 of chapter 23 of the Medicare Claims Processing Manual 
that potential appropriate sources for such commercial pricing 
information can also include verifiable information from supplier 
invoices and non-Medicare payer data. Our rationale for using supplier 
price lists for gap-filling purposes is that supplier price lists 
provide the best estimate of what suppliers would have routinely 
charged for furnishing DMEPOS items during the fee schedule base period 
(if reasonable charge data for the new item is not available and 
comparable items with existing fee schedule amounts are not 
identified). When using supplier price lists to estimate what 
reasonable charge amounts would have been during the base period, CMS 
deflates the prices listed in supplier price lists to the fee schedule 
base period. For example, section 1834(a)(2)(B) of the Act mandates fee 
schedule amounts for inexpensive DME items based on the average 
reasonable charges for the item(s) from July 1, 1986 through June 30, 
1987. If supplier price lists are used to estimate what these average 
reasonable charges would have been during the base period of 1986/87, 
the 2018 (for example) prices listed in the supplier price lists are 
converted to 1986/87 dollars by multiplying the 2018 prices by a 
deflation factor (.439 in this example) that is listed in section 60.3 
of chapter 23 of the Medicare Claims Processing Manual. The deflation 
factor is equal to the percentage change in the consumer price index 
for all urban consumers (CPI-U) from the mid-point of the year the 
price is in effect (June of 2018 in this example) to the mid-point of 
the fee schedule base period (December of 1986 in this example). So, if 
the 2018 price is $100, this price is multiplied by .439 to compute a 
1986/87 price of $43.90. CMS then applies the covered items update 
factors mandated by section 1834(a)(14) of the Act for use in updating 
the data from the base period to establish current fee schedule 
amounts. In the example above, the $43.90 base fee is updated to $66.80 
for 2019 if the device is a class II device or

[[Page 60735]]

$74.16 if it is a class III device, after applying the update factors 
mandated by section 1834(a)(14) of the Act.
    In the CY 2020 DMEPOS proposed rule (84 FR 38375), we noted that 
another source of information is a technology assessment. We proposed 
that technology assessments would be used whenever we believe it is 
necessary to determine the relative cost of a new DMEPOS item compared 
to DMEPOS items that CMS paid for during the fee schedule base period. 
CMS would use these technology assessments to gap-fill fees for the new 
DMEPOS item when supplier or commercial price lists are not available 
or verifiable or do not appear to represent a reasonable relative 
difference in supplier costs of furnishing the new DMEPOS item relative 
to the supplier costs of furnishing DMEPOS items from the fee schedule 
base period.
    As a result of our review of the major stakeholder concerns about 
our process for establishing payment amounts for new DMEPOS items and 
services involving code or item comparability determinations, we 
proposed to add provisions to the regulations at Sec. Sec.  414.110 and 
414.236 to codify how CMS and our contractors will make efforts to 
determine when a new or existing DMEPOS item is comparable and the 
application of continuity of pricing when items are re-designated from 
one HCPCS code to another (84 FR 38375). Also as a result of our review 
of the major stakeholder concerns about our process for establishing 
payment amounts for new DMEPOS items and services without a fee 
schedule pricing history, we proposed to add a provision to the 
regulations at Sec. Sec.  414.112 and 414.238 to establish main 
categories of components or attributes of DMEPOS items that would be 
evaluated to determine if a new item is comparable to older existing 
item(s) for gap-filling purposes. If it is determined that the new item 
is comparable to the older existing item(s), we proposed to use the fee 
schedule amounts for the older existing item(s) to establish the fee 
schedule amounts for the new item. We also proposed that if it is 
determined that there are no comparable items to use for gap-filling 
purposes and other sources of pricing data must be used to calculate 
the DMEPOS fee schedule amount for the new item, the fee schedule 
amounts for a new item would generally be based on supplier or 
commercial price lists, deflated to the fee schedule base period and 
updated by the covered item update factors. If supplier or commercial 
price lists are not available or verifiable or do not appear to 
represent a reasonable relative difference in supplier costs of 
furnishing the new DMEPOS item relative to the supplier costs of 
furnishing DMEPOS items from the fee schedule base period, we proposed 
to use technology assessments that determine the relative costs of the 
newer DMEPOS items compared to older DMEPOS item(s) to establish the 
fee schedule amounts for the newer DMEPOS items (84 FR 38375).
3. Timing of Fee Schedule Calculations and Interim Pricing
    In some cases, HCPCS codes for new DMEPOS items may take effect 
before the DMEPOS fee schedule amounts have been calculated and added 
to the national DMEPOS fee schedule files. In these cases, the DME MACs 
and other contractors establish interim local fee schedule amounts in 
order to allow for payment of claims in accordance with fee schedule 
payment rules. Also, instructions for the implementation of interim 
fees may be released along with other updates to the national DMEPOS 
fee schedule files on a quarterly basis, along with any corrections of 
errors made in calculating fee schedule amounts (see section 60.2 of 
chapter 23 of the Medicare Claims Processing Manual). Changes to fee 
schedule amounts are generally implemented on a quarterly basis to 
permit preparation and testing of the fee schedule files and claims 
processing edits and systems.
    Also, as explained in section V.B.4 of this final rule, the time 
period that an interim local fee may be effective for claims payment 
could be affected by the process used to obtain public consultation and 
feedback from stakeholders on the establishment of a fee schedule 
amount for a new item.
4. Public Consultation and Stakeholder Input
    Consistent with section 531(b) of BIPA, CMS obtains public 
consultation on preliminary coding and payment determinations for new 
DME items and services each year at public meetings held at CMS 
headquarters in Baltimore, Maryland. These meetings are also held to 
obtain public consultation on preliminary coding and payment 
determinations for other DMEPOS items in addition to DME. The public 
meetings for preliminary coding and payment determinations could be 
used to obtain public consultation on gap-filling issues such as the 
comparability of new items versus older items, the relative cost of new 
items versus older items, and additional information on the pricing of 
new DMEPOS items. In addition, manufacturers of new items often request 
meetings with CMS to provide information about their products, and CMS 
can reach out to manufacturers and other stakeholders for additional 
information that may be necessary in the future for pricing new DMEPOS 
items.
5. Pricing Data and Information Integrity
    Our concerns about the integrity of the data and information 
submitted by manufacturers for the purpose of assisting CMS to 
establish new DMEPOS fee schedule amounts have led CMS to review our 
process for establishing fee schedule amounts for new DMEPOS items. We 
have concerns with using supplier invoices and information for 
commercial pricing such as internet and manufacturer-submitted pricing. 
Our experience with reviewing manufacturer submitted prices and 
available information on the internet for new DMEPOS has caused CMS to 
have the following concerns about using invoices and information for 
commercial pricing:
     Internet prices may not be available or reliable, 
especially if the posted price is the manufacturer's suggested price or 
some other price that does not represent prices that are actually paid 
in the commercial markets.
     New products are often only available from one 
manufacturer that controls the market and price.
     Current invoices from suppliers may not represent the 
entire universe of prices and typically do not reflect volume 
discounts, manufacturer rebates, or other discounts that reduce the 
actual cost of the items.
     Prices from other payers may not reflect the unique costs 
and program requirements applicable to Medicare payment for DMEPOS and 
may be excessive if they represent the manufacturer suggested retail 
prices rather than negotiated lower rates.
     If the prices result in excessive payment amounts, it may 
be difficult to determine a realistic and equitable payment amount 
using the inherent reasonableness authority or lower the payment 
amounts by, for example, including the items in a competitive bidding 
program.
     Using excessive prices to calculate fee schedule amounts 
for new items would be unfair to manufacturers and suppliers of older, 
competitor products not priced using the same inflated commercial 
prices.
    Numerous challenges exist including the significant number of 
sources of pricing information: Medicare Advantage (MA) plans, private 
insurers, the Veterans Benefits Administration, Tricare, Federal 
Employee Health Plans,

[[Page 60736]]

Medicaid state agencies, internet prices, catalog prices, retail store 
prices, and other sources. Prices for a particular item or service can 
vary significantly depending on the source used. If the median price 
paid by one group of payers (for example, non-Medicare payers) is 
significantly higher than the median price paid by another group of 
payers (for example, MA plans), not using or factoring in the prices 
from the group of payers with the lower prices could result in grossly 
excessive fee schedule amounts that are then difficult to adjust using 
the inherent reasonableness authority, which requires numerous time 
consuming and resource-intensive steps. These are just a few of the 
reasons why we believe it is always best to use established fee 
schedule amounts for older items, if possible, and compare those older 
items to the newer items, rather than using supplier invoices and 
information for commercial pricing such as internet and manufacturer-
submitted pricing to establish the fee schedule amounts for new items.
6. Adjustment of Fees Over Time
    We have been consistent in applying the following guidelines once 
fee schedule amounts have been established using the gap-filling 
process and included in the DMEPOS fee schedule: (1) Fee schedule 
amounts are not changed by switching from one gap-filling method (such 
as using supplier price lists) to another gap-filling method (such as 
using fees for comparable items); and (2) fee schedule amounts are not 
changed as new items falling under the same HCPCS code. However, we 
have revised fee schedule amounts established using the gap-filling 
process when we determined that an error was made in the initial gap-
filling of the fee schedule amounts or when adjustments were made to 
the fee schedule amounts based on the payments determined under the 
DMEPOS competitive bidding program. If fee schedule amounts were gap-
filled using supplier price lists, and the prices subsequently decrease 
or increase, the gap-filled fee schedule amounts are not revised to 
reflect the changes in the prices.
    However, we recognize that this gap-filling method of using 
supplier prices could result in excessive fee schedule amounts in cases 
where the market for the new category of items is not yet competitive 
due to a limited number of manufacturers and suppliers. We now believe 
that if supplier or commercial prices are used to establish fee 
schedule amounts for new items, and the prices decrease within 5 years 
(once the market for the new items is more established), that CMS 
should gap-fill those prices again in an effort to reflect supplier 
prices from a market that is more established, stable, and competitive 
than the market and prices for the item at the time CMS initially gap-
filled the fee schedule amounts. For example, most DME items furnished 
during the applicable 1986/87 fee schedule base period, such as 
wheelchairs, hospital beds, ventilators, and oxygen equipment, were 
covered by Medicare in 1986/87 and paid for on a reasonable charge 
basis for many years (20 years in many cases). Thus the fee schedule 
amounts calculated using average reasonable charges from the 1986/87 
fee schedule base period(s) reflected prices from stable, competitive 
markets. In contrast, new items that are not comparable to older items 
are often made by one or a few manufacturers, so the market for a new 
item is not yet stable or competitive, especially as compared to the 
market for most DMEPOS items that have fee schedule amounts that were 
established based on reasonable charges during the fee schedule base 
period. During the various fee schedule base periods such as 1986/87 
for DME, prosthetic devices, prosthetics and orthotics, most items had 
been on the market for many years, were made by multiple competing 
manufacturers, and were furnished by multiple competing suppliers in 
different localities throughout the nation. Therefore, the average 
reasonable charges from the fee schedule base period generally reflect 
supplier charges for furnishing items in a stable and competitive 
market.
    We believe that if supplier or commercial prices used to gap-fill 
fee schedule amounts for a new item decrease within 5 years of the 
initial gap-filling exercise, that the new, lower prices likely 
represent prices from a more stable and competitive market. We also 
believe that supplier prices from a stable and competitive market 
better represent the prices in the market for DMEPOS items covered 
during the fee schedule base period and therefore are a better proxy 
for average reasonable charges from a fee schedule base period (as 
specified in the statute) as compared to supplier or commercial prices 
when an item is brand new to the market. We believe that gap-filling a 
second time once the market for the item has become more stable and 
competitive would result in fee schedule amounts that are more 
reflective of average reasonable charges for DMEPOS items from the fee 
schedule base period. We believe CMS should conduct gap-filling the 
second time within a relatively short period of time after the fees are 
initially established (5 years) and only in cases where the result of 
the second gap-filling is a decrease in the fee schedule amounts of 
less than 15 percent. Thus, if the supplier or commercial prices used 
to establish fee schedule amounts for a new DMEPOS item decrease by any 
amount below 15 percent within 5 years of establishing the initial fee 
schedule amounts, and fee schedule amounts calculated using the new 
supplier or commercial prices would be no more than 15 percent lower 
than the initial fee schedule amounts, we believe gap-filling should be 
conducted a second time to reduce the fee schedule amounts by up to 
14.99 percent as a result of using new, lower prices from a more stable 
and competitive market. We do not believe that a similar adjustment is 
necessary to account for increases in supplier or commercial prices 
within 5 years of establishing initial fee schedule amounts since the 
fee schedule calculation methodology already includes an annual covered 
item update to address increases in costs of furnishing items and 
services over time.
    Thus we proposed a one-time adjustment to gap-filled fee schedule 
amounts based on decreases in supplier or commercial prices. The 
statute requires CMS to establish fee schedule amounts for DMEPOS items 
and services based on average reasonable charges from a past period of 
time, generally when the market for most items was stable and 
competitive. In many cases, fee schedule amounts may be gap-filled 
using manufacturer prices or prices from other payers for new 
technology items that may only be made by one manufacturer with limited 
competition. In these situations, competition from other manufacturers 
or increases in the volume of items paid for by Medicare and other 
payers could bring down the market prices for the item within a 
relatively short period of time after the initial fee schedule amounts 
are established, creating a more stable and competitive market for the 
item, we believe that gap-filling using prices from a stable, 
competitive market is a better reflection of average reasonable charges 
for the item from the fee schedule base period. While the fee schedule 
covered item update as described in sections 1834(a)(14), 1834(h)(4), 
1834(i)(1)(B), and 1842(s)(1)(B)(ii) of the Act allow for increases to 
the fees schedule amounts that can address increases in cost of 
furnishing items and services over time or track increases in supplier 
or commercial prices, there is no corresponding covered item update 
that

[[Page 60737]]

results in a decrease in fee schedule amounts when the market for a new 
item becomes more mature and competitive following the initial gap-
filling of the fee schedule amounts. We also do not believe that a 
situation in which prices increase within a short period of time after 
the item comes on the market and fee schedule amounts are initially 
established for the item would be common. We therefore did not propose 
similar one-time increases in fee schedule amounts established using 
supplier or commercial prices, however, we invited comments on this 
issue.
    We do not believe gap-filling fee schedule amounts for new items 
should be conducted a second time in situations where the prices 
decrease by 15 percent or more within 5 years of the initial gap-
filling of the fee schedule amounts. In cases where supplier or 
commercial prices used to establish original gap-filled fee schedule 
amounts increase or decrease by 15 percent or more after the initial 
fee schedule amounts are established, this would generally mean that 
the fee schedule amounts would be grossly excessive or deficient within 
the meaning of section 1842(b)(8)(A)(i)(I) of the Act. In such 
circumstances we believe that CMS could consider making an adjustment 
to the fee schedule amounts in accordance with regulations at Sec.  
405.502(g). We can also consider whether changes to the regulations at 
Sec.  405.502(g) should be made in the future to specifically address 
situations where supplier or commercial prices change by 15 percent or 
more and how this information could potentially be used to adjust fee 
schedule amounts established using supplier or commercial prices.

C. Summary of the Proposed Provisions, Public Comments, and Responses 
to Comments on the Proposed Rule

    The proposed rule, titled ``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) Fee Schedule Amounts, 
DMEPOS Competitive Bidding Program (CBP) Proposed Amendments, Standard 
Elements for a DMEPOS Order, and Master List of DMEPOS Items 
Potentially Subject to a Face-to-Face Encounter and Written Order Prior 
to Delivery and/or Prior Authorization Requirements'' (84 FR 38330 
through 38421), hereinafter referred to as the ``CY 2020 DMEPOS 
proposed rule,'' was published in the Federal Register on August 6, 
2019, with a comment period that ended on September 27, 2019.
    In the CY 2020 DMEPOS proposed rule, we proposed a gap-filling 
methodology for establishing payment amounts for new DMEPOS items and 
services and one-time adjustment to gap-filled payment amounts for 
DMEPOS items and services using supplier or commercial prices in cases 
where such prices decrease within 5 years. We solicited comments on our 
proposals and we summarize the comments that we received below. We 
received approximately 30 comments on these topics from suppliers, 
manufacturers, and associations or organizations representing suppliers 
and manufacturers. In this final rule, we provide a summary of each 
proposed provision, a summary of the public comments received and our 
responses to them, and the DMEPOS provisions we are finalizing.
    The comments and our responses to those comments are set forth 
below.
    Comment: Some commenters expressed appreciation for the detailed 
explanation of the gap-filling process in the proposed rule.
    Response: We appreciate the comments.
    Comment: Many commenters supported increased transparency during 
the process for establishing fee schedule amounts for new or revised 
HCPCS codes that allows for stakeholder input and consultation on the 
pricing methodology used as well as sources of data used in 
establishing the tentative or preliminary fee schedule amounts. 
Specifically, some commenters suggested that CMS increase transparency 
by establishing a process for stakeholders to receive information and 
provide feedback to CMS if they believe that the new HCPCS code should 
not be paid at the fee schedule amount that CMS is proposing as the 
result of the addition or subdivision of previous codes. Some 
commenters recommended CMS's comparability analysis should include a 
written report that is shared with the public, prior to a final 
decision on establishing new fee schedule amounts for new items. One 
commenter recommended simultaneous expansion of the HCPCS Level II Code 
application to allow applicants to address this specific topic without 
limiting other important information by virtue of application page 
limits. In addition, the commenter requested that the public meetings 
for DMEPOS should also be updated to allow additional presentation time 
for this information at the discretion of the applicant. Another 
commenter stated that CMS should also permit an opportunity for 
stakeholders to show that the pricing that was applicable in the past 
was established inappropriately or fails to consider technological 
changes.
    Response: We appreciate the support for our proposal to establish a 
methodology for calculating fee schedule payment amounts for new DMEPOS 
items and services. Section 531(b) of BIPA mandated the establishment 
of procedures for coding and payment determinations for new DMEPOS 
items that permit public consultation in a manner consistent with the 
procedures established for implementing coding modifications for ICD-9-
CM. We implemented procedures that permit public consultation regarding 
requests for codes for new DME and also extended these procedures to 
external requests for codes for all DMEPOS items and services. CMS 
holds annual public meetings to obtain public consultation on 
preliminary coding and payment determinations for new DMEPOS, that is, 
requests for codes for DMEPOS items and services. For more information 
about the HCPCS public meetings, see https://www.cms.gov/Medicare/Coding/MedHCPCSGenInfo/HCPCSPublicMeetings.html. We believe that 
stakeholders can use this process to provide input and consultation on 
sources of information for gap-filling for new DMEPOS items.
    Comment: Many commenters recognized that sections of our gap-
filling methodology proposal had been available in program guidance and 
implemented; however, the commenters did not support adding regulations 
which codify the program guidance. The commenters expressed concern 
that the methodology may not be appropriate in all situations. Also, 
some commenters expressed concern that the methodology maintains that 
the use of gap filling to address more than a 30-year span between the 
base year of 1986 to 1987 and 2020, which may not be a reasonable 
methodology to establish current year fee schedule amounts. Several 
commenters suggested that CMS delay implementation of the DMEPOS 
proposals by one calendar year to collect further stakeholder input on 
the appropriate cross-walk categories, comparable item methodology, and 
procedures.
    Response: We believe that the procedures described above for 
obtaining public consultation on preliminary coding and payment 
determinations for DMEPOS can be used by stakeholders to provide 
consultation on sources of information for gap-filling for new DMEPOS 
items

[[Page 60738]]

and other preliminary coding determinations for DMEPOS that might 
affect pricing of the items under the fee schedule. With regard to the 
comments regarding the 30-year span between the fee schedule base year 
of 1986 to 1987 and items furnished in 2020, sections 1834(a) and (h) 
of the Act specifically require that fee schedule amounts for DME, 
prosthetics, orthotics, and prosthetic devices be based on average 
reasonable charges from 1986 and 1987. Sections 1834(a)(14) and 
1834(h)(4)(A) of the Act mandate annual updates to the fee schedule 
amounts established using average reasonable charges from 1986 and 
1987, and sections 1842(b)(8) and (9) of the Act provide CMS with the 
authority and a process for establishing special payment amounts in 
cases where the fee schedule amounts become grossly excessive or 
deficient over time, for example, due to changes in technology. 
Sections 1842(b)(8) and (9) of the Act outline a process for 
establishing realistic and equitable payment amounts in cases where the 
fee schedule amounts are not inherently reasonable.
    The gap-filling methodology that we proposed is a multi-step 
process. The proposed regulations at Sec. Sec.  414.110 and 414.236 
address the continuity of pricing when items are re-designated from one 
HCPCS code to another and for new items without a pricing history. The 
proposed regulations at Sec. Sec.  414.112 and 414.238 set forth main 
categories of components or attributes of DMEPOS items that would be 
evaluated to determine if a new item is comparable to older existing 
item(s) for gap-filling purposes. The gap-filling methodology ensures a 
case by case review is conducted of each item that is assigned a new 
HCPCS code. Furthermore, as discussed in our proposal (84 FR 38373), we 
have repeatedly solicited feedback from our stakeholders through past 
rulemaking (71 FR 25687 through 25689 and 83 FR 57046 through 57047, 
and in our CY 2020 DMEPOS proposed rule (84 FR 38379)). Our proposed 
gap-filling methodology enhances predictability of pricing for new 
items and services and improves transparency as compared to the 
existing program guidance. We also believe it is important to have 
regulations addressing the pricing of new DMEPOS to create a firm basis 
for establishing fee schedule amounts in accordance with the statute. 
We can consider additional updates through future rulemaking if 
necessary.
1. Continuity of Pricing When HCPCS Codes Are Divided or Combined
    We proposed to add Sec.  414.110 under subpart C for fee schedule 
amounts for PEN and medical supplies, including splints and casts and 
intraocular lenses inserted in a physician's office, and Sec.  414.236 
under subpart D for DME, prosthetic devices, prosthetics, orthotics, 
surgical dressings, and therapeutic shoes and inserts to address the 
continuity of pricing when HCPCS codes are divided or combined. If a 
DMEPOS item is assigned a new HCPCS code, it does not necessarily mean 
that Medicare payment on a fee schedule basis has never been made for 
the item and service described by the new code. For example, Medicare 
payment on a fee schedule basis may have been made for the item under a 
different code. We proposed that if a new code is added, CMS or 
contractors would make every effort to determine whether the item and 
service has a fee schedule pricing history. If there is a fee schedule 
pricing history, the previous fee schedule amounts for the old code(s) 
would be mapped to, or cross walked to the new code(s), to ensure 
continuity of pricing. Since there are different kinds of coding 
changes, the way the proposed rule would be applied varies. For 
example, when the code for an item is divided into several codes for 
the components of that item, the total of the separate fee schedule 
amounts established for the components would not be higher than the fee 
schedule amount for the original item. However, when there is a single 
code that describes two or more distinct complete items (for example, 
two different but related or similar items), and separate codes are 
subsequently established for each item, the fee schedule amounts that 
applied to the single code would continue to apply to each of the items 
described by the new codes. When the codes for the components of a 
single item are combined in a single global code, the fee schedule 
amounts for the new code would be established by adding the fee 
schedule amounts used for the components (that is, the total of the fee 
schedule amounts for the components as the fee schedule amount for the 
global code). However, when the codes for several different items are 
combined into a single code, the fee schedule amounts for the new code 
would be established using the average (arithmetic mean), weighted by 
allowed services, of the fee schedule amounts for the formerly separate 
codes.
    We solicited comments on these proposals. The comments and our 
responses to the comments are set forth below.
    Comment: Several commenters supported our proposal for continuity 
of pricing when existing HCPCS codes are divided or combined. One 
commenter, a national trade association for prosthetics and orthotics, 
stated that the use of pricing continuity when establishing new fees 
must be reserved only for those instances where there is a direct 
relationship between the former HCPCS code(s) and the new HCPCS 
code(s). The commenter stated failure to ensure that a continuity 
relationship exists could lead to fee schedule calculations that are 
either inadequate or excessive for the items represented by the new 
HCPCS codes.
    Response: We thank the commenters. We agree that the use of pricing 
continuity when establishing new fees must be reserved only for those 
instances where there is a direct relationship between the former HCPCS 
code(s) and the new HCPCS code(s). An item must fall within the 
category of items described by existing codes that are combined or 
divided in order for the continuity of pricing rules to apply to that 
item. If an item does not fall under one of the four example 
categories, then the continuity of pricing rules would not apply. For 
example, if the code for a cane is divided into codes for red canes, 
white canes, blue canes, and canes of any color other than red, white, 
or blue, there is a direct relationship between the former code (cane) 
and the four new codes, which are all the canes that used to be 
described by the former code separated into new codes based on color. 
The direct relationship is also present in the reverse scenario where 
multiple canes of all different colors are combined into one code for 
all of the canes that previously fell under the four separate codes. 
The same is true for global codes for one item versus separate codes 
for components of an item. If the code for a cane is divided into codes 
for cane handle, cane staff, and cane tip, there is a direct 
relationship between the three new codes for the cane handle, cane 
staff, and cane tip and the old code for cane since the cane handle, 
cane staff, and cane tip were all three previously combined in the one 
code for cane. The direct relationship is also present in the reverse 
scenario where codes for a cane handle, cane staff, and cane tip that 
describe the components of a cane are combined into a single code for 
cane.
    Comment: Another concern expressed by the commenters is that the 
proposed continuity of pricing can lock in historical levels of 
reimbursement when establishing fee schedule amounts for

[[Page 60739]]

new items. Commenters explained that if reimbursement levels are 
arbitrarily depressed due to the consolidation and bifurcation of 
codes, practitioners will have a financial incentive to provide the 
patient with the less expensive component in order to make ends meet. 
Providers should not be placed in this situation, and patients should 
not be denied access to the technologies with which they may achieve 
optimal outcomes. Therefore, the commenters urged CMS to recognize 
differences in separate components or devices when assigning codes, and 
determine reimbursement levels based on those differences so that 
patients can gain access to innovative DMEPOS items and services.
    Some commenters stated the methodology may discourage manufacturers 
from innovating and investing in technology that would result in 
improved patient outcomes and satisfaction. Another commenter 
representing rehabilitation technology suppliers stated consolidating 
and splitting codes will have a negative effect on access to necessary 
technology. The commenter stated the long-term effects for individuals 
who rely on complex technology requires an increase recognizing that 
new technology items can result in decreases in hospitalizations, 
pressure wounds, and other secondary health issues. Thus, the commenter 
suggested that CMS should instead establish more codes that have a more 
focused description.
    Response: We do not agree. The continuity of pricing proposal 
addresses combining or dividing existing codes that already describe 
certain categories of items, for example canes. Canes are inexpensive 
DME items that were paid on a reasonable charge basis in 1986 and 1987. 
Section 1834(a)(2) of the Act mandates that the fee schedule amounts 
for inexpensive and routinely purchased items be based on average 
reasonable charges from July 1, 1986 through June 30, 1987, increased 
by annual covered item update factors. Thus, in accordance with the 
statute, the fee schedule amounts for canes are based on the 1986/87 
reasonable charge data. If the code for canes is divided into four 
codes--one for red canes, one for white canes, one for blue canes, and 
one for canes of any color other than red, white, or blue, payment for 
the four new codes for canes would still be made on the basis of the 
fee schedule (and therefore the 1986/87 reasonable charge data), in 
accordance with the statute. If technology innovations for canes over 
time result in a situation where the cost of canes has risen to the 
point where the fee schedule amounts are grossly deficient, CMS could 
use the authority and process at sections 1842(b)(8) and (9) of the Act 
to establish a different fee schedule amount for canes than the one 
established in accordance with the payment rules under section 1834(a) 
of the Act. Subdividing the HCPCS code for a DMEPOS item such as canes 
into more specific items (for example, types or colors of canes) should 
not result in fee schedule amounts that are based on something other 
than the payment rules described in section 1834 of the Act.
    Comment: Some commenters disagreed with CMS' concern that 
manufacturer suggested retail prices (MSRPs) are inflated and without 
merit. The commenter asserted MSRPs should be considered when 
establishing base prices subject to gap-filling. One commenter 
recommended that CMS rescind any contractor instruction to discontinue 
utilizing MSRPs in the gap-filling process.
    Response: We have found that manufacturer suggested retail prices 
are not supplier prices or commercial prices. We therefore do not 
believe they represent accurate pricing from actual retail markets. We 
do not believe that MSRPs represent a valid and reliable proxy for 
supplier charges or market prices for furnishing DMEPOS items. We 
consider fees for comparable items and verifiable supplier or 
commercial prices to be better proxies for supplier charges or retail 
costs than suggestions made by the manufacturer of the product about 
what the supplier or commercial prices should be for the product. As 
such, we will not use the MSRP to set the fee schedule rates, and 
instead, will rely on fees for comparable items and verifiable supplier 
or commercial prices in an effort to best approximate reasonable 
charges from the fee schedule base period for the item.
2. Establishing Fee Schedule Amounts for New HCPCS Codes for Items and 
Services Without a Fee Schedule Pricing History
    We proposed to add Sec.  414.112 under subpart C for fee schedule 
amounts for PEN and medical supplies, including splints and casts and 
intraocular lenses inserted in a physician's office, and Sec.  414.238 
under subpart D for DME, prosthetic devices, prosthetics, orthotics, 
surgical dressings, and therapeutic shoes and inserts to address the 
calculation of fee schedule amounts for new HCPCS codes for items and 
services without a fee schedule pricing history. We proposed that if a 
HCPCS code is new and describes items and services that do not have a 
fee schedule pricing history, the fee schedule amounts for the new code 
would be established whenever possible using fees for comparable items 
with existing fee schedule amounts. We proposed that items with 
existing fee schedule amounts are determined to be comparable to the 
new items and services based on a comparison of: Physical components; 
mechanical components; electrical components; function and intended 
use; and additional attributes and features. We proposed that if there 
are no items with existing fee schedule amounts that are comparable to 
the items and services under the new code, the fee schedule amounts for 
the new code would be established using supplier or commercial price 
lists or technology assessments if supplier or commercial price lists 
are not available or verifiable or do not appear to represent a 
reasonable relative difference in supplier costs of furnishing the new 
DMEPOS item relative to the supplier costs of furnishing DMEPOS items 
from the fee schedule base period.
    We proposed that if items with existing fee schedule amounts that 
are comparable to the new item are not identified, the fee schedule 
amounts for the new item would be established using supplier or 
commercial price lists. However, we proposed that if the supplier or 
commercial price lists are not available or verifiable or do not appear 
to represent a reasonable relative difference in supplier costs of 
furnishing the new DMEPOS item relative to the supplier costs of 
furnishing DMEPOS items from the fee schedule base period, we propose 
that the fee schedule amounts for the new item would be established 
using technology assessments. We proposed that supplier or commercial 
price lists would include catalogs and other retail price lists (such 
as internet retail prices) that provide information on commercial 
pricing for the item, which could include payments made by Medicare 
Advantage plans, as well as verifiable information from supplier 
invoices and non-Medicare payer data. We proposed that if the only 
available price information is from a period other than the fee 
schedule base period, deflation factors would be applied against 
current pricing in order to approximate the base period price. We 
proposed that the annual deflation factors would be specified in 
program instructions and would be based on the percentage change in the 
CPI-U from the mid-point of the year the prices are in effect to the 
mid-point of the fee schedule base

[[Page 60740]]

period, as calculated using the following formula:

