[Federal Register Volume 74, Number 187 (Tuesday, September 29, 2009)]
[Proposed Rules]
[Pages 49922-50102]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-22486]



[[Page 49921]]

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

Part II





Department of Health and Human Services





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



Centers for Medicare & Medicaid Services



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



42 CFR Parts 410, 413 and 414



Medicare Programs; End-Stage Renal Disease Prospective Payment System; 
Town Hall Meeting on End-Stage Renal Disease Prospective Payment 
System; Proposed Rule and Notice

Federal Register / Vol. 74, No. 187 / Tuesday, September 29, 2009 / 
Proposed Rules

[[Page 49922]]


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

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 410, 413 and 414

[CMS-1418-P]
RIN 0938-AP57


Medicare Programs; End-Stage Renal Disease Prospective Payment 
System

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

ACTION: Proposed rule.

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

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

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on November 16, 
2009.

ADDRESSES: In commenting, please refer to file code CMS-1418-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov.
    Follow the instructions under the ``More Search Options'' tab.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-1418-P, P.O. Box 8010, 
Baltimore, MD 21244-8010.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-1418-P, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments before the close of the comment period 
to either of the following addresses: a. For delivery in Washington, 
DC--Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Room 445-G, Hubert H. Humphrey Building, 200 
Independence Avenue, SW., Washington, DC 20201.
    (Because access to the interior of the Hubert H. Humphrey Building 
is not readily available to persons without Federal government 
identification, commenters are encouraged to leave their comments in 
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing 
by stamping in and retaining an extra copy of the comments being 
filed.)
    b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call telephone number (410) 786-9994 in advance to schedule your 
arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by following the 
instructions at the end of the ``Collection of Information 
Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

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

SUPPLEMENTARY INFORMATION: Inspection of Public Comments: All comments 
received before the close of the comment period are available for 
viewing by the public, including any personally identifiable or 
confidential business information that is included in a comment. We 
post all comments received before the close of the comment period on 
the following Web site as soon as possible after they have been 
received: http://www.regulations.gov. Follow the search instructions on 
that Web site to view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

Table of Contents

I. Background
    A. Origins of the Composite Payment System
    B. Statutory Authority for a Bundled ESRD PPS
    1. BIPA
    2. MMA
    3. The Basic Case-Mix Adjustment
    4. MIPPA
II. Overview of the Proposed ESRD PPS
III. The Proposed ESRD PPS Bundle
    A. Composite Rate Services
    B. ESAs and Their Oral Forms
    C. Other Drugs and Biologicals and Their Oral Equivalents
    D. Diagnostic Laboratory Tests and Other Items and Services
    E. Home Dialysis Patients (Method I and II) and Self Dialysis 
Training
    1. Payment for Home Dialysis
    a. Method I--The Composite Rate
    b. Method II--Dealing Directly With Suppliers
    2. Self Dialysis Training
    F. Physician Services
IV. Unit of Payment
    A. Administrative Complexity Due to Phase-In
    B. Administrative Complexity Due to Interruptions in Service
    C. No Incentive To Discourage Skipped Treatments
V. Data Sources
    A. Patient Claims Data
    B. Medicare Cost Reports
    C. Patient Claim and Cost Report Summary Data 2004-2006
    D. Data for the Case-Mix Analyses, 2004-2006
    E. Prescription Drug Event Data CY 2007
VI. Analytical Approach
VII. Development of Budget-Neutral ESRD Bundled Base Rate
    A. Calculation of the CY 2007 Unadjusted Rate per Treatment
    B. Determining the Update Factors for the Budget-Neutrality 
Calculation
    C. Standardization Adjustment
    D. Calculation of the Budget-Neutrality Adjustment
    a. Outlier Adjustment
    b. 98 Percent Budget Neutrality Adjustment
    E. Calculation of Transition Budget-Neutrality Adjustment
VIII. Cost Regression Used To Develop Proposed Payment Adjustment 
Factors
    A. Proposed Regression Analysis
    1. Dependent Variables
    a. Average Cost per Treatment for Composite Rate Services
    b. Average Medicare Allowable Payment (MAP) for Separately 
Billable Services

[[Page 49923]]

    2. Independent Variables
    a. Control Variables
    b. Proposed Case-Mix Adjustment Variables
    B. Proposed Patient-Level Adjustments
    1. Patient Age
    2. Patient Sex
    3. Body Surface Area and Body Mass Index
    a. Body Surface Area
    b. Body Mass Index
    4. Onset of Dialysis (New Patient Adjustment)
    5. Co-morbidities
    6. Race/Ethnicity
    a. REMIS Data Analysis
    b. EBD Data Analysis
    c. Concerns With Available Race/Ethnicity Data
    d. CMS Initiative To Evaluate Healthcare Disparities Based on 
Race and Ethnicity
    7. Modality
    C. Proposed Facility-Level Adjustments
    1. Wage Index
    2. Low-Volume Adjustment
    a. Statutory Authority
    b. Defining a Low-Volume Facility
    c. Defining the Percent of Increase
    3. Alaska/Hawaii Facilities
    4. Rural
    5. Site Neutral ESRD PPS Rate
    D. Determination of ESRD PPS Payment Adjusters
IX. Pediatric Patients
    A. Current System
    B. Selection of a Pediatric Composite Rate Payment Adjustment
    C. Selection of a Pediatric Separately Billable Payment 
Adjustment
    D. A Combined Composite Rate and Separately Billable Payment 
Model for Pediatric Patients
X. Other Proposed Adjustments
    A. Outlier Policy
    1. Eligibility for Outlier Payment
    a. ESRD Outlier Services
    b. Predicted ESRD Outlier Services MAP Amounts
    c. Estimating the Imputed ESRD Outlier Services MAP Amounts
    i. Data Used To Estimate Imputed ESRD Outlier Services MAP 
Amounts
    ii. Determining Imputed per Treatment ESRD Outlier Services MAP 
Amount
    d. Outlier Percentage and Fixed Dollar Loss Amounts
    2. Outlier Payments
    3. Hypothetical Outlier Payment Examples
    4. Application of Outlier Policy During the Transition and in 
Relation to the ESA Monitoring Policy
XI. Comprehensive Payment Model Examples
XII. ESRD Market Basket
    A. Background
    B. Cost Category Weights
    C. Price Proxies
    D. ESRD Bundled Market Basket Increases
    E. ESRD Bundled Labor-Related Share
XIII. Proposed Implementation of the ESRD PPS
    A. Transition Period
    1. New ESRD Facilities
    2. Limitation on Beneficiary Charges Under the Proposed ESRD PPS 
and Beneficiary Deductible and Coinsurance Obligations
    B. Claims Processing
    1. Consolidated Billing
    a. Laboratory Tests
    b. Drugs and Biologicals
    c. Home Dialysis
    2. Expansion of the Data Elements Reported on Claims
    C. Operational Issues Surrounding Payment for Self Administered 
ESRD-related Drugs and Biologicals
    XIV. Evaluation of Existing Policies and Other Issues
    A. Exceptions Under the Case-Mix Adjusted Composite Payment 
System
    B. Erythropoiesis Stimulating Agent (ESAs) Monitoring Policy
    C. ESRD Facility Network Deduction
    D. Bad Debt
    E. Limitation on Review
    F. 50 Percent Rule Utilized in Laboratory Payments
    G. Medicare as a Secondary Payer
XV. Quality Incentives in the End-Stage Renal Disease (ESRD) Program
XVI. Collection of Information Requirements
XVII. Regulatory Impact Analysis
    A. Overall Impact
    B. Anticipated Effects
    1. Effects on ESRD Facilities
    2. Effects on Other Providers
    3. Effects on the Medicare & Medicaid Programs
    4. Effects on Medicare Beneficiaries
    C. Alternatives Considered
    D. Accounting Statement and Table
    E. Conclusion
Regulations Text
Addenda

Acronyms

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

Act The Social Security Act
BIPA Medicare, Medicaid, and SCHIP (State Children's Health 
Insurance Program) Benefits Improvement and Protection Act of 2000 
(Pub. L. 106-554)
BMI Body mass index
BN Budget neutrality
BSA Body surface area
CBSA Core-Based Statistical Area
CDC Centers for Disease Control and Prevention
CFR Code of Federal Regulations
CMS Centers for Medicare & Medicaid Services
CPM Clinical performance measure
CR Composite rate
CROWN Consolidated Renal Operations in a Web-Enabled Network
CY Calendar year
DME Durable medical equipment
EDB Enrollment Data Base
EPO Epoetin alfa
ESA Erythropoiesis stimulating agent
ESRD End stage renal disease
FI Fiscal intermediary
FY Fiscal year
GAO Government Accountability Office
HD Hemodialysis
IHS Indian Health Service
Kt/V A measure of dialysis adequacy where K is dialyzer clearance, t 
is dialysis time, and V is total body water volume
LDO Large dialysis organization
MAC Medicare Administrative Contractor
MAP Medicare allowable payment
MCP Monthly capitation payment
MedPAC Medicare Payment Advisory Commission
MIPPA Medicare Improvements for Patients and Providers Act of 2008 
(Pub. L. 110-275)
MMA Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (Pub. L. 108-173)
MSA Metropolitan Statistical Area
NEC Not elsewhere classified
NIH National Institutes of Health
NOS Not otherwise specified
NQF National Quality Forum
OMB Office of Management and Budget
OSCAR Online State Certification and Reporting System
PD Peritoneal dialysis
PFS Physician fee schedule
PPS Prospective payment system
PDE Prescription drug event
PVD Peripheral vascular disease
REMIS Renal Management Information System
RRB Railroad Retirement Board
RRT Renal replacement therapy
SB Separately billable
SIMS ESRD Standard Information Management System
SSA Social Security Administration
UM-KECC University of Michigan, Kidney Epidemiology & Cost Center
URR Urea reduction ratio

I. Background

A. Origins of the Composite Payment System

    Section 299I of the Social Security Amendments of 1972, Public Law 
92-603, established the end-stage renal disease (ESRD) program under 
Medicare. That law extended Medicare coverage to individuals regardless 
of age who have permanent kidney failure, requiring either dialysis or 
kidney transplantation to maintain life, and meet certain other 
eligibility criteria. On July 1, 1973, the Medicare program extended 
benefits to about 11,000 beneficiaries with ESRD. In calendar year 
1974, the program paid benefits of about $229 million for dialysis, 
transplant, and other services. By 1979, the number of beneficiaries 
had grown to 42,500, with payments reaching $985 million.
    Because of concern over the rapid escalation in expenditures for 
the ESRD program, the Congress enacted legislation in 1978 (Pub. L. 95-
292, ``ESRD Program Amendments of 1978''), which amended title XVIII of 
the Social Security Act (the Act) to add new section 1881, which 
governs Medicare payment for ESRD benefits. In particular, section 
1881(b)(2)(B) of the Act directed us to publish regulations 
establishing methods and procedures to determine the costs incurred by 
ESRD providers and renal dialysis facilities in