((base CPI-U minus current CPI-U) divided by current CPI-U) plus one

    The deflated amounts would then be considered an approximation to 
average reasonable charges from the fee schedule base period and would 
be increased by the annual covered item update factors specified in 
statute for use in updating average reasonable charges from the fee 
schedule base period, such as the covered item update factors specified 
for DME at section 1834(a)(14) of the Act. We proposed that, if within 
5 years of establishing fee schedule amounts using supplier or 
commercial prices, the supplier or commercial prices decrease by less 
than 15 percent, a one-time adjustment to the fee schedule amounts 
would be made using the new prices. As a result of the market for the 
new item becoming more established over time, the new prices would be 
used to establish the new fee schedule amounts in the same way that the 
older prices were used, including application of the deflation formula. 
Again, supplier price lists can include catalogs and other retail price 
lists (such as internet retail prices) that provide information on 
commercial pricing for the item. Potential appropriate sources for such 
commercial pricing information can also include verifiable information 
from supplier invoices and non-Medicare payer data. We did not propose 
a similar adjustment if supplier or commercial prices increase by less 
than 15 percent, but we invited comments on this issue.
    We proposed that fee schedule amounts for items and services 
described by new HCPCS codes without a fee schedule pricing history 
that are not comparable to items and services with existing fee 
schedule amounts may also be established using technology assessments 
performed by CMS and experts who could help determine the relative cost 
of the items and services described by the new codes to items and 
services with existing fee schedule amounts. We proposed that a pricing 
percentage would be established based on the results of the technology 
assessment and would be used to establish the fee schedule amounts for 
the new code(s) based on the fee schedule amounts for existing codes. 
We proposed that technology assessments would be used when we believe 
it is necessary to determine the relative cost of a new item compared 
to items that were available during the fee schedule base period and 
had established fee schedule amounts. We proposed that we would use 
technology assessments in order to gap-fill fees for the new item when 
supplier or commercial price lists are not available or verifiable or 
do not appear to represent a reasonable relative difference in supplier 
costs of furnishing the new DMEPOS item relative to the supplier costs 
of furnishing DMEPOS items from the fee schedule base period.
    We solicited comments on these proposals.
    Comment: One commenter indicated that a separate gap-filling 
process is needed for orthotics and prosthetics since the cost of the 
professional orthotist and prosthetist services are unique to these 
items.
    Response: We do not agree. All DMEPOS items and services will have 
different costs for services to furnish the item that are unique to one 
group of items versus another. Gap-filled fee schedule amounts for 
orthotics and prosthetics based on comparable orthotics and prosthetics 
accounts for the costs of the professional orthotist and prosthetist 
services because they are based on historic charges by the orthotists 
and prosthetists who furnished the devices in 1986/87 and therefore 
accounted for the cost of all of their services in the charges they 
submitted to Medicare during that time. Gap-filling fees for orthotics 
and prosthetics using supplier or commercial prices for orthotics and 
prosthetics likewise accounts for the costs of the professional 
orthotist and prosthetist services because they are based on prices 
established by or paid to the orthotists and prosthetists who furnish 
the devices and therefore account for the cost of all of the services 
performed by the orthotists and prosthetists in furnishing the items.
    Comment: Some commenters stated that internet and catalog prices do 
not reflect the costs to suppliers of compliance with the many Medicare 
requirements such as supplier accreditation, in[hyphen]the[hyphen]home 
assessment, beneficiary training, and documentation, and thereby do not 
contribute to a reasonable payment level. One commenter recommended 
that CMS apply a markup percentage to incorporate the various costs of 
furnishing a new DMEPOS item that are not reflected in internet or 
catalog prices.
    Response: We thank the commenters for their input. As discussed in 
our CY 2020 DMEPOS proposed rule, our rationale for using supplier 
price lists for gap-filling purposes is that supplier price lists 
provide a good estimate of what suppliers would have charged for 
furnishing DMEPOS items during the fee schedule base period (if 
reasonable charge data for the new item is not available and comparable 
items with existing fee schedule amounts are not identified). Retail 
prices generally include all costs associated with furnishing items 
directly to the customer, including overhead and all business expenses 
such as licensure and accreditation, debt collection, credit cards, 
filing health insurance claims, delivery, set-up, and education. We 
believe retail prices for furnishing DMEPOS items and services are a 
good representation of supplier charges for furnishing DMEPOS items and 
services.
    Comment: One commenter recommended that a weighting method should 
be applied to a median price when establishing a new fee schedule 
amount. The commenter stated that the proposed methodology does not 
account for relative quality, durability, clinical preference, and 
overall market demand for the various items falling under a HCPCS code. 
The commenters are concerned that newer items within a code are given 
the same weight in calculating the median deflated price as items with 
years of history, use, and sizable market share. The commenter 
recommended that each item in the payment calculation be weighted based 
on historic market demand.
    Response: We do not agree. We proposed to use supplier or 
commercial prices to establish fee schedule amounts for new items that 
we determine are not comparable to any existing item(s). Thus, we do 
not see the need to give certain prices more weight than other prices 
as long as we believe they are valid prices for the item described by 
the HCPCS code. We believe the proposed rule provides the flexibility 
for us to use the combination of supplier or commercial prices we 
believe best reflects what suppliers would have charged for items 
during the fee schedule base period.
    Comment: Some commenters expressed concern with our proposals at 
Sec. Sec.  414.112(c)(1)(i) and (ii) and Sec.  414.238(c)(1)(i) and 
(ii) for cases when the only available price information is from a 
period other than the fee schedule base period, deflation factors would 
be applied against current pricing in order to approximate the base 
period price and then the pricing amount would be increased by the 
annual covered item update factors specified in statute to the current 
year in order to establish a fee schedule amount for a new item. 
Several commenters expressed concerns that this step results in fee 
schedule amounts that are too low. Specifically, the commenters stated 
that CMS has

[[Page 60741]]

omitted inflation rate factors for certain years when the statue 
required a freeze or no update for those years.
    Response: The statute mandates that DMEPOS fee schedule amounts be 
based on the lesser of the actual charge for the item or the average 
reasonable charges from a specific period in time. As discussed 
previously, the statute does not describe how to determine the payment 
amounts for new items for which there is no average reasonable charge 
data from the base period, so we have established a gap-filling 
methodology to attempt to calculate fee schedule amounts for new items 
and services that reflect the requirements under the statute. Sections 
1834(a)(14)(L), 1834(h)(4)(xi), and 1842(s)(1)(B)(ii) of the Act 
generally require that the DMEPOS fee schedule amounts be adjusted 
annually by the percentage increase in the CPI-U for the 12-month 
period ending with June 30 of the preceding year reduced by a 
productivity adjustment. Through gap-filling, CMS can fill the gap in 
the historic reasonable charge data, apply the fee schedule update 
factors mandated by the Act, and then establish a fee schedule amount 
applicable to the year in which the item is furnished. We are 
finalizing Sec. Sec.  414.112(c)(1)(i) and (ii) and 414.238(c)(1)(i) 
and (ii) as proposed.
    Comment: Some commenters suggested that CMS extend the preferential 
treatment it has finalized for devices designated by the FDA as 
Breakthrough Devices applying for NTAP in the Medicare Hospital 
Inpatient Prospective Payment System and proposed for transitional 
device pass-through payments in the Hospital Outpatient Prospective 
Payment System to DMEPOS devices too. Specifically, if FDA has assigned 
``breakthrough'' or ``expedited access'' designation to a device, 
clears a device under the ``de novo'' pathway, or decides to establish 
a new category for a device, then CMS should automatically determine 
that there is no comparable product for that new item on the DMEPOS fee 
schedule and set payment rates using market based pricing data 
accordingly.
    Response: We do not agree that classification by the FDA for the 
purpose of approving or clearing devices as safe and effective should 
in any way dictate whether one device is comparable to another device 
for the purposes of establishing a fee schedule amount for the device. 
If we determine that a new DMEPOS item is comparable to an older item, 
we believe that the prices established for the older item are a good 
estimate of what suppliers would have charged for the new item.
    Comment: Some commenters suggested CMS implement an appeals process 
after releasing its determinations with respect to whether a new DMEPOS 
item is comparable to any existing item; if not, whether there is 
reliable market-based pricing to use in establishing a fee schedule 
rate; and the findings of any technology assessment performed to adjust 
the market-based pricing. CMS also should provide its reasoning to 
support each of these determinations so that the public may assess and 
provide feedback on that reasoning. In addition, the commenter 
suggested CMS should establish a timely, formal appeals process that 
would allow the manufacturer or other interested party to appeal the 
fee schedule rate based on (a) disagreement that there is a comparable 
product or the specific comparison that CMS made; (b) disagreement 
about whether CMS appropriately used (or did not use) market based 
pricing data; and (c) disagreement about the findings of the technology 
assessment.
    Response: We obtain public consultation on preliminary coding and 
payment determinations for DMEPOS items at annual public meetings. 
These meetings can be used by stakeholders to provide consultation on 
gap-filling for new DMEPOS items and other preliminary coding 
determinations for DMEPOS that might affect pricing of the items under 
the fee schedule. Outside these meetings, the public is able to submit 
written documentation and other information to CMS via written 
correspondence at any time if they feel that the information should be 
considered when establishing a fee schedule amount for a DMEPOS item. 
CMS also meets with manufacturers and stakeholders about establishing 
fee schedule amounts when requested. In addition, once fee schedule 
amounts have been established, the public can submit written 
documentation and other information to CMS at any time if they believe 
that an error was made in a fee schedule calculation(s) and CMS would 
evaluate the information and, if necessary, make corrections to the fee 
schedule amounts.
    Comment: Many commenters opposed our proposal to apply a one-time 
adjustment to fee schedule amounts previously established using 
supplier or commercial prices to account for decreases in the supplier 
or commercial price within five years of establishing the initial fee 
schedule amounts. One commenter asserted this is not balanced for price 
fluctuations, and that the same price decrease policy should apply to 
when prices increase, and that CMS should apply the decrease/increase 
gap fill equitably. One commenter stated that expanding CMS' authority 
to reduce (but not increase) Medicare fee schedule amounts based on its 
perception of reduced charges through market competition is unnecessary 
and exceeds its statutory authority under inherent reasonableness. 
Also, some commenters noted since 2011, the annual Medicare fee 
schedule adjustment has been subject to a statutory reduction known as 
the Productivity Adjustment. The commenter stated that the Productivity 
Adjustment is intended to account for changes in economic factors which 
impact supplier and commercial prices.
    However, some commenters supported CMS using the current inherent 
reasonableness process to adjust pricing--either downward or upward--if 
the fee schedule level for a particular DMEPOS item or service is found 
excessive or grossly deficient compared with supplier or commercial 
prices.
    A few commenters stated that CMS should not presume that a short 
term pricing decrease is appropriate for all new HCPCS codes, and that 
CMS should first conduct an analysis and use statistically valid and 
reliable data to substantiate any reduction of up to 15 percent for a 
particular item. The commenters stated that statistically valid data 
means obtaining pricing data from at least three independent sources, 
and ensuring the process is transparent by disclosing what data it 
proposes to use to substantiate any pricing decrease, and obtaining 
public input on whether the data it proposes to use to support a 
payment decrease is appropriate.
    Response: As explained in the CY 2020 DMEPOS proposed rule, if 
supplier or commercial prices are used to gap-fill fee schedule amounts 
and these prices decrease within 5 years once the market for the new 
item has become more mature, we believe it would be appropriate to make 
a one-time adjustment to the fee schedule amounts as long as the same 
pricing sources are used and the new prices are not lower than the 
initial prices by 15 percent or more. CMS has been using supplier or 
commercial prices to gap-fill fee schedule amounts for DMEPOS items 
since 1989 and this method of gap-filling has not resulted in barriers 
to access for these items and services. If the prices decrease over 
time, we believe they would still be valid and reliable market-based 
prices representing what suppliers charge for furnishing the items and 
services. As discussed in our proposal (84 FR 38377), we do not believe 
that a similar adjustment is necessary to account for

[[Page 60742]]

increases in supplier or commercial prices within 5 years of 
establishing initial fee schedule amounts since the fee schedule 
calculation methodology already includes an annual covered item update 
to address increases in costs of furnishing items and services over 
time. We do not agree that the productivity adjustment would fully 
address more than very modest decreases in prices as the average 
adjustment over the past 5 years from 2015 to 2019 has been only 0.5 
percent.
    Comment: CMS received comments that emphasized concern for the 
proposed five framework comparison categories in our proposal (84 FR 
38374 through 38375) to determine if an item in a new HCPCS code is 
comparable to items in an existing HCPCS code. Those categories are 
physical components; mechanical components; electrical components; 
function and intended use; and additional attributes and features. 
Commenters stated additional criteria should be added to the 
comparability (for example, service intensity of the item, value to 
patient care, professional services, customization, intended 
population, health economic, digital technologies, service intensity, 
clinical outcome, and clinical care) and the focus of each criterion 
should be weighted. However, many commenters stated that in order to be 
considered comparable an item should be interchangeable. Some expressed 
concern that CMS and/or contractors do not have the required expertise 
to understand and evaluate technology's inherent relative complexities 
and costs. That manufacturers, stakeholders, and beneficiaries should 
have a say in final pricing. On the other side, CMS received comments 
that supported the transparency of the five categories of used to 
determine comparability and support of not having a weighted 
prioritization.
    Response: We appreciate the input from the commenters on the 
proposed five framework comparison categories for determining whether a 
new item is comparable to items with existing fee schedule amounts. We 
believe the five categories capture the main categories that should be 
considered. We would compare all attributes and features that impact 
the cost of the items, such as service intensity of the item and all 
services associated with furnishing the item, customization of the 
item, intended population or intended use, and digital technologies. An 
evaluation and comparison of attributes that do not impact a supplier's 
cost for furnishing an item, such as value to patient care, would 
likely not be necessary in determining whether items are comparable for 
pricing purposes.
    Comment: Many commenters expressed concerns about the use of 
technology assessments for use in establishing fee schedule amounts for 
new DMEPOS items. The commenters stated that our proposal (84 FR 38374 
through 38375) lacked sufficient details on how the technology 
assessment process would work and what impact it might have on payment 
for DMEPOS items and services. The commenters stated a technology 
assessment is a complicated process and requires the expertise of 
engineers and others to understand technology's inherent relative 
complexities and costs. The commenters asserted that even a third party 
would not be able to break down the costs of a device to understand its 
production and related costs. Some commenters stated that technology 
assessments would fail to account for changes in manufacturing (for 
example, direct and indirect labor, material and equipment, taxes, and 
shipping costs).
    Response: We appreciate the feedback from our stakeholders and we 
are not finalizing Sec. Sec.  414.110(d) and 414.238(d) in order to 
have the opportunity to consider additional information on the use of 
technology assessments in the gap-filling methodology for DMEPOS items 
and services. We will consider whether to include a revised proposal 
addressing the use of technology assessments in gap-filling in future 
rulemaking. Even so, if supplier prices are not available, we would not 
use a manufacturer's suggested price for their own product to gap-fill 
the fees. We would use information from the comparability analysis and 
any other pricing information that is available to establish the fee 
schedule amount so that it best reflects what the 1986/87 supplier 
charges for the item would have been if the item were on the market 
during the fee schedule base period.
    Final Rule Action: After consideration of comments received on the 
CY 2020 DMEPOS proposed rule and for the reasons we set forth 
previously in this final rule, we are finalizing Sec. Sec.  414.110 and 
414.236 as proposed. In addition, we are finalizing Sec. Sec.  414.112 
and 414.238 as proposed, with the exceptions of Sec. Sec.  414.112(d) 
and 414.238(d), which outlined a process for using technology 
assessments to establish the fee schedule amounts for new DMEPOS items.

VI. Standard Elements for a Durable Medical Equipment, Prosthetics, 
Orthotics, and Supplies (DMEPOS) Order; Master List of DMEPOS Items 
Potentially Subject to Face-to-Face Encounter and Written Order Prior 
to Delivery and/or Prior Authorization Requirements

A. Background

    The Comprehensive Error Rate Testing (CERT) program measures 
improper payments in the Medicare Fee-For-Service (FFS) program. CERT 
is designed to comply with the Improper Payments Information Act of 
2002 (IPIA) (Pub. L. 107-300), as amended by the Improper Payments 
Elimination and Recovery Act of 2010 (IPERA) (Pub. L. 111-204), as 
updated by the Improper Payments Elimination and Recovery Improvement 
Act of 2012 (IPERIA) (Pub. L. 112-248). As stated in the CERT 2018 
Medicare FFS Supplemental Improper Payment Data report, Durable Medical 
Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) claims had an 
improper payment rate of 35.5 percent, accounting for approximately 8.2 
percent of the overall Medicare FFS improper payment rate.\43\
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    \43\ 2018 Medicare Fee-for-Service Supplemental Improper Payment 
Data: https://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-Programs/Medicare-FFS-Compliance-Programs/CERT/CERT-Reports-Items/2018Medicare-FFSSupplementalImproperPaymentData.html?DLPage=1&DLEntries=10&DLSort=0&DLSortDir=descending. Accessed September 4, 2019.
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    The Department of Health and Human Services Office of Inspector 
General (HHS-OIG) provides independent and objective oversight that 
promotes economy, efficiency, and effectiveness in the programs and 
operations of the HHS. HHS-OIG's mission is to protect the integrity of 
HHS programs and is carried out through a network of audits, 
investigations, and inspections.
    The Government Accountability Office (GAO) audits the Centers for 
Medicare & Medicaid Services' (CMS') operations to determine whether 
federal funds are being spent efficiently and effectively, as well as 
to identify areas where Medicare and other CMS programs may be 
vulnerable to fraud and/or improper payments.
    A number of HHS-OIG and GAO reports have focused on waste, fraud, 
and abuse within the DMEPOS sector. In an effort to reduce improper 
payments, CMS has issued regulations and sub-regulatory guidance to 
clarify the payment rules for Medicare DMEPOS suppliers rendering items 
and submitting claims for payment.
    Currently, the scope of payment for medical supplies, appliances, 
and

[[Page 60743]]

devices, including prosthetics and orthotics, are defined at 42 CFR 
410.36(a) and the scope and certain conditions for payment of durable 
medical equipment (DME) are described at Sec.  410.38. Medicare pays 
for DMEPOS items only if the beneficiary's medical record contains 
sufficient documentation of the beneficiary's medical condition to 
support the need for the type and quantity of items ordered. In 
addition, other conditions of payment must be satisfied for the claim 
to be paid. These conditions of payment vary by item, but are specified 
in statute and in our regulations. They are further detailed in our 
manuals and in local and national coverage determinations.
    The purpose of this rule is to simplify and revise conditions of 
payment aimed at reducing unnecessary utilization and aberrant billing 
for items described in Sec.  410.36(a) and Sec.  410.38. To avoid 
differing conditions of payment for different items paid under the 
DMEPOS Fee Schedule, we proposed the conditions of payment described in 
proposed Sec.  410.38(d), would also be applied to items specified 
under Sec.  410.36(a).
1. Face-to-Face and Prescription Requirements for Power Mobility 
Devices (PMDs)
    Section 302(a)(2) of the Medicare Prescription Drug, Improvement, 
and Modernization Act of 2003 (MMA) (Pub. L. 108-173), in part, added 
conditions of coverage specific to power mobility devices (PMDs) in 
section 1834(a)(1)(E)(iv) of the Social Security Act (the Act), that 
specify payment may not be made for a covered item consisting of a 
motorized or power wheelchair unless a physician (as defined in section 
1861(r)(1) of the Act), physician assistant (PA), nurse practitioner 
(NP), or clinical nurse specialist (CNS) (as such non-physician 
practitioners are defined in section 1861(aa)(5) of the Act) has 
conducted a face-to-face examination of the individual and written a 
prescription for the item.
    On April 5, 2006, we published a final rule in the Federal Register 
titled ``Medicare Program; Conditions for Payment of Power Mobility 
Devices, including Power Wheelchairs and Power-Operated Vehicles'' (71 
FR 17021), hereinafter referred to as ``April 2006 final rule,'' to 
implement the requirements for a face-to-face examination and written 
prescription in accordance with the authorizing legislation. In Sec.  
410.38(c)(2)(ii), we required that prescriptions for PMDs must be in 
writing, signed and dated by the treating practitioner who performed 
the face-to-face examination, and received by the supplier within 45 
days after the face-to-face examination. The April 2006 final rule 
mandated that the supplier receive supporting documentation, including 
pertinent parts of the beneficiary's medical record to support the 
medical necessity for the PMD, within 45 days after the face-to-face 
examination. It provided that the PMD prescription must include a 7-
element order composed of--(1) the beneficiary's name; (2) the date of 
the face-to-face examination; (3) the diagnoses and conditions that the 
PMD is expected to modify; (4) a description of the item (for example, 
a narrative description of the specific type of PMD; (5) the length of 
need; (6) the physician or treating practitioner's signature; and (7) 
the date the prescription is written.
2. Face-to-Face and Prescription Requirements for Specified DMEPOS
    Section 6407 of the Patient Protection and Affordable Care Act of 
2010 (Pub. L. 111-148) amended section 1834(a)(11)(B) of the Act, which 
already required a written order, to also require that a physician, PA, 
NP, or CNS have a face-to-face encounter with the beneficiary within a 
6-month period preceding the written order for certain DMEPOS, or other 
reasonable timeframe as determined by the Secretary of the Department 
of Health and Human Services (the Secretary).
    On November 16, 2012, we published a final rule with comment period 
in the Federal Register titled ``Medicare Program; Revisions to Payment 
Policies Under the Physician Fee Schedule, DME Face-to-Face Encounters, 
Elimination of the Requirement for Termination of Non-Random Prepayment 
Complex Medical Review and Other Revisions to Part B for CY 2013'' (77 
FR 68892) hereinafter referred to as ``November 2012 final rule,'' that 
established a list of DME items subject to the face-to-face encounter 
and written order prior to delivery requirements as a condition of 
payment. CMS selected items for this initial list based on an item 
having met one of the following four criteria: (1) Items that required 
a written order prior to delivery per instructions in the Medicare 
Program Integrity Manual (at the time of rulemaking); (2) items that 
cost more than $1,000 (at the time of rulemaking in 2012); (3) items 
CMS, based on experience and recommendations from the DME MACs, 
believed were particularly susceptible to fraud, waste, and abuse; and 
(4) items determined by CMS as vulnerable to fraud, waste and abuse 
based on reports of the OIG, GAO, or other oversight entities.
    Section 504 of the Medicare Access and Children's Health Insurance 
Program (CHIP) Reauthorization Act of 2015 (MACRA) (Pub. L. 114-10) 
amended section 1834(a)(11)(B)(ii) of the Act to eliminate the 
requirement that only physicians could document face-to-face 
encounters, including those conducted by NPs, PAs, or CNSs. In effect, 
this change in the law permits NPs, PAs, or CNSs to document their 
face-to-face encounter, without the co-signature of a physician. For 
the purpose of this rule, we use the term ``practitioner'' as an all-
inclusive term to capture physicians and non-physician practitioners 
(that is, NPs, PAs, and CNSs).
    Section 1834(a)(11)(B)(ii) of the Act, as amended by section 504 of 
MACRA, mandates that the Secretary require for certain items of DMEPOS 
(as identified by the Secretary) a written order pursuant to a 
physician, a PA, an NP, or a CNS (as these three terms are defined in 
section 1861 of the Act) documenting that such a physician, PA, NP, or 
CNS has had a face-to-face encounter (including through use of 
telehealth under section 1834 (m) of the Act and other than with 
respect to encounters that are incident to services involved) with the 
individual involved during the 6-month period preceding such written 
order, or other reasonable timeframe as determined by the Secretary.
    Prior to this rule, the regulation at Sec.  410.38(g)(4) required 
written orders for certain specified covered items, as selected per the 
regulatory instruction in Sec.  410.38(g)(2), to contain 5 elements: 
(1) The beneficiary's name; (2) the item of DME ordered; (3) the 
signature of the prescribing practitioner; (4) the prescribing 
practitioner National Provider Identifier (NPI); and (5) the date of 
the order.
3. Subregulatory Requirements for Orders and Face-to-Face Encounters 
for Other DMEPOS
    CMS through subregulatory guidance developed standards for orders 
for DMEPOS items not included on the list of specified covered items 
requiring a written order prior to delivery and a face-to-face 
encounter. In addition, certain items of DMEPOS require face-to-face 
encounters in item-specific coverage requirements, such as those in the 
MAC-developed local coverage determinations.
4. Prior Authorization
    The Medicare Prior Authorization of PMDs Demonstration was 
initially implemented in 2012 in 7 states and subsequently extended in 
2014 to 12

[[Page 60744]]

additional states (for 19 states in total) until its completion in 
August of 2018. For additional information about this demonstration, 
see the notice we published in the Federal Register on August 3, 2012 
(77 FR 46439).
    Based on early signs of the demonstration's promising results, on 
December 30, 2015 we published a final rule in the Federal Register 
titled ``Medicare Program; Prior Authorization Process for Certain 
Durable Medical Equipment, Prosthetics, Orthotics, and Supplies'' (80 
FR 81674), hereinafter referred to as the ``December 2015 final rule,'' 
that established a permanent prior authorization program nationally. 
The December 2015 final rule was based on the authority outlined in 
section 1834(a)(15) of the Act, which permits the Secretary to develop 
and periodically update a list of DMEPOS items that the Secretary 
determines, on the basis of prior payment experience, are frequently 
subject to unnecessary utilization and to develop a prior authorization 
process for these items. Specifically, the December 2015 final rule 
established a new provision at Sec.  414.234 that specified a process 
for the prior authorization of DMEPOS items. The provision interpreted 
``frequently subject to unnecessary utilization'' to include items on 
the DMEPOS fee schedule with an average purchase fee of $1,000 
(adjusted annually for inflation using consumer price index for all 
urban consumers (CPI-U)) or greater, or an average rental fee schedule 
of $100 (adjusted annually for inflation using CPI-U) or greater, that 
also met one of the following two criteria: (1) The item has been 
identified as having a high rate of fraud or unnecessary utilization in 
a report that is national in scope from 2007 or later, as published by 
the OIG or the GAO; or (2) the item was listed in the 2011 or later 
CERT program's Annual Medicare FFS Improper Payment Rate DME and/or 
DMEPOS Service Specific Report(s). In addition, Sec.  414.234(b) lists 
DMEPOS items that met these criteria on a ``Master List of Items 
Frequently Subject to Unnecessary Utilization.'' Placement on the 
Master List makes an item eligible for CMS to require prior 
authorization as a condition of payment. That regulation instructed CMS 
to select items from the Master List to require prior authorization as 
a condition of payment and to publish notice of such items in the 
Federal Register. We stated that items on the Master List would be 
updated annually, based on payment thresholds and changes in 
vulnerability reports, as well as other factors described in Sec.  
414.234.
    We noted in the proposed rule (84 FR 38380) that burden estimates 
associated with prior authorization are related to the time and effort 
necessary for the submitter to locate and obtain the supporting 
documentation for the prior authorization request and to forward the 
materials to the contractor for medical review. Prior authorization 
does not change documentation requirements specified in policy or who 
originates the documentation. The associated information collection 
(OMB Control number 0938-1293) was revised and OMB approved the 
revision on March 6, 2019.
5. Overview
    Over time, the implementation of the aforementioned overlapping 
rules and guidance may have created unintended confusion for some 
providers and suppliers and contributed to unintended noncompliance. We 
continue to believe that practitioner involvement in the DMEPOS 
ordering process, through the face-to-face and written order 
requirements, assists in limiting waste, fraud, and abuse. We believe 
practitioner involvement also helps to ensure that beneficiaries can 
access DMEPOS items to meet their specific needs. In addition, we 
maintain that the explicit identification of information to be included 
in a written order/prescription, for payment purposes, promotes 
uniformity among practitioners and precision in rendering intended 
items. It also supports our program integrity goals of limiting 
improper payments and fraudulent or abusive activities by having 
documentation of practitioner oversight and standardized ordering 
requirements. Likewise, prior authorization supports ongoing efforts to 
safeguard beneficiaries' access to medically necessary items and 
services, while reducing improper Medicare billing and payments. This 
is important because documentation of practitioner involvement, 
including their orders for DMEPOS items and documented medical 
necessity (as assessed under prior authorization), are all used to 
support proper Medicare payment for DMEPOS items.
    This final rule streamlines the existing requirements and reduces 
provider or supplier confusion, while maintaining the concepts of 
practitioner involvement, order requirements, and a prior authorization 
process. We believe streamlining our requirements furthers our efforts 
to reduce waste, fraud, and abuse by promoting a better understanding 
of our conditions of payment, which may result in increased compliance.

B. Summary of the Proposed Provisions, Public Comments, and Responses 
to Comments on the Proposed Rule

    The proposed rule, titled ``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) Fee Schedule Amounts, 
DMEPOS Competitive Bidding Program (CBP) Proposed Amendments, Standard 
Elements for a DMEPOS Order, and Master List of DMEPOS Items 
Potentially Subject to a Face-to-Face Encounter and Written Order Prior 
to Delivery and/or Prior Authorization Requirements'' (84 FR 38330 
through 38421), hereinafter referred to as the ``CY 2020 DMEPOS 
proposed rule,'' was published in the Federal Register on August 6, 
2019, with a comment period that ended on September 27, 2019. In that 
rule, we proposed technical corrections; updates to definitions and 
documentation requirements; standard elements of a DMEPOS order; the 
creation of and inclusion factors for the ``Required Face-to-Face 
Encounter and Written Order Prior to Delivery List''; and authority to 
suspend face-to-face encounter and written order prior to delivery 
requirements at Sec.  410.38. In addition, we proposed to establish a 
``Master List of DMEPOS Items Potentially Subject to Face-To-Face 
Encounter and Written Orders Prior to Delivery and/or Prior 
Authorization Requirements'' (the ``Master List''); revisions to the 
factors for placing an item on the Required Prior Authorization List; 
and the authority to exempt compliant suppliers at Sec.  414.234. We 
received approximately 29 public comments on our proposals, including 
comments from suppliers, practitioners, professional supplier 
organizations, electronic record vendors, beneficiary advocacy 
organizations and health care systems.
    In this final rule, we provide a summary of each proposed 
provision, a summary of the public comments received and our responses 
to them, and the policies we are finalizing.
1. Technical Corrections to Sec.  410.38(a) and (b).
    We proposed to make technical changes to Sec.  410.38 by adding 
headings for paragraphs (a) and (b), and to update obsolete language 
under paragraph (a). For paragraphs (a) and (b), we proposed the 
headings as ``General scope'' and ``Institutions that may not qualify 
as the patient's home,'' respectively. Paragraph

[[Page 60745]]

(a) addresses the general scope of the DME benefit, but includes 
outdated language related to the Medicare payment rules for DME, which 
are more appropriately addressed under Sec. Sec.  414.210 and 414.408. 
In addition, the terms ``iron lungs'' and ``oxygen tents'' refer to 
obsolete DME technology that is no longer in use. We therefore proposed 
to revise Sec.  410.38(a) to remove language related to payment rules 
for DME and to replace the terms ``iron lungs'' and ``oxygen tents'' 
with ``ventilators'' and ``oxygen equipment,'' respectively.
    We received comments on the technical corrections to Sec.  
410.38(a) and (b), and our responses are below.
    Comment: Some commenters supported CMS' proposal to modernize 
regulations through the removal of outdated language related to the 
Medicare payment rules for DME, including the terms ``iron lungs'' and 
``oxygen tents.''
    Response: We appreciate the commenters support of our proposal.
    Final Rule Action: We are finalizing the changes to Sec.  410.38 by 
adding headings for paragraphs (a) and (b), and by updating obsolete 
language in paragraph (a).
2. Definitions
    We proposed to update Sec.  410.38(c) to include definitions 
related to certain requirements for the DMEPOS benefit.
    We proposed to add new definitions, redesignate existing 
definitions within the regulatory text, and amend existing definitions. 
We shared our belief that these changes would promote transparency and 
create uniform definitions applicable across the DMEPOS benefit and 
consequently, increase understanding of DMEPOS payment requirements, 
and may result in increased compliance.
    We proposed at Sec.  410.38(c) to include the following terms:
     Physician means a practitioner defined in section 
1861(r)(1) of the Act. We proposed this definition as paragraph (c)(1) 
and we noted that it is the same as our current definition of 
``physician'' in Sec.  410.38.
     Treating practitioner means both physicians, as defined in 
section 1861(r)(1) of the Act, and non-physician practitioners (that 
is, PAs, NPs, and CNSs) defined in section 1861(aa)(5) of the Act. This 
definition is consistent with the practitioners permitted to perform 
and document the face-to-face encounter pursuant to section 
1834(a)(11)(B) of the Act. We proposed this definition as paragraph 
(c)(2).
     We proposed that a DMEPOS supplier means an entity with a 
valid Medicare supplier number that furnishes durable medical equipment 
prosthetics orthotics and/or supplies including an entity that 
furnishes these items through the mail. We proposed this definition as 
paragraph (c)(3).
     We proposed that a written order/prescription means an 
order/prescription that is a written communication from a treating 
practitioner that documents the need for a beneficiary to be provided 
an item of DMEPOS. We proposed that all DMEPOS items require a written 
order/prescription to be communicated to the supplier prior to claim 
submission. In the case of items appearing on the Required Face-to-Face 
Encounter and Written Order Prior to Delivery List, we proposed that 
the written order/prescription must additionally be communicated to the 
supplier before the delivery of the item. As discussed further below, 
we also noted our intent to standardize the elements of written orders/
prescriptions provided for DMEPOS. We proposed this definition as 
paragraph (c)(4).
     We proposed that a face-to-face encounter means an in-
person or telehealth encounter between the treating practitioner and 
the beneficiary. As discussed further below, we also noted our intent 
that the face-to-face encounter be used for the purpose of gathering 
subjective and objective information associated with diagnosing, 
treating, or managing a clinical condition for which the DMEPOS is 
ordered. We also noted our intent to standardize the face-to-face and 
documentation requirements for certain DMEPOS. We proposed this 
definition as paragraph (c)(5).
     We proposed to maintain the definition of a Power Mobility 
Device (PMD), which is a covered item of DME that is in a class of 
wheelchairs that includes a power wheelchair (a four-wheeled motorized 
vehicle whose steering is operated by an electronic device or a 
joystick to control direction and turning) or a power-operated vehicle 
(a three or four-wheeled motorized scooter that is operated by a 
tiller) that a beneficiary uses in the home. Section 410.38(c)(1) 
required reformatting to accommodate the proposed unified conditions of 
payment and therefore, we proposed this definition as paragraph (c)(6).
     We proposed that the Master List of DMEPOS Items 
Potentially Subject to Face-To-Face Encounter and Written Orders Prior 
to Delivery and/or Prior Authorization Requirements, referred to as the 
``Master List,'' means items of DMEPOS that CMS has identified in 
accordance with sections 1834(a)(11)(B) and 1834(a)(15) of the Act. The 
criteria for this list were specified in proposed Sec.  414.234(b). We 
stated the Master List shall serve as a library of DMEPOS items from 
which items may be selected for inclusion on the Required Face-to-Face 
Encounter and Written Order Prior to Delivery List and/or the Required 
Prior Authorization List. We proposed this definition as paragraph 
(c)(7).
     We proposed that the Required Face-to-Face Encounter and 
Written Order Prior to Delivery List means a list of DMEPOS items 
selected from the Master List and subject to the requirements of a 
Face-to-Face Encounter and Written Order Prior to Delivery, and 
communicated to the public via a 60-day Federal Register notice. When 
selecting items from the Master List for inclusion on the Required 
Face-to-Face Encounter and Written Order Prior to Delivery List, we 
proposed that CMS may consider factors such as operational limitations, 
item utilization, cost-benefit analysis (for example, comparing the 
cost of review versus the anticipated amount of improper payment 
identified), emerging trends (for example, billing patterns, medical 
review findings,) vulnerabilities identified in official agency 
reports, or other analysis. We proposed this definition as paragraph 
(c)(8). We noted that the Required Face-to-Face Encounter and Written 
Order Prior to Delivery List is distinct from the ``Required Prior 
Authorization List.''
    We received comments regarding our proposal to update Sec.  
410.38(c) to include definitions related to certain requirements for 
the DMEPOS benefit. The comments and our responses are set forth below.
    Comment: Some commenters indicated that the 60-day notice was not 
sufficient time for suppliers to adjust business practices. Various 
commenters suggested we increase the notification period to more than 
60 days.
    Response: We agree that in some cases, a longer notification 
timeframe may be appropriate. For example, if we choose to require 
prior authorization for an item that is very similar to an item already 
subject to prior authorization, we may choose a shorter notice period, 
while we may choose a longer period for items that require more 
substantial education and changes in practice to put into operation. We 
believe similar types of considerations are appropriate in relation to 
the face-to-face encounter and written order prior to delivery 
requirements. Therefore, we are revising the public notice process to 
allow for longer notification timeframes so that Required Face-to-Face 
Encounter and Written Order Prior to Delivery List would become 
effective no less than 60

[[Page 60746]]

days after a Federal Register notice publication and CMS website 
posting.
    Final Rule Action: We are revising the 60-day public notice 
timeframe listed in the Required Face-to-Face Encounter and Written 
Order Prior to Delivery List definition to state ``The list of items is 
published in the Federal Register and posted on the CMS website. The 
list is effective no less than 60 days following its publication.'' All 
other definitions will be finalized as proposed.
3. Master List
a. Creating the Master List
    In the April 2006 final rule, we established face-to-face 
examination and written order prior to delivery requirements for PMDs.
    In the November 2012 final rule (77 FR 68892), we created a list of 
Specified Covered Items always subject to face-to-face encounter and 
written order prior to delivery requirements based on separate 
inclusion criteria outlined in Sec.  410.38.
    In the December 2015 final rule (80 FR 81674), we created a 
``Master List of Items Frequently Subject to Unnecessary Utilization'' 
based on inclusion criteria found at Sec.  414.234 that would 
potentially be subject to prior authorization upon selection. In the CY 
2020 DMEPOS proposed rule, we proposed to create one list of items 
known as the ``Master List of DMEPOS Items Potentially Subject to Face-
To-Face Encounter and Written Order Prior to Delivery and/or Prior 
Authorization Requirements,'' or the ``Master List,'' and specified the 
criteria for this list in Sec.  414.234.
    In the CY 2020 DMEPOS proposed rule, we shared our belief that our 
proposed changes would harmonize the resultant three lists created by 
the former rules and develop one master list of items potentially 
subject to prior authorization and/or the face-to-face encounter and 
written order prior to delivery requirement. We further explained, in 
determining DMEPOS appropriate for inclusion in the Master List, our 
belief that there are inherent similarities in those items posing 
vulnerabilities mitigated by additional practitioner oversight (face-
to-face encounters and written orders prior to delivery) and those 
items posing vulnerabilities mitigated by prior authorization. 
Therefore, we proposed that the Master List would include both those 
items that may potentially be subject to the face-to-face encounter and 
written order prior to delivery requirements as conditions of payment 
upon selection, and those items that may potentially be subject to 
prior authorization as a condition of payment upon selection. (See 
Table 13: Master List Of DMEPOS Items Potentially Subject to a Face-To-
Face Encounter and Written Order Prior To Delivery and/or Prior 
Authorization Requirements.) We noted that prosthetic devices and 
orthotic and prosthetic items have the same requirements under section 
1834(a)(11) of the Act as other items of DME have in statute. Section 
1834(h)(3) of the Act requires that section 1834(a)(11) of the Act 
apply to prosthetic devices, orthotics, and prosthetics in the same 
manner as it applies to items of DME. Therefore, we proposed the items 
identified in Sec.  410.36(a) would be subject to the requirements 
identified in proposed Sec.  410.38.
    While the regulatory requirements used to create the resultant 
three lists (outlined in the April 2006, November 2012, and December 
2015 final rules) were inherently distinct and conformed to different 
statutory mandates, we nonetheless assessed the items captured by those 
individual lists to determine whether the items are included in the new 
proposed inclusion criteria and resultant Master List. We compared the 
proposed Master List to both those items of DME that require a face-to-
face encounter and written order prior to delivery due to (i) the 
statutory requirements for all PMDs or (ii) the list of specified 
covered items of DME that was established in accordance with section 
1834(a)(11)(B) of the Act and the November 2012 final rule. We found 
that 103 items currently captured as either a PMD or included in the 
list published in the November 2012 rule would not be included in the 
proposed Master List. We further identified that there are 306 items 
potentially subject to a face-to-face encounter and a written order 
prior to delivery under the proposed Master List that did not require 
it under the conditions of payment that preceded this regulation. The 
remainder of items on the proposed Master List were both subject to a 
face-to-face encounter and a written order prior to delivery under the 
conditions of payment that preceded this regulation, and are 
potentially subject to these conditions of payment per this final rule. 
All 135 items that were potentially subject to prior authorization 
under the conditions of payment that preceded this regulation are also 
included in our proposed Master List. We outlined the inclusion 
criteria that developed the proposed Master List of 413 items 
potentially subject to these conditions of payment.
    We shared that while the Master List created by the CY 2020 DMEPOS 
proposed rule (84 FR 38382) would increase the number of DMEPOS items 
potentially eligible to be selected and added to the Required Prior 
Authorization list (which requires a technical update to Paperwork 
Reduction Act Information Collection CMS-10524; OMB-0938-1293,) there 
is no newly identified burden, no change in the required documentation 
associated with prior authorization and no plans to exponentially 
increase the number of items subject to required prior authorization in 
the near future.
    We proposed at Sec.  414.234(b)(1) that items that meet the 
following criteria would be added to the Master List:
     Any DMEPOS items included in the DMEPOS fee schedule that 
have an average purchase fee of $500 (adjusted annually for inflation 
using CPI-U, and reduced by the 10-year moving average of changes in 
annual economy-wide private nonfarm business multifactor productivity 
(MFP) (as projected by the Secretary for the 10-year period ending with 
the applicable fiscal year (FY), year, cost reporting period, or other 
annual period)) or greater, or an average monthly rental fee schedule 
of $50 (adjusted annually for inflation using CPI-U, and reduced by the 
10-year moving average of changes in annual economy-wide private 
nonfarm business MFP (as projected by the Secretary for the 10-year 
period ending with the applicable FY, year, cost reporting period, or 
other annual period)) or greater, or are identified as accounting for 
at least 1.5 percent of Medicare expenditures for all DMEPOS items over 
a recent 12-month period, that are:
    ++ Identified as having a high rate of potential fraud or 
unnecessary utilization in an OIG or GAO report that is national in 
scope and published in 2015 or later, or
    ++ Listed in the CERT 2018 or later Medicare FFS Supplemental 
Improper Payment Data report as having a high improper payment rate.
     The annual Master List updates shall include any items 
with at least 1,000 claims and 1 million dollars in payments during a 
recent 12-month period that are determined to have aberrant billing 
patterns and lack explanatory contributing factors (for example, new 
technology or coverage policies). Items with aberrant billing patterns 
would be identified as those items with payments during a 12-month 
timeframe that exceed payments made during the preceding 12-months, by 
the greater of:
    ++ Double the percent change of all DMEPOS claim payments for items 
that meet the above claim and payment

[[Page 60747]]

criteria, from the preceding 12-month period, or
    ++ exceeding a 30 percent increase in payments for the item from 
the preceding 12-month period.
     Any item statutorily requiring a face-to-face encounter, a 
written order prior to delivery, or prior authorization.
    We provided the following hypothetical data patterns, which are not 
factual, to demonstrate how data would be assessed in coordination with 
our new criteria for identifying items, subject to aberrant billing 
patterns and having a lack of explanatory contributing factors, that 
would be appropriate for inclusion in the Master List:
    Example 1: After removing any item for which there are less than 
1,000 claims billed or less than $1 million paid from CY 2018, there 
were $6.2 billion in total payments for all DMEPOS items. There were 
$5.6 billion in total payments for all DMEPOS items in the prior 12-
month period (CY 2017). The percent change in payments between CY 2017 
and CY 2018 is 10.7 percent. The doubled percent change is 21.4 
percent.

--DMEPOS Item X had $3.2 million in payments in CY 2018 and $2.4 
million in payments in CY 2017. This is a 33.3 percent change in 
payment for DMEPOS Item X. Therefore, Item X would be added to the 
Master List since it exceeds a 30 percent increase in payments, which 
is greater than double the percent change of all DMEPOS claim payments, 
for items that meet the claim and payment criteria (more than 1,000 
claims billed or $1 million paid), from the preceding 12-month period.
--DMEPOS Item Y had $17.1 million in payments in CY 2018 and $13.4 
million in payments in CY 2017. This is a 27.6 percent change in 
payment for DMEPOS Item Y. Therefore, Item Y would not be added to the 
Master List since it is less than 30 percent.

    Example 2: After removing any item for which there are less than 
1,000 claims billed or less than $1 million paid from CY 2018, there 
were $6.5 billion in total payments for all DMEPOS items. There were 
$5.5 billion in total payments for all DMEPOS items in the prior 12-
month period (CY 2017). The percent change in payments between CY 2017 
and CY 2018 is 18.2 percent. The doubled percent change is 36.4 
percent.

--DMEPOS Item X had $20.4 million in payments in CY 2018 and $14.3 
million in payments in CY 2017. This is a 42.7 percent change in 
payment for DMEPOS Item X. Therefore, Item X would be added to the 
Master List since it exceeds a 36.4 percent increase in payments which 
is more than double the percent change in payment in the preceding 12-
month period, and is greater than 30 percent.
--DMEPOS Item Y had $3.2 million in payments in CY 2018 and $2.4 
million in payments in CY 2017. This is a 33.3 percent change in 
payment for DMEPOS Item Y. Therefore, Item Y does not meet the 
inclusion criteria since it is less than 36.4 percent or double the 
percent change in payment in the preceding 12-month period.

    The proposed criteria adheres to the statutory language in section 
1834(a)(11)(B) of the Act, which allows us to specify covered items for 
the face-to-face and written order prior to delivery requirements, and 
section 1834(a)(15) of the Act, which provides discretion for the 
Secretary to develop and periodically update a list of items that on 
the basis of prior payment experience, are frequently subject to 
unnecessary utilization.
    We noted that under our proposal, any item that by statute requires 
a face-to-face encounter, a written order prior to delivery, or prior 
authorization would be added to the Master List and potentially subject 
to any of these requirements. For example, in accordance with section 
1834(a)(1)(E)(iv) of the Act, payment may not be made for motorized or 
power wheelchairs unless there is a face-to-face encounter and a 
written order prior to delivery. We stated that motorized and power 
wheelchairs would therefore also potentially be subject to the prior 
authorization requirement. We shared our belief that this is 
appropriate because any item statutorily subject to additional program 
integrity measures can reasonably be assumed to be ``frequently subject 
to unnecessary utilization'' (the standard for prior authorization in 
section 1834(a)(15)) and therefore should be included on the Master 
List.
    In addition, we expressed that proposing criteria based on (1) 
cost, (2) spending thresholds, and (3) data conveying possible 
overutilization and/or abuse allows us to more effectively focus our 
program integrity efforts. While the November 2012 and December 2015 
final rules included higher cost thresholds ($1,000 purchase/$100 
rental thresholds), we noted that programmatic changes, including 
competitive bidding, had the overall impact of lowering the payment 
amount for certain items, which is the reason we proposed to lower 
these cost thresholds. We proposed the $500 purchase/$50 rental 
thresholds based on analysis of the current fee schedule cost of DMEPOS 
items when compared with known vulnerabilities. This threshold captures 
items of known vulnerability, as previously identified and included in 
the Master List of items potentially subject to prior authorization, 
while remaining cognizant of the overall impact to DMEPOS items. To 
select the cumulative threshold, we identified low cost items with a 
significant cumulative impact on the Trust Fund. We then found that 
approximately the top 10 items individually account for at least 1.5 
percent of DMEPOS allowed costs. We accordingly proposed 1.5 percent to 
capture the items with the highest allowed amounts, while not creating 
an overly inclusive list. However, we recognized that item(s) may fail 
to meet the $500 purchase, $50 rental, or cumulative cost thresholds 
identified in the CY 2020 DMEPOS proposed rule (84 FR 38383); 
nonetheless, such items may demonstrate aberrant billing patterns 
inconsistent with predictable claim volumes.
    We proposed to use the CERT Medicare FFS Supplemental Improper 
Payment Data to identify DMEPOS service-specific rates of improper 
payments; and the OIG and GAO reports to identify DMEPOS items as 
having a high rate of fraud or unnecessary utilization. Inclusion of an 
item in these reports are indications that the item is frequently 
subject to unnecessary utilization. We recognize that there are 
inherent delays from the time aberrant billing patterns are identified 
and the publication of CERT, OIG, and GAO reports. Under our prior 
regulations, we captured reports dating as far back as 2007; however, 
we have learned that billing practices may be subject to imminent 
shifts as a result of changed policies from CMS, new technologies and 
other emerging trends.
    Our objective is to focus on more current data, and in the CY 2020 
DMEPOS proposed rule (84 FR 38383), we redefined the timeframe for 
identifying items in OIG and GAO reports to 2015 or later, in CERT 
Medicare FFS Supplemental Improper Payment Data reports to 2018 or 
later, and added a new Master List inclusion criteria to capture 
current aberrant billing patterns. We believe the Master List is a good 
representation of those items that may pose risk to the Medicare Trust 
Funds. In future years, we would apply the new criteria on billing 
patterns occurring over a 12-month period to allow CMS to be nimble to 
industry change.
    We proposed the identification of aberrant billing patterns to be 
limited to

[[Page 60748]]

those instances in which the total payment is at least 1 million 
dollars and at least 1,000 claims in a recent 12-month period prior to 
CMS updating the list annually. This avoids us targeting items with 
very low payments or very few claims, when considered overall.
    We summarize the comments and our responses for the Master List 
section of this final rule along with our final decisions applicable to 
this section.
    Comment: Several commenters were supportive of CMS' proposal to 
harmonize the three lists through the creation of one Master List. 
However, some commenters expressed concern that the extended length of 
the list was indicative of our intent to prior authorize more 
frequently, and worried about delays in patient care.
    Response: The longer Master List grants the agency the ability to 
impose conditions of payment to mitigate emerging program integrity 
vulnerabilities for a wider array of items, but is not indicative of 
any known plans to widely increase prior authorization. Rather, items 
would only be moved to the Required Prior Authorization List after 
consideration of the regulatory factors--including item utilization, 
cost, and other analyses--and would be subject to a no less than a 60-
day notice.
    We encourage open communication between the beneficiaries and the 
practitioners, as well as between practitioners and suppliers to ensure 
that beneficiaries receive medically necessary items in a timely 
fashion. If beneficiaries, practitioners, or suppliers are observing or 
experiencing significant delays in beneficiary access to DMEPOS items, 
they are advised to call 1-800-MEDICARE to report their specific 
concerns. We note that this rule requires CMS to consider multiple 
factors prior to subjecting DMEPOS items to conditions of payment, and 
grants CMS the authority to suspend such condition of payment or remove 
DMEPOS items from the required list, as needed.
    Comment: Some commenters suggested CMS retain the prior cost 
thresholds ($1,000 purchase price/$100 rental price) for inclusion on 
the Master List.
    Response: We noted in the preamble that the November 2012 and 
December 2015 final rules included higher cost thresholds ($1,000 
purchase/$100 rental thresholds). Programmatic changes, including 
competitive bidding, had the overall impact of lowering the payment 
amount for certain items, which is the reason we proposed to lower 
these cost thresholds. We considered known vulnerabilities impacting 
DMEPOS items, and the item costs listed on the DMEPOS fee schedule 
prior to selecting the $500 purchase/$50 rental thresholds.
    Comment: Some commenters questioned the methodology for inclusion 
on the list and requested greater transparency in identifying how an 
item was selected for inclusion. For example, some commenters suggested 
that CMS increase its percentage threshold for identifying an item's 
Medicare expenditures, in relation to Medicare expenditures for all 
DMEPOS items over a recent 12-month period, from 1.5 percent to 2.0 
percent. Commenters also questioned the inclusion of certain HCPCS 
codes on the list. For example, a commenter questioned which criteria 
applied to HCPCS code A4351--intermittent urinary catheter.
    Response: While we appreciate stakeholder feedback on the inclusion 
criteria, we are not adopting changes at this time. The criteria were 
based on analysis of our data and consideration of known 
vulnerabilities and burden. We continue to believe the proposed 
criteria are most appropriate. While items may meet multiple factors 
for inclusion, items are only added to the list if they meet one of the 
inclusion criteria. Due to the varying inclusion criteria, the 
potential for items to meet multiple factors, and the ever evolving 
nature of the list, we do not believe it's feasible to maintain a 
current list that also identifies our underlying reason for inclusion 
on the list.
    We have confirmed the appropriateness of including the HCPCS on the 
Master List, including those questioned by commenters, based on the 
list inclusion criteria. For example, commenters questioned the 
inclusion of HCPCS A4351-intermittent urinary catheter on the Master 
List. Urological supplies appears on the 2018 CERT Medicare FFS 
Supplemental Improper Payment Data report chart titled ``Top 20 Service 
Types with Highest Improper Payments: DMEPOS.'' Thus, HCPCS A4351 meets 
the Master List inclusion criteria both based on cost (1.5 percent of 
DMEPOS fee schedule expenditure) and based on its identification in a 
CERT Medicare FFS Supplemental Improper Payment Data report as an item 
subject to high improper payments.
    Comment: One commenter suggested that the application of the face-
to-face encounter and written order prior to delivery was inappropriate 
for prosthetics and orthotics, and therefore, it is inappropriate to 
create a combined Master List. For example, commenters suggested that 
many of the Master List codes describe orthoses that typically must be 
provided to treat an acute injury.
    Response: We respectfully disagree that the application of the 
face-to-face encounter and written order prior to delivery is 
inappropriate for prosthetics and orthotics. In our proposal, we noted 
that prosthetic devices and orthotic and prosthetic items have the same 
requirements under section 1834(a)(11) of the Act as other items of DME 
have in statute, and therefore we believe their inclusion to be 
appropriate. Further practitioners typically have face-to-face 
encounters in order to assess beneficiary's acute injury before 
ordering the appropriate orthoses. Therefore, we believe the 
documentation resulting from this face to face encounter does not 
create any barrier to treating acute injuries.
    Comment: One commenter expressed concern that the lowered cost 
threshold would create undue burden, because it expands the list to 
include less expensive DMEPOS items and therefore less likely to 
achieve savings.
    Response: We agree with the commenter that a successful program 
balances both the cost of the item and resources extended to maintain 
program integrity. However, experience with prior authorization has 
demonstrated methods of program efficiencies that allow us to look at 
lower cost items and still be cost effective.
    Comment: One commenter stated that the creation of a single master 
list of HCPCS codes subject to multiple CMS conditions of payment will 
further confuse providers and beneficiaries.
    Response: We believe there are inherent similarities in those items 
posing vulnerabilities that can be mitigated by additional practitioner 
oversight (face-to-face encounters and written orders prior to 
delivery) and those items posing vulnerabilities that can be mitigated 
by prior authorization. We emphasize that we will maintain separate 
``required'' lists that will enable us to select the most appropriate 
program integrity action. We believe that the dissemination of two 
separate lists derived from the Master List will decrease provider 
burden and confusion.
    Comment: One commenter suggested that CMS recognize that while some 
increases in utilization are indicative of abusive behaviors, others 
are a result of recent innovations and may be appropriate.
    Response: While our rule allows us to focus on increased 
utilization, we specifically note that we would consider contributory 
factors when selecting items posing vulnerabilities that may be 
appropriate for application of these

[[Page 60749]]

conditions of payment. An example of a contributory factor that may be 
considered could be innovative or new technologies.
    Final Rule Action: After careful consideration of the comments 
received, we are finalizing the updates to the Master List criteria as 
proposed. We believe the updates will allow us to appropriately 
identify and target items posing vulnerabilities to the Trust Funds, to 
nimbly take action to promote appropriate claim submissions, and to 
limit improper payments.
b. Notice and Maintenance of the Master List
    In Sec.  414.234(b)(2), we proposed that the Master List would be 
self-updating, at a minimum, annually. We highlighted in our proposal 
that the ``self-updating'' process would remain unchanged from the 
prior regulation and would include applying the criteria to items that 
appear on the DMEPOS FFS payment schedule. That is, items on the DMEPOS 
Fee Schedule that meet the payment threshold (for monthly rentals, 
purchases, or cumulative impacts) will be added to the list when the 
item is also listed in a future CERT, OIG, or GAO reports, and items 
not meeting the cost thresholds will be added based on findings of 
aberrant billing patterns (meeting the inclusion criteria in section 
VI.B.3.a of this final rule) that are not otherwise explained. We noted 
that we believe the inclusion criteria are capable of capturing more 
current vulnerabilities. We also noted that the current standard 
process in which items on the list, expire after 10 years if they have 
not otherwise been removed. We believe this is an appropriate 
representation of the time needed to achieve behavioral change (such as 
compliance with Medicare coverage instructions and the correction of 
behaviors previously resulting in improper payments) and protect the 
Medicare Trust Funds. We also clarified that if we identify any item 
currently on the Master List as being included in a subsequent OIG or 
GAO report, as having a high rate of fraud or unnecessary utilization, 
or as having a high improper payment rate in the CERT Medicare FFS 
Supplemental Improper Payment Data report, the item would be maintained 
on the Master List for 10 years from the date of the most recent 
report's publication.
    We proposed that all other list maintenance processes specified in 
Sec.  414.234(b) would be maintained with two exceptions: (1) We 
proposed to allow the Master List to be updated as needed and more 
frequently than annually (for example, to address emerging billing 
trends), and (2) we proposed to make technical changes to the language 
in Sec.  414.234(b) to reflect the new cost thresholds and report 
years. We proposed to maintain the process outlined in the December 
2015 final rule (80 FR 81674) and publish any additions or deletions to 
the Master List, for any of the reasons and conditions discussed, in a 
Federal Register notice and on the CMS website.
    We did not receive any comments in regards to the maintenance of 
the Master List section of the final rule, and we are finalizing this 
section as proposed.
    Final Rule Action: We are finalizing our proposal at Sec.  
414.234(b)(2) that the Master List would be self-updating, at a 
minimum, annually. We are also finalizing our proposals related to the 
application of the 10-year timeframe. We are adopting the technical 
updates to Sec.  414.234(b), and finalizing our capacity to update the 
list more frequently than annually, as needed. We will publish any 
additions or deletions to the Master List, for any of the reasons and 
conditions discussed, in a Federal Register notice and on the CMS 
website.
4. Required Face-to-Face Encounter and Written Order Prior to Delivery 
List
a. Creating the Required Face-to-Face Encounter and Written Order Prior 
to Delivery List
    Section 1834(a)(1)(E)(iv) of the Act prohibits payment for 
motorized or power wheelchairs unless a practitioner conducts a face-
to-face examination and writes an order for the item. Section 
1834(a)(11)(B) of the Act requires that a practitioner have a face-to-
face encounter and written order communicated to the supplier prior to 
delivery for other specified covered items of DMEPOS, as identified by 
the Secretary. In the CY 2020 DMEPOS proposed rule (84 FR 38384), we 
noted the analysis of a 1-year snapshot of claims indicated that 
approximately 97 percent of beneficiaries receiving DMEPOS had a recent 
face-to-face encounter (either before or after the DMEPOS date of 
service). This data was drawn without regard for the item's presence on 
the DME List of Specified Covered Items (stemming from the November 
2012 final rule), which required a face-to-face encounter and a written 
order prior to delivery. While we believe this information helped to 
provide important context, we noted that this final rule requires that 
face-to-face encounters occur prior to the delivery of DMEPOS for those 
items selected for inclusion on the Required Face-to-Face Encounter and 
Written Order Prior to Delivery List. We proposed to revise Sec.  
410.38(d)(1) and Sec.  410.38(d)(2) to limit the face-to-face encounter 
and written order prior to delivery conditions of payment to only those 
items selected from the Master List and included on the ``Required 
Face-to-Face Encounter and Written Order Prior to Delivery List.'' We 
noted in the CY 2020 DMEPOS proposed rule (84 FR 38384) that this 
provides us with a broader list of potential items that could be 
selected, but expect only a subset of items from the Master List to be 
subject to the face-to-face encounter and written order prior to 
delivery requirements, based on those items identified to be of highest 
risk. We believe tailoring the lists this way significantly reduces any 
potential supplier/provider impact and may decrease the number of items 
affected.
    We also noted in the CY 2020 DMEPOS proposed rule (84 FR 38384) 
that since the face-to-face encounter and written order are statutorily 
required for PMDs, they would be included on the Master List and the 
Required Face-to-Face Encounter and Written Order Prior Delivery List 
in accordance with our statutory obligation, and would remain there. In 
addition, the Master List would include statutorily-identified items, 
as well as any other items posing potential vulnerability to the Trust 
Fund, as identified via the proposed Master List inclusion criteria.
    We proposed at Sec.  410.38(c), in the definition of the Required 
Face-to-Face Encounter and Written Order Prior to Delivery List, the 
factors that we may consider when determining which items may be 
appropriate to require a face-to-face encounter and written order prior 
to delivery. Specifically, we proposed to consider: Operational 
limitations, item utilization, cost-benefit analysis, emerging trends, 
vulnerabilities identified in official agency reports, or other 
analysis. We developed factors that we believe to be indicative of the 
need for the face-to-face encounter and written order prior to delivery 
requirements, but noted this list is not exhaustive. We also noted that 
we did not propose an all-inclusive list of factors to account for the 
fluidity of program operations and associated vulnerabilities, and we 
believe this is critical to protect beneficiaries, the program, and 
industry.
    We solicited comments on both our underlying presumption that the 
list should not be exhaustive, as well as the factors we should 
consider when selecting an item from the Master List and including it 
on the Required Face-to-Face Encounter and Written Order Prior to 
Delivery List.

[[Page 60750]]

    We proposed at Sec.  410.38(c)(5) to define the term ``face-to-face 
encounter'' as an in-person or telehealth encounter between the 
treating practitioner and the beneficiary. We further proposed at Sec.  
410.38(d)(2) that any telehealth encounter must meet the existing 
telehealth requirements of Sec.  410.78 and Sec.  414.65. We noted in 
the CY 2020 DMEPOS proposed rule (84 FR 38384) that under the November 
2012 final rule, telehealth services were permitted to be used to 
satisfy the DME face-to-face encounter requirements. We emphasized in 
the CY 2020 DMEPOS proposed rule at Sec.  410.38(d)(2) that telehealth 
services used to meet DMEPOS face-to-face encounter requirements must 
meet the requirements found at Sec.  410.78 and Sec.  414.65 to support 
payment of the DMEPOS claim.
    Additionally, we specified that the face-to-face encounter must be 
used for the purpose of gathering subjective and objective information 
associated with diagnosing, treating, or managing a clinical condition 
for which the DMEPOS is ordered and must occur within the 6 months 
preceding the date of the order/prescription. We proposed to codify at 
Sec.  410.38(d)(3) that the documentation necessary to support the 
face-to-face encounter and associated claims for payment includes the 
written order/prescription and documentation to support medical 
necessity, which may include the beneficiary's medical history, 
physical examination, diagnostic tests, findings, progress notes, and 
plans for treatment. We believe this is reflective of clinical practice 
and the information necessary to demonstrate medical necessity and the 
appropriateness of claim payment.
    Section 1834(h)(5) of the Act states that for purposes of 
determining the reasonableness and medical necessity of orthotics and 
prosthetics, documentation created by orthotists and prosthetists shall 
be considered part of the individual's medical record to support 
documentation created by eligible professionals as described in section 
1848(k)(3)(B) of the Act. Documentation from a face-to-face encounter 
conducted by a treating practitioner, as well as documentation created 
by an orthotist or prosthetist becomes part of the medical records and 
if the orthotist or prosthetist notes support the documentation created 
by eligible professionals described in section 1848(k)(3)(B), they can 
be used together to support medical necessity of an ordered DMEPOS 
item. In the event the orthotist or prosthetist documentation does not 
support the documentation created by the eligible professional, CMS may 
deny payment.
    Our regulations currently require that the written order be 
communicated prior to delivery for certain specified covered items, 
within 6 months of the face-to-face encounter, and for PMDs, within 45 
days of the face-to-face examination. We proposed to revise Sec.  
410.38 to apply the 6-month timeframe to all items on the Required 
Face-to-Face Encounter and Written Order Prior to Delivery List 
(including PMDs, which previously required a 45-day timeframe) for 
uniformity purposes. We believe the 6-month timeframe is relevant, and 
changing it would create unnecessary confusion since the industry has 
become accustomed to it.
    We noted that the 6-month timing requirement does not supplant 
other policies that may require more frequent face-to-face encounters 
for specific items. For example, the National Coverage Determination 
240.2 titled ``Home Use of Oxygen'' requires a face-to-face examination 
within a month of starting home oxygen therapy.
    We also noted in the CY 2020 DMEPOS proposed rule (84 FR 38385) 
that we do not believe the requirements for the face-to-face encounter 
and written order prior to delivery would create any new burdens for 
the medical review process. The Paperwork Reduction Act Record of 
Information Collection for medical review (CMS-10417; OMB-0938-0969) 
covers the burden for responding to documentation requests, generally. 
Medical review requests require the provider or supplier to submit all 
documentation necessary to demonstrate compliance with coverage and 
payment requirements, including the face-to-face encounter.
    The comments with regard to the Required Face-to-Face Encounter and 
Written Order Prior to Delivery List and associated burden, and our 
responses are set forth below.
    Comment: One commenter suggested that CMS add information to the 
Required Face-to-Face Encounter and Written Order Prior to Delivery 
List, when items are selected from the Master List, to indicate why 
items are being subject to a condition of payment.
    Response: If an item were chosen to be included on the Required 
Face-to-Face Encounter and Written Order Prior to Delivery List, we 
plan to include narrative information in the Federal Register notice 
explaining why such item is being subject to a condition of payment. We 
believe this narrative to be most helpful to stakeholder understanding.
    Comment: Commenters urged CMS to ensure that the burden of 
providing face-to-face encounter documentation, used to comply with our 
statutory requirements and demonstrate medical need, falls upon the 
beneficiary's treating practitioner and not community pharmacists who 
may dispense items of durable medical equipment and supplies.
    Response: We agree that the beneficiary's practitioner is charged 
with creating the documentation of the face-to-face encounter. However, 
we did not propose to amend the longstanding process whereby additional 
documentation requests are generally sent to the entity requesting 
Medicare payment.
    Comment: Some commenters urged CMS to permit remote patient 
monitoring using digitally enabled equipment to satisfy the requirement 
for face-to-face encounters. Another commenter stated that CMS should 
begin to recognize telemedicine as part of the face-to-face procedure.
    Response: We recognize the increasing use of technology to achieve 
clinical oversight of Medicare beneficiaries. While we believe 
digitally enhanced items serve a clinical purpose, we note that the 
face-to-face requirement is required by statute and removing the face-
to-face requirement for digitally enhanced items is not within our 
regulatory purview. The statute allows for the face-to-face encounter 
to be conducted through use of telehealth in accordance with section 
1834(m) of the Act, which sets the requirements for Medicare telehealth 
services. We explicitly codified that Medicare telehealth services used 
for meeting the face-to-face encounter requirement when ordering DMEPOS 
items must meet the existing telehealth requirements of Sec.  410.78 
and Sec.  414.65. In this way, documentation submitted to support 
payment for DMEPOS items that was created based upon a telehealth visit 
must also meet the requirements for telehealth services to support 
DMEPOS payment.
    Comment: Commenters supported the adoption of the uniform 6-month 
timeframe in which the face-to-face must occur for written orders prior 
to delivery.
    Response: We appreciate the feedback in support of our proposal of 
the 6-month uniform timeframes.
    Final Rule Action: We are finalizing the process for selecting 
items from the Master List and factors considered in creating the 
Required Face-to-Face Encounter and Written Order Prior to Delivery 
List, as proposed. Items that require a face-to-face encounter and 
written order prior to delivery, will be included on the Master List 
and the