[[Page 49924]]

furnishing covered services to individuals with ESRD, and to determine, 
on a cost-related or other equitable and economically efficient basis, 
payment amounts for part B services furnished by such providers and 
facilities to individuals with ESRD. Section 1881(b)(2)(B) of the Act 
also provided that we establish a prospective reimbursement method for 
those services with incentives for encouraging facilities to be more 
efficient and provide cost-effective care.
    The enactment of the Omnibus Budget Reconciliation Act of 1981, 
Public Law 97-35, resulted in a further directive for implementing 
changes to the ESRD payment system. Section 2145 of Public Law 97-35 
amended section 1881 of the Act by requiring the Secretary to provide 
by regulation a method for determining prospectively the amounts of 
payments for dialysis services furnished by providers of services and 
renal dialysis facilities to individuals in a facility, and to such 
individuals at home. In particular, the law required that such method 
be based on a single composite weighted formula (``composite rate'') 
(which takes into account the mix of patients who receive services at a 
facility or at home and the relative costs for furnishing such 
services) for hospital-based facilities and such a single composite 
rate for other renal dialysis facilities, or that payment be based on 
such other method or combination of methods which differentiate between 
hospital-based and other renal dialysis facilities, and which would 
more effectively encourage more efficient delivery of dialysis services 
and would provide greater incentives for increased use of home 
dialysis.
    As a result of these statutory requirements, on February 12, 1982, 
we published a proposed rule on reimbursement for outpatient dialysis 
services (47 FR 6556) to implement section 1881 of the Act, as amended 
by section 2145 of Public Law 97-35. The regulations provided that each 
facility would receive a payment rate per dialysis treatment 
(``composite rate''), that is adjusted for geographic differences in 
area wage levels for the treatment furnished in the facility or at 
home. We refer to the methodology for payment of outpatient maintenance 
dialysis services on a per-treatment basis as the ``composite payment 
system''.
    Final regulations implementing the composite payment system were 
published on May 11, 1983 (48 FR 21254). The initial payment rates, 
which were developed from Medicare cost reports for fiscal years ending 
in 1977, 1978, and 1979, were established at $127 per treatment for 
independent facilities and $131 for hospital-based facilities. The 
composite payment system was effective August 1, 1983. It was limited 
to payments for the costs incurred by dialysis facilities furnishing 
outpatient maintenance dialysis, including some routinely provided 
drugs, laboratory tests, and supplies, whether furnished by hospital-
based and independent facilities in a facility or at home. We 
established separate rates for hospital-based and independent dialysis 
facilities, and provided a process under which facilities with costs in 
excess of their payment rates could seek exceptions to those rates 
under specified circumstances.
    With regard to home dialysis, this system was the basis for 
reimbursing home dialysis furnished by hospital-based and independent 
facilities (``Method I''). (The other is ``Method II,'' under which the 
beneficiary works directly with a durable medical equipment supplier to 
obtain the supplies and equipment needed.) For further information on 
the distinctions between Method I and Method II, see section III.E of 
this proposed rule.
    The composite payment system implemented in 1983 was relatively 
comprehensive with respect to the renal dialysis services included as 
part of the composite payment bundle. However, a substantial portion of 
expenditures for renal dialysis services are excluded from the 
composite payment system and reimbursed in accordance with the 
respective fee schedules or other payment methodologies. For example, 
payment for erythropoiesis stimulating agents (ESAs) such as epoetin 
alfa (EPO, for example, Epogen[supreg]) and darbepoetin alfa 
(ARANESP[supreg]) used to treat anemia, and vitamin D analogues 
(paracalcitol, doxercalciferol, calcitriol), is made outside of the 
composite payment system as separately billable services. These 
separately billable services currently comprise about 40 percent of 
total spending for outpatient maintenance dialysis. The present payment 
for outpatient maintenance dialysis under Medicare represents a mix of 
prospective payment, fee-for-service, and other payment rules.
    Subsequent inflation increases to the composite payment system 
applied only in response to specific statutory directives. For example, 
between 1983 and 2001, the payment rates were increased only three 
times. A $1.00 increase per treatment was effective January 1, 1991 as 
a result of the enactment of the Omnibus Budget Reconciliation Act of 
1990, Public Law 101-508. The rates were not revised again until the 
enactment of the Medicare, Medicaid, and SCHIP Balanced Budget 
Refinement Act of 1999, Public Law 106-113, which increased the 
payments by 1.2 percent effective January 1, 2000 and January 1, 2001, 
respectively.
    During the last few years, policymakers and other interested 
parties, including the Medicare Payment Advisory Commission (MedPac) 
and the Government Accountability Office (GAO), have examined the 
Medicare outpatient maintenance dialysis payment system and suggested a 
bundled prospective payment approach. See Medicare Payment Advisory 
Commission (MedPAC): Report to the Congress: Medicare Payment Policy, 
March 2001, March 2005, and March 2007, and GAO Report GAO-07-77, End 
Stage Renal Disease: Bundling Medicare's Payment for Drugs with Payment 
for All ESRD Services Would Promote Efficiency and Clinical 
Flexibility, November 2006. We believe that a fully bundled PPS would 
combine composite rate dialysis services with separately billable 
services under a single payment, adjusted to reflect patient 
differences in resource needs or case-mix. As in any PPS, dialysis 
facilities would keep the difference if Medicare payments exceeded 
costs for the bundled services, and would be liable for the difference 
if costs exceeded Medicare payments.
    Aside from resulting in a single comprehensive payment for all 
services included in the bundle, we believe a bundled ESRD PPS would 
have several objectives. These include eliminating incentives to 
overuse profitable separately billable drugs, particularly EPO, the 
targeting of greater payments to ESRD facilities with more costly 
patients to promote both equitable payment and access to services, and 
the promotion of operational efficiency. Because of the increased 
flexibility a bundled PPS would provide in the delivery of outpatient 
maintenance dialysis services, we believe that it could also increase 
desirable clinical outcomes, resulting in an enhanced quality of care.

B. Statutory Authority for a Bundled ESRD PPS

1. BIPA
    The Congress has twice required studies on the bundling of 
additional services into the composite payment system. In section 
422(c)(2) of the Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000 (BIPA), Public Law 106-554, the Congress 
required the Secretary

[[Page 49925]]

to issue a report on a bundled system that would include separately 
billable drugs and clinical laboratory services routinely used in 
furnishing dialysis. The Secretary submitted this report, Toward a 
Bundled Outpatient Medicare End Stage Renal Disease Prospective Payment 
System, to Congress in May 2003. That report contained three major 
findings that would form the basis for the subsequent development of a 
bundled ESRD PPS:
    1. Currently available administrative data are adequate for 
proceeding with the development of an expanded outpatient ESRD PPS.
    2. Case-mix adjustment is potentially feasible based on available 
clinical information for ESRD patients in order to pay facilities 
appropriately for treating more costly resource intensive patients.
    3. Current quality review initiatives provide a basis for 
monitoring the impact of a bundled ESRD PPS after implementation, to 
ensure quality of care does not deteriorate in response to the system's 
efficiency incentives.
    The Secretary's May 2003 report contained recommendations and 
conclusions drawn from research, which CMS had initiated on its own 
prior to the enactment of the law. In September 2000, the Kidney 
Epidemiology and Cost Center of the University of Michigan (UM-KECC) 
was awarded a multi-phased research contract. That research led to UM-
KECC's August 2002 report, An Expanded Medicare Outpatient End Stage 
Renal Disease Prospective Payment System, Phase I Report. This report 
provided useful information on many of the issues that would need to be 
addressed before a bundled ESRD PPS could be implemented, and formed 
the foundation for the Secretary's May 2003 report.
2. MMA
    The Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (MMA), Public Law 108-173, also required the Secretary to 
submit to the Congress a report detailing the elements and features for 
the design and implementation of a bundled ESRD PPS. Section 623(f)(1) 
of the MMA specified that such a system should include the bundling of 
separately billed drugs, clinical laboratory tests, and other items 
``to the maximum extent feasible''. That section also required the 
report to include a description of the methodology to be used to 
establish payment rates and that the report, detailing the design of an 
appropriate bundled payment system, be submitted to the Congress by 
October 1, 2005. Section 623(e) of the MMA also required a 
demonstration project testing the feasibility of using a fully bundled 
case-mix adjusted ESRD PPS.
    In addition to requiring a report on a bundled ESRD PPS, section 
623 of the MMA amended section 1881(b) of the Act, by requiring 
significant revisions to the composite payment system. Specifically, 
section 623 of the MMA required:
    <bullet> An increase of 1.6 percent to the composite payment rates 
effective January 1, 2005.
    <bullet> An add-on to composite rate payments to account for the 
difference in payments for separately billable drugs based on a revised 
drug pricing methodology compared to the previous method.
    <bullet> A ``basic'' case-mix adjustment to an ESRD facility's 
composite payment rate reflecting a ``limited number of patient 
characteristics.''
    <bullet> That total payments under the basic case-mix adjusted 
composite payment system be budget neutral.
    <bullet> An annual increase to the basic case mix adjusted payment 
amounts based on projected growth in expenditures for separately billed 
drugs (the ``growth update'').
    <bullet> That payment rates be adjusted by a geographic index, as 
determined appropriate by the Secretary (and phased-in to the extent 
such index differed from the previous payment system).
    <bullet> Reinstatement of the composite rate exceptions process, 
eliminated for most dialysis facilities beginning December 31, 2000 
under BIPA, for ESRD pediatric facilities, effective October 1, 2002.
    On August 5, 2004 and November 15, 2004, we published a proposed 
rule and final rule (69 FR 47487 through 47730 and 69 FR 66235 through 
66915), respectively, implementing the provisions affecting the 
composite payment system effective January 1, 2005, as set forth in 
section 623 of the MMA. We refer to the modified composite payment 
system as the ``basic case-mix adjusted composite payment system''. The 
development and application of the basic case-mix adjustments, using 
regression based adjustment factors for the patient variables of age, 
body surface area, and low body mass index, are explained in each of 
those rules. (For more information, we refer readers to 69 FR 47529 and 
69 FR 66323, respectively.) The product of the specific adjusters for 
each patient, multiplied by the otherwise applicable composite payment 
rate, yielded the basic case-mix adjustment required by the MMA. The 
basic case-mix adjusted composite payment system was effective April 1, 
2005, and was derived from UM-KECC's research summarized in its report, 
Methodology for Developing a Basic Case-Mix Adjustment for the Medicare 
ESRD Prospective Payment System (May 19, 2004 report and April 1, 2005 
addendum).
    Subsequent to our implementation of the MMA requirements discussed 
above, UM-KECC continued its research to develop a case-mix adjusted 
ESRD PPS that would combine composite rate and separately billable 
services. UM-KECC reported its findings and recommendations in a final 
report submitted to CMS in February 2008, End Stage Renal Disease 
Payment System: Results of Research on Case-Mix Adjustment for an 
Expanded Bundle. That report is available on the Internet at: http://www.sph.umich.edu/kecc/assets/documents/UM-KECC_Expanded_ESRD_Bundle.pdf. Individuals requiring special assistive technology may 
contact CMS at 410-786-4533 between the hours of 8:30 a.m. and 5 p.m. 
e.d.t. for assistance. UM-KECC's final report formed the basis for the 
Secretary's February 2008 Report to Congress, A Design for a Bundled 
End Stage Renal Disease Prospective Payment System, mandated under 
section 623(f)(1) of the MMA.
    The aspects of the basic case-mix adjusted composite payment system 
implemented as a result of section 1881(b)(12) of the Act, as added by 
section 623(d)(1) of the MMA, are important because they provide a 
foundation for the development of the case-mix adjusted bundled ESRD 
PPS required under Public Law 110-275, the Medicare Improvements for 
Patients and Providers Act of 2008 (MIPPA). Accordingly, we briefly 
describe below the basic case-mix adjustment under the current 
composite payment system before turning to the relevant provisions of 
MIPPA and the development of the proposed ESRD PPS.
3. The Basic Case-Mix Adjustment
    Resources required to furnish routine dialysis such as staff and 
equipment time vary by patient. For example, all other things being 
equal, larger patients cost more to deliver the same dose of dialysis 
than do smaller patients. Also, severely debilitated or aged patients 
may require more staff time than do younger healthier patients. Because 
of the variation in resources required to furnish routine dialysis to 
individuals with varying patient characteristics, facilities that treat 
a greater than average proportion of resource-intensive patients could 
be economically disadvantaged if they are paid a rate