[[Page 60751]]

Required Face-to-Face Encounter and Written Order Prior Delivery List 
in accordance with our statutory obligation. We are finalizing our 
proposal that documentation submitted to support payment for DMEPOS 
items that was created based upon a telehealth visit must also meet the 
requirements for telehealth services to support DMEPOS payment. We are 
also finalizing our documentation requirements as proposed, and the 
requirement for a face-to-face to occur within 6 months, as proposed.
b. Notice and Application of the Required Face-to-Face Encounter and 
Written Order Prior to Delivery List
    We proposed at Sec.  410.38(c)(8) that CMS would publish a 60-day 
Federal Register notice and post on the CMS' website any item on the 
Master List that is selected for inclusion on the Required Face-to-Face 
Encounter and Written Order Prior to Delivery List, which is consistent 
with our current prior authorization practices for items selected from 
the Master List of Items Frequently Subject to Unnecessary Utilization 
and included on the Required Prior Authorization List. Similarly, any 
DMEPOS item selected from the proposed Master List and included on the 
Required Face-to-Face Encounter and Written Order Prior to Delivery 
List would be subject to the face-to-face encounter and written order 
prior to delivery requirement as a national condition of payment, and 
claims for those items would be denied if the condition of payment is 
not met.
    We proposed at Sec.  410.38(e) to allow the face-to-face encounter 
and written order prior to delivery requirements to be nationally 
suspended by CMS for any items at any time, without undertaking a 
separate rulemaking, except for those items whose inclusion on the 
Master List (and subsequently, the Required Face-to-Face Encounter and 
Written Order Prior to Delivery List) was required by statute. For 
example, we may need to suspend or cease the face-to-face encounter and 
written order prior to delivery requirements for a particular item(s) 
for which we determine the face-to-face encounter and written order 
prior to delivery requirements are unnecessary to meet our previously 
described objective of limiting waste, fraud, and abuse. We stated that 
should we suspend or cease the face-to-face encounter and the written 
order prior to delivery requirement for any item(s), we would provide 
stakeholder notification of the suspension on the CMS website.
    The comments with regard to the Notice and Application of the 
Required Face-to-Face Encounter and Written Order Prior to Delivery 
List, and our responses are set forth below.
    Comment: Some commenters indicated that the 60-day notice was not 
sufficient time for suppliers to adjust business practices. Various 
commenters suggested we increase the notification period to more than 
60 days.
    Response: As previously stated earlier in this final rule, we agree 
that in some cases, a longer notification timeframe may be appropriate. 
As a result, we are revising the 60-day public notice timeframe for the 
Required Face-to-Face Encounter and Written Order Prior to Delivery 
List to be effective no less than 60 days after a Federal Register 
notice and CMS website posting.
    Comment: Some commenters expressed concern that the face-to-face 
encounter and written order prior to delivery requirements could 
inadvertently impede beneficiary access to medically necessary care, 
and suggested such requirements were inappropriate for certain items 
such as orthotics and prosthetics.
    Response: We believe practitioner involvement assists in reducing 
waste, fraud and abuse, and also helps to ensure that beneficiaries 
receive DMEPOS to meet their specific needs. We encourage open 
communication between the beneficiaries and the practitioners, as well 
as between practitioners and suppliers to ensure that beneficiaries 
receive medically necessary items in a timely fashion. Practitioners 
typically have face-to-face encounters in order to assess the 
beneficiary's clinical need before ordering DMEPOS items. Therefore, we 
believe the documentation resulting from this face to face encounter 
does not create any barrier to treating acute injuries or other 
clinical needs.
    If beneficiaries, practitioners, or suppliers are observing or 
experiencing significant delays in beneficiary access to DMEPOS due to 
the imposition of the face-to-face encounter requirement, they are 
advised to call 1-800-MEDICARE to report their specific concerns.
    This rule allows the face-to-face encounter and written order prior 
to delivery requirements to be nationally suspended by CMS for any 
items at any time, without undertaking a separate rulemaking, except 
for those items whose inclusion on the Master List (and subsequently, 
the Required Face-to-Face Encounter and Written Order Prior to Delivery 
List) was required by statute. We note that the inclusion of items on 
the Required Face-to-Face Encounter and Written Order Prior to Delivery 
List will be monitored for unintended consequences (including 
beneficiary access concerns).
    Final Rule Action: We are revising the 60-day public notice 
timeframe listed in the Required Face-to-Face Encounter and Written 
Order Prior to Delivery List to say ``The list of items is published in 
the Federal Register and posted on the CMS website. The list is 
effective no less than 60 days following its publication.'' We are also 
finalizing our authority to suspend or cease the face-to-face encounter 
and written order prior to delivery requirements, with notifications 
provided on the CMS website, as initially proposed.
5. Required Prior Authorization List
a. Creation and Application of the Required Prior Authorization List
    In order to balance minimizing provider and supplier burden with 
our need to protect the Medicare Trust Funds, we proposed to continue 
to limit prior authorization to a subset of items on the Master List as 
currently specified at Sec.  414.234(a)(4). The subset of items 
requiring prior authorization are referred to as the Required Prior 
Authorization List.
    OIG and GAO reports, as well as the CERT Medicare FFS Supplemental 
Improper Payment Data reports, provide national summary data and also 
often include regional data. Utilization trends within Medicare 
Contractor localities may show aberrant billing patterns or other 
identifiable vulnerabilities. At times, claims data analysis shows that 
unnecessary utilization of the selected item(s) is concentrated among 
certain suppliers or in certain locations or regions. We proposed to 
select and implement prior authorization of an item(s) nationally or, 
in collaboration with the medical review contractors locally. We 
proposed to revise Sec.  414.234(c)(1)(ii) to state that all suppliers 
(either nationally or within a contractor jurisdiction) would initially 
be subject to prior authorization for items identified through a 
Federal Register notice and posted to CMS' website. We also proposed 
that CMS may elect to exempt suppliers demonstrating compliance from 
prior authorization for such requirements. We noted in our CY 2020 
DMEPOS proposed rule (84 FR 38385) that we believe this meets our 
fiduciary obligation to protect the Medicare Trust Funds while 
remaining cognizant of contractor resource limitations and provider/
supplier burden.
    In Sec.  414.234, we proposed that we may consider factors such as 
geographic location, item utilization or cost, system capabilities, 
emerging trends,

[[Page 60752]]

vulnerabilities identified in official agency reports, or other 
analysis in selecting items for national or local implementation. For 
example, items that are the focus of law enforcement investigations may 
require additional oversight and be appropriate for prior 
authorization. Likewise, when assessing cost we may prior authorize low 
dollar items for which the prior authorization decision is applied to 
consumables that are the same item, rendered to the same beneficiary 
(for example, items dispensed in units or billed monthly for which the 
initial decision would remain appropriate), but would not prior 
authorize a single low cost item for which the cost of the review would 
outweigh the anticipated amount of improper payments identified.
    We solicited comments on the proposed factors to be considered when 
selecting an item from the Master List and including it on the Required 
Prior Authorization List, such as whether the factors could be over-
inclusive or under-inclusive.
    We noted in the CY 2020 DMEPOS proposed rule (84 FR 38385) that 
despite the proposed changes in the Master List inclusion criteria, the 
prior authorization program would continue to apply in all competitive 
bidding areas because CMS conditions of payment apply under the 
Medicare DMEPOS Competitive Bidding Program.
    We also noted that we recognize that there may be accessories for 
which stakeholders would like to request prior authorization that may 
not always appear on the Master List and would not be eligible to 
include on the Required Prior Authorization List. In addition, we 
discussed our intent to update the program so that any accessory 
included on a prior authorization request submitted for an item on the 
Required Prior Authorization List may nonetheless receive a prior 
authorization decision for operational simplicity, even if the 
accessory is not on the Required Prior Authorization List. We stated 
that the inclusion of such items is voluntary and does not create a 
condition of payment for items not present on the Required Prior 
Authorization List. An example of when this occurs is accessories for 
certain PMDs subject to prior authorization. We stated that the 
effective date of the final rule may precede shared systems changes 
that are required to support the addition of accessories that are not 
on the Master List and the Required Prior Authorization List. 
Accordingly, there may be a delay in the adoption of this proposed 
operational change from the date of publication.
    We also discussed that historically, we received positive feedback 
related to the DMEPOS prior authorization process and the majority of 
comments have been from suppliers. We encouraged all stakeholders, 
including those representing beneficiaries and Medicare consumer 
advocacy organizations, to submit their comments about prior 
authorization during the public comment period.
    We proposed that the items currently subject to prior authorization 
would be grandfathered into the prior authorization program until the 
implementation of the first Required Prior Authorization List published 
subsequent to this rule. This proposal would avoid the administrative 
and stakeholder burdens associated with the termination of the current 
prior authorization program and the implementation of a revised program 
created under this rule.
    We proposed to retain the documentation requirements for submitting 
prior authorization requests at Sec.  414.234(d); however, we proposed 
to cross reference the payment requirements proposed at Sec.  410.38. 
In addition, we proposed to retain the process for submitting prior 
authorization requests and receiving responses, but proposed to 
restructure Sec.  414.234(e) to conform to the formatting of the 
preceding paragraphs.
    We proposed to maintain the authority to suspend or cease the prior 
authorization requirement generally or for a particular item or items 
at any time without undertaking a separate rulemaking. For example, we 
may need to suspend or cease the prior authorization program due to new 
payment policies, which may render the prior authorization requirement 
obsolete or remove the item from Medicare coverage. If we suspend or 
cease the prior authorization requirement, we would publish a notice in 
the Federal Register and post notification of the suspension on the CMS 
website and include the date of suspension.
    The comments with regard to The Required Prior Authorization List, 
and our responses are set forth below.
    Comment: One commenter suggested that CMS add information to the 
Required Prior Authorization List, when items are selected from the 
Master List, to indicate why items are being subject to a condition of 
payment.
    Response: As indicated earlier in this final rule, if an item were 
selected for inclusion in a required list (meaning the Required Prior 
Authorization List or Required Face-to-Face Encounter and Written Order 
Prior to Delivery List), we plan to include information in the Federal 
Register notice explaining why an item is being subject to the 
condition of payment. We believe this information to be most helpful to 
stakeholder understanding.
    Comment: Commenters urged CMS to be cognizant of items that may be 
needed imminently when selecting items requiring prior authorization.
    Response: We consider multiple factors when determining if an item 
is appropriate for inclusion on the Required Prior Authorization List, 
including beneficiary access in a timely fashion. We understand the 
concerns raised by the comments and will take them into consideration. 
If beneficiaries, practitioners, or suppliers are observing or 
experiencing significant delays in beneficiary access to DMEPOS due to 
their inclusion on the Required Prior Authorization List, they are 
advised to call 1-800-MEDICARE to report their specific concerns.
    Comment: One commenter suggested that prior authorization be 
reserved for aberrant billers, and proposed relief for billers who 
participate in standardized data collection. Another commenter 
suggested that CMS consider compliance incentives to waive prior 
authorizations and face-to-face requirements for providers that meet 
such standards.
    Response: The prior authorization program is item-based and targets 
over utilized items billed by all applicable suppliers. In the future, 
we may elect to exempt suppliers demonstrating compliance from prior 
authorization requirements for subject items. If so, we will define how 
we will identify compliant suppliers in future rulemaking.
    Comment: Some commenters expressed support for continuing the prior 
authorization process, and appreciated the assurance of likely payment 
in advance of delivering the item and services that is medically 
necessary for the beneficiary. Another commenter suggested that prior 
authorization helps limit appeals and corresponding resources.
    Response: We appreciate the commenters' feedback on the prior 
authorization process.
    Comment: One commenter expressed support of CMS' proposal to 
include in the prior authorization decision for PMDs the accessories 
that are used with the PMD base. Another commenter expressed concern 
that prior authorizing accessories for which the base was already prior 
authorized, may create undue delay in the delivery of care. The 
commenter was also concerned that the addition of accessories was 
occurring without formal rulemaking.

[[Page 60753]]

    Response: We appreciate the commenter's support of our proposal to 
allow accessories to be included on a prior authorization request, at 
the supplier's discretion. We emphasize that this is voluntary, and 
prior authorization of accessories is not a condition of payment. We 
note that although this voluntary action is being implemented, there 
will be a delay in implementation until systems changes are made to 
support the addition of accessories. Regarding supplies, as noted 
earlier, a prior authorization of supplies will be valid over a period 
of time and will not require a prior authorization for each subsequent 
claim submission. These procedural operations will be clarified in 
subregulatory guidance.
    Comment: Commenters expressed concern that supplies be prior 
authorized at the outset of care, with affirmation decisions being 
extended across multiple Medicare payments, in order to prevent undue 
burden and potential interruptions in care.
    Response: Claims for subsequent and serial rental items will be 
covered under the initial prior authorization decision for time periods 
stated in NCDs, LCDs, statutes, regulations, and CMS issued manuals and 
publication. For example, if a policy for the subject DMEPOS item 
requires medical necessity documentation to be updated annually, the 
initial prior authorization decision will cover the claims for the 
subject DMEPOS item for 12 months.
    Comment: Commenters suggested that if a DMEPOS item is subject to 
prior authorization and receives an affirmative decision, then by 
default, the prior authorization would extend to all related options, 
supplies, and accessories. Likewise, commenters believed the decision 
on the initial item would support claim payment for future repairs, or 
should the beneficiary require a same or similar item.
    Response: While we are trying to be increasingly cohesive in our 
prior authorization process, and are implementing changes to 
voluntarily include accessories, we note that reviewers are limited in 
their review to the documentation submitted with the request. In 
addition, we will only make payment for medically necessary items, 
options, supplies and accessories. Thus, submitted documentation must 
support the medical necessity of any related options, supplies or 
accessories. Similarly, if a request for payment is being made for a 
new replacement item, medical necessity must be established for the 
replacement.
    Comment: Some commenters suggested that prior authorization should 
not be viewed as a fraud and abuse tool but as an efficiency tool. 
Commenters suggested that Targeted Probe and Educate (TPE) or other 
pre-payment audits serve as the primary means of curbing abuse.
    Response: While we agree prior authorization creates efficiencies, 
we note that the statutory construct emphasizes the importance of prior 
authorization in preventing overutilization before the improper payment 
occurs. Prior authorization provides assurances to both providers/
suppliers and the agency that items or services furnished will likely 
be covered by Medicare. An affirmation prior authorization decision is 
provisional because other information that is only available after the 
claim is submitted may result in a denial. For example, there may be 
technical issues, such as a duplicate claim, which can only be known 
only after the claim is submitted.
    Final Rule Action: We are finalizing the creation and application 
process of the Required Prior Authorization List, as proposed.
b. Notice of the Required Prior Authorization List
    Section Sec.  414.234 currently requires us to inform the public of 
items included on the Required Prior Authorization List in the Federal 
Register notice no less than 60 days before implementation. We did not 
propose any changes to this section. We note that all other prior 
authorization processes described in Sec.  414.234 not mentioned in 
this rule remain unchanged.
    We believe that it is important that CMS have the authority to 
require prior authorization for an eligible item(s) (that is, on the 
Master List) locally to encourage immediate response to shifts in 
billing patterns, which may be related to potential fraud or abuse, or 
nationally, as the situation may so dictate. We proposed to maintain 
our current process, as outlined in Sec.  414.234, and publish a 
Federal Register notice no less than 60 days prior to implementation 
and post on the CMS website when items are placed on the Required Prior 
Authorization List.
    The comments with regard to the Notice of the Required Prior 
Authorization List, and our responses are set forth below.
    Comment: Some commenters indicated that the 60-day notice was not 
sufficient time for suppliers to adjust business practices. Various 
commenters suggested we increase the notification period to more than 
60 days.
    Response: We did not propose any regulatory changes to the 
notification process for prior authorization, and plan to maintain the 
regulatory text indicating that the Required Prior Authorization List 
is effective no less than 60 days after publication and posting. We 
note that we have granted longer notification periods, to date, in 
consideration of both the newness of the programs and the types of 
items selected.
    Final Rule Action: We are maintaining our current Notice of the 
Required Prior Authorization List process, as outlined in Sec.  
414.234. When items are placed on the Required Prior Authorization 
List, we will publish a Federal Register notice no less than 60 days 
before implementation, and post notification on the CMS website.
6. Standardizing the Written Order/Prescription
    We note that through subregulatory guidance and the implementation 
of several regulations, we have adopted different requirements for 
orders for different items of DMEPOS. To simplify order/prescription 
requirements and to reduce confusion, we proposed at Sec.  410.38(d)(1) 
to adopt one set of required written order/prescription elements for 
all DMEPOS items.
    We believe that the process to obtain DMEPOS items is sufficiently 
similar across the healthcare environment, and that a standardized 
order requirement is appropriate and would help promote compliance and 
reduce the confusion associated with complying with multiple, different 
order/prescription requirements for DMEPOS items. However, we note that 
the required timing for the order to be provided (from the treating 
practitioner to the supplier) would continue to vary for DMEPOS items. 
We proposed at Sec.  410.38(d) that for those items on the Required 
Face-to-Face Encounter and Written Order Prior to Delivery List, the 
written order/prescription must be communicated to the supplier prior 
to delivery of the item (per statutory requirement); for all other 
DMEPOS items, a written order/prescription must be communicated to the 
supplier prior to claim submission.
    We believe the proposed requirements of the standardized DMEPOS 
orders/prescriptions are commonly included in orders/prescriptions 
rendered in clinical practice. We believe consistent requirements for 
all items would prove useful as electronic vendors develop programs in 
support of electronic records for provider and supplier use. We 
proposed at Sec.  410.38(d)(1)(i) that the standardized order/
prescription require the elements listed here:

[[Page 60754]]

     Beneficiary Name or Medicare Beneficiary Identifier (MBI).
     General Description of the item.
     Quantity to be dispensed, if applicable.
     Date.
     Practitioner Name or National Provider Identifier.
     Practitioner Signature.
    Traditionally, these required standardized order elements are 
written on a prescription/order; however, we recognize that these 
required elements may be found in the beneficiary's medical record. We 
proposed at Sec.  410.38(d)(1) that CMS' medical review contractors 
shall consider the totality of the medical records when reviewing for 
compliance with standardized order/prescription elements.
    While the above standardized elements are conditions of payment, we 
recognize that additional information might be helpful on the order/
prescription for clinical practice and quality of care. Information may 
be added to the order/prescription or found in the beneficiary's 
medical records but are not conditions of payment. For example, route 
of administration--such as whether oxygen is delivered via nasal 
cannula or face mask is not required as a condition of payment, but may 
be indicated for good clinical practice.
    Current Sec.  410.38(d), (e) and (f) contain written order and 
documentation requirements specific to equipment that is used for 
treatment of decubitus ulcers, seat-lifts, and transcutaneous 
electrical nerve stimulator units. We believe the requirements found at 
Sec.  410.38(d), (e) and (f) are appropriate for inclusion in the 
standardized written order/prescription and medical record 
documentation requirements outlined in the CY 2020 DMEPOS proposed 
rule. In addition, we believe item-specific coverage requirements may 
be included in national or local coverage documents, as appropriate. 
Therefore, we proposed to delete the coverage requirements outlined in 
Sec.  410.38(d), (e) and (f), and to replace sections Sec.  410.38(d) 
and (e), with our proposed conditions of payment and process for 
suspending the face-to-face encounter and written order prior to 
delivery requirements, respectively.
    The comments with regard to standardizing the written order/
prescription, and our responses are set forth below.
    Comment: We received feedback that the term ``date'' is not 
sufficiently specific for reviewers and billing entities to know how to 
date their order/prescription to comply with regulatory and statutory 
requirements, as applicable. Some commenters supported the uniform 
order requirements without issue. In particular, one commenter 
supported the ability to include either the beneficiary name or the 
Medicare beneficiary identifier (MBI), and either the prescriber name 
or his/her national provider identifier (NPI), and suggested this 
policy be adopted for all other Medicare services. One commenter 
supported the use of the totality of the medical records to document 
the order/prescription required elements. A commenter reminded CMS that 
the significant regulatory updates codified in this rule should be 
reflected and updated in supporting materials.
    Response: We appreciate the commenters' support of our proposal to 
standardize order requirements and the use of the totality of the 
medical records to document the order/prescription required elements. 
The comment suggesting that MBI and NPI would be helpful if adopted 
across all sectors is outside the scope of this rule. Regarding the 
comment about the date element, we agree with the commenter that the 
date element may have been subject to interpretation. Accordingly, we 
will change ``date'' to ``order date''. We will revise its 
subregulatory guidance to reflect these changes. As noted at Sec.  
410.38(d)(1)(ii), a completed order for items on the Required Face-To-
Face Encounter And Written Order Prior To Delivery List must occur 
prior to the item being dispensed. Items not on the list require the 
order prior to claim submission.
    Comment: One commenter requested confirmation whether a 
standardized order element that is not on the order but is found within 
the medical record would be considered for payment purposes.
    Response: While we believe the basic order requirements imposed by 
this rule are typical to good clinical practice, we provide reviewers 
with the capacity to consider the totality of the medical record when a 
missing or flawed element is clearly documented elsewhere in the 
record.
    Comment: Commenters expressed concern that documentation include 
quantity to support payment even when the quantity of the item 
dispensed is one.
    Response: We believe the comment is specifically about the written 
order/prescription included in the documentation required for a face-
to-face encounter. As we stated in the CY 2020 DMEPOS proposed rule (84 
FR 38379), Medicare pays for DMEPOS items only if the beneficiary's 
medical record contains sufficient documentation of the beneficiary's 
medical condition to support the need for the type and quantity of 
items ordered. However, we note ``quantity, as applicable'', is one of 
the required elements of the order. For many DMEPOS items, the 
prescription/order will not need to state that ``one'' is the quantity 
because quantity is not applicable for those items. An example would be 
a wheelchair. Alternately, a prescription order for disposable supplies 
will need to include the quantity to be furnished. When reviewing 
supporting documentation, the reviewer would expect to see clinical 
need to support any quantity furnished, whether one DMEPOS item or 
more.
    Comment: One commenter suggested that we update the required 
elements of the standardized order/prescription to specify that 
``Practitioner Name or National Provider Identifier (NPI)'' refers to 
the treating practitioner.
    Response: We agree with commenter's suggestion. Treating 
practitioner is consistent with our intent, as defined throughout this 
final rule. We have updated the written order/prescription section to 
clarify our intent that the practitioner signing the document and 
including his or her name be the treating practitioner, as defined 
throughout Sec.  410.38 (c) and (d). It will now explicitly state 
``Treating Practitioner Name or National Provider Identifier (NPI)'' 
and ``Treating Practitioner Signature.''
    Final Rule Action: We are finalizing the order section as proposed 
in Sec.  410.38(d), with modifications made at Sec.  410.38(d)(1)(i)(D) 
and Sec.  410.38(d)(1)(i)(E). We are revising the element 
``Practitioner Name or National Provider Identifier'' to say ``Treating 
Practitioner Name or National Provider Identifier (NPI).'' and the 
element ``Practitioner Signature'' to say ``Treating Practitioner 
Signature.'' We are also revising the element ``date'' to say ``order 
date.''

C. Miscellaneous Comments

    We received several comments that were outside the scope of the CY 
2020 DMEPOS proposed rule. While some of these comments were related to 
prior authorization topics, they were not the issues we addressed in 
detail in the proposed rule. In the following discussion, we summarize 
and respond to the comments.
    Comment: Some commenters suggested shortening the procedural 
timeframes provided to the contractors via operational instructions 
regarding prior authorization decisions.
    Response: The prior authorization operational process is outside 
the scope

[[Page 60755]]

of this final rule, however, we continually strive to make program 
improvements. After adding an item to the Required Prior Authorization 
List, we customize final review and decision timelines for each item. 
In the December 30, 2015 final rule, we stated that this approach to 
final timelines provides flexibility to develop a process that involves 
fewer days, as may be appropriate, and allows us to safeguard 
beneficiary access to care. This is evident in the process developed 
for the prior authorization of pressure reducing support surfaces, 
which allows up to 5 days for both initial and resubmitted requests, 
while prior authorization of PMDs allows up to 10 days for an initial 
request and 20 days for a subsequent request.
    Comment: One commenter urged CMS to allow for more electronic prior 
authorization communication to further expedite the process for certain 
items.
    Response: The prior authorization operational process is outside 
the scope of this final rule, however, we continue to discuss with 
industry about future enhancements to electronic prior authorization 
processes. Additionally, our medical review contractors have recently 
started offering prior authorization request submissions and decisions 
via their online web portals, in efforts to provide suppliers 
flexibility in communication approaches.
    Comment: Some commenters requested CMS clarify that the electronic 
documentation generated by e-prescribing platforms is an appropriate 
source of information that can be relied upon during medical reviews.
    Response: The format and use of electronic platforms is outside the 
scope of this rule.
    Comment: Commenters suggested that if a beneficiary receives an 
affirmative prior authorization decision, it should continue to apply 
even if the beneficiary changes suppliers or moves locations.
    Response: We appreciate these comment. Although this suggestion is 
outside the scope of this regulation, we note that our current 
processes outlined in our prior authorization operational guides allow 
for the prior authorization decision and corresponding claim 
information to remain with the beneficiary. We assume such transfers 
would be made in accordance with applicable privacy laws.
    Comment: Commenters shared their support of the prior authorization 
process, but expressed concern about the administrative resources 
needed to effectuate prior authorization requests, which should be 
reflected in Medicare payments.
    Response: We thank the commenters for sharing their concerns. We 
believe that some assurance of payment and some protection from future 
audits may ultimately reduce administrative resources. Adjustments to 
Medicare payments for items subject to prior authorization is outside 
the scope of this regulation.
    Comment: One commenter expressed concern regarding the application 
of Medicare rules during the audit process, and believes that this 
ultimately impacts patient care.
    Response: We strive to ensure that patients receive the benefits 
that they are entitled to, while protecting the Medicare Trust Funds 
against improper payments. The tools that are provided in this rule 
help limit improper payments. In addition, we believe that the 
increased communication offered by prior authorization helps ensure 
suppliers that items furnished are covered by Medicare and provide an 
assurance of likely payment. We note that we have robust oversight 
processes in place to ensure the accuracy of medical review and prior 
authorization decision making thereby avoiding impacts to patient care.
    Comment: Some commenters expressed concern that items subject to 
prior authorization should not be subject to additional audit.
    Response: Paid claims for which there is an associated affirmed 
prior authorization decision will be afforded some protection from 
future audits. However, when the subject claim falls within the CERT 
annual sample or when a supplier's billing patterns signal potential 
fraud, inappropriate utilization or changes in billing patterns, the 
claim may be subject to an audit.
    Comment: Some commenters suggested the face-to-face encounter 
requirement be eliminated.
    Response: We do not have the authority to eliminate the face-to-
face encounter requirement since it is statutorily mandated.
    Comment: Some commenters requested that CMS initially implement new 
items to prior authorization within a limited geographic scope, prior 
to expansion, to ensure a smooth transition to national implementation.
    Response: We appreciate the commenters' support of our roll-out 
processes to date. We will continue to evaluate new items to ensure 
sufficient timeframes are provided when planning national 
implementation.
    Comment: Some commenters suggested methods to align Part C prior 
authorization activities with the FFS program, and suggested 
operational improvements to such programs.
    Response: We note that changes to the Medicare Advantage program 
were not proposed and subject to formal notice and comment under this 
rulemaking, and are outside the scope of this rule.
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BILLING CODE 4120-01-C

VII. DMEPOS Competitive Bidding Program (CBP) 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 proposed to revise the existing DMEPOS 
Competitive Bidding Program (CBP) change of ownership (CHOW) 
regulations in Sec.  414.422(d) in recognition of the fact that CHOWs 
may occur on shorter timeframes than our regulations previously 
contemplated. We also proposed to revise Sec.  414.423(f) for the 
submission of a hearing request in notices of breach of contract.

B. Proposed Amendments

    We proposed to revise the following amendments in Sec.  414.422(d) 
as follows:
     We proposed to add the acronym ``CHOW'' after the title of 
the paragraph and use the acronym throughout the section where we 
previously wrote out in full text ``change of ownership''.
     We proposed to remove the notification requirement at 
paragraph (d)(1) because we no longer believe it is necessary for CMS 
to be notified 60 days in advance when a contract supplier is 
negotiating a CHOW. In past rounds of the CBP, there have been 
situations in which contract suppliers have undergone CHOWs within the 
60-day timeframe and they were unable to meet the 60-day notice 
requirement due to circumstances that were not fully within their 
control. We recognize that the 60-day notice requirement is a bit 
onerous and as such we proposed to remove paragraph (d)(1) in its 
entirety. We also proposed to redesignate and reorganize the remaining 
text of paragraph (d).
     We proposed to remove the distinction of a ``new entity'' 
from paragraph (d)(2)(ii) in its entirety, and retain the successor 
entity requirements in paragraph (d)(2)(i) with changes, as we are 
aligning the CHOW requirements for all entities, regardless of whether 
a ``new'' entity is formed as a result of the CHOW. We also proposed to 
revise the requirement to submit the documentation described in Sec.  
414.414(b) through (d) from 30 days prior to the anticipated effective 
date of the CHOW to instead require submission prior to the effective 
date of the CHOW. We further proposed to change the requirement on 
submission of a signed novation agreement 30 days before the CHOW to 
instead require that the novation agreement be submitted by the 
successor entity no later than 10 days after the effective date of the 
CHOW. We want to allow flexibility for the timing of submission of 
documents since it may not always be possible for the successor entity 
to submit the applicable documentation 30 days before the anticipated 
effective date of the CHOW. Through our education and outreach efforts, 
we will encourage the successor entity to work with CMS to submit draft 
documentation as far in advance as possible for CMS to review to ensure 
that the novation agreement is acceptable to CMS. We believe shortening 
the timeframe for submission from 30 days to 10 days will expedite 
CMS's determination on whether to allow transfer of the contract to the 
successor entity. We also proposed that the successor entity must 
submit a novation agreement that states that it assumes all obligations 
under the contract.
     We proposed to remove the phrase ``new qualified'' before 
``entity'' and replace it with the term ``successor'' in paragraph 
(d)(3) as this is applicable to all successor entities. We also 
proposed to add the term ``may'' to make it clear that the transfer of 
the entire contract to a successor entity is at CMS' discretion upon 
CMS' review of all required documentation. The revision will align with 
existing language in paragraph (d)(4), which specifies that CMS may 
transfer the portion of the contract if certain conditions are met.
     We proposed to revise paragraph (d)(4) by removing the 
``e.g.'' parenthetical after ``distinct company'' to retain only the 
example of a subsidiary, and noting it as ``for example'' as we 
realized that it is the clearest example. In addition, some of the 
other examples were not accurate (for example, a sole proprietor) and 
this could lead to confusion. We also proposed to remove the reference 
to ``new qualified'' before ``entity'' and replace it with the term 
``successor,'' as the resulting entity in a transfer of a portion of 
the contract may not result in a ``new'' entity but will always result 
in a ``successor'' entity. In addition, we proposed to remove the 
phrase ``new qualified owner who'' in paragraph (d)(4)(i) and replace 
it with ``successor entity that'' to align with the language used 
throughout Sec.  414.422(d). We also proposed to remove the acronym 
``i.e.'' and replace it with ``that is.''
    In Sec.  414.423(f)(2), we require that a request for a hearing be 
``received by'' the Competitive Bidding Implementation Contractor 
(CBIC) within 30 days from the date of the notice of breach of 
contract. We proposed to revise paragraph (f)(2) to specify that the 
request for a hearing

[[Page 60778]]

must be ``submitted to'' the CBIC rather than ``received by'' the CBIC 
within 30 days from the date of the notice of breach of contract. 
Previously, the CBIC was only able to receive a written request via 
mail or fax for a hearing from a contract supplier, however, now 
contract suppliers have a secure online method to submit hearing 
requests. Now that hearing requests can be submitted online, it will be 
apparent to all parties when the request for a hearing is submitted, as 
the date on which the request was received by the CBIC was not apparent 
to suppliers in the past. Furthermore, this revision aligns with 
language used throughout Sec.  414.423.
    We solicited public comments on these amendments. We received 
comments in support of our CHOW proposal to remove the 60-day 
requirement and require submission of the novation agreement within 10 
days of the effective date of the CHOW. We did not receive any comments 
on our other proposals for CHOWs or on our proposal for submission of a 
hearing request in a notice of a breach of contract appeal. We are 
finalizing our DMEPOS CBP proposals without change.