[[Page 49926]]

based on average resources. In addition, patients who are costlier than 
average to dialyze may face difficulties gaining access to care because 
a fixed composite payment rate could create a disincentive to treat 
such patients. The purpose of a case-mix adjustment based on patient 
characteristics is to make higher payments to ESRD facilities treating 
more resource-intensive patients, according to objective quantifiable 
criteria. Such an adjustment also would reduce the disincentives to 
treat or provide the optimal dose of dialysis to such patients.
    The costs of providing the routine maintenance dialysis services 
that are paid under the composite rate are reported on the Medicare 
cost reports for hospital-based and independent ESRD facilities (Forms 
CMS 2552-96 and CMS 265-94, respectively). Patient-specific data 
related to the costs of furnishing composite rate services are not 
collected because these costs are included as part of the composite 
rate and are not separately billed. However, earlier UM-KECC research 
revealed considerable variability in costs and patient characteristics 
among dialysis facilities, and that several patient characteristics 
predicted facility costs. See Wolfe, R. et al., An expanded Medicare 
outpatient end stage renal disease prospective payment system, Phase I 
report, University of Michigan, Kidney Epidemiology and Cost Center, 
August 2002; Hirth, R.A., et al., Is case-mix adjustment necessary for 
an expanded dialysis bundle? Health Care Financing Review, Summer 2003, 
24, pp. 77-88; Kidney Epidemiology and Cost Center: Methodology for 
developing a basic case-mix adjustment for the Medicare ESRD 
prospective payment system, May 19, 2004 report and April 1, 2005 
addendum, prepared under contract no. N-12004-11-504200 for the Centers 
for Medicare and Medicaid Services.
    In order to determine a basic case-mix adjustment that could be 
applied to each ESRD facility's composite rate, UM-KECC further 
examined the relationship between facility-level costs for composite 
rate services based on the Medicare cost reports for hospital-based and 
independent facilities, and the average characteristics of patients 
treated by the facility. The research used data from Medicare cost 
reports for 3,254 independent and hospital-based ESRD facilities for 
2000 to 2002, patient characteristics/co-morbidity data from CMS's 
Medical Evidence Form 2728 for 1995 through 2002, and Medicare claims 
for approximately 360,000 ESRD patients. See Hirth, R.A., et al., 
Economic impact of case-mix adjusting the dialysis composite rate, 
Journal of the American Society of Nephrology, 16, 2005, pp. 1172-1176, 
and Wheeler, John R. C., et al., Understanding the basic case-mix 
adjustment for the composite rate, American Journal of Kidney Diseases, 
47, No. 4, April 2006, pp. 666-671. Based on standard techniques of 
multiple regression analysis, UM-KECC found that age and body size had 
significant relationships to composite rate costs. The body size 
variables were body surface area (BSA) and low body mass index (BMI), 
calculated based on a patient's height and weight.
    A BMI less than 18.5 kg/m\2\ is considered a clinical measure of 
underweight status and is an indicator of patients who are malnourished 
or suffering from co-morbidities such as wasting syndrome. BSA is 
closely associated with the duration and intensity of dialysis required 
to achieve targets for dialysis adequacy. Facilities with a larger 
proportion of patients with a greater than average BSA, or with a BMI 
lower than 18.5, were found to have greater composite rate costs. The 
research also revealed a U-shaped relationship between age and 
composite rate costs, with the youngest and oldest age groups incurring 
greater costs for composite rate services due to resource needs.
    Although several co-morbidities were found to have statistically 
significant relationships to composite rate costs, CMS did not adopt 
them to develop the basic case-mix system mandated by the MMA for a 
number of reasons. For instance, the relationship of some co-
morbidities to the composite rate costs was not stable over time. In 
addition, establishment of the diagnostic criteria used in connection 
with specific co-morbidities required further study.
    A few findings were surprising. For example, several patient 
characteristics, notably type 1 or type 2 diabetes, which generally are 
important with regard to the etiology of ESRD, did not show 
statistically significant relationships to composite rate costs for 
renal dialysis services. While the result that facilities with the 
greatest number of oldest patients incurred greater composite rate 
costs was expected, the finding that facilities with a higher 
proportion of patients in the youngest age group (a group that excludes 
pediatric patients or those less than age 18) incurred greater 
composite rate costs as well, was unexpected.
    The outcome of UM-KECC's research was a set of basic case-mix 
adjusters or multipliers for ESRD patients based on three variables. 
These variables were: (1) The patient's age (five groups), (2) BSA (a 
patient-specific value based on incremental differences from the 
national patient average), and (3) BMI category (two groups, value 
either less than, or equal to/greater than 18.5 kg/m\2\). CMS also 
developed a special adjuster for pediatric patients outside of UM-
KECC's research methodology based on analysis of a sample of Medicare 
cost reports. The adjuster for each of these three variables is 
multiplied by the facility's composite rate to yield the current 
``basic'' case-mix adjustment for each ESRD patient according to the 
specified patient characteristics.
    These adjusters were as follows:

------------------------------------------------------------------------
                                                          Composite rate
                        Age group                           multiplier
------------------------------------------------------------------------
< 18....................................................          *1.62
18-44...................................................           1.223
45-59...................................................           1.055
60-69 (reference group).................................           1.000
70-79...................................................           1.094
80+.....................................................           1.174
Body Surface Area (BSA):                                  ..............
  (per 0.1m\2\ change in BSA from national average of              1.037
   1.84)................................................
Low Body Mass Index (BMI):                                ..............
  (<18.5kg/m\2\)........................................           1.112
------------------------------------------------------------------------
* Developed by CMS. The age, BSA, and BMI multipliers do not apply under
  the basic case-mix adjustments for patients under age 18.

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

Age Adjuster..............................  1.055
BSA Adjuster..............................  1.037 (2.0-1.84)/0.1 = 1.060
Low BMI Adjuster..........................  1.112
Case-Mix Adjuster.........................  1.055 x 1.060 x 1.112 =
                                             1.244
 

    The resulting case-mix adjustment factor of 1.244 for this patient 
would be multiplied by the facility's otherwise applicable wage 
adjusted composite payment rate.
    The basic case-mix adjustment mandated under the MMA only affects 
the composite rate. It does not reflect costs associated with 
separately billable services. Separately billable services, 
particularly injectable drugs, are a significant component of the total 
dialysis resources used for each patient. Prior to the enactment of 
MIPPA on July 15, 2008, however, CMS did not have authority to bundle 
those services into a case-mix adjusted PPS.

[[Page 49927]]

4. MIPPA
    The implementation of the basic case-mix adjustments to the 
composite payment system effective April 1, 2005, and the Secretary's 
February 2008 Report to Congress, suggested that an expanded or bundled 
ESRD PPS which combined composite rate and separately billable services 
to yield case-mix adjusted payments was technically feasible. The 
report defined a payment bundle of dialysis-related services, described 
the methodology used to develop the regression based case-mix adjusters 
and the base period payment rates to which the case-mix adjusters would 
be applied, and discussed numerous other issues relevant to the 
bundling of outpatient dialysis services under a system of prospective 
payments. As a result of the July 15, 2008 enactment of MIPPA, section 
153(b) of MIPPA amended section 1881(b) of the Act to require the 
implementation of an ESRD bundled payment system effective January 1, 
2011 (herein referred to as the ``ESRD PPS''). Consistent with the 
language under the statute, we will refer to hospital-based and 
independent renal dialysis facilities as ``providers'' and 
``facilities'', respectively, and when addressing both types of 
facilities, we will collectively refer to such entities as ``ESRD 
facilities'', as set forth in proposed Sec.  413.171. Section 153(b) of 
MIPPA specifies the following:
    <bullet> The Secretary must implement a payment system under which 
a single payment is made to a provider of services or a renal dialysis 
facility for ``renal dialysis services'' in lieu of any other payment, 
and for such services and items furnished for home dialysis and self-
care home dialysis support services.
    <bullet> A definition for the ``renal dialysis services'' that are 
included in the bundle.
    <bullet> The estimated amount of total payments under the ESRD PPS 
for 2011 must be equal to 98 percent of the estimated total amount of 
payments for renal dialysis services paid under Medicare, including 
payments for drugs, that would have been made with regard to services 
in 2011 if the new system was not implemented. Such estimate must be 
made based on per patient utilization data from 2007, 2008, or 2009, 
whichever year has the lowest per patient utilization.
    <bullet> The ESRD PPS must include adjustments for case-mix 
variables, high cost outlier payments, and low-volume facilities and 
provide for a four-year transition (phase-in) period, with all 
facilities transitioned into the bundled ESRD PPS on January 1, 2014. 
ESRD facilities may make a one-time election before January 1, 2011, to 
be paid under the ESRD PPS and not go through the transition period.
    <bullet> The ESRD PPS may include other payment adjustments, as the 
Secretary determines appropriate, including the use of a geographic 
index, and potential adjustments for pediatric patients and rural 
dialysis centers, and may provide for a unit of payment as the 
Secretary specifies (for example, per treatment or per unit of time).
    <bullet> The ESRD PPS payment amounts must be annually increased by 
an ESRD bundled market basket beginning in 2012, and during the 
transition.
    <bullet> Section 623(e) of the MMA, which requires a demonstration 
project of the use of a case-mix adjusted bundled ESRD PPS, be 
repealed.
    Section 153(a)(1) of MIPPA also requires that the composite payment 
rates be increased by 1.0 percent effective for services furnished on 
or after January 1, 2009, and before January 1, 2010, and increased by 
1.0 percent for services furnished on or after January 1, 2010. In 
addition, section 153(a)(2) of MIPPA requires that the payment rate for 
dialysis services furnished on or after January 1, 2009, by ESRD 
providers of services, be the same as the payment rate for such 
services furnished by renal dialysis facilities. On November 19, 2008, 
we published the CY 2009 Physician Fee Schedule final rule (73 FR 
69754), implementing the site neutral composite rate for ESRD 
facilities, and the CY 2009 1.0 percent increase to the composite rate. 
We expect to publish the CY 2010 1.0 percent increase to the composite 
rate in the CY 2010 Physician Fee Schedule final rule.
    In the following sections of this notice of proposed rulemaking, we 
describe the ESRD PPS we are proposing to implement effective January 
1, 2011, in compliance with the statutory requirements of MIPPA.

II. Overview of the Proposed ESRD PPS

    This proposed rule would implement a case-mix adjusted bundled PPS 
for Medicare outpatient ESRD dialysis patients beginning January 1, 
2011, in accordance with the statutory provisions set forth in section 
153(b) of MIPPA. We propose to implement this new system as described 
in proposed Sec.  413.172 and Sec.  413.215. The proposed ESRD PPS 
would replace the current basic case-mix adjusted composite payment 
system and methodologies for the reimbursement of separately billable 
outpatient ESRD services. Specifically, we propose that the ESRD PPS 
would combine payments for composite rate and separately billable 
services into a single base rate of $198.64 developed from CY 2007 
claims data. Under the proposed rule, the base rate would be 
subsequently adjusted using patient-specific case-mix adjustment 
factors developed from separate equations for composite rate and 
separately billable services. The case-mix adjusters would include 
variables for age, body surface area (BSA), low body mass index (BMI), 
gender, eleven co-morbidity categories, and the onset of renal 
dialysis. These proposed adjustment factors were developed using 
standard techniques of multiple regression to yield case-mix adjusted 
payments per treatment. The per treatment payment amounts would also be 
adjusted to reflect urban and rural differences in area wage levels 
using an area wage index developed from Core Based Statistical Areas 
(CBSAs definitions). The proposed rule also provides that ESRD 
facilities treating patients with unusually high resource requirements 
as measured through their utilization of identified services beyond a 
specified threshold would be entitled to outlier payments, that is, 
additional payments beyond the otherwise applicable case-mix adjusted 
bundled prospective payment amount. The proposed ESRD PPS also provides 
for special adjustments for pediatric patients and for facilities 
treating a low volume of ESRD patients, as well as a 4-year transition 
(phase-in) period under which facilities would receive a blend of 
payments under the prior case-mix adjusted composite payment system and 
the new ESRD PPS.

III. The Proposed ESRD PPS Bundle

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

* * * the term ``renal dialysis services'' includes--
    (i) Items and services included in the composite rate for renal 
dialysis services as of December 31, 2010;
    (ii) Erythropoiesis stimulating agents and any oral form of such 
agents that are furnished to individuals for the treatment of end 
stage renal disease;
    (iii) Other drugs and biologicals that are furnished to 
individuals for the treatment of

[[Page 49928]]

end stage renal disease and for which payment was(before application 
of this [new ESRD PPS]) made separately under this title, and any 
oral equivalent form of such drug or biological; and
    (iv) Diagnostic laboratory tests and other items and services 
not described in clause (i) that are furnished to individuals for 
the treatment of end stage renal disease.

    The methodology, which we subsequently describe, for the 
development of the proposed ESRD PPS, generally identifies the renal 
dialysis services that we propose to include in the proposed payment 
bundle in accordance with our interpretation of the statute. We also 
discuss in more detail below the definition for renal dialysis services 
under section 1881(b)(14)(B) of the Act.

A. Composite Rate Services

    Section 1881(b)(14)(B)(i) of the Act requires that the ESRD PPS 
payment bundle include composite rate services. As we indicated 
previously, the current case-mix adjusted composite payment system 
represents a limited PPS for a bundle of outpatient renal dialysis 
services that includes maintenance dialysis treatments and all 
associated services including historically defined dialysis-related 
drugs, laboratory tests, equipment, supplies, and staff time. It 
applies to Medicare beneficiaries receiving dialysis in ESRD facilities 
and to patients who have elected Method I home dialysis. (Under Method 
I, the ESRD facility with which the home patient is associated assumes 
responsibility for furnishing all home dialysis equipment, supplies, 
and home support services included in the provision of composite rate 
services. (See section 2740 of CMS Pub. 15-1.)) The ESRD facility 
receives reimbursement under the current case-mix adjusted composite 
payment system. For all other ESRD outpatient services not included in 
the composite payment rate under the current system, such items and 
services are billed separately in accordance with Medicare fee 
schedules and other payment methodologies under Part B and Part D. We 
propose to include in the proposed ESRD PPS those items and services 
included in the composite rate for renal dialysis services as of 
December 31, 2010, including self-dialysis training services, such as 
labor, supplies, and equipment(for greater detail, see discussion on 
self-dialysis training sessions in section E.2). Therefore, these costs 
for such composite rate services would be included in our computation 
of the proposed ESRD PPS base rate as explained in section VII. of this 
proposed rule. This not only would include payments for the costs of 
services directly related to dialysis, including payments for the costs 
of self-dialysis training sessions, but also payments authorized in 
accordance with the composite payment rate exception provisions set 
forth in 42 CFR 413.180 through 413.186. The costs for composite rate 
services are also included in our development of the composite rate 
regression model used to create the two equation patient specific case-
mix adjusters that would be applied to the base rate. Composite rate 
services are defined in proposed Sec.  413.171.

B. ESAs and Their Oral Forms

    Section 1881(b)(14)(B)(ii) of the Act requires that ESAs and any 
oral form of such agents that are furnished to individuals for the 
treatment of ESRD be included in the ESRD PPS payment bundle. Epoetin 
alfa (EPO, for example, Epogen[reg]) and darbepoetin (ARANESP[reg]) are 
injectable ESAs, which are currently separately billable outside of the 
case-mix adjusted composite payment system. Payments for EPO[reg] and 
ARANESP[reg] would be included in the calculation of the proposed ESRD 
PPS base rate. These agents would also be included in the separately 
billable regression model used to create the two equation patient 
specific case-mix adjusters for the proposed ESRD PPS. We are currently 
unaware of any other injectable ESAs or oral forms of such ESAs used 
for the treatment of ESRD. However, should such agents become available 
subsequent to the implementation of the ESRD PPS on January 1, 2011, 
these agents would be considered renal dialysis services and subject to 
payment under the ESRD PPS. That is, consistent with the statute, we 
propose that no additional payment would be provided for such agents 
outside of the bundle of renal dialysis services included in the ESRD 
PPS. The inclusion of ESA's and their oral forms as renal dialysis 
services in the ESRD PPS payment bundle is set forth in proposed 
Medicare regulation 413.171.

C. Other Drugs and Biologicals and Their Oral Equivalents

    Section 1881(b)(14)(B)(iii) of the Act specifies that other drugs 
and biologicals that were furnished to individuals for the treatment of 
ESRD and for which payment was made separately under this title, prior 
to the implementation of the ESRD PPS, and their oral equivalent forms, 
must be included in the ESRD PPS payment bundle. Given the reference to 
``this title,'' we interpret clause (iii) as requiring the inclusion in 
the ESRD PPS payment bundle all drugs and biologicals that were 
separately billable prior to the implementation of MIPPA under title 
XVIII of the Act. Therefore, we believe the ESRD PPS payment bundle 
would include all drugs and biologicals formerly separately payable 
under Medicare Part B and Part D. We recognize that an alternative 
reading of the last part of clause (iii) with respect to the phrase 
``and any oral equivalent form of such drug or biological'' could be 
interpreted to limit the scope of the drugs and biologicals included in 
the bundle to only oral versions of injectables (or other non-oral 
routes of administration). However, we believe that this reading of the 
statute is unduly constrained. Therefore, our view is that the intent 
of clause (iii) is to include all drugs and biologicals formerly 
payable under either Medicare Part B or Part D used to treat ESRD, 
regardless of the route of administration.
    We believe that the exclusion of oral drugs and biologicals for 
which there is no injectable equivalent (or other non-oral form of 
administration) from the ESRD PPS would defeat one of the very purposes 
of the new system--the inclusion of all renal dialysis services 
furnished to ESRD patients in a comprehensive payment bundle to which a 
reasonable payment amount can be attached empirically. In addition, the 
exclusion of oral drugs and biologicals for which there is no 
injectable (or other non-oral) version does not make sense from a 
payment policy perspective. Such a policy would result in the gradual 
growth of excluded services from the ESRD PPS payment bundle, and the 
progressive erosion of the payment system, as new oral-only drugs and 
biologicals for the treatment of ESRD emerge. Moreover, we believe the 
inclusion of such drugs and biologicals is supportable under clause 
(iv). That is, we believe the language under clause (iv) addressing 
``other items and services not covered in clause (i),'' provides 
sufficient authority to include all drugs and biologicals, including 
oral-only drugs and biologicals, used to treat ESRD in the ESRD PPS 
payment bundle. Therefore, we are proposing that drugs and biologicals 
used to treat ESRD that were separately payable prior to January 1, 
2011, be included as part of the proposed ESRD PPS payment bundle. 
Accordingly, we propose to include such drugs and biologicals in the 
development of the proposed patient-specific case-mix adjusters and in 
the calculation of the proposed ESRD base rate to which the adjusters 
would be

[[Page 49929]]

applied. We identified specific National Drug Codes (NDCs) for drugs 
and biologicals previously payable under part D that we propose to 
include in the payment bundle. However, we propose that the ESRD PPS 
will apply, regardless of the emergence of new drugs or biologicals, or 
different NDCs for the classes of drugs and biologicals included in the 
ESRD PPS bundle. Finally, section 1881(b)(14)(B) of the Act 
specifically excludes vaccines from the payment bundle and, therefore, 
vaccines will not be included in the proposed ESRD PPS. We are seeking 
comments on our proposals above.
    We have found that eleven drugs and biologicals accounted for 99.7 
percent of the payments under Part B for all injectable drugs and 
biologicals that were furnished to outpatient ESRD patients in CY 2007. 
These drugs and biologicals are epoetin alfa (EPO[reg]), darbepoetin 
alfa (ARANESP[reg]), calcitriol, doxercalciferol, paracalcitol, iron 
sucrose, sodium ferric gluconate, levocarnitine, alteplase recombinant, 
vancomycin, and daptomycin. These drugs and biologicals, as well as the 
others comprising 0.3 percent of the total payments for drugs and 
biologicals under Part B in CY 2007, would be included in the proposed 
ESRD PPS payment bundle. Of the top eleven injectable drugs and 
biologicals, several have oral versions. For example, levocarnitine, 
and the vitamin D analogues calcitriol, doxercalciferol, and 
paricalcitol are also available in oral form. The oral versions of 
these drugs are currently covered under Medicare Part D. Other drugs 
used to treat ESRD are available only in oral form and are currently 
payable under Part D. These include cinacalcet hydrochloride, lanthanum 
carbonate, calcium acetate, sevelamer hydrochloride, and sevelamer 
carbonate. Consistent with our interpretation of section 
1881(b)(14)(B)(iii) of the Act, we propose that payments for all drugs 
and biologicals furnished to ESRD patients and separately billable 
prior to January 1, 2011, would be included under the proposed ESRD PPS 
payment bundle as renal dialysis services. Under this proposal, 
separate billing for these services would be prohibited. The proposed 
ESRD PPS methodology, both with respect to the computation of the case-
mix adjusters and the calculation of the proposed ESRD base rate to 
which the adjusters would be applied, includes payments for these 
services. The inclusion of other drugs and biologicals and their oral 
equivalents as renal dialysis services in the ESRD PPS payment bundle 
is set forth in proposed Sec.  413.171.

D. Diagnostic Laboratory Tests and Other Items and Services

    Section 1881(b)(14)(B)(iv) of the Act requires that diagnostic 
laboratory tests not included under the composite payment rate (that 
is, currently separately billable laboratory tests) must be included as 
part of the ESRD PPS payment bundle. We propose to define such 
laboratory tests as laboratory tests that are separately billed by ESRD 
facilities as of December 31, 2010, and laboratory tests ordered by a 
physician who receives monthly capitation payments (MCPs) for treating 
ESRD patients that are separately billed by independent laboratories. 
Because many of the same diagnostic laboratory tests can be performed 
for both ESRD and non-ESRD patients, we believe that this approach for 
including laboratory services appropriately captures tests for 
inclusion in the payment bundle. We propose that payments for these 
laboratory services would be included in the development of the 
proposed patient-specific case-mix adjusters and in the proposed ESRD 
base rate to which the adjusters would be applied.
    Section 1881(b)(14)(B)(iv) of the Act also requires that the ESRD 
PPS payment bundle include ``other items and services not described in 
clause (i)''. We believe that this language can be reasonably 
interpreted to include other separately billable items and services 
used in the treatment of ESRD, such as supplies. Examples of such items 
and services would include, but not be limited to, items such as 
syringes, specialized tubing, as well as blood and blood products, 
which facilities may furnish during the dialysis treatment. We also 
believe that the language also can be interpreted to include the cost 
of other self-dialysis training services in the ESRD PPS (for further 
detail on self-dialysis training, see section E.2. below). We propose 
that such items and services be included in the ESRD PPS bundle. The 
inclusion of diagnostic laboratory tests and other items and services 
as renal dialysis services in the ESRD PPS payment bundle is set forth 
in proposed Sec.  413.171.

E. Home Dialysis Patients (Method I and II) and Self-Dialysis Training

    Section 1881(b)(4) of the Act authorizes the Secretary to make 
payment to providers of services and renal dialysis facilities, and to 
suppliers of home dialysis supplies and equipment, for the cost of home 
dialysis supplies and equipment and self-care home dialysis support 
services furnished to patients for self-care home dialysis. As a result 
of section 153(b) of MIPPA, as explained above, section 
1881(b)(14)(A)(i) of the Act requires the Secretary to implement a 
payment system under which a single payment is made under this title to 
an ESRD facility for renal dialysis services and for such services and 
items furnished pursuant to section 1881(b)(4) of the Act. As we 
explained above, we also believe that self-dialysis training services 
would be considered renal dialysis services as defined in section 
1881(b)(14)(B) of the Act. As a result, we are proposing that the costs 
of home dialysis services furnished to both Method I and Method II home 
dialysis patients under the current basic case-mix adjusted payment 
system, as well as self-dialysis training services, must be combined 
into a single payment under the proposed ESRD PPS.
1. Payment for Home Dialysis
    Currently, Hemodialysis, Continuous Cycling Peritoneal Dialysis 
(CCPD), Intermittent Peritoneal Dialysis (IPD) and Continuous 
Ambulatory Peritoneal Dialysis (CAPD) treatment modalities may be 
performed at home by appropriately trained patients. Medicare 
beneficiaries dialyzing at home must complete a Medicare Beneficiary 
Form (CMS-382) selecting between two methods of payment (Method I or 
Method II) as described below.
a. Method I--The Composite Rate
    If a Medicare home dialysis patient chooses Method I, the ESRD 
facility with which the patient is associated must assume 
responsibility for providing all home dialysis equipment and supplies 
as well as providing home support services and receives the composite 
payment rate for such services. Support services needed to furnish home 
dialysis services include, but are not limited to: (1) Periodic 
monitoring of a patient's adaptation to home dialysis and performance 
of dialysis; (2) visits by trained technical personnel made in 
accordance with a plan prepared by a professional team; (3) unscheduled 
visits on an as needed basis; and (4) providing, installing, repairing, 
testing, and maintaining home dialysis equipment including appropriate 
water testing and treatment. For these services, the ESRD facility 
receives, in accordance with Sec.  414.330(a), the same Medicare 
dialysis payment rate as it would receive for an in-facility patient 
under the basic case-mix adjusted composite payment system. Under 
Method I, the ESRD facility bills the Medicare Administrative 
Contractor/Fiscal

[[Page 49930]]

Intermediary (MAC/FI) and the beneficiary is responsible for paying the 
Medicare Part B deductible and the 20 percent coinsurance on the 
Medicare rate to the facility.
b. Method II--Dealing Directly With Suppliers
    In accordance with regulations at Sec.  414.330(a)(2), a Medicare 
ESRD beneficiary can elect to obtain home dialysis equipment and 
supplies from a supplier, that is not a Medicare approved dialysis 
facility (Method II). If a beneficiary elects Method II, the 
beneficiary will deal directly with a single Medicare Durable Medical 
Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) supplier to 
secure the necessary supplies and equipment to dialyze at home. The 
selected DMEPOS supplier (not a dialysis facility) must accept 
assignment and bills the Durable Medical Equipment Medicare 
Administrative Contractor (DME MAC). The beneficiary is financially 
responsible to the supplier for any unmet Medicare Part B deductible 
and for the 20 percent Medicare Part B coinsurance requirement. The 
amount of Medicare payment under Method II for home dialysis equipment 
and supplies may not exceed $1,974.25 per month for CCPD and $1,490.85 
per month (57 FR 54186, published November 17, 1992) for all other 
modalities of home dialysis.
    For each beneficiary it serves, the supplier is required to 
maintain a written agreement with an approved ESRD facility to provide 
backup and support services. An ESRD facility that has a written 
agreement to supply backup and support services bills the MAC/FI for 
services provided under the agreement. Under Method II, an ESRD 
facility may be paid up to $121.15 (57 FR 54186, published November 17, 
1992) per month for home dialysis support services, such as arranging 
for the provision of all ESRD related laboratory tests and billing for 
the laboratory tests that are included in the composite payment rate. 
An ESRD facility may not be paid for home dialysis equipment or 
supplies under Method II.
    Based on 2004-2006 data, only 3.1 percent of renal facilities 
report support service costs furnished to Medicare Method II home 
dialysis patients. The data also show that the number of Method II 
patients is small and has significantly declined over the study period 
(that is, 2004-2006) as shown below.