VIII. Requests for Information

A. Data Collection

1. Technical Expert Panel on Improving the Reporting of Composite Rate 
Costs Under the ESRD PPS
a. Background
    As we discussed in the CY 2020 ESRD PPS proposed rule (84 FR 38396 
through 38400), a Technical Expert Panel (TEP) was held on December 6, 
2018 to discuss options for improving data collection to refine the 
ESRD PPS case-mix adjustment model. CMS contracted with a data 
contractor to convene this TEP and conduct research and analysis to 
refine the case-mix adjustment model. This TEP represented the first 
step in acquiring stakeholder and expert input to inform these 
refinements. The final TEP report and other materials can be found at: 
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ESRDpayment/Educational_Resources.html.
    The TEP was comprised of 16 expert stakeholders, including ESRD 
facilities, representatives of professional associations, independent 
academic clinical researchers, and patient advocates. In addition, a 
select number of observers attended, including representatives of 
governmental agencies and independent policy advisory groups. The TEP 
was organized into seven sessions, including an overview of the ESRD 
PPS and the cost components of dialysis treatment, four topical 
sessions corresponding to potential data collection strategies, and a 
final summary session.
b. Summary of the Data Contractor's Presentation to the TEP
i. Components of Dialysis Treatment Costs and Limitations of Current 
Data Collection
    The data contractor's pre-TEP analysis of CY 2016 cost report data 
showed that composite rate costs comprise nearly 90 percent of average 
total treatment costs, with capital, direct patient care labor, and 
administrative costs representing approximately 88 percent of total 
average composite rate cost per treatment. Nevertheless, under current 
reporting practices, there are no data on the patient- and treatment-
level variation in the cost of composite rate items and services. These 
findings underscore the importance of identifying variation in these 
costs to inform the development of a refined case-mix adjustment model.
ii. Data Collection Options
    The data contractor presented the participants in the TEP with 
several options for optimizing data collection on composite rate items 
and services, and each option was specifically formulated to minimize 
reporting burden for ESRD facilities where possible. Feedback on these 
options and input on alternative approaches, as provided by the 
participants, would be used to further develop practical approaches for 
more accurate data collection.
    Among the options presented for optimizing the collection of 
composite rate cost data were (1) improving the accuracy of charges 
and/or itemizing the use of composite rate services on claims; (2) 
reporting duration of each dialysis treatment session on claims (3) 
identifying and allocating costs to discrete categories of patients or 
patient characteristics that are associated with high cost of 
treatment; and (4) improving the reporting of facility-level costs. 
Each of these options is described in the following sections. The TEP 
participants' responses to these approaches are summarized in the Key 
Findings section at the end of this section. We note that our summary 
of the key findings is based on a review of the individual comments and 
is not meant to represent a consensus view shared by all TEP 
participants, but rather to consolidate related suggestions made by one 
or more participant.
iii. Improving the Accuracy of Charges
    The data contractor presented two approaches for directly 
collecting data on the utilization of composite rate items and 
services. The first was to require more accurate reporting of charges 
for each dialysis session. Recent analysis of charge data revealed 
little variation in charges for any given revenue center code 
associated with a dialysis treatment, indicating that facilities are 
using standardized charges. The second approach was to require itemized 
reporting of all or a limited number of high cost composite rate items 
and services. Beginning in 2015,\44\ ESRD facilities were required to 
report selected composite rate services that were included on the 
Consolidated Billing List (CBL), however, the data contractor's 
analysis of reporting on use of these items showed that compliance has 
been minimal. Participants noted that these two options would be 
burdensome for ESRD facilities.
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    \44\ Department of Health and Human Services. Centers for 
Medicare and Medicaid Services. Change Request 8978. December 2, 
2014 (pp 3-4). https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/Downloads/R200BP.pdf.
---------------------------------------------------------------------------

iv. Collection of Data on Duration of Dialysis Treatment
    A singular option that would provide sufficient data to develop a 
refined case-mix adjustment model is the collection of dialysis 
treatment duration for each session. If dialysis session time were 
reported for each dialysis treatment, cost report and treatment-level 
data could be integrated to infer differences in composite rate costs 
across patients. In this paradigm, patient-level differences in 
composite rate costs could be attributed to two discrete categories: 
Differences due to dialysis treatment duration (measured in units of 
time) and differences unrelated to treatment duration. Treatment 
duration would not be used to directly adjust payment, rather, it would 
be used to apportion composite rate costs that are currently only 
observable at the facility level to the patient or treatment level for 
use in the case-mix adjustment. Data on the duration of dialysis 
session would allow for a proportionately higher proportion of 
composite rate costs to be allocated to patients with longer dialysis 
treatment times.
    The data contractor provided examples of ways that longer duration 
of dialysis time might be associated with increased treatment costs, 
including utility costs, accelerated depreciation on equipment, and 
lower daily census counts, which, among other things, would result in 
increased

[[Page 60779]]

per-treatment capital costs. Additional labor hours for a patient with 
longer treatments on average could increase per-treatment labor costs, 
and patients with increased use of dialysate and water treatment 
supplies or equipment likely have higher average per-treatment supply 
costs.
    The data contractor proposed two approaches to collect treatment 
duration data: (1) Use existing data from Consolidated Renal Operations 
in a Web-Enabled Network (CROWNWeb) on delivered dialysis minutes 
during the monthly session when a laboratory specimen is drawn to 
measure blood urea nitrogen (BUN) or (2) have ESRD facilities report 
treatment duration on Medicare claims. For the latter, treatment 
duration data could be reported by using a new HCPCS or revenue center 
code to indicate units of treatment time for each dialysis treatment or 
by updating the definition of the existing revenue center code for 
dialysis treatments so that the units correspond to treatment time 
instead of the number of treatments. ESRD facilities already report to 
CMS a single monthly treatment time in CROWNWeb for in-facility 
treatments, indicating that facilities currently collect treatment 
duration.\45\ Moreover, many ESRD facilities' electronic health records 
(EHR) systems automatically collect this information for every dialysis 
treatment, minimizing additional burden of reporting this metric on 
claims.
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    \45\ Centers for Medicare & Medicaid Services (CMS) End-Stage 
Renal Disease Quality Incentive Program (ESRD QIP) Payment Year (PY) 
2021 Measure Technical Specifications. Page 23. Available at: 
https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/ESRDQIP/Downloads/PY-2021-Technical-Specifications-.pdf.
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v. Capturing Variation in Costs Associated With Complex Patients
    Participants on the TEP also discussed the variation in composite 
rate costs that is independent of treatment duration and associated 
with severity of illness or disability in the dialysis patient 
population. In preparation for the TEP, the data contractor interviewed 
a number of ESRD facilities to identify sources of composite rate cost 
variation associated with the provision of care to more complex 
patients. Patient level-factors identified during the course of these 
interviews and during the TEP included seven points: (1) Maintenance of 
isolation rooms and use of dedicated nurses to attend patients with 
active hepatitis B infection; (2) treatment and care for incident 
dialysis patients (first 120 days); (3) treatment and care for 
catheterized patients; (4) pre- and post-dialysis session care for non-
ambulatory patients; (5) treatment and care for pediatric patients; (6) 
treatment of patients exhibiting behavioral problems related to mental 
illness/drug dependency; and (7) treatment and care for home dialysis 
patients.
    During the TEP, participants identified additional factors 
associated with higher treatment costs. These included hemodynamic 
instability, dual eligibility for Medicare and Medicaid, depression or 
mental illness, poor functional status, no primary caregiver, and 
institutionalized status or incarcerated or residence in a skilled 
nursing facility.
    A common thread among these factors is that they all require more 
intense use of labor, especially direct patient care staff and highly 
specialized nursing or social work care or other intervention, such as 
would be provided by staff to assist in transfer for non-ambulatory 
patients.
    The data contractor described alternative approaches for collecting 
sufficient data on these composite rate costs to inform a refined case-
mix adjustment model. The first would entail reporting such items and 
services as line items on the claim. The second would involve grouping 
patients into a set of ``high-risk'' or ``high-cost'' patient types, in 
a hierarchical fashion and apportioning costs to each patient grouping 
based on known use of services.
vi. Facility-Level Costs
    The TEP also included discussion of facility-level costs, 
identifying drivers of these costs, and the ESRD facility 
characteristics that may result in cost differences across facility 
types and potential revisions to the cost reports to better capture 
these costs. Participants on the TEP indicated that drivers of 
facility-level costs include: (1) Facility size (treatment volume and 
treatment capacity), which affects economies of scale; (2) geographic 
location, which affects both input prices and wages; (3) hospital 
versus freestanding status; (4) ownership type; and (5) whether the 
facility offers specialized services, such as pediatric or home 
dialysis treatment. These facility characteristics can affect both 
capital and labor costs, as well as the costs for drugs, laboratory 
tests and supplies.
c. Key Findings
    Based on a review of the individual participant responses to each 
of the data collection options, CMS has summarized key conclusions in 
the following sections. The sections are arranged in the order of the 
topical sessions, as they were presented earlier.
i. Components of Dialysis Treatment Costs and Limitations of Current 
Data Collection
    During this session, the participants agreed that capital, labor, 
and administrative costs make up the majority of composite rate costs. 
They stated that the level of complexity of dialysis patients has been 
increasing over time, and noted some costs at the margins (for example, 
information technology costs) that are not reflected in cost reports. 
Participants were averse to reporting individualized charges to reflect 
treatment-level variation in the items and services provided, unless 
this reporting was somehow linked to payment.
ii. Duration of Dialysis Treatment
    To record time on dialysis, participants preferred that the data be 
collected on Medicare claims. They did not support using existing 
CROWNWeb data on treatment duration, as there were too many questions 
about its completeness and timeliness. They agreed that if duration of 
dialysis treatment time is collected on claims that it should be 
reported in actual minutes dialyzed and not, for example, in 15-minute 
increments. The participants cautioned that reporting time on dialysis 
on the claims would place additional burden on facilities, but for 
facilities with EHRs, the burden associated with the collection of 
dialysis treatment time is expected to be small and temporary because 
the information is already collected. Collecting time on dialysis could 
be difficult to accomplish for ESRD facilities that do not use EHRs. 
Some participants maintained that certain factors related to patient 
complexity--such as comorbidities and mental health status--that are 
associated with treatment costs are unrelated to treatment duration.
iii. Identifying Costs Associated With Complex Patients
    The participants expressed support for improving consistency in 
cost reporting across facilities. They recommended clarifying cost 
report instructions to ensure comparable reporting across facilities. 
They agreed that labor is the major source of patient-level cost 
variation, but expressed concern that allocating labor costs to the 
patient level or even the patient type would pose significant 
challenges. The participants noted that certain high-cost items and 
services used to treat complex patients, such as isolation rooms or 
lifts, could be easily itemized on claims and

[[Page 60780]]

reported in cost reports. They proposed alternative approaches for 
quantifying resource use associated with complex patients, such as 
classifying resource use by intensity of care provided or tracking 
staff time across patients.
iv. Facility-Level Costs
    The participants stated that there are differences in cost at the 
facility level associated with the characteristics presented in the 
Facility-level Drivers of Cost session. They noted EHR practices are 
also associated with variation in facility-level cost. In addition, 
they emphasized that treatment volume relative to capacity has a 
significant financial impact on dialysis facilities; however, these 
costs currently are not reflected in cost reports. They also suggested 
that it might be beneficial to reflect missed treatments through a 
capacity utilization measure on the cost report and this could 
distinguish between more costly missed treatments and less costly 
planned absences, as the latter can be adjusted so that the facility 
chair is filled. The participants also indicated that rural facilities 
have costs not incurred by non-rural facilities, even among facilities 
with similar treatment volume, and do not believe the low volume 
payment adjustment and rural adjuster to be redundant.
d. Summary
    This TEP focused on data collection on composite rate costs to 
inform the development of a more refined case-mix adjustment model for 
the ESRD PPS. Currently two equations are used to calculate the base 
rate for payment: (1) One at the facility level and, (2) one at the 
patient or treatment level--because items in the composite rate are not 
collected at the patient level.\46\
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    \46\ Medicare Claims Processing Manual. Chapter 8--Outpatient 
ESRD Hospital, Independent Facility, and Physician/Supplier Claims. 
(Rev. 4202, 01-18-19). Page 7/143.
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    While formerly separately billable items and services are itemized 
at the treatment level on claims and also reflected in cost reports, 
composite rate services, which comprise the bulk of the total costs for 
dialysis treatment are not itemized and can only be estimated at the 
facility level from cost reports. Charges for these services, as 
reported on claims, show little variation across facilities and cannot 
be used for estimating patient- or treatment-level variation in cost. 
Solutions for optimizing data collection on individual use of composite 
rate services were proposed by the data contractor and discussed by the 
participants. CMS' current goal, as emphasized throughout the TEP, is 
to explore options to improve the identification of per-treatment 
composite rate costs, and we invite comment on all of the options 
proposed during this TEP and discussed as part of this comment 
solicitation. We agree with the participants on the TEP that the 
benefits of improving the ESRD PPS case-mix adjustment model must be 
weighed against any additional ESRD facility burden that could result 
from changes to claims and cost reporting.
e. Solicitation for Input and Comment: Improving Data Collection on 
Composite Rate Costs
    In the CY 2020 ESRD PPS proposed rule (84 FR 38398), CMS solicited 
input on options for improving the reporting of composite rate costs 
for the ESRD PPS. We explained that we believed improved reporting of 
both patient level costs, as reported on claims, and facility level 
costs, as reported on cost reports, is needed in order to obtain 
sufficient, high quality data to inform a refined case mix adjusted 
model for the ESRD PPS. We solicited comments on, or elaborations of, 
the options presented and discussed during the TEP, described in the CY 
2020 ESRD PPS proposed rule (84 FR 38396) and also in section 
VIII.A.1.b.ii of this final rule, as well as novel approaches for 
improving the reporting of patient-level and facility-level costs that 
are not described here. We stated that CMS will consider new input from 
stakeholders as we develop methodologies for implementing select 
changes to claims and cost reports that serve to elucidate composite 
rate costs. We noted that CMS has not endorsed any particular method or 
option at this time.
i. Input Sought on Identifying Components of Composite Rate Costs
    During the TEP, the data contractor identified six cost components 
comprising composite rate costs for the ESRD PPS. These include: (1) 
Capital, (2) administrative, (3) labor, (4) drug, (5) laboratory and, 
(6) supply costs. Options were presented to improve the precision and 
accuracy of reporting costs for each component. Data on costs of some 
components, including capital, administrative and labor, are found 
chiefly in facility cost reports and reflect spending at the facility 
level. These facility-level costs, in combination with treatment counts 
can be used to estimate patient or treatment level composite rate 
costs. Data on other cost components, including drugs, laboratory tests 
and supplies, can be found both on the cost reports and on claims, 
however composite rate laboratory and supply costs are not specified on 
the cost report. Basic treatment charges are seen to vary little across 
patients or across facilities. Cost report data were questioned by the 
participants with regard to their accuracy and reliability.
    Therefore, in the CY 2020 ESRD PPS proposed rule (84 FR 38398 
through 38399), CMS solicited further input on ways to improve (1) the 
accuracy of charges and (2) the precision and reliability with which 
cost composite rate costs are identified and reported in cost reports.
    We invited commenters to submit their responses to the following 
questions and requests:
     Do the six cost components include all aspects of dialysis 
treatment costs covered by Medicare?
    ++ If not, please describe any further component costs within each 
component?
    ++ Within each component, are there significant costs that are not 
currently captured in cost reports?
     The data contractor found that most composite rate costs 
are embedded in the capital, administrative and labor components. Given 
the relatively small contribution of drugs, laboratory tests, and 
supplies to composite rate costs, is there a justification for any 
further consideration of composite rate costs from capital, labor and 
administrative components?
     Why is there such limited variation in reported charges? 
Would it be useful to focus on improving reporting of these charges 
instead of collecting new information on cost reports or claims? Why is 
there such limited reporting of costs for items and services included 
in the CBL? Are there subsets of composite rate items and services that 
could be successfully reported on claims?
ii. Input Sought on Collection of Duration of Treatment Data
    During the TEP, the data contractor proposed a paradigm by which to 
consider select changes to cost reporting that would reveal patient-
level variation in costs, differentiating costs by those which can be 
attributed to dialysis treatment duration and those unrelated to 
treatment duration. Capturing data on these two types of differences 
was the thrust of the discussion during much of the TEP. In the CY 2020 
ESRD PPS proposed rule (84 FR 38399), CMS solicited further input on 
these two elements of cost differential.
    Dialysis session duration data could be used to refine calculations 
of per-treatment costs by increasing specificity in the allocation of 
composite rate costs. Applying this change only to current data 
collection practices would suffice to account for treatment level 
differences in costs due to length of

[[Page 60781]]

treatment. Duration data would allow for the distribution of composite 
rate component costs in such a way that a higher proportion of a 
facility's composite rate costs could be attributed to patients with 
longer dialysis treatment times. This would improve the precision with 
which costs for the use of such composite rate items and services as 
capital equipment use, water treatment and dialysate are allocated.
    We invited comments on the option of collecting duration of 
treatments data, including responses to the following questions:
     Which of the six composite rate cost components (capital, 
administrative, labor, drug, laboratory, and supply costs) are most 
likely to vary with treatment duration?
     Should new information for these cost components be 
collected on cost reports, for use in better inferring the composite 
rate costs associated with treatment duration? If yes, please describe 
the additional information that would be needed and how this 
information could be used.
     Describe any challenges that would be encountered by ESRD 
facilities in reporting treatment duration, using a line item 
corresponding to units of time as a new revenue center code on the 
claim.
     Describe any alternatives to the use of dialysis treatment 
duration that could be used as a proxy for intensity of resource 
utilization and which can be reported at the patient/treatment level.
     Do facilities record the total time the patient spends in 
the facility before and after the actual dialysis treatment time, as 
well as the duration of the actual dialysis treatment? If so, please 
describe any obstacles to reporting this information on the claim.
iii. Input Sought on Collection of Data To Identify Sources of 
Variation in Treatment Costs Associated With Complex Patients
    The data contractor presented a list of conditions, identified 
during pre-TEP interviews with ESRD facilities, associated with higher 
cost treatment for dialysis patients. During the TEP, the participants 
added to this list. The combined list of these conditions was described 
in the CY 2020 ESRD PPS proposed rule (84 FR 38397) and in section 
VIII.A.1.b.v of this final rule.
    The data contractor also presented alternative approaches for 
collecting sufficient data on these composite rate costs so as to 
inform a refined case-mix model. One approach would entail reporting 
such items and services as line items on the claim. The second would 
involve grouping patients into a set of ``high risk'' or ``high cost'' 
patient types, in a hierarchical fashion, and apportioning costs to 
each patient grouping based on known use of services. There was no 
consensus among participants with regard to the best way to capture 
these costs.
    In the CY 2020 ESRD PPS proposed rule (84 FR 38399), CMS solicited 
comments and suggestions about how to best capture these costs. In the 
proposed rule we provided the following questions to consider: First, 
to the extent labor is the dominant source of variation in cost in 
providing dialysis services to complex patients, please describe the 
amount and type of labor required to care for patients with the 
conditions described above or any other conditions which complicate the 
provision of basic dialysis treatment. Second, please describe other 
dimensions of dialysis care and treatment for which composite rate 
costs vary independent of treatment duration. Third, are there 
discrete, high-cost composite rate items and services that vary at the 
patient level that could be feasibly itemized on claims? Fourth, how 
could a set of mutually exclusive, exhaustive patient groups be 
constructed to incorporate patients with common patterns of resource 
use? Fifth, what challenges might be faced in implementing the proposed 
reporting solutions (a) on claims and (b) on cost reports? Sixth, are 
pediatric and home dialysis costs accurately apportioned across cost 
components in cost reports? If not, please describe.
iv. Input Sought on Collection of Facility-Level Data
    During the TEP the data contractor presented a framework for 
considering facility-level drivers of cost, which meet two criteria: 
(i) They are independent of patient-level factors, and (ii) they affect 
the cost of dialysis treatment. The TEP debated each criterion for 
facility-level cost drivers, including facility size and realized 
treatment capacity. Geographic location affects wages and prices of 
goods and services. While some commenters have suggested that rural 
ESRD facilities incur higher costs, the data contractor's analysis of 
2016 cost report data for the December 2018 TEP indicates that overall 
composite rate costs for rural facilities may be lower than for urban 
facilities. Further analysis by cost component suggests that with the 
exception of drug costs, urban facilities incur higher costs for each 
composite rate cost component. Ownership and other organizational 
factors, such as whether the facility administers a home dialysis 
program or serves the pediatric population also have a bearing on cost.
    In the CY 2020 ESRD PPS proposed rule (84 FR 38399 through 38400), 
CMS solicited input from stakeholders regarding the further 
identification of facility-level drivers of cost, especially those that 
affect the cost of composite rate services. We asked commenters to 
consider the following questions: First, what facility level factors 
should be added or further specified in the cost report to better 
reflect actual facility costs for the provision of composite rate items 
and services? Second, what are costs incurred by pediatric dialysis 
units that do not vary at the patient-level? Third, what types of costs 
do facilities providing home dialysis services incur that do not vary 
at the patient-level? Fourth, how do variations in drivers of facility 
costs affect composite rate costs at the facility level? Fifth, to what 
extent are these composite rate costs outside the facility's control? 
Sixth, what are the challenges or barriers to reporting missed 
treatments on claims and/or cost reports?
v. Other Input Needed
    In the CY 2020 ESRD PPS proposed rule (84 FR 38400), we also 
solicited responses to the following questions that arose during the 
TEP. We noted that answers to these questions from the stakeholder 
community will help us to develop and refine reporting options for 
composite rate costs.
    Beginning January 1, 2015, ESRD facilities have been required to 
itemize on claims the use of composite rate drugs listed on the 
CBL.\47\ As presented at the TEP, the data contractor's analysis of 
2016 claims data revealed that approximately 40 percent of facilities 
were not reporting these items. We requested that commenters identify 
any obstacles that might be preventing ESRD facilities from reporting 
the use of these composite rate drugs. Also, are there any drugs listed 
in the most recent CBL that are particularly challenging to report? If 
there are, please describe those challenges.
---------------------------------------------------------------------------

    \47\ Department of Health and Human Services. Centers for 
Medicare and Medicaid Services. Change Request 8978. December 2, 
2014 (pp 3-4). https://www.cms.gov/Regulations-and-Guidance/Guidance/Transmittals/Downloads/R200BP.pdf.
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    The participants mentioned that Medicare Advantage and other 
secondary payers will sometimes reject claims that include billing for 
certain items and services, such as oral medications. We requested 
comments on the specific billing practices that lead to such claims 
being rejected, along with the specific items and services that are 
rejected by payers.

[[Page 60782]]

    The participants expressed reservations about the reliability of 
cost report data and also about the comparability of cost reports 
between freestanding and hospital-based ESRD facilities.
    We also solicited comments regarding suggested specific changes to 
the cost reports or cost report instructions that would be most useful 
to improve the consistency of reporting across facilities.
    We received extensive comments on these issues from approximately 9 
stakeholders and an additional 35 comments that indirectly addressed 
the request for information (RFI) for data collection. Below we provide 
a short synopsis of the findings for each of the topics discussed in 
the TEP and solicited for comment in the CY 2020 ESRD PPS proposed 
rule. We will provide a more detailed summary of the comments received 
on this RFI on the CMS website https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ESRDpayment/Educational_Resources.html. While 
we will not respond to these comments here, we will take them into 
consideration during future policy development. We thank the commenters 
for their detailed and thoughtful comments. We will consider these 
recommendations for future rulemaking.
Refinements to the Components of Composite Rate Costs
    Some commentators expressed the opinion that use of composite rate 
components to price the cost of dialysis treatment was outmoded and 
counter to the objective of the bundled system instituted with the ESRD 
PPS in 2011. Although the RFI directed stakeholders to consider and 
comment on improving data collection for the determination of composite 
rate (CR) costs, the CR was not at the heart of their concerns. In 
fact, some commenters stated that the CR was an outmoded and 
unnecessary concept, dating back to the time before the implementation 
of the ESRD PPS in 2011, and attempts to discern individual cost 
components of the CR essentially served to ``unbundle'' the PPS. 
However, there was general support for improved reporting of patient 
level costs on claims and facility level costs on cost reports.
    Several commenters objected to CMS' continued use of the two-
equation payment model. They claimed the two equation model is flawed 
insofar as it uses facility level regression analysis of cost report 
data to determine the cost per treatment for CR services and the 
results from patient level regression analysis from data derived from 
claims to determine the average payment per patient for drugs, 
laboratory services and supplies. Multiplying factors from each 
regression model ``with different bases'' diminishes the accuracy of 
the model.
Little Variation Found in Charges
    Commenters claimed that charges for individual treatments were 
hard, if not impossible, to capture and that doing so would represent 
an undue burden for facilities.
    CMS' contractor analyzed charges for basic dialysis services, as 
they are reported on claims, and found little variation in charges 
either across patients within facilities or across facilities. 
Stakeholders were asked to comment on this phenomenon and provide 
explanation. Commenters responded by stating that variations in charges 
are inconsistent and [their occurrence is non-systematic] making it 
difficult to focus on assessing charges for the purposes of itemizing 
composite rate costs. Examples were provided for items and services 
that could vary by treatment, but which would be difficult to capture 
in charges. These included nurse training and the difficulty of 
separating nurse training hours from other hours worked. Others 
commented that it is not possible to assess specific items to include 
in charges for each dialysis treatment.
Patient-Level Factors Contributing to Higher Costs
    With regard to patient-level factors contributing to high costs of 
care, commenters opined that patient-level adjusters should be based on 
sound, empirical evidence of their contribution to cost of care. There 
was general agreement that adjustments for the use of isolation rooms 
for patients with active HBV infection and for patients in their 
initial months of dialysis treatment were warranted. Commenters opposed 
the use of dialysis treatment duration maintaining that other factors 
were more directly related to cost of treatment.
    Commenters expressed the opinion that the cost report data was an 
inappropriate source from which to derive accurate patient-level 
adjusters from aggregated facility data, such as is recorded in the 
cost reports.
    Commenters also asked to eliminate or significantly revise the 
current case mix adjusters. Commenters repeatedly expressed concerns 
that the methodology that was used to derive the case mix adjusters was 
flawed and not empirically based. Some commenters recommended the 
elimination of all the current case mix adjusters. Others suggested 
revisions, including removal of some adjusters. Some stated that case 
mix adjusters were not necessary and that they defeated the purpose of 
the bundled payment, effectively unbundling it. Others believed that 
the use of multiple adjusters that were highly correlated was 
problematic.
    Another objection to the use of too many patient level adjusters 
related to the difficulty of obtaining accurate comorbidity data. 
Commenters stated that these diagnoses are made by medical providers, 
not by ESRD facility staff, and are contained in medical records which 
are not readily accessible by the ESRD facility. They claimed that the 
operational costs of claiming comorbidity payment adjustment exceeded 
the value of the adjustment.
    In particular the use of age, BMI, and BSA was challenged. 
Commenters stated that there was no correlation between these factors 
and cost of dialysis treatment. Some commenters supported the use of 
patient-level cost factors that were presented at the 2019 TEP, 
including use of a catheter, non-ambulatory status, and some combined 
measure indicating behavioral, drug addiction or mental health 
problems, while others did not. Commenters endorsed the use of 
isolation rooms for patients with active HBV infection and an 
adjustment for patients in their initial period of dialysis.
    The proposed use of duration of dialysis treatment time as a 
single, patient-level factor to estimate variation in CR costs was 
opposed. There was some indication that commenters thought that this 
method was being proposed in lieu of taking into account factors 
unrelated to treatment duration that made some patients more expensive 
to treat. Some commenters voiced the objection that use of this measure 
would not be productive because there was great homogeneity in 
treatment times across patients. Other commenters claimed that many 
subgroups of patients are challenged to stay on dialysis for the 
prescribed treatment time because of their physical status or other 
limitations, leading to more frequent treatment and/or higher costs and 
that these higher costs are related to patients' special circumstances 
and comorbidities and not to treatment duration.
Facility Level Adjusters and Suggested Changes to Cost Reports
    With regard to facility-level factors driving costs, commenters 
agreed that the LVPA and rural adjustments needed refinement. They also 
were in agreement in calling for ESRD network fees and all bad debt to 
be added to cost reports as revenue reductions. Finally there was 
generally agreement that cost

[[Page 60783]]

reports needed revisions to improve accuracy and consistency of 
reporting.
    Commenters agreed that current cost reports omit several key cost 
components and that more could be done to clarify reporting 
requirements in the cost report instructions. In particular, the ESRD 
network fee and bad debt were mentioned by several stakeholders as 
factors missing from the cost reports. Virtually all commenters who 
addressed this issue urged the inclusion of the ESRD network fee as a 
revenue reduction in Worksheet D of the cost report. They claimed that 
facilities were losing millions of dollars in reimbursable costs due to 
the omission of the ESRD network fee.
    Bad debt was another facility-level cost that commenters strongly 
believed should be included in the cost report. Bad debt was 
characterized by contractors as pervasive problem that results when 
beneficiaries who face financial challenges cannot meet their cost 
sharing obligations. Presently, CMS only reimburses for 65 percent of 
bad debt liability (or 98 percent of 65 percent, if sequestration is 
taken into account). Commenters requested that 100 percent of bad debt 
be reimbursed. Commenters expressed that this problem will be 
exacerbated as new, more expensive treatments and devices come on the 
market. Commenters expressed the opinion that omission of unrecoverable 
bad debt results in a distorted representation of ESRD facility 
economics.
    Several stakeholders also suggested that other revenue reductions 
should be allowed on the cost reports, including costs related to the 
ESRD QIP and losses related to budget sequestration. Finally, 
commenters requested that the cap on reporting of administrative 
salaries be removed.
    The Low Volume Payment Adjuster (LVPA) and the Rural Adjuster were 
mentioned by several commenters as being problematic. First, some 
commenters expressed the opinion that the two adjusters were 
``overlapping'' and suggested that a single, tiered low volume and 
``isolated facility'' adjusters would serve better to target 
supplemental payments where they were most needed. Others commented 
that the LVPA should be targeted at small and independent facilities, 
whose treatment costs were higher, rather than go to large dialysis 
organizations which are better able to absorb any excess costs in 
isolated less populated facilities and whose treatment costs in such 
facilities were lower than those incurred by independent facilities.
    Home dialysis costs were mentioned by commenters as representing a 
cost component that has risen significantly in recent years. Commenters 
maintained that current allocation for facility level costs for home 
dialysis is not adequate due to higher costs for supplies and equipment 
and limited competition among vendors. Commenters stated that 
exacerbating this problem are training costs for the more highly 
skilled nurses required to train and attend to home dialysis 
beneficiaries, as well as survey and certification requirements.
    Finally, hospital and freestanding facility costs are seen by 
commenters to be vastly different with hospitals incurring higher costs 
due to a ``more intensive cost structure and/or clinically complex 
patient population'' compared to freestanding facilities. Additionally 
higher costs may be an artifact of the peculiar structure of the 
hospital based ESRD cost report. Commenters suggested that revisions be 
made to correct data reporting and structural problems in the cost 
report. Commenters also expressed support for more granular reporting 
of costs in cost reports.
Reporting of Composite Rate Items on the Consolidated Billing List
    Commenters expressed that the lack of availability of HCPCS codes 
for oral drugs prevent their reporting on claims.
    Stakeholders were asked to comment on why so few facilities 
reported on the use of composite rate drugs that appeared on the 
Consolidated Billing List, as has been required since 2015. Responders 
stated that many oral medications do not have HCPCS codes that would 
allow them to be itemized on claims and if claims are submitted to 
Medicare Advantage, including these items, the entire claim is 
rejected. Please see the Billing Practices section below for a further 
explanation of the consequences faced when such items are included on 
claims.
Billing Problems and Medicare Advantage
    Commenters stated that Medicare Advantage and some other secondary 
payers rejected claims if they included certain items, including oral 
medications which did not have a HCPCS code.
    Commenters mentioned several problems with Medicare Advantage (MA) 
billing practices for dialysis services. They stated that some MA plans 
will reject certain claims for a variety of reasons. Commenters 
reiterated the case made by panelists at the 2019 TEP that claims would 
be rejected by Medicare Advantage and other secondary payers if they 
contained certain drugs, including those that do not have HCPCS codes, 
as mentioned above, and in certain cases will not make separate payment 
to facilities for their provision of the TDAPA-eligible drugs. 
Commenters also stated that Medicare Advantage plans will reject claims 
that include more than 13 treatments per month, even when medically 
justified. This includes both in-center and home dialysis treatments. 
Commenters claimed that these practices discourage providers from 
offering home dialysis as a treatment option because of substantial 
increases in supply costs in recent years. Commenters also mentioned 
that MA plans often reject claims for dialysis treatments for 
beneficiaries traveling outside of the plan's network, having the 
unintentional result of restricting beneficiaries' ability to travel. 
Finally, commenters noted that Medicare Advantage plans do not always 
pay applicable payment adjustments for patients whose care otherwise is 
eligible for such adjustments. For example, MA plans do not always 
provide for the additional costs attendant to caring for patients in 
their first months of dialysis treatment, nor for the extra care 
required for patients with complex comorbidities.
Special Consideration: Pediatric Dialysis Facilities
    Commenters highlighted that pediatric dialysis facilities are a 
special case, that a pediatric case mix adjuster is warranted, and that 
significant revisions to cost reports should be made to allow for the 
true cost of providing care to this special population to be adequately 
reported.
    The 2019 ESRD PPS TEP identified treatment and care for pediatric 
patients as a source of composite rate cost variation associated with 
providing care to more complex patients and called for further input on 
those costs. In response to the RFI, commenters itemized exceptional 
costs that were incurred by pediatric dialysis facilities, including 
the need for specialized staff, such as behavioral specialists, school 
liaisons and child life specialists. Additional expenses include a 
broad array of supplies and devices to accommodate a range of patient 
sizes. Commenters recommended that in addition to a pediatric case mix 
adjuster, CMS consider the additional capital and labor costs 
associated with pediatric patients and use these to formulate a more 
robust pediatric ESRD facility payment formula. Finally, they suggested 
that CMS consider alternative billing practices for pediatric 
facilities. They stated that these facilities are usually housed in 
children's hospitals which do

[[Page 60784]]

not have experience with Medicare billing and reporting and lack the 
infrastructure to bill or provide required data accordingly.

B. Wage Index Comment Solicitation

    As discussed in the CY 2020 ESRD PPS proposed rule (84 FR 38359 
through 38360) and in section II.B.5.b of this final rule, 
historically, we have calculated the ESRD PPS wage index values using 
unadjusted wage index values from another provider setting. 
Stakeholders have frequently commented on certain aspects of the ESRD 
PPS wage index values and their impact on payments. In the CY 2020 ESRD 
PPS proposed rule (84 FR 38400), we solicited comments on concerns 
stakeholders may have regarding the wage index used to adjust the 
labor-related portion of the ESRD PPS base rate and suggestions for 
possible updates and improvements to the geographic wage index payment 
adjustment under the ESRD PPS.
    We received comments on this topic from approximately 6 
stakeholders. Below we provide summaries of the comments received in 
response to the solicitation in the CY 2020 proposed rule. While we 
will not respond to these comments here, we will take them into 
consideration during future policy development. We thank the commenters 
for their detailed and thoughtful comments. We will consider these 
recommendations for future rulemaking.
    Several commenters addressed the impact of data lag issues that 
they believe undermine the accuracy of the ESRD PPS wage indices. Under 
the current wage index methodology, CMS applies the most recent pre-
floor, pre-classified hospital wage data collected annually under the 
Hospital IPPS. While commenters generally continue to support the 
methodology for determining the wage indices and the continued 
application of the wage index floor, they asked that CMS consider how 
the current policy could be modified to adjust wage index values to 
take into account laws requiring wage increases. They expressed that 
the wage index calculation data lag is particularly troublesome given 
higher wages due to state and municipality minimum wage actions and 
overall economic growth. They asserted that the current methodology 
will not capture these wage increases until years after their effect. 
They also noted that wage indices that do not reflect ESRD facilities' 
actual, current experience or the labor resources necessary to fulfill 
obligations under the Five-Star Quality Rating System and QIP will 
devalue the labor-related portion of the ESRD PPS base rate and 
inappropriately constrain ESRD PPS payments.
    Commenters noted that under the current methodology, there can be a 
several year lag with the wage index recognizing these changes. They 
urged CMS to work to minimize the data lag and ensure the expeditious 
incorporation of current state and municipality minimum wage 
requirements and overall labor market trends that influence labor costs 
into the wage indices' calculation.
    One healthcare organization commented on CMS' proposal, in section 
II.B.5.b of the CY 2020 ESRD PPS proposed rule, to continue to use the 
pre-floor, pre-reclassified hospital wage index for ESRD services in CY 
2020. The healthcare organization said that it understood that, until 
CMS is able to develop a wage index system for ESRD, CMS will need to 
use a proxy such as the hospital wage index. However, the organization 
does not agree with using the pre reclassified wage index values. 
Hospitals are regularly allowed to reclassify to higher wage index 
areas which results in higher payment rates. Because ESRD providers 
compete with local hospitals for staff, the payment differentials allow 
hospitals to offer higher compensation than can be maintained in a 
nonhospital setting. As a result, the healthcare organization stated, 
other providers such as ESRD facilities are at a disadvantage when 
competing for nursing staff. Rather than contributing to the 
disparities between facilities, the healthcare organization recommended 
that CMS equalize the wage index rates between hospitals and ESRD 
providers that utilize the hospital wage index by using the post floor, 
post-reclassification wage index for each CBSA.
    A national dialysis association stated that CMS should not apply 
any wage index changes associated with the IPPS final rule without 
undergoing notice-and-comment rulemaking in an ESRD PPS proposed rule. 
The association explained that the wage index promulgated in the IPPS 
impacts the base rate for the ESRD PPS since the labor-related portion 
of the ESRD PPS base rate is adjusted to account for geographic 
differences in the area wage levels. The association noted that the 
ESRD wage-index is based on the hospital index and utilizes pre-floor 
hospital data that are unadjusted for occupational mix. In addition to 
the hospital wage index being a critical component of the ESRD PPS base 
rate calculation, it also influences some of the facility-level 
adjusters, including the low-volume payment adjustment and the rural 
adjustment.
    A professional association requested that CMS consider any such 
wage index changes in connection with any potential broad refinements 
to the ESRD PPS. The professional association recommended using a 
similar approach as the RFI for Data Collection because experiences of 
its members indicate that cost of care varies most by the patient's 
individual characteristics, comorbidities and psychosocial factors--as 
well as the relative severity of those individual comorbidities and 
psychosocial factors.
    The association also noted that small and independent ESRD 
facilities typically have higher labor costs than larger dialysis 
organizations because of the generally higher proportion of skilled 
labor used in care delivery. The association urged CMS to formally 
recognize in the ESRD PPS the disproportionately higher labor costs 
borne by small and independent facilities as it considers possible 
changes to the ESRD PPS wage index.
    The association also expressed that rural regions tend to 
experience higher labor costs than facilities in non-rural areas due to 
their difficulty in attracting labor. It noted that challenges in 
attracting qualified labor to care for the highly vulnerable ESRD 
patient population in rural areas are particularly acute given the 
overall shortage of nursing supply available and such issues have 
become even more critical with respect to attracting registered nurses 
and other clinical staff with experience in the provision of home 
dialysis--an expertise clearly sought after with the Administration's 
important initiatives to increase rates of home dialysis in ESRD 
treatment. Moreover, the association stated, if rural facilities are 
not able to find permanent staff locally, they must pay the associated 
travel costs and wages for travel time for staff traveling from units 
outside of the area qualified to treat patients. The association noted 
that these staffing challenges raise labor costs for rural providers, 
increasing their overall costs to provide high-quality care for 
patients. The association therefore asked CMS to formally account for 
the additional financial burden rural providers face in securing 
qualified labor to meet ESRD patient care needs in any changes 
considered for the ESRD PPS wage index.
    The association further suggested that as CMS considers possible 
changes to the ESRD PPS wage index, CMS examines how and why these two 
approaches of calculating the labor-related share have varied over 
time. The association stated that such examination may provide useful 
information about the specific approach to measurement

[[Page 60785]]

and/or quality of the underlying data under either method, and could 
offer useful insights about the implications for the cost-side data 
sources utilized for any potential refinement to the ESRD PPS.

C. Comment Solicitation on Sources of Market-Based Data Measuring Sales 
of Diabetic Testing Strips to Medicare Beneficiaries (Section 50414 of 
the Bipartisan Budget Act of 2018)

1. Background
    Section 1847(a)(2)(A) of the Act mandates competitive bidding 
programs for ``covered items'' and supplies used in conjunction with 
DME such as blood glucose monitors used by beneficiaries with diabetes. 
The supplies used with these blood glucose monitors (such as blood 
glucose test strips and lancets) are referred to under the DMEPOS CBP 
as diabetic supplies or diabetic testing supplies. In the April 10, 
2007 final rule published in the Federal Register titled ``Medicare 
Program; Competitive Acquisition for Certain Durable Medical Equipment, 
Prosthetics, Orthotics, and Supplies (DMEPOS) and Other Issues'' (72 FR 
17992), which implemented the DMEPOS CBP, we established regulations to 
implement competitions on a regional or national level for certain 
items such as diabetic testing supplies that are furnished on a mail 
order basis. We explained our rationale for establishing a national 
DMEPOS CBP for items furnished on a mail order basis in the May 1, 2006 
proposed rule published in the Federal Register titled ``Medicare 
Program; Competitive Acquisition for Certain Durable Medical Equipment, 
Prosthetics, Orthotics, and Supplies (DMEPOS) and Other Issues'' (71 FR 
25669) and in the April 2007 final rule (72 FR 18018).
    On January 16, 2009, we published an interim final rule in the 
Federal Register titled ``Medicare Program; Changes to the Competitive 
Acquisition of Certain Durable Medical Equipment, Prosthetics, 
Orthotics and Supplies (DMEPOS) by Certain Provisions of the Medicare 
Improvements for Patients and Providers Act of 2008 (MIPPA)'' that 
implemented certain changes to the DMEPOS CBP (74 FR 2873). 
Specifically, the rule implemented section 154 of MIPPA (Pub. L. 110-
275), which delayed implementation of Round One of the program, 
required CMS to conduct a second Round One competition in 2009, and 
mandated certain changes for both the Round One Rebid and subsequent 
rounds of the program. In the January 2009 interim final rule, we 
indicated that we would be considering alternatives for competition of 
diabetic testing supplies in future notice and comment rulemaking.
    On July 13, 2010 we published a proposed rule in the Federal 
Register titled ``Medicare Program; Payment Policies Under the 
Physician Fee Schedule and Other Revisions to Part B for CY 2011'' (75 
FR 40211), in which we discussed alternatives for competition of 
diabetic testing supplies and proposed the implementation of a revised 
national mail order CBP for diabetic testing supplies. Under the 
proposed mail order DMEPOS CBP, we would award contracts to suppliers 
to furnish these items across the nation to beneficiaries who elect to 
have replacement diabetic testing supplies delivered to their 
residence. Suppliers wishing to furnish these items through the mail to 
Medicare beneficiaries would be required to submit bids to participate 
in the national mail order CBP for diabetic testing supplies.
    Section 154(d) of MIPPA modified section 1847(b)(10) of the Act to 
prohibit CMS from awarding a contract to a supplier of diabetes test 
strips if the supplier's bid does not cover at least 50 percent, by 
volume, of all types of diabetes test strips on the market. With 
respect to any competition for diabetic testing strips after the first 
round of competition, a supplier must demonstrate that its bid to 
furnish diabetic testing strips covers the types of diabetic testing 
strip products that, in the aggregate and taking into account volume 
for the different products, cover at least 50 percent of all such types 
of products on the market. CMS and the CBIC refer to this rule as the 
``50 percent rule.'' \48\ Section 1847(a)(10)(A) of the Act also 
specified that the volume for the different products may be determined 
in accordance with data (which may include market based data) 
recognized by the Secretary.
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    \48\ https://www.dmecompetitivebid.com/Palmetto/Cbic.nsf/files/
R2_Fact_Sheet_Mail-Order_Diabetic_Supplies.pdf/$FIle/
R2_Fact_Sheet_Mail-Order_Diabetic_Supplies.pdf.
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    Section 1847(b)(10)(B) of the Act mandated that the Office of 
Inspector General (OIG) conduct a study before 2011 to determine the 
types of diabetic testing strips by volume that could be used by CMS 
for the purpose of evaluating bidders in the national mail order CBP 
for diabetic testing supplies. Under the DMEPOS CBP, bidding suppliers 
are required to provide information on the products they plan to 
furnish if awarded a contract. We proposed in the July 2010 proposed 
rule (75 FR 40211) to use information submitted by bidding suppliers 
and information on the market share (volume) of the various diabetic 
testing strip products to educate suppliers on meeting the requirements 
of this special 50 percent rule. We noted that it may be necessary to 
obtain additional information from suppliers such as invoices or 
purchase orders to verify that the requirements in the statute have 
been met (75 FR 40214). We proposed that suppliers be required to 
demonstrate that their bids cover the minimum 50-percent threshold 
provided in the statute, but we invited comments on whether a higher 
threshold should be used (75 FR 40214). We proposed the 50 percent 
threshold in part because we believed that all suppliers have an 
inherent incentive to furnish a wide variety of types of diabetic 
testing products to generate a wider customer referral base (75 FR 
40214). The 50 percent threshold would ensure that beneficiaries have 
access to mail order delivery of the top-selling diabetic test strip 
products (75 FR 40214). In addition, we proposed an ``anti-switching 
provision'' that we said would obviate the need to establish a 
threshold of greater than 50 percent for the purpose of implementing 
this special rule because the contract suppliers would not be able to 
carry a limited variety of products and switch beneficiaries to those 
products (75 FR 40214). For purposes of implementing the special rule 
in section 1847(b)(10)(A) of the Act, we proposed to define ``diabetic 
testing strip product'' as a specific brand and model of test strip, as 
we said that was the best way to distinguish among different products 
(75 FR 40214). Therefore, we planned to use market based data for 
specific brands and models of diabetic test strips to determine the 
relative market share or volume of the various products on the market 
that are available to Medicare beneficiaries (75 FR 40214). We stated 
we would apply this rule to non-mail order competitions and/or local 
competitions conducted for diabetic testing strips after Round One of 
the DMEPOS CBP (75 FR 40214).
    In the November 29, 2010 final rule with comment period published 
in the Federal Register titled ``Medicare Program; Payment Policies 
Under the Physician Fee Schedule and Other Revisions to Part B for CY 
2011'' (75 FR 73567), we established requirements for the national mail 
order CBP for diabetic testing supplies. We finalized the proposed 
special 50 percent rule mandated by section 1847(b)(10)(A) of the Act 
(75 FR 73611). We finalized our proposal to require each bidder in the 
national mail order CBP for diabetic

[[Page 60786]]

testing supplies to demonstrate that its bid covers types of diabetic 
testing strip products that, in the aggregate and taking into account 
volume for the different products, cover 50 percent (or such higher 
percentage as the Secretary may specify) of all such types of products 
(75 FR 73611). We stated that the 50 percent threshold would ensure 
that beneficiaries have access to mail order delivery of the top 
selling diabetic test strip products from every contract supplier, and 
we adopted the 50 percent rule because we believed this was reflective 
of what suppliers were currently doing and ensured appropriate access 
for beneficiaries (75 FR 73611). We also stated that the OIG was 
conducting a study to generate volume data for various diabetic testing 
strip products furnished on a mail order basis (75 FR 73572). We stated 
that we would use this data as guidance to implement this special rule 
for mail order contract suppliers and ensure that their bids cover at 
least 50 percent of the volume of testing strip products currently 
furnished to beneficiaries via mail order (75 FR 73572). The OIG was 
required to complete their study before 2011 and we said we would make 
their data available to the public (75 FR 73572).
    The OIG released its study in 2010, and the OIG has since 
determined the market shares of the types of diabetes test strips 
before each round of competitive bidding. The data from this series of 
reports informs CMS about the types of diabetes test strips that 
suppliers provide to Medicare beneficiaries via mail order.
Current Issues
    The Bipartisan Budget Act of 2018 (BBA) was enacted on February 9, 
2018, and section 50414 of the BBA amended section 1847(b)(10)(A) of 
the Act to establish additional rules for the competition for diabetic 
testing strips. Section 1847(b)(10)(A) of the Act now requires that for 
bids to furnish diabetic testing strips on or after January 1, 2019, 
the volume for such products be determined by the Secretary through the 
use of multiple sources of data (from mail order and non-mail order 
Medicare markets), including market-based data measuring sales of 
diabetic testing strip products that are not exclusively sold by a 
single retailer from such markets.
    The OIG reports to CMS the Medicare Part B market share of mail 
order diabetic test strips before each round of the Medicare national 
mail order CBP, and pursuant to section 1847(b)(10)(A) of the Act, the 
OIG will now report on the non-mail order diabetic test strip Medicare 
Part B market. On January 19, 2019, the OIG released a report that 
documented the Medicare Part B market share of mail order diabetic test 
strips for the 3-month period of April through June 2018.\49\ On March 
19, 2019, the OIG released another report that documented the Medicare 
Part B market share of non-mail-order diabetic test strip for the same 
3-month period.\50\ These data briefs represent OIG's third round of 
diabetic test strip Medicare market share reports since 2010, but this 
is the first series of reports that includes non-mail-order diabetic 
test strip data.
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    \49\ https://oig.hhs.gov/oei/reports/oei-04-18-00440.pdf.
    \50\ https://oig.hhs.gov/oei/reports/oei-04-18-00441.pdf.
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    Because section 1847(b)(10)(A) of the Act now requires the use of 
``multiple sources of data,'' we requested public comments on other 
potential sources of data (sources other than the OIG), that fulfill 
the data requirements set forth in section 1847(b)(10)(A) of the Act. 
We requested comments on other potential sources of data because the 
word ``multiple'' in the phrase ``multiple sources of data'' could mean 
that we should use more than one source of data, and that the OIG is 
one source of data. We therefore requested comments from the public on 
other potential sources of data regarding the mail order and non-mail 
order Medicare markets for diabetic testing strips through this request 
for information. In particular, we sought data that:
     Has a sufficient sample size, and is unbiased and 
credible;
     Separately provides the market shares of the mail-order 
Medicare Part B market, and the non-mail order Medicare Part B market 
(does not combine the two markets into one); and
     Includes market-based data measuring sales of diabetic 
testing strip products that are not exclusively sold by a single 
retailer from such markets.
    We received 6 comments from suppliers, industry representative 
groups, and others in response to this Comment Solicitation on Sources 
of Market-Based Data Measuring Sales of Diabetic Testing Strips to 
Medicare Beneficiaries. Of the comments we received, none included 
data, or readily available sources of data, and were otherwise outside 
the scope of the request for information.
    The comments received in response to the Comment Solicitation on 
Sources of Market-Based Data Measuring Sales of Diabetic Testing Strips 
to Medicare Beneficiaries are set forth below.
    A few commenters recommended that CMS require suppliers to bill as 
they do for Medicare Part D. The commenters said that Part D billing 
allows for on-line claim adjudication, requiring that suppliers bill 
with a National Drug Code (NDC) product number so CMS can collect that 
data (the commenter recognized that there may be Paperwork Reduction 
Act issues). The commenters said that any survey of current Medicare 
Part B claims for diabetic testing strips would not accurately 
represent the overall market because reduced payment rates have caused 
suppliers to offer beneficiaries fewer product options. The commenters 
went on to say that the challenge with requesting this utilization 
information from manufacturers is that manufacturers do not know who 
will be paying for the product, and that manufacturer sales data is 
therefore not representative of products provided to Medicare 
beneficiaries.
    One commenter said that CMS should only consider data for brands 
obtained under Medicare Part B, and that CMS should not consider 
diabetic testing supplies obtained through Part C or D because many of 
the supplies provided under Part C or Part D are on the formulary of 
the private insurance company. The commenter also stated that providers 
in the previous national mail order CBP did not have contracts with 
certain test strip manufacturers, as these manufacturers shut out the 
mail order providers in an attempt to drive patients to a pharmacy 
where they were able to work within the pharmacy benefit manager rebate 
programs. Another commenter said that information about access to 
certain test strip brands are potentially inaccurate, because some 
brands only contracted with certain national mail order CBP providers.
    We appreciate the range of the comments we received. We will 
consider these comments carefully as we contemplate future policies.

IX. 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. We 
solicited comments in the proposed rule, which published in the Federal 
Register on August 6, 2019 (84 FR 38330 through 38421). For the purpose 
of transparency, we are republishing the discussion of the information 
collection requirements. All of the requirements discussed in this

[[Page 60787]]

section are already accounted for in OMB approved information requests.

B. Additional Information Collection Requirements

    This final rule does not impose any new information collection 
requirements in the regulation text. However, this final rule does make 
reference to several associated information collections that are not 
discussed in the regulation text contained in this document. The 
following is a discussion of these information collections.
1. ESRD QIP--Wage Estimates
    To derive wages estimates, we used data from the U.S. Bureau of 
Labor Statistics' May 2018 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, are the individuals tasked with 
submitting measure data to CROWNWeb and NHSN, as well as compiling and 
submitting patient records for purpose of the data validation studies, 
rather than a Registered Nurse, whose duties are centered on providing 
and coordinating care for patients. The mean hourly wage of a Medical 
Records and Health Information Technician is $21.16 per hour.\51\ 
Fringe benefit and overhead are calculated at 100 percent. Therefore, 
using these assumptions, we estimate an hourly labor cost of $42.32 as 
the basis of the wage estimates for all collections 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.
---------------------------------------------------------------------------

    \51\ https://www.bls.gov/oes/current/oes292071.htm.
---------------------------------------------------------------------------

    We used this updated wage estimate, along with updated facility and 
patient counts as well as a refined estimate of the time spent 
completing data entry for reporting data, to re-estimate the total 
information collection burden in the ESRD QIP for PY 2022 that we 
discussed in the CY 2019 ESRD QIP final rule (83 FR 57050 through 
57052) and to estimate the total information collection burden in the 
ESRD QIP for PY 2023. We provide the re-estimated information 
collection burden associated with the PY 2022 ESRD QIP and the newly 
estimated information collection burden associated with the PY 2023 
ESRD QIP in sections IV.C.2 and IV.C.3 of this final rule.
2. Estimated Burden Associated With the Data Validation Requirements 
for PY 2022 and PY 2023
    In the CY 2019 ESRD PPS final rule, we finalized a policy 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 (83 FR 
57001 through 57002). 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 estimated that the aggregate 
cost of the CROWNWeb data validation each year will 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. In this final 
rule, we are updating these estimates using a newly available wage 
estimate of a Medical Records and Health Information Technician and 
have made no other changes to our methodology for calculating the 
annual burden associated with the CROWNWeb validation study. We 
estimate that it will 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 will be 750 hours (300 facilities x 2.5 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 CROWNWeb data validation each year will be 
approximately $31,740 (750 hours x $42.32), or an annual total of 
approximately $105.80 ($31,740/300 facilities) per facility in the 
sample. The increase in our burden estimate is due to an updated wage 
estimate for Medical Records and Health Information Technicians or 
similar staff and is not the result of any policies finalized in this 
final rule. The burden associated with these requirements is captured 
in an information collection request (OMB control number 0938-1289).
    In section IV.D.5 of this final rule, we are finalizing that we 
will continue in PY 2023 and subsequent payment years the NHSN data 
validation study using the methodology finalized in the CY 2019 ERD PPS 
final rule for PY 2022 (83 FR 57001 through 57002) and adopt the NHSN 
validation study as a permanent feature of the ESRD QIP. Under this 
methodology, we will select 300 facilities for participation in the PY 
2023 validation study. A CMS contractor will send these facilities 
requests for 20 patients' records for each of the first 2 quarters of 
CY 2021 (for a total of 40 patient records per facility). The burden 
associated with these data validation requirements is the time and 
effort necessary to submit the requested records to a CMS contractor. 
Using the newly available wage estimate of a Medical Records and Health 
Information Technician, we estimate that it will take each facility 
approximately 10 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 3,000 hours (300 
facilities x 10 hours). Since we anticipate that Medical Records and 
Health Information Technicians or similar staff will submit these data, 
we estimate that the aggregate cost of the NHSN data validation each 
year will be approximately $126,960 (3,000 hours x $42.32), or a total 
of approximately $423.20 ($126,960/300 facilities) per facility in the 
sample. The increase in our burden estimate is due to an updated wage 
estimate for Medical Records and Health Information Technicians or 
similar staff and is not the result of any policies finalized in this 
final rule. The burden associated with these requirements is captured 
in an information collection request (OMB control number 0938-1340).
3. CROWNWeb Reporting Requirements for PY 2022 and PY 2023
    To determine the burden associated with the CROWNWeb reporting 
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 the CY 2019 ESRD

[[Page 60788]]

PPS final rule, we estimated that the burden associated CROWNWeb 
reporting requirements for the PY 2022 ESRD QIP was approximately $202 
million. We did not propose in the CY 2020 ESRD PPS proposed rule any 
changes that would affect the burden associated with CROWNWeb reporting 
requirements for PY 2022 or PY 2023. However, we re-calculated the 
burden estimate for PY 2022 using updated estimates of the total number 
of dialysis facilities, the total number of patients nationally, and 
wages for Medical Records and Health Information Technicians or similar 
staff as well as a refined estimate of the number of hours needed to 
complete data entry for CROWNWeb reporting. In the CY 2019 ESRD PPS 
final rule, we estimated that the amount of time required to submit 
measure data to CROWNWeb was 2.5 minutes per element and used a rounded 
estimate of 0.042 hours in our calculations. In the proposed rule and 
in this final rule, we did not use a rounded estimate of the time 
needed to complete data entry for CROWNWeb reporting. Based on the 
updated estimates that we used to re-calculate the burden estimate for 
PY 2022, we estimate that the PY 2022 burden is $211 million (or 4.8 
million hours), and the net incremental burden from PY 2022 to PY 2023 
is $0 (or 0 hours).

X. 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 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 solicited comments on the regulatory impact analysis provided. 
With regard to the ESRD PPS, we did not receive any comments on the 
RIA.
2. Statement of Need
a. ESRD PPS
    This rule finalizes a number of routine updates and several policy 
changes to the ESRD PPS in CY 2020. The finalized routine updates 
include the CY 2020 wage index values, the wage index budget-neutrality 
adjustment factor, and outlier payment threshold amounts. Failure to 
publish this final rule will result in ESRD facilities not receiving 
appropriate payments in CY 2020 for renal dialysis services furnished 
to ESRD patients.
b. AKI
    This rule also finalizes routine updates to the payment for renal 
dialysis services furnished by ESRD facilities to individuals with AKI. 
Failure to publish this final rule will result in ESRD facilities not 
receiving appropriate payments in CY 2020 for renal dialysis services 
furnished to patients with AKI in accordance with section 1834(r) of 
the Act.
c. ESRD QIP
    This rule finalizes updates to the ESRD QIP, including a 
modification to the scoring methodology for the NHSN Dialysis Event 
reporting measure beginning with the PY 2022 ESRD QIP; the conversion 
of the STrR clinical measure to a reporting measure; and the adoption 
of the NHSN validation study as a permanent feature of the program 
using the methodology finalized for the PY 2022 NHSN validation study. 
In addition, we finalized that for all clinical measures in PY 2023 
ESRD QIP, CY 2021 would be the performance period, CY 2020 would be the 
baseline period used to establish the improvement thresholds, and CY 
2019 would be used for establishing the achievement thresholds, 
benchmarks, and minimum TPS. For future ESRD QIP payment years, we 
finalized that we would adopt automatically a performance and baseline 
period for each year that is 1 year advanced from those specified for 
the previous payment year.
d. DMEPOS
i. Establishing Payment Amounts for New DMEPOS Items and Services (Gap-
Filling)
    This rule finalizes a gap-filling methodology for new DMEPOS items 
and services.
ii. Adjusting Payment Amounts for DMEPOS Items and Services Gap-Filled 
Using Supplier or Commercial Prices
    This rule finalizes a method for making a one-time adjustment to 
the gap-filled fee schedule amounts in cases where prices decrease by 
less than 15 percent within 5 years of establishing the initial fee 
schedule amounts.
e. Conditions of Payment To Be Applied to Certain DMEPOS Items
    This final rule will streamline the requirements for ordering 
DMEPOS items. It would also develop one Master List of DMEPOS items 
potentially subject to a face-to-face encounter, written orders prior 
to delivery and/or prior authorization requirements under the authority 
provided under sections 1834(a)(1)(E)(iv), 1834(a)(11)(B), and 
1834(a)(15) of the Act.
3. Overall Impact
a. ESRD PPS
    We estimate that the final revisions to the ESRD PPS will result in 
an increase of approximately $210 million in payments to ESRD 
facilities in CY 2020, which includes the amount associated with 
updates to the outlier thresholds, payment rate update, updates to the 
wage index, and the change in the basis of payment for the TDAPA for 
calcimimetics from ASP+6 percent to

[[Page 60789]]

ASP+0 percent. These figures do not reflect estimated increases or 
decreases in expenditures based on the refinement to the TDAPA 
eligibility criteria, conditioning the TDAPA on ASP data availability, 
or providing the TPNIES. The fiscal impact of these policies cannot be 
determined due to the uniqueness of the new renal dialysis drugs and 
biological products and new renal dialysis equipment and supplies 
eligible for these add-on payment adjustments and their costs.
b. AKI
    We are estimating approximately $40 million that will now be paid 
to ESRD facilities for dialysis treatments provided to AKI 
beneficiaries.
c. ESRD QIP
    For PY 2022, we have re-estimated the costs associated with 
information collection requirements under the Program with updated 
estimates of the total number of dialysis facilities, the total number 
of patients nationally, wages for Medical Records and Health 
Information Technicians or similar staff, and a refined estimate of the 
number of hours needed to complete data entry for CROWNWeb reporting. 
We have made no other changes to our methodology for calculating the 
annual burden associated with the information collection requirements 
for with the CROWNWeb validation study, the NHSN validation study, and 
CROWNWeb reporting. None of the policies finalized in this final rule 
will affect our estimates of the annual burden associated with the 
Program's information collection requirements.
    We also re-estimated the payment reductions under the ESRD QIP to 
correct an error in the way the weights were redistributed when 
estimating the PY 2022 payment reductions for the CY 2019 ESRD PPS 
final rule (83 FR 57060) and in accordance with the finalized policy 
changes described earlier, including the changes to the scoring 
methodology for the NHSN Dialysis Event reporting measure and the 
conversion of the STrR measure from a clinical measure to a reporting 
measure. We also updated the payment reduction estimates using newly 
available data for the PPPW clinical measure and the Ultrafiltration 
reporting measure and more recent data for the other measures in the 
ESRD QIP measure set. We estimate that these updates will result in an 
overall impact of $229 million as a result of the policies we have 
previously finalized and the policies we have finalized in this final 
rule, which includes an estimated $211 million in information 
collection burden and an additional $18 million in estimated payment 
reductions across all facilities, for PY 2022.
    For PY 2023, we estimate that the finalized revisions to the ESRD 
QIP will result in an overall impact of $229 million as a result of the 
policies we have previously finalized and the policies we have 
finalized in this final rule, which includes an $18 million in 
estimated payment reductions across all facilities.
d. DMEPOS
i. Establishing Payment Amounts for New DMEPOS Items and Services
    This final rule establishes a gap-filling methodology for new items 
and services. The fiscal impact of the gap-filling methodology cannot 
be determined due to the uniqueness of potential new DMEPOS items and 
their costs.
ii. Adjusting Payment Amounts for DMEPOS Items and Services Gap-Filled 
Using Supplier or Commercial Prices
    While these adjustments will decrease fee schedule amounts that 
have been established using supplier or commercial prices by less than 
15 percent, the savings are considered a small offset to the potential 
increase in costs of establishing fee schedule amounts based on 
supplier invoices or prices from commercial payers. The fiscal impact 
for this provision is therefore considered negligible.
e. Conditions of Payment To Be Applied to Certain DMEPOS Items
    This rule finalizes to streamline the requirements for ordering 
DMEPOS items, and to identify the process for subjecting certain DMEPOS 
items to a face-to-face encounter and written order prior to delivery 
and/or prior authorization requirements as a condition of payment. The 
fiscal impact of these requirements cannot be estimated as this rule 
only identifies all items that are potentially subject to the face-to-
face encounter and written order prior to delivery requirements and/or 
prior authorization.
4. Regulatory Review Cost Estimation
    If regulations impose administrative costs on private entities, 
such as the time needed to read and interpret this final 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 final rule will be the number of reviewers of 
this final 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 welcomed 
comments on the approach in estimating the number of entities, which 
will review this final rule. We did not receive any comments on this 
section on the rule.
    We also recognize that different types of entities are in many 
cases affected by mutually exclusive sections of this final rule, and 
therefore for the purposes of our estimate we assume that each reviewer 
reads approximately 50 percent of the rule. We sought comments on this 
assumption. We did not receive any comments on this section on the 
rule.
    Using the wage information from the Bureau of Labor Statistics 
(BLS) (https://www.bls.gov/oes/2018/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 final 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 regulation rounds to 
$107,250. ($687.50 x 156 reviewers).
    For manufacturers of DMEPOS products, DMEPOS suppliers, and other 
DMEPOS industry representatives, we calculate a different cost of 
reviewing this rule. Assuming an average reading speed, we estimate 
that it would take approximately 1 hour for the staff to review this 
final rule. For each entity that reviews this final rule, the estimated 
cost is $110.00. Therefore, we estimate that the total cost of 
reviewing this rule is $71,500 ($110.00 x 650 reviewers).