------------------------------------------------------------------------
                           Patients                               Year
------------------------------------------------------------------------
5289.........................................................       2004
4465.........................................................       2005
2635.........................................................       2006
------------------------------------------------------------------------

    We are proposing that payment for all home dialysis services 
excluding physicians' services (See section III.F. below regarding the 
exclusion of physicians' services) would be included in the bundled 
payment to the ESRD facility, under the proposed ESRD PPS.
    In addition, as we indicated, section 1881(b)(14)(A)(i) of the Act 
requires that a single payment for renal dialysis services and items 
and services under section 1881(b)(4) be made to an ESRD facility. 
Therefore, since we are proposing that the costs of home dialysis 
services furnished under Method I and Method II (see section V Data 
Sources), regardless of home treatment modality, would be included in 
the proposed ESRD PPS, we also are proposing that the Method II home 
dialysis approach in its present form would no longer exist under the 
proposed ESRD PPS. With regard to payment limits for home dialysis 
services, in accordance with 6203(b) of Public Law 101-239, we 
published a final rule on November 17, 1992 implementing (57 FR 54179), 
Medicare program payment changes for home dialysis. In section 
413.330(c), we set payment limits on what Medicare would pay for home 
dialysis supplies, equipment, and home support services as explained 
above. Accordingly, effective January 1, 2011, we propose to revise 
Sec.  414.330 to reflect that payment as established in section 
1881(b)(14) of the Act will be the basis for home dialysis supplies, 
equipment, and home support services and therefore, Medicare would pay 
for home dialysis equipment, supplies and support services only under 
the prospective payment rate established in proposed 413.210 and 
payment limits previously established for such would no longer apply. 
We also note, that this proposal would not eliminate Method I in its 
present form. Therefore, effective January 1, 2011, a supplier could 
only furnish, under an arrangement with the ESRD facility, home 
dialysis equipment and supplies to a Medicare home dialysis 
beneficiary, and then the supplier would need to look to the ESRD 
facility for payment. We believe that this would reduce the 
administrative burden of maintaining two payment methods for home 
dialysis patients, since we believe that section 1881(b)(14)(A)(i) 
requires that all Medicare home dialysis patients would be paid under 
the ESRD PPS. We invite public comments on this proposal.
2. Self-Dialysis Training
    Currently, Medicare covers home hemodialysis training and two forms 
of PD training programs. Home dialysis and self-dialysis can only be 
performed after an ESRD patient has completed an appropriate course of 
training. The scope of training services that a certified facility 
provides to ESRD patients is described in Sec.  494.100(a). Medicare 
pays the ESRD facility its case-mix adjusted composite rate plus $12 
per training treatment for CAPD and $20 per training treatment for 
CCPD. For hemodialysis training, Medicare pays the ESRD facility its 
case-mix adjusted composite rate plus $20 per training treatment 
(Medicare Claims Processing Manual, Chapter 8, Outpatient ESRD 
Hospitals, Independent Facility, and Physician/Supplier Claims, Section 
50.8, Training and Retraining). We point out that effective January 1, 
2011, under the proposed ESRD PPS, ESRD facilities would no longer 
receive an add-on of $12 for CAPD and $20 for hemodialysis and CCPD to 
the otherwise applicable payment amount per treatment for the costs of 
training. In addition, ESRD facility training expenses are included in 
the base period payment rate to which the combined rate and payment 
multiplier in the proposed two-equation model is applied.
    As we indicated, section 1881(b)(14)(B) of the Act, as added by 
section 153(b) of MIPPA, specifies the renal dialysis services that 
must be included in the ESRD PPS. Since self-dialysis training is used 
to train patients for the treatment modality of home dialysis with 
little or no help, we believe that these services would be considered 
``renal dialysis services.'' As we indicated above, services related to 
self-training would meet the definition under clauses (i) and (iv) of 
section 1881(b)(14)(B) of the Act. As such, we propose to include the 
cost of self-dialysis training in the proposed ESRD PPS. We evaluated 
the current training cost reported by ESRD facilities (see section V 
Data Sources) to train ESRD patients for home dialysis. Training costs 
have been included in the composite rate payment adjusters in the 
proposed ESRD PPS. In section VIII.A. of this proposed rule, we point 
out that total composite rate costs included in the per treatment 
calculation include costs incurred for training expenses, as well as 
all home dialysis costs. We used the ESRD facilities cost reports to 
identify provider costs for training rather than payments. Therefore, 
in this proposed rule we propose to include

[[Page 49931]]

these costs in the composite rate portion of the two-equation ESRD PPS 
model described in section VI of this proposed rule. We believe that 
including training and home dialysis costs in the ESRD PPS would 
provide increased flexibility to dialysis centers for greater use of 
less costly PD and alternative treatment regimens such as nocturnal 
dialysis, home hemodialysis using compact portable dialysis machines, 
and shorter but more frequent dialysis sessions. For these reasons, we 
are proposing to include training and home dialysis costs in the 
proposed ESRD PPS, as set forth in proposed Sec.  413.217. Training 
costs were included in the calculation of the composite rate costs used 
to develop the regression-based adjustment factors for the composite 
rate portion of the two-equation model described in section VIII. In 
addition, the base rate to which the patient-specific case-mix 
adjustment factors are applied includes payments to ESRD facilities for 
training expenses. Because we are proposing that training costs under 
the ESRD PPS would be treated no differently than any other overhead 
expense, an explicit adjustment to the bundled payment amount for HD 
and PD training expenditures would not be necessary. We are seeking 
comments on our proposal to include home dialysis training services in 
the proposed ESRD PPS.

F. Physicians' Services

    Section 1881(b)(14)(A)(i), as added by MIPPA, states as follows in 
pertinent part:

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

    We believe this provision generally governs payment to ESRD 
facilities. With regard to physicians' services related to renal 
dialysis, such services are addressed in section 1881(b)(3) of the Act. 
At this time, we do not intend to significantly modify payment for 
physicians' services. Any changes with regard to the payment for 
physicians' services related to renal dialysis would be addressed in 
future rulemaking. Therefore, the scope of this proposed rule generally 
will be limited to payment for home dialysis and renal dialysis 
services furnished by ESRD facilities.

IV. Unit of Payment

    Under section 1881(b)(14)(C) of the Act, as added by section 153(b) 
of MIPPA, the ESRD PPS may provide for payment on the basis of renal 
dialysis services furnished during a week, or month, or such other 
appropriate unit of payment as the Secretary specifies. Approximately 
92 percent of ESRD beneficiaries requiring outpatient dialysis undergo 
hemodialysis (HD), usually furnished in a facility. A small but 
increasing number of patients perform HD at home. The most typical 
schedule is 3 treatments per week, with each treatment averaging 3 to 4 
hours. The remaining 8 percent of patients use peritoneal dialysis 
(PD). PD is usually done at home, with or without machine assistance. 
Unlike HD, which involves the circulation of the patient's blood and 
filtration of toxins using an artificial kidney machine, PD removes 
blood toxins through the draining of the dialysate from the lining of 
the abdomen or peritoneum several times a day. A form of PD, sometimes 
referred to as continuous cycling PD, is done with machine assistance 
while the patient sleeps, either at home or in specially designated 
areas at the ESRD facility.
    Since the inception of the composite payment system in 1983, ESRD 
facilities have been reimbursed the applicable payment per treatment, 
with a maximum of 3 treatments for each full week a patient undergoes 
outpatient dialysis, unless additional treatments are justified by 
medical necessity. The 3-times weekly payment approach has applied 
regardless of whether the mode of dialysis is HD or PD. For example, an 
ESRD facility's payment for a Method I home patient on PD for 21 days 
would be equal to 21/7 x 3 or 9 times the composite rate per treatment.
    Both the Secretary's May 2003 and February 2008 reports on the 
development of a bundled ESRD PPS discussed the limitations of the per 
treatment method of payment under the composite payment system. For 
example, some have charged that the composite payment system's 3 times 
weekly payment structure, regardless of dialysis modality, has 
discouraged innovative treatment approaches that could lead to better 
clinical outcomes and an enhanced quality of life for patients. We 
believe that the argument is two-fold. First, the reliance on 
separately billable services as a source of revenue growth for ESRD 
facilities has potentially impeded the greater use of less costly PD 
(which typically uses fewer separately billable drugs and less provider 
and facility overhead expense). Second, others argue that constraining 
payment based on number of treatments may reduce the use of alternative 
treatment regimens such as increased frequency nocturnal dialysis, home 
HD using compact portable dialysis machines, and shorter but more 
frequent dialysis sessions (for example, 1.5 to 2 hours, five or six 
days per week).
    These critics have maintained that combining composite rate and 
separately billable services during a specified interval of time would 
provide ESRD facilities the financing flexibility to use whatever forms 
of dialysis were in the best interests of the patient. Because ESRD 
facilities generally submit to Medicare a bill for all outpatient 
dialysis services furnished to a patient during the month, an ESRD PPS 
based on monthly payments was suggested as an alternative in the 
Secretary's February 2008 Report to Congress. As we indicated above, 
section 1881(b)(14)(C) of the Act, as added by section 153(b) of MIPPA, 
gives the Secretary the discretion to establish an ESRD PPS based on an 
interval of time, or other appropriate unit of payment. In this notice 
we are proposing to establish an ESRD PPS which relies on a per 
treatment unit of payment. We propose to continue the present per 
treatment basis of payment in which ESRD facilities would be paid for 
up to three treatments per week, unless medical necessity justified 
more than three weekly treatments. ESRD facilities treating patients on 
PD or home HD would also receive payments for up to three treatments 
for each week of dialysis, unless medical necessity justified the 
furnishing of additional treatments. Our reasons for continuing the 
present per treatment method of payment under the proposed ESRD PPS are 
set forth below.

A. Administrative Complexity Due to Phase-In

    Section 1881(b)(14)(E)(i) of the Act provides for a 4-year phase-in 
(transition), in equal increments for the implementation of the ESRD 
PPS. That is, the payments beginning January 1, 2011, must consist of a 
blend of the payment amounts under the new system and the prior payment 
rates in the following proportions:

------------------------------------------------------------------------
                                                                Prior
                                                  New PPS      payment
                   Effective                     (percent)     amounts
                                                              (percent)
------------------------------------------------------------------------
1/1/2011......................................           25           75
1/1/2012......................................           50           50
1/1/2013......................................           75           25
1/1/2014......................................          100            0
------------------------------------------------------------------------


[[Page 49932]]

    Although ESRD facilities could elect to be excluded from the phase-
in, in accordance with section 1881(b)(14)(E)(ii) of the Act, 
application of the phase-in under a monthly ESRD PPS would mean that a 
portion of each ESRD facility's total payments, would be based on a 
monthly payment methodology, while a portion would be based on the 
current per treatment system. We believe that combining a monthly ESRD 
PPS with the current per treatment methodology during the transition 
period would unduly complicate billing and increase the likelihood of 
payment errors and processing delays.