B. Detailed Economic Analysis

1. CY 2020 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 2019 to estimated payments in CY 2020. To 
estimate the impact among various types of ESRD facilities, it is 
imperative that the

[[Page 60790]]

estimates of payments in CY 2019 and CY 2020 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 final rule, we used CY 2018 data from the Part A and Part 
B Common Working Files as of September 18, 2019, as a basis for 
Medicare dialysis treatments and payments under the ESRD PPS. We 
updated the 2018 claims to 2019 and 2020 using various updates. The 
updates to the ESRD PPS base rate are described in section II.B.5.d of 
this final rule. Table 14 shows the impact of the estimated CY 2020 
ESRD payments compared to estimated payments to ESRD facilities in CY 
2019.
BILLING CODE 4120-01-P

[[Page 60791]]

[GRAPHIC] [TIFF OMITTED] TR08NO19.091

BILLING CODE 4120-01-C

    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 final 
changes to the outlier payment policy described in section II.B.5.c of 
this final rule is shown in column C. For CY 2020, the impact on all 
ESRD facilities as a result of the changes to the outlier payment 
policy would be a 0.4 percent increase in estimated payments. All ESRD 
facilities are anticipated to experience a positive effect in their 
estimated CY 2020 payments as a result of the final outlier policy 
changes.

[[Page 60792]]

    Column D shows the effect of the final CY 2020 wage indices. The 
categories of types of facilities in the impact table show changes in 
estimated payments ranging from a 0.8 percent decrease to a 0.5 percent 
increase due to these final updates.
    Column E shows the effect of the final CY 2020 ESRD PPS payment 
rate update. The final ESRD PPS payment rate update is 1.7 percent, 
which reflects the final ESRDB market basket percentage increase factor 
for CY 2020 of 2.0 percent and the final MFP adjustment of 0.3 percent.
    Column F reflects the change in the payment of the TDAPA from ASP+6 
percent to ASP+0 percent.
    Column G reflects the overall impact, that is, the effects of the 
final outlier policy changes, the final wage index, payment rate 
update, and final TDAPA payment changes. We expect that overall ESRD 
facilities would experience a 1.6 percent increase in estimated 
payments in CY 2020. The categories of types of facilities in the 
impact table show impacts ranging from an increase of 1.2 percent to 
2.2 percent in their CY 2020 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 2020, we estimate that 
the final 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 2020 would be approximately $10.3 
billion. This estimate takes into account a projected increase in fee-
for-service Medicare dialysis beneficiary enrollment of 1.4 percent in 
CY 2020.
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 
1.6 percent overall increase in the final CY 2020 ESRD PPS payment 
amounts, we estimate that there would be an increase in beneficiary co-
insurance payments of 1.6 percent in CY 2020, which translates to 
approximately $40 million.
e. Alternatives Considered
i. Eligibility Criteria for the TDAPA
    In section II.B.1 of this final rule, we finalized revisions to the 
drug designation process regulation for new renal dialysis drugs and 
biological products that fall within an existing ESRD PPS functional 
category. In an effort to support innovation in the renal dialysis 
space, while simultaneously considering the cost to Medicare, for the 
refinement of the TDAPA eligibility we considered limiting it to only 
the Type 1 NDA Classification Code, section 351(a) biological products 
and section 351(k) biosimilar or interchangeable biological products. 
However, we wanted to support other innovative changes of drugs and 
biological products in the renal dialysis space and acknowledge that 
innovation may occur incrementally.
ii. New and Innovative Renal Dialysis Equipment and Supplies Under the 
ESRD PPS
    In section II.B.3 of this final rule, we finalized to provide a 
transitional add-on payment adjustment to support the use of certain 
new and innovative renal dialysis equipment and supplies by ESRD 
facilities. With regard to pricing mechanisms for equipment and 
supplies, we considered alternatives such as those used in the DMEPOS 
program and consultation with the Pricing, Data, and Analysis 
Contractor. However, methodologies such as reasonable charges and use 
of fee schedules were lacking for many items and did not address the 
new and innovative renal dialysis equipment and supplies that we expect 
to be forthcoming with the KidneyX initiative.
2. Final Payment for Renal Dialysis Services Furnished to Individuals 
With AKI
a. Effects on ESRD Facilities
    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 2019 to estimated payments in CY 2020. 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 2019 and CY 2020 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 final rule, we used CY 2018 data from the Part A and Part 
B Common Working Files as of September 18, 2019, as a basis for 
Medicare for renal dialysis services furnished to individuals with AKI. 
We updated the 2018 claims to 2019 and 2020 using various updates. The 
updates to the AKI payment amount are described in section III.B of 
this final rule. Table 15 shows the impact of the estimated CY 2020 
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 2019.
BILLING CODE 4120-01-P

[[Page 60793]]

[GRAPHIC] [TIFF OMITTED] TR08NO19.093

BILLING CODE 4120-01-C
    Column A of the impact table indicates the number of ESRD 
facilities for each impact category and column B

[[Page 60794]]

indicates the number of AKI dialysis treatments (in thousands).
    Column C shows the effect of the final CY 2020 wage indices. The 
categories of types of facilities in the impact table show changes in 
estimated payments ranging from a 1.8 percent decrease to a 0.7 percent 
increase due to these final updates.
    Column D shows the effect of the final CY 2020 ESRD PPS payment 
rate update. The final ESRD PPS payment rate update is 1.7 percent, 
which reflects the final ESRDB market basket percentage increase factor 
for CY 2020 of 2.0 percent and the final MFP adjustment of 0.3 percent.
    Column E reflects the overall impact, that is, the effects of the 
final wage index and payment rate update. We expect that overall ESRD 
facilities would experience a 1.7 percent increase in estimated 
payments in CY 2020. The categories of types of facilities in the 
impact table show impacts ranging from a 0.1 percent decrease to a 2.4 
percent increase in their CY 2020 estimated payments.
b. Effects on Other Providers
    Under section 1834(r) of the Act, as added by section 808(b) of 
TPEA, we are updating the payment rate for renal dialysis services 
furnished by ESRD facilities to beneficiaries with AKI. The only two 
Medicare providers and suppliers 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 update will have zero impact on other Medicare providers.
c. Effects on the Medicare Program
    We estimate approximately $40 million would be paid to ESRD 
facilities in CY 2020 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 
will assist us in developing knowledgeable, data-driven proposals.
3. ESRD QIP
a. Effects of the PY 2022 ESRD QIP on ESRD Facilities
    The ESRD QIP is intended to prevent possible reductions in the 
quality of ESRD dialysis facility services provided to beneficiaries. 
We are finalizing in this final rule that we will convert the STrR 
clinical measure to a reporting measure, and also change the way the 
NHSN Dialysis Event reporting measure is scored. The general 
methodology that we are using to determine a facility's TPS is 
described in our regulations at Sec.  413.178(d).\52\
---------------------------------------------------------------------------

    \52\ We are redesignating Sec.  413.178(d) as Sec.  413.178(e) 
in this final rule.
---------------------------------------------------------------------------

    Any reductions in the ESRD PPS payments as a result of a facility's 
performance under the PY 2022 ESRD QIP will apply to the ESRD PPS 
payments made to the facility for services furnished in CY 2022, as 
codified in our regulations at Sec.  413.177.
    For the PY 2022 ESRD QIP, we estimate that, of the 7,386 dialysis 
facilities (including those not receiving a TPS) enrolled in Medicare, 
approximately 26.1 percent or 1,871 of the facilities that have 
sufficient data to calculate a TPS would receive a payment reduction 
for PY 2022. The total payment reductions for all the 1,871 facilities 
expected to receive a payment reduction is approximately 
$18,247,083.76. Facilities that do not receive a TPS do not receive a 
payment reduction.
    Table 16 shows the overall estimated distribution of payment 
reductions resulting from the PY 2022 ESRD QIP.
[GRAPHIC] [TIFF OMITTED] TR08NO19.095

    To estimate whether a facility would receive a payment reduction 
for PY 2022, we scored each facility on achievement and improvement on 
several clinical measures we have previously finalized and for which 
there

[[Page 60795]]

were available data from CROWNWeb and Medicare claims. Payment 
reduction estimates are calculated using the most recent data available 
(specified in Table 17) in accordance with the policies finalized in 
this final rule. Measures used for the simulation are shown in Table 
17. We also note that because we are finalizing in section IV.D.2.b of 
this final rule that we will convert the STrR measure from a clinical 
measure to a reporting measure, the STrR measure is no longer listed in 
Table 17.
[GRAPHIC] [TIFF OMITTED] TR08NO19.096

    For all measures except SHR, clinical measure topic areas with less 
than 11 cases for a facility were not included in that facility's TPS. 
For SHR, facilities were required to have at least 5 at risk patients, 
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.D 
of this final rule. Facility reporting measure scores were estimated 
using available data from CY 2018. Facilities were required to have at 
least one measure in at least two domains to receive a TPS.
    To estimate the total payment reductions in PY 2022 for each 
facility resulting from this final rule, we multiplied the total 
Medicare payments to the facility during the 1-year period between 
January 2018 and December 2018 by the facility's estimated payment 
reduction percentage expected under the ESRD QIP, yielding a total 
payment reduction amount for each facility.
    Table 18 shows the estimated impact of the ESRD QIP payment 
reductions to all ESRD facilities for PY 2022. The table details the 
distribution of ESRD facilities by size (both among facilities 
considered to be small entities and by number of treatments per 
facility), geography (both rural and urban and by region), and by 
facility type (hospital based and freestanding facilities). Given that 
the performance period used for these calculations differs from the 
performance period we are using for the PY 2022 ESRD QIP, the actual 
impact of the PY 2022 ESRD QIP may vary significantly from the values 
provided here.
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[[Page 60796]]

[GRAPHIC] [TIFF OMITTED] TR08NO19.097


[[Page 60797]]


BILLING CODE 4120-01-C
b. Effects of the PY 2023 ESRD QIP on ESRD Facilities
    For the PY 2023 ESRD QIP, we estimate that, of the 7,386 dialysis 
facilities (including those not receiving a TPS) enrolled in Medicare, 
approximately 26.1 percent or 1,871 of the facilities that have 
sufficient data to calculate a TPS would receive a payment reduction 
for PY 2023. The total payment reductions for all the 1,871 facilities 
expected to receive a payment reduction is approximately 
$18,247,083.76. Facilities that do not receive a TPS do not receive a 
payment reduction.
    Table 19 shows the overall estimated distribution of payment 
reductions resulting from the PY 2023 ESRD QIP.
[GRAPHIC] [TIFF OMITTED] TR08NO19.098

    To estimate whether a facility would receive a payment reduction in 
PY 2023, we scored each facility on achievement and improvement on 
several clinical measures we have previously finalized and for which 
there were available data from CROWNWeb and Medicare claims. Payment 
reduction estimates are calculated using the most recent data available 
(specified in Table 19) in accordance with the policies finalized in 
this final rule. Measures used for the simulation are shown in Table 
20. We also note that because we are finalizing in section IV.D.2.b of 
this final rule that we will convert the STrR measure from a clinical 
measure to a reporting measure, the STrR measure is no longer listed in 
Table 20.
[GRAPHIC] [TIFF OMITTED] TR08NO19.099

    For all measures except SHR, clinical measure topic areas with less 
than 11 cases for a facility were not included in that facility's TPS. 
For SHR, facilities were required to have at least 5 at-risk patients, 
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 policies finalized in section IV.D 
and IV.E of this final rule. Facility reporting measure scores were 
estimated using available data from CY 2018. Facilities were required 
to have at least one measure in at least two domains to receive a TPS.
    To estimate the total payment reductions in PY 2023 for each 
facility resulting from this final rule, we multiplied the total 
Medicare payments to the facility during the 1-year period between 
January 2018 and December 2018 by the facility's estimated payment 
reduction percentage expected under the ESRD QIP, yielding a total 
payment reduction amount for each facility.
    Table 21 shows the estimated impact of the ESRD QIP payment 
reductions to all ESRD facilities for PY 2023. The table details the 
distribution of ESRD facilities by size (both among facilities 
considered to be small entities and by

[[Page 60798]]

number of treatments per facility), geography (both rural and urban and 
by region), and by facility type (hospital based and freestanding 
facilities). Given that the performance period used for these 
calculations differs from the performance period that we are finalizing 
to use for the PY 2023 ESRD QIP, the actual impact of the PY 2023 ESRD 
QIP may vary significantly from the values provided here.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TR08NO19.100


[[Page 60799]]


BILLING CODE 4120-01-C
c. 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 facilities, such as through the impacts of the Hospital 
Readmission 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.
d. Effects on the Medicare Program
    For PY 2023, we estimate that the ESRD QIP will contribute 
approximately $18,247,083.76 in Medicare savings. For comparison, Table 
19 shows the payment reductions that we estimate will be applied by the 
ESRD QIP from PY 2018 through PY 2023. We note that Table 22 contains a 
lower estimated payment reduction for PY 2022 than we included in Table 
49 of the CY 2019 ESRD PPS final rule (83 FR 57061).
[GRAPHIC] [TIFF OMITTED] TR08NO19.101

e. Effects on Medicare Beneficiaries
    The ESRD QIP is applicable to dialysis facilities. Since the 
Program's inception, there is evidence on 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. We are in 
the process of monitoring and evaluating trends in the quality and cost 
of care for patients under the ESRD QIP, incorporating both existing 
measures and new measures as they are implemented in the Program. We 
will provide additional information about the impact of the ESRD QIP on 
beneficiaries as we learn more. However, in future years we are 
interested in examining these impacts through the analysis of available 
data from our existing measures.
f. Alternatives Considered
    In response to the concern raised by commenters about the validity 
of the modified STrR measure, we considered aligning the STrR measure's 
specifications with those used for the measure prior to the PY 2021 
ESRD QIP. However, that version of the STrR clinical measure was not 
endorsed by the NQF due to the concern expressed by the Renal Standing 
Committee about variability in hospital coding practices.
4. DMEPOS
a. Establishing Payment Amounts for New DMEPOS Items and Services (Gap-
Filling)
(1) Effects on Other Providers
    We believe that establishing payment amounts for new DMEPOS items 
and services will have a positive economic impact on suppliers by 
making the pricing of new items more easily understood and encourage 
innovation. The cost cannot be estimated as these new items are not 
identified.
(2) Effects on the Medicare Program
    This final rule has an indeterminable cost to the Medicare program 
associated with it due to the unpredictable nature of future new items.
(3) Effects on Medicare Beneficiaries
    This final rule has an indeterminable cost to the Medicare 
beneficiary due to the unpredictable nature of future new items. This 
rule also has an indeterminable cost to the dual-eligible beneficiary 
who is enrolled in the Medicare and the Medicaid programs for the same 
reason as indicated above.
(4) Alternatives Considered
    One alternative we considered but did not propose was to continue 
the process for establishing payment amounts for new items on a sub-
regulatory basis. This would have no economic impact on the Medicare 
program or its beneficiaries.
b. Adjusting Payment Amounts for DMEPOS Items and Services Gap-Filled 
Using Supplier or Commercial Prices
(1) Effects on Other Providers
    We believe that adjusting payment amounts for new DMEPOS items and 
services when initially set based on supplier or commercial prices will 
have a negative economic impact on suppliers by lowering fees. The 
savings cannot be estimated as these new items are not identified.
(2) Effects on the Medicare Program
    We believe that adjusting payment amounts for new DMEPOS items and 
services when initially set based on supplier or commercial prices will 
have a positive economic impact on the Medicare Program by lowering 
fees and achieving savings. The savings cannot be estimated as these 
new items are not identified.
(3) Effects on Medicare Beneficiaries
    We believe that adjusting payment amounts for new DMEPOS items and 
services when initially set based on supplier or commercial prices will 
have a positive economic impact on Medicare beneficiaries by lowering 
fees, therefore resulting in lower coinsurance for such items. The 
savings cannot be estimated as these new items are not identified.
(4) Alternatives Considered
    An alternative we considered but did not propose was to continue 
not adjusting payment amounts for new items based on revised supplier 
and commercial price lists. This would have resulted, in some cases, in 
what we

[[Page 60800]]

consider to be fee schedule amounts that were too high and a cost to 
the program and beneficiaries.
5. Conditions of Payment To Be Applied to Certain DMEPOS Items
    This rule streamlines the requirements for ordering DMEPOS items, 
and to identify the process for subjecting certain DMEPOS items to a 
face-to-face encounter and written order prior to delivery and/or prior 
authorization requirements as a condition of payment. The fiscal impact 
of these requirements cannot be estimated as this rule only identifies 
all items that are potentially subject to the face-to-face encounter 
and written order prior to delivery requirements and/or prior 
authorization.

C. Accounting Statement

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars_a004_a-4), in Table 23, we have 
prepared an accounting statement showing the classification of the 
transfers and costs associated with the various provisions of this 
final rule.
[GRAPHIC] [TIFF OMITTED] TR08NO19.102

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

D. 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 $41.5 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 website 
at https://www.sba.gov/sites/default/files/2019-08/SBA%20Table%20of%20Size%20Standards_Effective%20Aug%2019%2C%202019_Rev.pdf) (Kidney Dialysis Centers are listed as 621492 with a size standard 
of $41.5 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 14. Using the 
definitions in this ownership category, we consider 502 facilities that 
are independent and 304 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 $41.5 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 finalized in this rule, a hospital-based 
ESRD facility (as defined by type of ownership, not by type of ESRD 
facility) is estimated to receive a 2.2 percent increase in payments 
for CY 2020. An independent facility (as defined by ownership type) is 
estimated to receive a 1.7 percent increase in payments for CY 2020.
    For AKI dialysis, we are unable to estimate whether patients would 
go to ESRD facilities, however, we have estimated there is a potential 
for $40 million in payment for AKI dialysis treatments that could 
potentially be furnished in ESRD facilities.
    For the ESRD QIP, we estimate that of the 1,871 ESRD facilities 
expected to receive a payment reduction as a result of their 
performance on the PY 2023 ESRD QIP, 314 are ESRD small entity 
facilities. We present these findings in Table 16 (``Estimated 
Distribution of PY 2023 ESRD QIP Payment Reductions'') and Table 18 
(``Impact of QIP Payment Reductions to ESRD Facilities for PY

[[Page 60801]]

2023''). We estimate that the payment reductions will average 
approximately $9,752.58 per facility across the 1,871 facilities 
receiving a payment reduction, and $9,288.57 for each small entity 
facility. We also estimate that there are 817 small entity facilities 
in total, and that the aggregate ESRD PPS payments to these facilities 
will decrease 0.32 percent in CY 2023.
    The DMEPOS provisions in this final rule, Establishing Payment 
Amounts for New DMEPOS Items and Services and Gap-Filling and Adjusting 
Payment Amounts for DMEPOS Items and Services Gap-Filled Using Supplier 
or Commercial Prices in section V of this final rule, are not 
considered to have a significant impact on a number of small suppliers. 
We note that the fiscal impact of the Conditions of Payment to be 
applied to Certain DMEPOS Items in section VI of this final rule cannot 
be estimated as this rule only identifies all items that are 
potentially subject to the face-to-face encounter and written order 
prior to delivery requirements and/or prior authorization.
    Therefore, the Secretary has determined that these final rules 
would not 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 solicited comment on the RFA analysis provided. We received no 
comments on this section.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. Any 
such regulatory impact analysis must conform to the provisions of 
section 604 of the RFA. For purposes of section 1102(b) of the Act, we 
define a small rural hospital as a hospital that is located outside of 
a metropolitan statistical area and has fewer than 100 beds. We do not 
believe this final rule would have a significant impact on operations 
of a substantial number of small rural hospitals because most dialysis 
facilities are freestanding. While there are 126 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 126 rural 
hospital-based dialysis facilities will experience an estimated 2.2 
percent increase in payments.
    Therefore, the Secretary has determined that these final rules 
would not have a significant impact on the operations of a substantial 
number of small rural hospitals.

E. 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 2019, that 
threshold is approximately $154 million. These final 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 
$154 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.

F. 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 
final rules under the threshold criteria of Executive Order 13132, 
Federalism, and have determined that it would not have substantial 
direct effects on the rights, roles, and responsibilities of states, 
local or Tribal governments.

G. 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. It has 
been determined that this is a transfer rule, which imposes no more 
than de minimis costs. As a result, this rule is not considered a 
regulatory or deregulatory action under Executive Order 13771.

H. Congressional Review Act

    These final 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.

XI. 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 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 405

    Federal health insurance for the aged and disabled, Administrative 
practice and procedure, Diseases, Health facilities, Health 
professions, Medical devices, Medicare, Reporting and recordkeeping 
requirements, Rural areas, X-rays.

42 CFR Part 410

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

42 CFR Part 413

    Health facilities, Diseases, Medicare, Reporting and recordkeeping 
requirements.

42 CFR Part 414

    Administrative practice and procedure, Biologicals, Drugs, Health 
facilities, Health professions, Medicare, Reporting and recordkeeping 
requirements.

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

PART 410--SUPPLEMENTARY MEDICAL INSURANCE (SMI) BENEFITS

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

    Authority: 42 U.S.C. 1302, 1395m, 1395hh, 1395rr, and 1395ddd.


0
2. Section 410.36 is amended by revising paragraph (b) to read as 
follows:


Sec.  410.36  Medical supplies, appliances, and devices: Scope.

* * * * *

[[Page 60802]]

    (b) The conditions of payment described in Sec.  410.38(d) also 
apply to medical supplies, appliances, and devices.

0
3. Section 410.38 is amended--
0
a. By revising the section heading;
0
b. By revising paragraph (a);
0
c. In paragraph (b) by adding a paragraph heading;
0
d. By revising paragraphs (c), (d), and (e); and
0
e. By removing paragraphs (f) and (g).
    The revisions and addition read as follows:


Sec.  410.38  Durable medical equipment, prosthetics, orthotics and 
supplies (DMEPOS): Scope and conditions.

    (a) General scope. Medicare Part B pays for durable medical 
equipment, including ventilators, oxygen equipment, hospital beds, and 
wheelchairs, if the equipment is used in the patient's home or in an 
institution that is used as a home.
    (b) Institutions that may not qualify as the patient's home. * * *
    (c) Definitions. As used in this section:
    (1) Physician has the same meaning as in section 1861(r)(1) of the 
Act.
    (2) Treating practitioner means physician as defined in section 
1861(r)(1) of the Act, or physician assistant, nurse practitioner, or 
clinical nurse specialist, as those terms are defined in section 
1861(aa)(5) of the Act.
    (3) DMEPOS supplier means an entity with a valid Medicare supplier 
number, including an entity that furnishes items through the mail.
    (4) Written Order/Prescription is a written communication from a 
treating practitioner that documents the need for a beneficiary to be 
provided an item of DMEPOS.
    (5) Face-to-face encounter is an in-person or telehealth encounter 
between the treating practitioner and the beneficiary.
    (6) Power mobility device (PMD) means a covered item of durable 
medical equipment that is in a class of wheelchairs that includes a 
power wheelchair (a four-wheeled motorized vehicle whose steering is 
operated by an electronic device or a joystick to control direction and 
turning) or a power-operated vehicle (a three or four-wheeled motorized 
scooter that is operated by a tiller) that a beneficiary uses in the 
home.
    (7) Master List of DMEPOS items Potentially Subject to Face-To-Face 
Encounter and Written Orders Prior to Delivery and/or Prior 
Authorization Requirements, also referred to as ``Master List,'' are 
items of DMEPOS that CMS has identified in accordance with sections 
1834(a)(11)(B) and 1834(a)(15) of the Act. The criteria for this list 
are specified in Sec.  414.234 of this chapter. The Master List shall 
serve as a library of DMEPOS items from which items may be selected for 
inclusion on Required Face-to-Face Encounter and Written Order Prior to 
Delivery List and/or the Required Prior Authorization List.
    (8) Required Face-to-Face Encounter and Written Order Prior to 
Delivery List is a list of DMEPOS items selected from the Master List 
and subject to the requirements of a Face-to-Face Encounter and Written 
Order Prior to Delivery. The list of items is published in the Federal 
Register and posted on the CMS website. The list is effective no less 
than 60 days following its publication. When selecting items from the 
Master List, CMS may consider factors such as operational limitations, 
item utilization, cost-benefit analysis, emerging trends, 
vulnerabilities identified in official agency reports, or other 
analysis.
    (d) Conditions of Payment. The requirements described in this 
paragraph (d) are conditions of payment applicable to DMEPOS items.
    (1) Written Order/Prescription. All DMEPOS items require a written 
order/prescription for Medicare payment. Medicare Contractors shall 
consider the totality of the medical records when reviewing for 
compliance with standardized written order/prescription elements.
    (i) Elements. A written order/prescription must include the 
following elements:
    (A) Beneficiary Name or Medicare Beneficiary Identifier (MBI).
    (B) General Description of the item.
    (C) Quantity to be dispensed, if applicable.
    (D) Order Date.
    (E) Treating Practitioner Name or National Provider Identifier 
(NPI).
    (F) Treating Practitioner Signature.
    (ii) Timing of the Written Order/Prescription.
    (A) For PMDs and other DMEPOS items selected for inclusion on the 
Required Face-to-Face Encounter and Written Order Prior to Delivery 
List, the written order/prescription must be communicated to the 
supplier prior to delivery.
    (B) For all other DMEPOS, the written order/prescription must be 
communicated to the supplier prior to claim submission.
    (2) Items Requiring a Face-to-Face Encounter. For PMDs and other 
DMEPOS items selected for inclusion on the Required Face-to-Face 
Encounter and Written Order Prior to Delivery List, the treating 
practitioner must document and communicate to the DMEPOS supplier that 
the treating practitioner has had a face-to-face encounter with the 
beneficiary within the 6 months preceding the date of the written 
order/prescription.
    (i) The encounter must be used for the purpose of gathering 
subjective and objective information associated with diagnosing, 
treating, or managing a clinical condition for which the DMEPOS is 
ordered.
    (ii) If it is a telehealth encounter, the requirements of 
Sec. Sec.  410.78 and 414.65 of this chapter must be met.
    (3) Documentation: A supplier must maintain the written order/
prescription and the supporting documentation provided by the treating 
practitioner and make them available to CMS and its agents upon 
request.
    (i) Upon request by CMS or its agents, a supplier must submit 
additional documentation to CMS or its agents to support and/or 
substantiate the medical necessity for the DMEPOS item.
    (ii) The face-to-face encounter must be documented in the pertinent 
portion of the medical record (for example, history, physical 
examination, diagnostic tests, summary of findings, progress notes, 
treatment plans or other sources of information that may be 
appropriate). The supporting documentation must include subjective and 
objective beneficiary specific information used for diagnosing, 
treating, or managing a clinical condition for which the DMEPOS is 
ordered.
    (e) Suspension of face-to-face encounter and written order prior to 
delivery requirements. CMS may suspend face-to-face encounter and 
written order prior to delivery requirements generally or for a 
particular item or items at any time and without undertaking 
rulemaking, except those items for which inclusion on the Master List 
was statutorily imposed.

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

    Authority:  42 U.S.C. 1302, 1395d(d), 1395f(b), 1395g, 1395l(a), 
(i), and (n), 1395x(v), 1395hh, 1395rr, 1395tt, and 1395ww.


[[Page 60803]]



0
5. Section 413.178 is amended --
0
a. In paragraph (a)(4) by removing the reference ``paragraphs (d)(1)(i) 
through (v)'' and adding in its place the reference ``paragraphs 
(e)(1)(i) through (v)'';
0
b. In paragraph (a)(13) by removing the reference to ``paragraph 
(d)(1)(vi) '' and adding in its place the reference ``paragraph 
(e)(1)(vi)'';
0
c. By redesignating paragraphs (d) through (f) as paragraphs (e) 
through (g), respectively;
0
d. By adding a new paragraph (d);
0
e. In newly redesignated paragraph (e)(2)(i) by removing the reference 
``paragraph (d)(1)'' and adding in its place the reference ``paragraph 
(e)(1)''; and
0
f. In newly redesignated paragraph (f)(2) by removing the cross-
reference to ``paragraph (e)(1)'' and adding in its place ``paragraph 
(f)(1)''.
    The revisions and additions read as follows:


Sec.  413.178  ESRD quality incentive program.

* * * * *
    (d) Data submission requirement. (1) Except as provided in 
paragraph (d)(3) and (4) of this section, and for a payment year, 
facilities must submit to CMS data on each measure specified by CMS 
under paragraph (c) of this section. Facilities must submit these data 
in the form, manner, and at a time specified by CMS.
    (2) For purposes of paragraph (d)(1) of this section, the baseline 
period that applies to the 2023 payment year is calendar year 2019 for 
purposes of calculating the achievement threshold, benchmark and 
minimum total performance score, and calendar year 2020 for purposes of 
calculating the improvement threshold, and the performance period that 
applies to the 2023 payment year is calendar year 2021. Beginning with 
the 2024 payment year, the performance period and corresponding 
baseline periods are each advanced 1 year for each successive payment 
year.
    (3) A facility may request and CMS may grant exceptions to the 
reporting requirements under paragraph (d)(1) of this section for one 
or more calendar days, when there are certain extraordinary 
circumstances beyond the control of the facility.
    (4) A facility may request an exception within 90 days of the date 
that the extraordinary circumstances occurred by submitting the 
Extraordinary Circumstances Exception request form, which is available 
on the QualityNet website (https://www.qualitynet.org/), to CMS via 
email to the ESRD QIP mailbox at [email protected]. Facilities must 
provide the following information on the form:
    (i) Facility CCN.
    (ii) Facility name.
    (iii) CEO name and contact information.
    (iv) Additional contact name and contact information.
    (v) Reason for requesting an exception.
    (vi) Dates affected.
    (vii) Date the facility will start submitting data again, with 
justification for this date.
    (viii) Evidence of the impact of the extraordinary circumstances, 
including but not
    limited to photographs, newspaper, and other media articles.
    (5) CMS will not consider an exception request unless the facility 
requesting such exception has complied with the requirements in 
paragraph (d)(4) of this section.
    (6) CMS may grant exceptions to facilities without a request if it 
determines that one or more of the following has occurred:
    (i) An extraordinary circumstance affects an entire region or 
locale.
    (ii) An unresolved issue with a CMS data system affected the 
ability of a facility to submit data in accordance with paragraph 
(d)(1) of this section and CMS was unable to provide the facility with 
an alternative method of data submission.
    (7) A facility that has been granted an exception to the data 
submission requirements under paragraph (d)(6) of this section may 
notify CMS that it will continue to submit data under paragraph (d)(1) 
of this section by sending an email signed by the CEO or another 
designated contact to the ESRD QIP mailbox at [email protected]. Upon 
receipt of an email under this clause, CMS will notify the facility in 
writing that CMS is withdrawing the exception it previously granted to 
the facility.
* * * * *

0
6. Section 413.230 is amended by--
0
a. Revising paragraphs (b) and (c); and
0
b. Adding paragraph (d) and (e).
    The revision and additions read as follows:


Sec.  413.230  Determining the per treatment payment amount.

* * * * *
    (b) Any outlier payment under Sec.  413.237;
    (c) Any training adjustment add-on under Sec.  413.235(c);
    (d) Any transitional drug add-on payment adjustment under Sec.  
413.234(c); and
    (e) Any transitional add-on payment adjustment for new and 
innovative equipment and supplies under Sec.  413.236(d).

0
7. Section 413.234, as previously amended on November 14, 2018, is 
further amended--
0
a. In paragraph (a) by revising the definitions of ``ESRD PPS 
functional category'' and ``Oral only drug;''
0
b. By revising paragraph (b)(1)(ii);
0
c. By revising paragraph (c) introductory text; and
0
d. By adding paragraph (e).
    The revisions and addition read as follows:


Sec.  413.234  Drug designation process.