B. Administrative Complexity Due to Interruptions in Service

    A monthly payment approach under the ESRD PPS likely would not pose 
a problem for patients who receive their dialysis treatments at a 
single ESRD facility throughout the month with no interruptions in 
service. However, we note that this situation applies to about 81 
percent of patient months. Approximately 19 percent of outpatient 
dialysis patients incur an interruption of service or receive their 
treatments at more than one facility during a month. The combination of 
intervening events in the available data for CYs 2004-2006 is shown in 
Table 1.
BILLING CODE 4120-01-P

[[Page 49933]]

[GRAPHIC] [TIFF OMITTED] TP29SE09.000

BILLING CODE 4120-01-C
    To properly account for events which interrupt a patient's 
outpatient dialysis, the days associated with these intervening events 
would have to be tracked and counted so that a pro rata reduction to 
the otherwise applicable monthly payment amount could be determined. 
This becomes especially cumbersome if a patient receives treatments at 
more than one facility and an interruption in service occurs (for 
example, due to hospitalization). Although Table 1 reveals that this 
circumstance occurs in less than 1 percent of patient months, the 
administrative complexity involved in monitoring events, which cause an 
interruption in the patient's normal schedule of receiving dialysis 
treatments, particularly where multiple

[[Page 49934]]

facilities are involved, would be considerable.
    Table 1 shows that for CY 2006, 79.05 percent of patient months did 
not involve an intervening event and did not include transfer to 
another facility. These patient months, when included with CY 2006 
events that also account for an interruption of dialysis due to 
hospitalization, start of dialysis later in the month, or death/
withdrawal from dialysis, account for 94.09 percent of CY 2006 patient 
months. One option that we considered for the approximately 15 percent 
of patient months in which a patient did not undergo a full month of 
dialysis due to hospitalization, onset of dialysis later in the month, 
or death/withdrawal from dialysis, was applying a prorated monthly 
payment rate to cover these situations, and reverting to a per 
treatment payment methodology for all other situations. However, we 
believe that this approach would be too administratively complex. For 
example, under this approach a facility could find that some of its 
patients would be paid a full monthly ESRD PPS rate, those with an 
interruption in service would be paid a prorated monthly rate, and 
others would be paid based on a per treatment method.

C. No Incentive To Discourage Skipped Treatments

    A monthly ESRD PPS would afford facilities the maximum degree of 
clinical flexibility in treating patients. Facilities could provide 
whatever mode and frequency of dialysis, were in the best interests of 
the patient. However, under a monthly ESRD PPS, we believe that 
facilities may make less of an effort to discourage patients from 
skipping treatments. Because facilities do not receive reimbursement 
for skipped sessions under the current per treatment payment system, we 
are very concerned that a monthly ESRD PPS would provide no incentives 
for discouraging skipped treatments. Therefore, implementation of a 
monthly ESRD PPS would require either a stringent monitoring system to 
ensure the skipping of treatments does not become a byproduct of the 
new PPS's incentives, or require that a minimum number of treatments 
must be furnished to each patient in a month to ensure quality of care 
does not deteriorate. Both options would undercut two of the 
principles, which are part of the foundation of the new ESRD PPS, 
administrative simplicity and clinical flexibility.
    Given the difficulties of implementing a monthly ESRD PPS during a 
transition period in which a per treatment methodology applies, we are 
proposing to continue the present per treatment payment methodology in 
connection with the proposed ESRD PPS, as set forth in proposed Sec.  
413.215. We may reconsider this decision after the transition period 
has ended. Some of the factors that we may evaluate at that time are 
whether the ESRD PPS has resulted in improved clinical outcomes, the 
degree to which facilities have increased the utilization of other 
modes of dialysis such as home PD, and whether interested stakeholders 
at that time would favor a monthly or other per unit of time payment 
methodology. We especially encourage comments from the industry and 
from organizations representing dialysis patients on our proposal to 
continue the per treatment methodology under the proposed ESRD PPS. In 
the following sections, we describe the data sources and analytical 
techniques used to develop the proposed per treatment ESRD PPS.

V. Data Sources

    As discussed above, section 1881(b)(14)(B) of the Act, as added by 
section 153(b) of MIPPA, defines the renal dialysis services that must 
be included in the ESRD PPS. Based on our interpretation of the 
statute, we are proposing to construct the payment bundle using the 
following Medicare cost and payment information:
    <bullet> Composite rate services as measured using composite rate 
costs as calculated from the Medicare cost reports;
    <bullet> Drugs and biologicals (for example, injectables) that are 
separately billed by ESRD facilities on Medicare outpatient 
institutional claims;
    <bullet> Drugs and biologicals (for example, oral) used to treat 
ESRD patients obtained from claims submitted by Part D stand-alone 
prescription drug plans;
    <bullet> Laboratory tests that are separately billed by ESRD 
facilities on Medicare outpatient institutional claims;
    <bullet> Laboratory tests ordered by a physician who receives MCPs 
for treating ESRD patients that are separately billed by independent 
laboratories;
    <bullet> Other items and services separately billed by ESRD 
facilities that are used in conjunction with injectable medications or 
laboratory tests, such as blood products, syringes, and other dialysis 
supplies that are billed on Medicare outpatient institutional claims.
    While cost information for composite rate services is available 
from the Medicare cost reports, the cost report does not contain 
information on the costs of the separately billable categories of 
services noted above. Accordingly, the methodology described in this 
notice of proposed rulemaking applicable to separately billable 
services relies on separately billable payment information from 
Medicare claims.
    The descriptive statistics, case-mix model, and other analyses 
presented in this proposed rule are based primarily on CMS claims files 
for Medicare ESRD patients, and the Medicare cost reports for hospital-
based ESRD outpatient dialysis providers and independent ESRD 
facilities. Resource utilization for separately billable services was 
based on patient-level Medicare outpatient claims for CYs 2004 through 
2006. Since composite rate cost information is available only at the 
facility level, resource utilization for composite rate services was 
measured using the Medicare cost reports for each outpatient dialysis 
provider and facility (that is, hospital-based and independent 
facility). For the case-mix model for the proposed ESRD PPS, we relied 
on Medicare claims and cost reports for CY 2004 through CY 2006, 
because those years represented the latest most complete data available 
for the preparation of this proposed rule.
    With regard to the budget neutrality requirement under section 
1881(b)(14)(A)(ii) of the Act, which requires that the estimated total 
amount of payments for 2011 for renal dialysis services be equal to 98 
percent of the estimated total amount of payments for renal dialysis 
services, that would have been made for services furnished in 2011 if 
the ESRD PPS had not been implemented, we are required to use per 
patient utilization data from 2007, 2008, or 2009, whichever has the 
lowest per patient utilization. To comply with this provision of the 
statute, we plan to evaluate available claims for Medicare ESRD 
beneficiaries for CYs 2007, 2008, and 2009 to determine which year 
resulted in the lowest average payment amount per treatment. Because 
the lowest payment amount per treatment would reflect the lowest 
utilization of outpatient ESRD services among patients absent evidence 
that per unit prices for those services declined, we believe that 
selection of the CY with the lowest payment per treatment for 
calculation of the ESRD base rate would comply with section 
1881(b)(14)(A)(ii) of the Act.
    Currently, the latest payment information from Medicare claims that 
is available in sufficient time for the preparation of this proposed 
rule is for CY 2007. Cost report information subsequent to CY 2006, and 
Medicare claims data subsequent to CY 2007, could not be evaluated 
given the necessary lead time required to prepare this proposed rule. 
We plan to examine

[[Page 49935]]

available Medicare cost report information for CYs subsequent to 2006 
in developing the case-mix adjusters to ensure use of the latest 
available data, and available payment data from Medicare claims for CY 
2008 and CY 2009 to comply with the lowest per patient utilization 
requirement of section 1881(b)(14)(a)(ii) of the Act, in preparing the 
final rule. Any later payment data used in developing the ESRD PPS 
published in the final rule, would be updated in accordance with the 
methodology explained elsewhere in this proposed rule. (See Section 
VII., Development of Budget-Neutral ESRD Bundled Base Rate.)
    We used several data sources for evaluating the patient and 
facility characteristics that were also used with the case-mix 
analyses. Patient demographic information was obtained from the Renal 
Management Information System (REMIS)/Consolidated Renal Operations in 
a Web-Enabled Network (CROWN), and the ESRD Standard Information 
Management System (SIMS). These data sources include the Medical 
Evidence Report Form (Form 2728), which is completed at the onset of 
renal replacement therapy (RRT), which is either dialysis or 
transplantation to sustain life at the onset of kidney failure. Patient 
body size measures were developed from the height and weight values 
reported on the Form 2728. Beginning April 1, 2005, these values were 
obtained from the patient claims for outpatient dialysis. Patient co-
morbidities were measured using the Form 2728, supplemented with 
diagnoses reported on Medicare hospital inpatient, skilled nursing 
facility, hospital outpatient, hospice, home health agency, and 
physician claims. The claims diagnoses were used to identify co-
morbidities that were not abstracted using the Form 2728, and to 
capture changes in patient condition subsequent to the onset of kidney 
failure. Because diagnoses reported on laboratory claims may represent 
a suspected condition subject to testing rather than an established 
diagnosis, laboratory claims were not used to identify co-morbidities 
in the case-mix models.
    We measured dialysis facility characteristics using a combination 
of SIMS (ownership type and geographic location), the Medicare cost 
reports (facility size), the Online State Certification and Reporting 
System or OSCAR (hospital affiliation for satellite units), and other 
available information (for example, identifying facilities with 
composite payment rate exceptions).

A. Patient Claims Data

    The outpatient facility paid claims file is the primary source of 
information for payments ESRD facilities receive for the treatment of 
ESRD patients. The ``type 72X'' bills provided the detailed data for 
dialysis payments. The claims files used for the analyses in this 
proposed rule are based on patients with at least one claims record for 
dialysis. We used carrier claims and durable medical equipment claims 
to track dialysis-related payments to other providers such as 
independent laboratories.
    The case-mix models were based on claims from CYs 2004, 2005, and 
2006. These were the most complete CY records available for use with 
the Medicare cost reports from the same periods to develop the payment 
methodology, given the lead time necessary for the preparation of this 
proposed rule. We plan to use available CY data subsequent to 2006 data 
in developing the payment methodology in connection with the final 
rule. The number of Medicare claims, patients, dialysis sessions, and 
ESRD facilities represented in the source claims data are shown in 
Table 2. We have also provided the same information for CY 2003 for 
comparison purposes.

         Table 2--Medicare Dialysis Patients, Treatments, ESRD Facilities, and Claims by Year, 2003-2007
----------------------------------------------------------------------------------------------------------------
                                                     2003         2004         2005         2006         2007
----------------------------------------------------------------------------------------------------------------
Medicare Dialysis Patients\1\..................      298,617      308,561      318,531      324,836      328,841
Hemodialysis Equivalent Dialysis Treatments       32,692,581   34,088,570   35,097,820   35,948,738   36,667,669
 \2,3\.........................................
ESRD Facilities................................        4,365        4,523        4,668        4,810        4,955
Patient Month Claims...........................    2,830,215    2,934,505    3,037,965    3,095,996   3,155,553
----------------------------------------------------------------------------------------------------------------
\1\ Includes home dialysis patients for whom payments were made under Method II.
\2\ Hemodialysis-equivalent treatments were capped at 20 per month. The number of dialysis treatments for Method
  II patients was estimated using the average number of hemodialysis-equivalent treatments per month reported
  for Method I peritoneal dialysis patients during that year (which ranged from 12.50 to 12.66 during 2003-07).
\3\ Includes PD in which one week of PD is considered equivalent to 3 HD treatments.

B. Medicare Cost Reports

    We obtained facility-level cost and treatment data from the CMS 
Medicare Hospital Cost Report (Form CMS 2552-96) and the CMS Medicare 
Independent Renal Dialysis Facility Cost Report (Form CMS 265-94). The 
number of available cost reports for CYs 2004 through 2006 that 
contained necessary cost and treatment data for purposes of the 
composite rate cost analyses are shown in Table 3.

                      Table 3--Available Cost Reports by ESRD Facility Type, 2003-2006 \1\
----------------------------------------------------------------------------------------------------------------
                     ESRD facility type                           2003         2004         2005         2006
----------------------------------------------------------------------------------------------------------------
Facilities (Independent)....................................        3,689        3,852        4,025        4,140
Providers (Hospital Based)..................................          455          451          448          433
                                                             ---------------------------------------------------
    Total...................................................        4,144        4,303        4,471        4,573
----------------------------------------------------------------------------------------------------------------
\1\ Based on the June 2008 quarterly update of HCRIS. Includes cost reports with composite rate cost and
  treatment fields greater than 0.

    For most ESRD facilities, a single cost report encompassed the 
entire calendar year. For FY cost reports that spanned two CYs, we used 
a weighted average based on the proportion falling in each CY.

C. Patient Claim and Cost Report Summary Data, 2004-2006

    The case-mix models were based on data sets that linked claims and 
cost

[[Page 49936]]

report records for each year from CY 2004 through CY 2006. The claims 
data for patients treated in hospital satellite facilities were matched 
to the parent hospital using OSCAR, since cost reports are only 
submitted by the parent facility. Table 4 shows the resulting analysis 
files that included both claims and cost report data for measuring 
separately billable and composite rate resource utilization.

  Table 4--Medicare Dialysis Patients, Treatments, ESRD Facilities, and Claims for Patients and Facilities With
                              Measured Costs per Treatment, by Year, 2004-2006 \1\
----------------------------------------------------------------------------------------------------------------
                                                                       2004            2005            2006
----------------------------------------------------------------------------------------------------------------
Medicare Dialysis Patients......................................         301,625         311,787         317,734
Hemodialysis Equivalent Dialysis Treatments.....................      33,056,812      34,062,969      34,963,270
ESRD Facilities.................................................           4,228           4,376           4,489
Patient Month Claims............................................       2,732,001       2,826,580       2,897,424
----------------------------------------------------------------------------------------------------------------
\1\ Includes patient months and ESRD facilities with Medicare hemodialysis-equivalent treatments >0 from the
  outpatient dialysis facility claims and measured composite rate costs from the cost reports.

D. Data for the Case-Mix Analyses, 2004-2006

    The case-mix analyses required data for several patient and 
facility characteristics. After the exclusion of statistical outliers 
or otherwise unusable records, the data shown in Table 4 were reduced 
to yield the data set used in the primary analyses for both composite 
rate and separately billable services. Table 5 summarizes these 
records.

Table 5--Medicare Dialysis Patients, Treatments, ESRD Facilities, and Claims Final Analysis Sample by Year, 2004-
                                                    2006 \1\
----------------------------------------------------------------------------------------------------------------
                                                                                                   Pooled, 2004-
                                                       2004            2005            2006            2006
----------------------------------------------------------------------------------------------------------------
Medicare Dialysis Patients......................         290,102         298,314         303,967         453,789
Hemodialysis Equivalent Dialysis Treatments.....      31,450,123      32,303,018      33,148,355      96,901,496
ESRD Facilities.................................           3,794           3,948           4,072           4,250
Patient Month Claims............................       2,604,033       2,685,413       2,751,735       8,041,181
----------------------------------------------------------------------------------------------------------------
\1\ Based on the sample of dialysis patients and ESRD facilities included in the case-mix analyses for both
  composite rate and separately billable services.

    The primary case-mix analyses relied on pooled data from CY 2004 
through CY 2006, which included a total of 8,041,181 Medicare ESRD 
patient months. The case-mix analyses included 95.4 percent of patients 
with Medicare outpatient dialysis claims during CYs 2004-2006. Over the 
3-year period, the case-mix analyses included data for 453,789 Medicare 
ESRD patients treated in 4,250 ESRD facilities.

E. Prescription Drug Event Data, CY 2007

    We obtained the total CY 2007 payments for Medicare Part D drugs 
from Part D claims submitted by prescription drug plans (drugs formerly 
covered under Part D prior to the ESRD PPS). The claims were restricted 
to Part D claims submitted on behalf of Medicare ESRD beneficiaries 
with valid type 72X claims in CY 2007 and Part D coverage. We used 
claims for the following classes of drugs to calculate the estimated 
Part D payments for drugs used to treat ESRD (formerly covered under 
Part D) for inclusion in the ESRD PPS payment bundle:

------------------------------------------------------------------------
                Drug class                         Ingredient name
------------------------------------------------------------------------
Vitamin D analogue........................  Calcitriol.
                                            Paracalcitol.
                                            Doxercalciferol.
Calcimimetic..............................  Cinacalcet hydrochloride.
Oral phosphate binder.....................  Lanthanum carbonate.
                                            Calcium acetate.
                                            Sevelamer hydrochloride.
                                            Sevelamer carbonate.
------------------------------------------------------------------------

    The National Drug Codes (NDCs) used to identify the above drugs in 
the Part D claims are shown below in Table 6.

           Table 6--List of National Drug Codes Used To Identify Former Part D Drugs for the ESRD PPS
----------------------------------------------------------------------------------------------------------------
            Ingredient name                    NDC                 Strength                   Trade name
----------------------------------------------------------------------------------------------------------------
                                         Drug Class: Vitamin D Analogues
----------------------------------------------------------------------------------------------------------------
Calcitriol.............................       260530051  0.25 MCG...................  Calcitriol Capsules.
                                                 540007  0.25 MCG...................  Calcitriol Capsules.
                                                 930657  0.25 MCG...................  Calcitriol Capsules.
                                                 930658  0.5 MCG....................  Calcitriol Capsules.
                                                1791578  0.25 MG....................  Calcitriol Capsules.
                                                1791603  0.5 MCG....................  Calcitriol Capsules.
                                                4800657  0.25 MCG...................  Calcitriol Capsules.
                                                4800658  0.5 MCG....................  Calcitriol Capsules.
                                              110140011  0.25 MCG...................  Calcitriol Capsules.
                                              142880007  0.25 MCG...................  Calcitriol Capsules.
                                              178560007  0.25 MCG...................  Calcitriol Capsules.

[[Page 49937]]

 
                                              548684584  0.25 MCG...................  Calcitriol Capsules.
                                              551548251  0.25 MCG...................  Calcitriol Capsules.
                                              647250048  0.25 MG....................  Calcitriol Capsules.
                                              647250049  0.5 MG.....................  Calcitriol Capsules.
                                                 543120  1 MCG/ML...................  Calcitriol Oral Solution.
                                              682589030  0.5 MCG....................  Calcitriol Capsules.
                                              548683461  0.25 MCG...................  Rocaltrol Capsules.
                                              604910562  0.5 MCG....................  Rocaltrol Capsules.
                                                  49115  1 MCG/ML...................  Rocaltrol Oral Solution.
Paricalcitol...........................          744314  2 MCG......................  Zemplar Capsules.
                                                 744315  4 MCG......................
                                                 744317  1 MCG......................
                                              110140056  2 MCG......................
                                              110140057  4 MCG......................
                                              242360664  1 MCG......................
                                              511294272  1 MCG......................
                                              551540001  1 MCG......................
                                              551546971  1 MCG......................
Doxercalciferol........................       110140017  0.5 MCG....................  Hectorol Capsules.
                                              110140018  2.5 MCG....................
                                              511293550  2.5 MCG....................
                                              584680120  0.5 MCG....................
                                              584680122
                                              584680121  2.5 MCG....................
----------------------------------------------------------------------------------------------------------------
                                            Drug Class: Calcimimetic
----------------------------------------------------------------------------------------------------------------
Cinacalcet Hydrochloride...............       682589225  30 MG......................  Cinacalcet HCL Tablet.
                                              632850074  66 MG......................  Sensipak Tablets.
                                                1791845  30 MG......................  Sensipar Tablets.
                                              548685616  30 MG......................  Sensipar Tablets.
                                              555130073  33 MG......................  Sensipar Tablets.
                                              555130074  66 MG......................  Sensipar Tablets.
                                              555130075  99 MG......................  Sensipar Tablets.
                                              632850073  30 MG......................  Sensipar Tablets.
                                              632850075  K99 MG.....................  Sensipar Tablets.
----------------------------------------------------------------------------------------------------------------
                                        Drug Class: Oral Phosphate Binder
----------------------------------------------------------------------------------------------------------------
Lanthanum Carbonate....................       540920252  500 MG.....................  Fosrenol Chewable Tablets.
                                              540920253  750 MG.....................
                                              540920254  1000 MG....................
                                              635520250  750 MG.....................
                                              635520251  1000 MG....................
                                              635520252  500 MG.....................
Calcium Acetate........................          540026  667 MG.....................  Calcium Acetate Capsules.
                                              142880954  667 MG.....................  Calcium Acetate Capsules.
                                              597306402  667 MG.....................  PhosLo Gelcaps.
                                                1791371  667 MG.....................  PhosLo Tablets.
                                                1791934  ...........................  PhosLo Tablets.
                                              522680200  667 MG.....................  PhosLo Tablets.
                                              548683460  667 MG.....................  PhosLo Tablets.
                                              548685691  ...........................  PhosLo Tablets.
                                              647250260  667 MG.....................  PhosLo Tablets.
Sevelamer Hydrochloride................       178560020  400 MG.....................  Crenagel Tablets.
                                              260530308  800 MG.....................  Renagel Tablet.
                                              260530394  400 MG.....................  Renagel Tablet.
                                                6155613  800 MG.....................  Renagel Tablets.
                                              178560021  800 MG.....................  Renagel Tablets.
                                              242360660  400 MG.....................  Renagel Tablets.
                                              511293461  800 MG.....................  Renagel Tablets.
                                              548685615  800 MG.....................  Renagel Tablets.
                                              551549726  400 MG.....................  Renagel Tablets.
                                              551549727  800 MG.....................  Renagel Tablets.
                                              580160778  800 MG.....................  Renagel Tablets.
                                              584680020  400 MG.....................  Renagel Tablets.
                                              584680021  800 MG.....................  Renagel Tablets.
                                              613920721  400 MG.....................  Renagel Tablets.
                                              647250284  400 MG.....................  Renagel Tablets.
                                              647250285  800 MG.....................  Renagel Tablets.
                                              654970020  400 MG.....................  Renagel Tablets.

[[Page 49938]]

 
                                              654970021  800 MG.....................  Renagel Tablets.
                                              675440656  800 MG.....................  Renagel Tablets.
                                              682990002  400 MG.....................  Renagel Tablets.
                                              682990021  800 MG.....................  Renagel Tablets.
                                              584680130  800 MG.....................  Renvela Tablets.
                                              711144207  403 MG.....................  Sevelamer Hydrochloride
                                                                                       Capsules.
                                             68258-9013  800 MG.....................  Sevelamer Hydrochloride
                                                                                       Tablets.
                                             68258-9070  400 MG.....................  Sevelamer Hydrochloride
                                                                                       Tablets.
Sevelamer Carbonate....................      68299-0130  800 MG.....................  Renvela Tablets.
----------------------------------------------------------------------------------------------------------------

    Table 7 shows the number of Medicare ESRD beneficiaries for which 
valid type 72X claims were filed in CY 2007, number of ESRD 
beneficiaries with Part D drug coverage from PDP plans, and number of 
beneficiaries with Part D claims for the above oral drugs. CY 2006 data 
are shown for comparison purposes only, as they were not used to 
calculate the ESRD base rate.

                Table 7--Medicare Dialysis Patients With Payments for Part D Drugs, 2006 and 2007
----------------------------------------------------------------------------------------------------------------
                                                               2006                            2007
                                                 ---------------------------------------------------------------
                                                     Patients            %           Patients            %
----------------------------------------------------------------------------------------------------------------
ESRD patients with Medicare payments on                  324,836  ..............         328,841  ..............
 outpatient dialysis facility claims *..........
ESRD patients with Medicare payments on                  207,035           63.74         219,451           66.73
 outpatient dialysis facility claims and any
 payment for Part D drugs.......................
ESRD patients with Medicare payments on                  159,570           49.12         175,132           53.26
 outpatient dialysis facility claims and any
 payment for Part D drugs included in the ESRD
 PPS **.........................................
----------------------------------------------------------------------------------------------------------------
** Includes ``type 72X'' outpatient institutional claims.
** Includes Vitamin D Analogs (Calcitriol, Paracalcitol, and Doxercalciferol), Calcimimetics (Cinacalcet
  Hydrochloride), and Oral Phosphate Binders (Lanthanum Carbonate, Calcium Acetate, Sevelamer Hydrochloride, and
  Sevelamer Carbonate).