    (a) * * *
    ESRD PPS functional category. A distinct grouping of drugs or 
biological products, as determined by CMS, whose end action effect is 
the treatment or management of a condition or conditions associated 
with ESRD.
* * * * *
    Oral-only drug. A drug or biological product with no injectable 
equivalent or other form of administration other than an oral form.
    (b) * * *
    (1) * * *
    (ii) Except as provided in paragraph (e) of this section, the new 
renal dialysis drug or biological product is paid for using the 
transitional drug add-on payment adjustment described in paragraph 
(c)(1) of this section.
* * * * *
    (c) Transitional drug add-on payment adjustment. A new renal 
dialysis drug or biological product 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 is based on the drug manufacturer's invoice. Notwithstanding 
the provisions in paragraphs (c)(1) and (2) of this section, if CMS 
does not receive a full calendar quarter of ASP data for a new renal 
dialysis drug or biological product within 30 days of the last day of 
the 3rd calendar quarter after we begin applying the transitional drug 
add-on payment adjustment for the product, CMS will no longer apply the 
transitional drug add-on payment adjustment for that product beginning 
no later than 2-calendar quarters after we determine a full calendar 
quarter of ASP data is not available. If CMS stops receiving the latest 
full calendar quarter of ASP data for a new renal dialysis drug or 
biological product during the applicable

[[Page 60804]]

time period specified in paragraph (c)(1) or (2) of this section, CMS 
will no longer apply the transitional drug add-on payment adjustment 
for the product beginning no later than 2-calendar quarters after CMS 
determines that the latest full calendar quarter of ASP data is not 
available.
* * * * *
    (e) Exclusion criteria for the transitional drug add-on payment 
adjustment. A new renal dialysis drug used to treat or manage a 
condition for which there is an ESRD PPS functional category is not 
eligible for payment using the transitional drug add-on payment 
adjustment described in paragraph (c)(1) of this section if the drug is 
approved by FDA under section 505(j) of the Federal Food, Drug, and 
Cosmetic Act (FD&C Act) or the new drug application (NDA) for the drug 
is classified by FDA as Type 3, 5, 7, or 8, Type 3 in combination with 
Type 2 or Type 4, or Type 5 in combination with Type 2, or Type 9 when 
the parent NDA is a Type 3, 5, 7 or 8 as described in paragraphs (e)(1) 
through (7) of this section, respectively:
    (1) Type 3 NDA--New Dosage Form.
    (i) A Type 3 NDA is for a new dosage form of an active ingredient 
that has been approved or marketed in the United States (U.S.) by the 
same or another applicant but in a different dosage form. The 
indication for the drug product does not need to be the same as that of 
the already marketed drug product. Once a new dosage form has been 
approved for an active ingredient, subsequent applications for the same 
dosage form and active ingredient should be classified as a Type 5 NDA, 
as described in paragraph (e)(2) of this section.
    (ii) [Reserved]
    (2) Type 5 NDA--New Formulation or Other Differences.
    (i) A Type 5 NDA is for a product, other than a new dosage form, 
that differs from a product already approved or marketed in the U.S. 
because of one of the following:
    (A) The product involves changes in inactive ingredients that 
require either bioequivalence studies or clinical studies for approval 
and is submitted as an original NDA rather than as a supplement by the 
applicant of the approved product;
    (B) The product is a duplicate of a drug product by another 
applicant (same active ingredient, same dosage form, same or different 
indication, or same combination), and
    (1) Requires bioequivalence testing (including bioequivalence 
studies with clinical endpoints), but is not eligible for submission as 
a section 505(j) of the FD&C Act application; or
    (2) Requires safety or effectiveness testing because of novel 
inactive ingredients; or
    (3) Requires full safety or effectiveness testing because it is:
    (i) Subject to exclusivity held by another applicant, or
    (ii) A product of biotechnology and its safety and/or effectiveness 
are not assessable through bioequivalence testing, or
    (iii) A crude natural product, or
    (iv) Ineligible for submission under section 505(j) of the FD&C Act 
because it differs in bioavailability (for example, products with 
different release patterns); or
    (4) The applicant has a right of reference to the application.
    (C) The product contains an active ingredient or active moiety that 
has been previously approved or marketed in the U.S. only as part of a 
combination. This applies to active ingredients previously approved or 
marketed as part of a physical or chemical combination, or as part of a 
mixture derived from recombinant deoxyribonucleic acid technology or 
natural sources.
    (D) The product is a combination product that differs from a 
previously marketed combination by the removal of one or more active 
ingredients or by substitution of a new ester or salt or other 
noncovalent derivative of an active ingredient for one or more of the 
active ingredients. In the latter case, the NDA would be classified as 
a combination of a Type 2 NDA as described in paragraph (e)(5)(i) of 
this section, with a Type 5 NDA as described in paragraph (e)(2) of 
this section.
    (E) The product contains a different strength of one or more active 
ingredients in a previously approved or marketed combination. A Type 5 
NDA, as described in paragraph (e)(2) of this section, would generally 
be submitted by an applicant other than the holder of the approved 
application for the approved product. A similar change in an approved 
product by the applicant of the approved product would usually be 
submitted as a supplemental application.
    (F) The product differs in bioavailability (for example, 
superbioavailable or different controlled-release pattern) and, 
therefore, is ineligible for submission as an abbreviated new drug 
application (ANDA) under section 505(j) of the FD&C Act.
    (G) The product involves a new plastic container that requires 
safety studies beyond limited confirmatory testing (see 21 CFR 310.509, 
Parenteral drug products in plastic containers).
    (ii) [Reserved]
    (3) Type 7 NDA--Previously Marketed But Without an Approved NDA.
    (i) A Type 7 NDA is for a drug product that contains an active 
moiety that has not been previously approved in an application, but has 
been marketed in the U.S. This classification applies only to the first 
NDA approved for a drug product containing this (these) active 
moiety(ies). Type 7 NDAs include, but are not limited to:
    (A) The first post-1962 application for an active moiety marketed 
prior to 1938.
    (B) The first application for an active moiety first marketed 
between 1938 and 1962 that is identical, related or similar (IRS) to a 
drug covered by a Drug Efficacy Study Implementation notice. Regulation 
at 21 CFR 310.6(b)(1) states that an identical, related, or similar 
drug includes other brands, potencies, dosage forms, salts, and esters 
of the same drug moiety as well as any of drug moiety related in 
chemical structure or known pharmacological properties.
    (C) The first application for an IRS drug product first marketed 
after 1962.
    (D) The first application for an active moiety that was first 
marketed without an NDA after 1962.
    (ii) [Reserved]
    (4) Type 8 NDA--Prescription to Over-the-Counter (OTC).
    (i) A Type 8 NDA is for a drug product intended for OTC marketing 
that contains an active ingredient that has been approved previously or 
marketed in the U.S. only for dispensing by prescription (OTC switch). 
A Type 8 NDA may provide for a different dosing regimen, different 
strength, different dosage form, or different indication from the 
product approved previously for prescription sale.
    (ii) If the proposed OTC switch will apply to all indications, 
uses, and strengths of an approved prescription dosage form (leaving no 
prescription-only products of that particular dosage form on the 
market), the application holder should submit the change as a 
supplement to the approved application. If the applicant intends to 
switch only some indications, uses, or strengths of the dosage form to 
OTC status (while continuing to market other indications, uses, or 
strengths of the dosage form for prescription-only sale), the applicant 
should submit a new NDA for the OTC products, which would be classified 
as a Type 8 NDA.
    (5) Combination of Type 3 NDA. Type 3 NDA, as described in 
paragraph (e)(1) of this section, in combination with a Type 2 NDA, as 
described in paragraph

[[Page 60805]]

(e)(5)(i) of this section, or in combination with a Type 4 NDA, as 
described in paragraph (e)(5)(ii) of this section;
    (i) Type 2 NDA--New Active Ingredient.
    (A) A Type 2 NDA is for a drug product that contains a new active 
ingredient, but not a new molecular entity (NME). A new active 
ingredient includes those products whose active moiety has been 
previously approved or marketed in the U.S., but whose particular 
ester, salt, or noncovalent derivative of the unmodified parent 
molecule has not been approved by FDA or marketed in the U.S., either 
alone, or as part of a combination product. Similarly, if any ester, 
salt, or noncovalent derivative has been marketed first, the unmodified 
parent molecule would also be considered a new active ingredient, but 
not an NME. The indication for the drug product does not need to be the 
same as that of the already marketed product containing the same active 
moiety.
    (B) If the active ingredient is a single enantiomer and a racemic 
mixture containing that enantiomer has been previously approved by FDA 
or marketed in the U.S., or if the active ingredient is a racemic 
mixture containing an enantiomer that has been previously approved by 
FDA or marketed in the U.S., the NDA will be classified as a Type 2 
NDA.
    (ii) Type 4 NDA--New Combination.
    (A) A Type 4 NDA is for a new drug-drug combination of two or more 
active ingredients. An application for a new drug-drug combination 
product may have more than one classification code if at least one 
component of the combination is an NME or a new active ingredient. The 
new product may be a physical or chemical (for example, covalent ester 
or noncovalent derivative) combination of two or more active moieties.
    (B) A new physical combination may be two or more active 
ingredients combined into a single dosage form, or two or more drugs 
packaged together with combined labeling. When at least one of the 
active moieties is classified as an NME, the NDA is classified as a 
combination of a Type 1 NDA, as described in paragraph (e)(5)(ii)(B)(1) 
of this section, with a Type 4 NDA, as described in paragraph 
(e)(5)(ii) of this section. When none of the active moieties is an NME, 
but at least one is a new active ingredient, the NDA is classified as a 
combination of a Type 2 NDA, as described in paragraph (e)(5)(i) of 
this section, with a Type 4 NDA, as described in paragraph (e)(5)(ii) 
of this section.
    (1) Type 1 NDA--New Molecular Entity.
    (i) A Type 1 NDA is for a drug product that contains an NME. An NME 
is an active ingredient that contains no active moiety that has been 
previously approved by FDA in an application submitted under section 
505 of the FD&C Act or has been previously marketed as a drug in the 
U.S. A pure enantiomer or a racemic mixture is an NME only when neither 
has been previously approved or marketed.
    (ii) An NDA for a drug product containing an active moiety that has 
been marketed as a drug in the U.S., but never approved in an 
application submitted under section 505 of the FD&C Act, would be 
considered a Type 7 NDA as described in paragraph (e)(3) of this 
section, not a Type 1 NDA.
    (iii) An NDA for a drug-drug combination product containing an 
active moiety that is an NME in combination with another active moiety 
that had already been approved by FDA would be classified as a new 
combination containing an NME (that is, Type 1,4 NDA, as described in 
paragraph (e)(5)(ii) of this section). For example, a drug-drug 
combination can include a fixed-combination drug product or a co-
packaged drug product with two or more active moieties.
    (iv) An active moiety in a radiopharmaceutical (or radioactive drug 
product) which has not been approved by the FDA or marketed in the U.S. 
is classified as an NME.
    (v) In addition, if a change in isotopic form results in an active 
moiety that has never been approved by the FDA or marketed in the U.S., 
the active ingredient is classified as an NME.
    (C) An NDA for an active ingredient that is a chemical combination 
of two or more previously approved or marketed active moieties that are 
linked by an ester bond is classified as a combination of a Type 2 NDA 
as described in paragraph (e)(5)(i) of this section, with a Type 4 NDA 
as described in paragraph (e)(5)(ii) of this section, if the active 
moieties have not been previously marketed or approved as a physical 
combination. If the physical combination has been previously marketed 
or approved, however, such a product would no longer be considered a 
new combination and the NDA would thus be classified as a Type 2 NDA, 
as described in paragraph (e)(5)(i) of this section.
    (6) Combination of Type 5 NDA. Type 5 NDA, as described in 
paragraph (e)(2) of this section, in combination with a Type 2 NDA, as 
described in paragraph (e)(5)(i) of this section.
    (7) Type 9 NDA when the parent NDA is a Type 3, Type 5, Type 7, or 
a Type 8. A Type 9 NDA, as described in paragraph (e)(7)(i) of this 
section when the parent NDA is a Type 3 NDA as described in paragraph 
(e)(1) of this section or a Type 5 NDA as described in paragraph (e)(2) 
of this section or Type 7 NDA as described in paragraph (e)(3) of this 
section or a Type 8 NDA as described in paragraph (e)(4) of this 
section.
    (i) Type 9 NDA--New Indication or Claim, Drug Not to be Marketed 
under Type 9 NDA after Approval.
    (A) A Type 9 NDA is for a new indication or claim for a drug 
product that is currently being reviewed under a different NDA (the 
``parent NDA''), and the applicant does not intend to market this drug 
product under the Type 9 NDA after approval. Generally, a Type 9 NDA is 
submitted as a separate NDA so as to be in compliance with the guidance 
for industry on Submitting Separate Marketing Applications and Clinical 
Data for Purposes of Assessing User Fees.
    (B) When the Type 9 NDA is submitted, it will be given the same NDA 
classification as the pending NDA. When one application is approved, 
the other will be reclassified as Type 9 regardless of whether it was 
the first or second NDA actually submitted. After the approval of a 
Type 9 NDA, FDA will ``administratively close'' the Type 9 NDA and 
thereafter only accept submissions to the ``parent'' NDA.
    (ii) [Reserved]
* * * * *

0
8. Section 413.236 is added to read as follows:


Sec.  413.236  Transitional add-on payment adjustment for new and 
innovative equipment and supplies.

    (a) Basis. This section establishes an add-on payment adjustment to 
support ESRD facilities in the uptake of new and innovative renal 
dialysis equipment and supplies under the ESRD prospective payment 
system under the authority of section 1881(b)(14)(D)(iv) of the Social 
Security Act.
    (b) Eligibility criteria. For dates of service occurring on or 
after January 1, 2020, CMS provides for a transitional add-on payment 
adjustment for new and innovative equipment and supplies (as specified 
in paragraph (d) of this section) to an ESRD facility for furnishing a 
covered equipment or supply only if the item:
    (1) Has been designated by CMS as a renal dialysis service under 
Sec.  413.171;
    (2) Is new, meaning it is granted marketing authorization by the 
Food

[[Page 60806]]

and Drug Administration (FDA) on or after January 1, 2020;
    (3) Is commercially available by January 1 of the particular 
calendar year, meaning the year in which the payment adjustment would 
take effect;
    (4) Has a Healthcare Common Procedure Coding System (HCPCS) 
application submitted in accordance with the official Level II HCPCS 
coding procedures by September 1 of the particular calendar year;
    (5) Is innovative, meaning it meets the criteria specified in Sec.  
412.87(b)(1) of this chapter and related guidance; and
    (6) Is not a capital-related asset that an ESRD facility has an 
economic interest in through ownership (regardless of the manner in 
which it was acquired).
    (c) Announcement of determinations and deadline for consideration 
of new renal dialysis equipment or supply applications. CMS will 
consider whether a new renal dialysis supply or equipment meets the 
eligibility criteria specified in paragraph (b) of this section and 
announce the results in the Federal Register as part of its annual 
updates and changes to the ESRD prospective payment system. CMS will 
only consider a complete application received by CMS by February 1 
prior to the particular calendar year. FDA marketing authorization for 
the equipment or supply must occur by September 1 prior to the 
particular calendar year.
    (d) Transitional add-on payment adjustment for new and innovative 
equipment and supplies. A new and innovative renal dialysis equipment 
or supply will be paid for using a transitional add-on payment 
adjustment for new and innovative equipment and supplies based on 65 
percent of the MAC-determined price, as specified in paragraph (e) of 
this section.
    (1) The transitional add-on payment adjustment for new and 
innovative equipment and supplies is paid for 2-calendar years.
    (2) Following payment of the transitional add-on payment adjustment 
for new and innovative equipment and supplies, the ESRD PPS base rate 
will not be modified and the new and innovative renal dialysis 
equipment or supply will be an eligible outlier service as provided in 
Sec.  413.237.
    (e) Pricing of new and innovative renal dialysis equipment and 
supplies. (1) The Medicare Administrative Contractors (MACs) on behalf 
of CMS will establish prices for new and innovative renal dialysis 
equipment and supplies that meet the eligibility criteria specified in 
paragraph (b) of this section using verifiable information from the 
following sources of information, if available:
    (i) The invoice amount, facility charges for the item, discounts, 
allowances, and rebates;
    (ii) The price established for the item by other MACs and the 
sources of information used to establish that price;
    (iii) Payment amounts determined by other payers and the 
information used to establish those payment amounts; and
    (iv) Charges and payment amounts required for other equipment and 
supplies that may be comparable or otherwise relevant.
    (2) [Reserved]

0
9. Section 413.237 is amended by--
0
 a. Revising paragraph (a)(1)(i) through (iv);
0
 b. Redesignating paragraph (a)(1)(v) as paragraph (a)(1)(vi);
0
c. Adding new paragraph (a)(1)(v); and
0
d. Revising newly redesignated paragraph (a)(1)(vi).
    The revisions and addition read as follows:


Sec.  413.237  Outliers.

    (a) * * *
    (1) * * *
    (i) Renal dialysis drugs and biological products that were or would 
have been, prior to January 1, 2011, separately billable under Medicare 
Part B;
    (ii) Renal dialysis laboratory tests that were or would have been, 
prior to January 1, 2011, separately billable under Medicare Part B;
    (iii) Renal dialysis medical/surgical supplies, including syringes, 
used to administer renal dialysis drugs and biological products that 
were or would have been, prior to January 1, 2011, separately billable 
under Medicare Part B;
    (iv) Renal dialysis drugs and biological products that were or 
would have been, prior to January 1, 2011, covered under Medicare Part 
D, including renal dialysis oral-only drugs effective January 1, 2025; 
and
    (v) Renal dialysis equipment and supplies that receive the 
transitional add-on payment adjustment as specified in Sec.  413.236 
after the payment period has ended.
    (vi) As of January 1, 2012, the laboratory tests that comprise the 
Automated Multi-Channel Chemistry panel are excluded from the 
definition of outlier services.
* * * * *

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

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

    Authority:  42 U.S.C. 1302, 1395hh, and 1395rr(b)(l).

0
11. Section 414.110 is added to subpart C to read as follows:


Sec.  414.110  Continuity of pricing when HCPCS codes are divided or 
combined.

    (a) General Rule. If a new HCPCS code is added, CMS or contractors 
make every effort to determine whether the item and service has a fee 
schedule pricing history. If there is a fee schedule pricing history, 
the previous fee schedule amounts for the old code(s) are mapped to the 
new code(s) to ensure continuity of pricing.
    (b) Mapping fee schedule amounts based on different kinds of coding 
changes. When the code for an item is divided into several codes for 
the components of that item, the total of the separate fee schedule 
amounts established for the components must not be higher than the fee 
schedule amount for the original item. When there is a single code that 
describes two or more distinct complete items (for example, two 
different but related or similar items), and separate codes are 
subsequently established for each item, the fee schedule amounts that 
applied to the single code continue to apply to each of the items 
described by the new codes. When the codes for the components of a 
single item are combined in a single global code, the fee schedule 
amounts for the new code are established by totaling the fee schedule 
amounts used for the components (that is, use the total of the fee 
schedule amounts for the components as the fee schedule amount for the 
global code). When the codes for several different items are combined 
into a single code, the fee schedule amounts for the new code are 
established using the average (arithmetic mean), weighted by allowed 
services, of the fee schedule amounts for the formerly separate codes.

0
12. Section 414.112 is added to subpart C to read as follows:


Sec.  414.112  Establishing fee schedule amounts for new HCPCS codes 
for items and services without a fee schedule pricing history.

    (a) General rule. If a HCPCS code is new and describes items and 
services that do not have a fee schedule pricing history (classified 
and paid for previously under a different code), the fee schedule 
amounts for the new code are established based on the process

[[Page 60807]]

described in paragraphs (b) or (c) of this section.
    (b) Comparability. Fee schedule amounts for new HCPCS codes for 
items and services without a fee schedule pricing history are 
established using existing fee schedule amounts for comparable items 
when items with existing fee schedule amounts are determined to be 
comparable to the new items and services based on a comparison of: 
Physical components; mechanical components; electrical components; 
function and intended use; and additional attributes and features. If 
there are no items with existing fee schedule amounts that are 
comparable to the items and services under the new code, the fee 
schedule amounts for the new code are established in accordance with 
paragraph (c) of this section.
    (c) Use of supplier or commercial price lists. (1) Fee schedule 
amounts for items and services without a fee schedule pricing history 
described by new HCPCS codes that are not comparable to items and 
services with existing fee schedule amounts may be established using 
supplier price lists, including catalogs and other retail price lists 
(such as internet retail prices) that provide information on commercial 
pricing for the item. Potential appropriate sources for such commercial 
pricing information can also include payments made by Medicare 
Advantage plans, as well as verifiable information from supplier 
invoices and non-Medicare payer data. If the only available price 
information is from a period other than the fee schedule base period, 
deflation factors are applied against current pricing in order to 
approximate the base period price.
    (i) The annual deflation factors are specified in program 
instructions and are based on the percentage change in the consumer 
price index for all urban consumers (CPI-U) from the mid-point of the 
year the prices are in effect to the mid-point of the fee schedule base 
period, as calculated using the following formula: ((base CPI-U minus 
current CPI-U) divided by current CPI-U) plus one.
    (ii) The deflated amounts are then increased by the update factors 
specified in Sec.  414.102(c).
    (2) If within 5 years of establishing fee schedule amounts using 
supplier or commercial prices, the supplier or commercial prices 
decrease by less than 15 percent, a one-time adjustment to the fee 
schedule amounts is made using the new prices. The new supplier or 
commercial prices would be used to establish the new fee schedule 
amounts in the same way that the older prices were used, including 
application of the deflation formula in paragraph (c)(1) of this 
section.

0
13. Section 414.234 is amended --
0
a. In paragraph (a) by adding the definition of ``Required Prior 
Authorization List'' in alphabetical order;
0
b. By revising the heading of paragraph (b) and revising paragraphs 
(b)(1), (b)(2), (b)(3)(i) through (b)(3)(iii), (b)(4), and (b)(6);
0
c. By revising paragraphs (c)(1)(i) and (ii);
0
d. By revising paragraphs (d)(1) introductory text and (d)(1)(i);
0
e. By revising paragraph (e)(3) and (4); and
0
f. By adding paragraph (e)(5).
    The revisions and addition read as follows:


Sec.  414.234  Prior authorization for items frequently subject to 
unnecessary utilization.

    (a) * * *
    Required Prior Authorization List is a list of DMEPOS items 
selected from the Master List and subject to the requirements of prior 
authorization as a condition of payment.
* * * * *
    (b) Master List of Items Potentially Subject to Face-To-Face 
Encounter and Written Order Prior to Delivery and/or Prior 
Authorization Requirements.
    (1) Master List Inclusion Criteria are as follows:
    (i) Any DMEPOS items included in the DMEPOS Fee Schedule that have 
an average purchase fee of $500 (adjusted annually for inflation using 
consumer price index for all urban consumers (CPI-U), and reduced by 
the 10-year moving average of changes in annual economy-wide private 
nonfarm business multifactor productivity (MFP) (as projected by the 
Secretary for the 10-year period ending with the applicable FY, year, 
cost reporting period, or other annual period)) or greater, or an 
average monthly rental fee schedule of $50 (adjusted annually for 
inflation using consumer price index for all urban consumers (CPI-U), 
and reduced by the 10-year moving average of changes in annual economy-
wide private nonfarm business multifactor productivity (MFP) (as 
projected by the Secretary for the 10-year period ending with the 
applicable FY, year, cost reporting period, or other annual period)) or 
greater, or are identified as accounting for at least 1.5 percent of 
Medicare expenditures for all DMEPOS items over a 12-month period that 
are:
    (A) Identified as having a high rate of potential fraud or 
unnecessary utilization in an Office of Inspector General (OIG) or 
Government Accountability Office (GAO) report that is national in scope 
and published in 2015 or later, or
    (B) Listed in the 2018 or later Comprehensive Error Rate Testing 
(CERT) Medicare Fee-for-Service (FFS) Supplemental Improper Payment 
Data report as having a high improper payment rate, or
    (ii) The annual Master List updates shall include any items with at 
least 1,000 claims and 1 million dollars in payments during a recent 
12-month period that are determined to have aberrant billing patterns 
and lack explanatory contributing factors (for example, new technology 
or coverage policies). Items with aberrant billing patterns would be 
identified as those items with payments during a 12-month timeframe 
that exceed payments made during the preceding 12-months, by the 
greater of:
    (A) Double the percent change of all DMEPOS claim payments for 
items that meet the above claim and payment criteria, from the 
preceding 12-month period, or
    (B) Exceeding a 30 percent increase in payment, or
    (iii) Any item statutorily requiring a face-to-face encounter, a 
written order prior to delivery, or prior authorization.
    (2) The Master List is self-updating at a minimum annually, and is 
published in the Federal Register.
    (3) * * *
    (i) OIG reports published after 2020.
    (ii) GAO reports published after 2020.
    (iii) Listed in the CERT Medicare FFS Supplemental Improper Payment 
Data report(s) published after 2020 as having a high improper payment 
rate.
    (4) Items are removed from the Master List after 10 years from the 
date the item was added to the Master List, unless the item was 
identified in an OIG report, GAO report, or having been identified in 
the CERT Medicare FFS Supplemental Improper Payment Data report as 
having a high improper payment rate, within the 5-year period preceding 
the anticipated date of expiration.
* * * * *
    (6) An item is removed from the list if the cost drops below the 
payment threshold criteria set forth in paragraph (b)(1)(i) of this 
section.
* * * * *
    (c) * * *
    (1) * * *
    (i) The Required Prior Authorization List specified in paragraph 
(c)(1) of this section is selected from the Master List. CMS may 
consider factors such as geographic location, item utilization or cost, 
system capabilities, emerging trends, vulnerabilities identified in

[[Page 60808]]

official agency reports, or other analysis and may implement prior 
authorization nationally or locally.
    (ii) CMS may elect to limit the prior authorization requirement to 
a particular region of the country if claims data analysis shows that 
unnecessary utilization of the selected item(s) is concentrated in a 
particular region. CMS may elect to exempt suppliers from prior 
authorization upon demonstration of compliance with Medicare coverage, 
coding, and payment rules through such prior authorization process.
* * * * *
    (d) * * *
    (1) Include all relevant documentation necessary to show that the 
item meets applicable Medicare coverage, coding, and payment rules, 
including those outlined in Sec.  410.38 and all of the following:
    (i) Written order/prescription.
* * * * *
    (e) * * *
    (3) If applicable Medicare coverage, coding, and payment rules are 
not met, CMS or its contractor issues a non-affirmation decision to the 
requester.
    (4) If the requester receives a non-affirmation decision, the 
requester may resubmit a prior authorization request before the item is 
furnished to the beneficiary and before the claim is submitted for 
processing.
    (5) A prior authorization request for an expedited review must 
include documentation that shows that processing a prior authorization 
request using a standard timeline for review could seriously jeopardize 
the life or health of the beneficiary or the beneficiary's ability to 
regain maximum function. If CMS or its contractor agrees that 
processing a prior authorization request using a standard timeline for 
review could seriously jeopardize the life or health of the beneficiary 
or the beneficiary's ability to regain maximum function, then CMS or 
its contractor expedites the review of the prior authorization request 
and communicates the decision following the receipt of all applicable 
Medicare required documentation.
* * * * *

0
14. Section 414.236 is added to subpart D to read as follows:


Sec.  414.236  Continuity of pricing when HCPCS codes are divided or 
combined.

    (a) General rule. If a new HCPCS code is added, CMS or contractors 
make every effort to determine whether the item and service has a fee 
schedule pricing history. If there is a fee schedule pricing history, 
the previous fee schedule amounts for the old code(s) are mapped to the 
new code(s) to ensure continuity of pricing.
    (b) Mapping fee schedule amounts based on different kinds of coding 
changes. When the code for an item is divided into several codes for 
the components of that item, the total of the separate fee schedule 
amounts established for the components must not be higher than the fee 
schedule amount for the original item. When there is a single code that 
describes two or more distinct complete items (for example, two 
different but related or similar items), and separate codes are 
subsequently established for each item, the fee schedule amounts that 
applied to the single code continue to apply to each of the items 
described by the new codes. When the codes for the components of a 
single item are combined in a single global code, the fee schedule 
amounts for the new code are established by totaling the fee schedule 
amounts used for the components (that is, use the total of the fee 
schedule amounts for the components as the fee schedule amount for the 
global code). When the codes for several different items are combined 
into a single code, the fee schedule amounts for the new code are 
established using the average (arithmetic mean), weighted by allowed 
services, of the fee schedule amounts for the formerly separate codes.

0
15. Section 414.238 is added to subpart D to read as follows:


Sec.  414.238  Establishing fee schedule amounts for new HCPCS codes 
for items and services without a fee schedule pricing history.

    (a) General rule. If a HCPCS code is new and describes items and 
services that do not have a fee schedule pricing history (classified 
and paid for previously under a different code), the fee schedule 
amounts for the new code are established based on the process described 
in paragraphs (b) or (c) of this section.
    (b) Comparability. Fee schedule amounts for new HCPCS codes for 
items and services without a fee schedule pricing history are 
established using existing fee schedule amounts for comparable items 
when items with existing fee schedule amounts are determined to be 
comparable to the new items and services based on a comparison of: 
Physical components; mechanical components; electrical components; 
function and intended use; and additional attributes and features. If 
there are no items with existing fee schedule amounts that are 
comparable to the items and services under the new code, the fee 
schedule amounts for the new code are established in accordance with 
paragraph (c) of this section.
    (c) Use of supplier or commercial price lists. (1) Fee schedule 
amounts for items and services without a fee schedule pricing history 
described by new HCPCS codes that are not comparable to items and 
services with existing fee schedule amounts may be established using 
supplier price lists, including catalogs and other retail price lists 
(such as internet retail prices) that provide information on commercial 
pricing for the item. Potential appropriate sources for such commercial 
pricing information can also include payments made by Medicare 
Advantage plans, as well as verifiable information from supplier 
invoices and non-Medicare payer data. If the only available price 
information is from a period other than the fee schedule base period, 
deflation factors are applied against current pricing in order to 
approximate the base period price.
    (i) The annual deflation factors are specified in program 
instructions and are based on the percentage change in the consumer 
price index for all urban consumers (CPI-U) from the mid-point of the 
year the prices are in effect to the mid-point of the fee schedule base 
period, as calculated using the following formula: ((base CPI-U minus 
current CPI-U) divided by current CPI-U) plus one.
    (ii) The deflated amounts are then increased by the update factors 
specified in section 1834(a)(14) of the Act for DME, section 1834(h)(4) 
of the Act for prosthetic devices, prosthetics, orthotics, and 
therapeutic shoes and inserts, and section 1834(i)(1)(B) of the Act for 
surgical dressings.
    (2) If within 5 years of establishing fee schedule amounts using 
supplier or commercial prices, the prices decrease by less than 15 
percent, a one-time adjustment to the fee schedule amounts is made 
using the new prices. The new prices would be used to establish the new 
fee schedule amounts in the same way that the older prices were used, 
including application of the deflation formula in paragraph (c)(1) of 
this section.

0
16. Section 414.422 is amended by revising paragraph (d) to read as 
follows:


Sec.  414.422  Terms of contracts.

* * * * *
    (d) Change of ownership (CHOW). (1) CMS may transfer a contract to 
a successor entity that merges with, or acquires, a contract supplier 
if the successor entity--

[[Page 60809]]

    (i) Meets all requirements applicable to contract suppliers for the 
applicable competitive bidding program;
    (ii) Submits to CMS the documentation described under Sec.  
414.414(b) through (d) if documentation has not previously been 
submitted by the successor entity or if the documentation is no longer 
sufficient for CMS to make a financial determination. A successor 
entity is not required to duplicate previously submitted information if 
the previously submitted information is not needed to make a financial 
determination. This documentation must be submitted prior to the 
effective date of the CHOW; and
    (iii) Submits to CMS a signed novation agreement acceptable to CMS 
stating that it assumes all obligations under the contract. This 
documentation must be submitted no later than 10 days after the 
effective date of the CHOW.
    (2) Except as specified in paragraph (d)(3) of this section, CMS 
may transfer the entire contract, including all product categories and 
competitive bidding areas, to a successor entity.
    (3) For contracts issued in the Round 2 Recompete and subsequent 
rounds in the case of a CHOW where a contract supplier sells a distinct 
company (for example, a subsidiary) that furnishes a specific product 
category or services a specific CBA, CMS may transfer the portion of 
the contract performed by that company to a successor entity, if the 
following conditions are met:
    (i) Every CBA, product category, and location of the company being 
sold must be transferred to the successor entity that meets all 
competitive bidding requirements; that is, financial, accreditation, 
and licensure;
    (ii) All CBAs and product categories in the original contract that 
are not explicitly transferred by CMS remain unchanged in that original 
contract for the duration of the contract period unless transferred by 
CMS pursuant to a subsequent CHOW;
    (iii) All requirements of paragraph (d)(1) of this section are met;
    (iv) The sale of the distinct company includes all of the contract 
supplier's assets associated with the CBA and/or product category(s); 
and
    (v) CMS determines that transfer of part of the original contract 
will not result in disruption of service or harm to beneficiaries.
* * * * *

0
17. Section 414.423 is amended by revising paragraph (f)(2) to read as 
follows:


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

* * * * *
    (f) * * *
    (2) A supplier that wishes to appeal the breach of contract 
action(s) specified in the notice of breach of contract must submit a 
written request to the CBIC. The request for a hearing must be 
submitted to the CBIC within 30 days from the date of the notice of 
breach of contract.
* * * * *

    Dated: October 24, 2019.
Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.

    Dated: October 28, 2019.
Alex M. Azar II,
Secretary, Department of Health and Human Services.
[FR Doc. 2019-24063 Filed 10-31-19; 4:15 pm]
BILLING CODE 4120-01-P