VI. Analytical Approach

    In this proposed rule, we are presenting a case-mix model that UM-
KECC has developed using standard techniques of multivariate 
regression. In multivariate or multiple regression, a set of 
independent or predictor variables are tested to determine the extent 
they can predict or ``explain'' the variation in a related dependent or 
predicted variable. The unit of analysis in such models is important 
because the level at which resource use can be measured differs for 
composite rate and separately billable services. We can measure 
separately billable services for individual patients using the payment 
information obtained from Medicare claims. However, the available 
measure of resource use for composite rate services consists of costs 
from the Medicare cost reports. These costs do not distinguish patient-
specific differences within ESRD facilities, because they combine 
treatment costs for all ESRD patients.
    In the Secretary's February 2008 report to Congress, we described 
two approaches for developing the case-mix models using multivariate 
regression. Under the first approach, referred to as the one-equation 
model, composite rate costs and separately billable payments for all 
patients treated in each ESRD facility are added together. When the 
result is divided by the number of corresponding ESRD treatments, the 
predicted or dependent variable of bundled services reflects a 
facility-level model of combined composite rate and separately billable 
services. This approach has the relative simplicity of having the case-
mix adjustments based on a single statistical model estimated at the 
facility level.
    The other approach, which we refer to as the two-equation model, 
relies on two separate regression equations, one to predict variation 
in composite rate costs at the facility level, and the other to predict 
variation in separately billable payments at the patient level. This 
approach has the advantage of measuring patient-level variation in the 
utilization of separately billable services available from the Medicare 
claims. It also permits combining separate composite rate and 
separately billable regression equations into a single payment 
equation.
    The case-mix model, which we have adopted in developing the 
proposed ESRD PPS, is based on the two-equation model. The basis for 
our selection of the two-equation model was set forth in the 
Secretary's February 2008 report to Congress:

    In an extensive series of analyses, UM-KECC determined that 
application of the one-equation bundled PPS model (that is, a 
facility-level model) yielded very different regression coefficients 
for a number of potential case-mix adjusters compared to the two-
equation bundled PPS model. These differences were attributed to the 
correlation between the tested case-mix variables and unobserved 
facility characteristics. UM-KECC concluded that a patient-level 
model would have the advantage of reducing potential bias related to 
unobserved facility characteristics, would result in more precise 
coefficient estimates, and yield greater stability in these 
estimates over time. A patient-level model for the separately 
billable services can be combined with a facility-level model for 
composite rate services to yield a single payment equation.

    This is the approach adopted to develop the case-mix adjusters for 
the ESRD PPS described in this proposed rule.
    For those interested, a more extensive and detailed mathematical 
explanation of the two-equation model used to develop the case-mix 
adjusters is contained in UM-KECC's February 2008 report, End Stage 
Renal Disease Payment System: Results of Research on

[[Page 49939]]

Case-Mix Adjustment for an Expanded Bundle (see pp. 38-44 and Technical 
Appendix C).

II. Development of ESRD PPS Base Rate

    The patient-specific case-mix adjustments developed from the two-
equation regression model for composite rate and separately billable 
services, which we have described in section VIII. of this proposed 
rule, would be applied to a base payment rate per treatment (``base 
rate''). The base rate would also be adjusted to reflect ESRD facility 
differences in area wage levels using a proposed wage index as 
described in section VIII.C. In this section, we describe the 
calculation of the proposed ESRD base rate, as set forth in proposed 
Sec.  413.220, and the computation of the reduction factors used to 
adjust the 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. The base rate presented in this proposed 
rule, and defined in proposed Sec.  413.171, was calculated entirely 
from CY 2007 Medicare claims data. The proposed base rate, which 
represents the average Medicare allowable payment (MAP) for composite 
rate and separately billable services, was developed from CY 2007 
claims data. We used claims data for CY 2007 in connection with the 
preparation of this proposed rule because such data were the latest 
available. We expect to have claims data for CY 2008 and partial claims 
information for CY 2009 in connection with our preparation of the final 
rule. Comparing per treatment payment amounts developed from available 
claims data for CYs 2007, 2008, and 2009 would permit a determination 
as to which year resulted in the ``lowest per patient utilization'' of 
dialysis services as required in accordance with section 
1881(b)(14)(A)(ii) of the Act. The components of the proposed base rate 
based on CY 2007 claims data and the methodology used to project the 
base rate to CY 2011 (the first year of the ESRD PPS), are described 
below.

A. Calculation of the CY 2007 Unadjusted Rate per Treatment

    Sections 1881(b)(14)(A)(i) and 1881(b)(14)(B) of the Act, as added 
by MIPPA, specify the renal dialysis services, and other items and 
services, which must be included in the payment bundle of the ESRD PPS. 
Table 8 shows the payments for the various components which comprise 
the renal dialysis services which we propose to include in our 
development of the base rate using available CY 2007 claims data, in 
accordance with our interpretation of the statute. We first describe 
each of the components of the ESRD PPS payment bundle included in the 
CY 2007 unadjusted rate per treatment. Thereafter, we describe the 
adjustments used to calculate the ESRD PPS base rate from the CY 2007 
unadjusted rate per treatment.
BILLING CODE 4120-01-P

[[Page 49940]]

[GRAPHIC] [TIFF OMITTED] TP29SE09.001


[[Page 49941]]


BILLING CODE 4120-01-C
1. Composite Rate Services
    The first component of the ESRD PPS payment bundle shown in Table 8 
is ``Outpatient dialysis and other composite rate services''. This line 
item refers to total CY 2007 payments for composite rate services as 
obtained from ESRD facility claims (bill type 72X claims). This total 
includes all composite rate payments to ESRD facilities, including 
exception payments made in accordance with Sec.  413.182 through Sec.  
413.186. Claims from ESRD facilities that did not have a valid county 
code, such that the relevant CBSA-based wage index (see section 
VIII.C.) could not be determined, were excluded. In addition, claims 
for patients with a missing birth date, which is necessary in order to 
calculate the basic case-mix adjustment under the composite payment 
system, were also excluded.
2. Dialysis Support Services
    We computed a total amount for the next component of the ESRD PPS 
payment bundle shown in Table 8, ``Dialysis support services''. This 
total represents total payments for support services furnished to 
Method II home dialysis patients, and reported under subcategory 5 of 
revenue codes 082X through 085X on the type 72X claims.
3. Part B Drugs and Biologicals
    The next component of the ESRD PPS bundle shown in Table 8 is 
``Part B drugs and biologicals''. We found that total payments for the 
top 11 Part B drugs and biologicals reported on the type 72X claims, 
accounted for 99.7 percent of total spending for Part B drugs. Monthly 
payments for Epogen were capped to reflect no more than 30,000 units 
per treatment, as amounts in excess of this value were considered 
clinically implausible.
4. Laboratory tests
    Another component of the ESRD PPS bundle shown in Table 8 is 
``Laboratory tests billed by dialysis facilities or ordered by 
physicians receiving monthly capitation payments for treating ESRD 
patients''. Payments for laboratory tests represent the total amount 
paid to dialysis facilities for outpatient laboratory tests billed on 
the type 72X claims, as well as payments for laboratory tests ordered 
by physicians receiving MCP amounts and billed on carrier claims. We 
identified laboratory tests ordered by physicians receiving MCP using 
the list of physicians for CY 2006, which was the latest available list 
at the time of this proposed rule. The estimates for total laboratory 
payments will be updated using the list of CY 2007 MCP physicians in 
connection with the publication of the final rule.
5. DME Supplies and Equipment
    ``DME supplies and equipment'' is another component of the ESRD PPS 
payment bundle. Payments for these items and services were obtained 
from the CMS 1500 claims for Method II home patients.
6. Supplies and Other Services Billed by Dialysis Facilities
    This category of the ESRD PPS payment bundle primarily includes 
payments for syringes used in the administration of intravenous drugs 
during the provision of outpatient dialysis. These supplies and 
services were billed by the dialysis facilities on the type 72X claims.
7. Former Part D Drugs
    This amount represents total payments on behalf of the ESRD 
beneficiaries with Part D coverage in CY 2007 for Part D drugs and 
biologicals which we consider furnished for the treatment of ESRD. 
These drugs and biologicals, which are identified by class below, were 
obtained from CY 2007 Part D claims submitted on behalf of the Medicare 
ESRD beneficiaries with valid type 72X claims in CY 2007 with Part D 
coverage, using the NDC codes for the following drugs and biologicals:


 
 
 
Vitamin D Analogues
 
Calcitriol
Paracalcitol
Doxercalciferol
 
Calcimimetic
 
Cinacalcet hydrochloride
 
Oral phosphate binder
 
Lanthanum carbonate
Calcium acetate
Sevelamer hydrochloride
Sevelamer carbonate
 

    The NDC codes used to identify the above drugs and biologicals are 
shown in the Appendix in Table C.
    The number of Medicare ESRD beneficiaries for which valid type 72X 
claims were filed in CY 2007, number of ESRD beneficiaries with Part D 
drug coverage, and number of beneficiaries with Part D claims for the 
specified drugs and biologicals noted above, are shown in Table 9. CY 
2006 data are also shown in Table 9 for comparison purposes.

                Table 9--Medicare Dialysis Patients With Payments for Part D Drugs, 2006 and 2007
----------------------------------------------------------------------------------------------------------------
                                                               2006                            2007
                                                 ---------------------------------------------------------------
                                                     Patients            %           Patients            %
----------------------------------------------------------------------------------------------------------------
ESRD patients with Medicare payments on                  324,836  ..............         328,841  ..............
 outpatient dialysis facility claims *..........
ESRD patients with Medicare payments on                  207,035           63.74         219,451           66.73
 outpatient dialysis facility claims and any
 payment for Part D drugs.......................
ESRD patients with Medicare payments on                  159,570           49.12         175,132           53.26
 outpatient dialysis facility claims and any
 payment for Part D drugs included in the ESRD
 PPS **.........................................
----------------------------------------------------------------------------------------------------------------
* Includes ``type 72X'' outpatient institutional claims.
** Includes Vitamin D Analogs (Calcitriol, Paracalcitol, and Doxercalciferol), Calcimimetics (Cinacalcet
  Hydrochloride), and Oral Phosphate Binders (Lanthanum Carbonate, Calcium Acetate, Sevelamer Hydrochloride, and
  Sevelamer Carbonate).

    The payment total for former Part D drugs includes payments by 
Medicare prescription drug plans, and all payments made by or on behalf 
of ESRD beneficiaries for the specified drugs. As noted in Table 9, the 
payment total for former Part D drugs only includes data for the 66.73 
percent of ESRD beneficiaries who were enrolled in Part D. As a result, 
we do not have patient-specific information on the cost of drugs (part 
D equivalent drugs) for the remaining third of ESRD beneficiaries who 
do not have Part D coverage. To the extent these beneficiaries have 
drug coverage through their employer or other insurance, we do not have 
access to specific usage or payment information for these medications. 
Nonetheless, when the ESRD PPS is implemented January 1, 2011, former

[[Page 49942]]

Part D drugs would become renal dialysis services in accordance with 
section 1881(b)(14)(ii)(B) of the Act. As such, ESRD facilities would 
be responsible for providing ESRD-related oral drugs formerly covered 
under Part D to their patients.
    We are considering use of a proxy to capture the costs associated 
with ESRD-related drugs for those patients without Part D coverage. One 
possible approach would be for us to include payments under the Retiree 
Drug Subsidy (RDS) program which is described below. We believe that as 
the RDS payments could be made for ESRD-related drugs under title XVIII 
of the Act, use of RDS data would be consistent with section 
1881(b)(14)(A)(ii) which requires that in implementing the ESRD PPS, 
the Secretary must ensure that the estimated total amount of payments 
under this title for 2011 for renal dialysis services equals 98 percent 
of the estimated total amount of payments that would have been made 
under this title if the ESRD PPS were not implemented.
    The RDS program was enacted in December 2003 by section 101 of the 
MMA. The program, which was effective January 1, 2006, was designed to 
support existing retiree benefit arrangements by providing subsidy 
payments to plan sponsors (that is, employers and unions). Subsidy 
payments to qualifying drug plan sponsors (for example, employers, 
unions) equal 28 percent of each qualifying retiree's allowable costs 
for prescription drugs otherwise covered by Medicare Part D, that are 
attributable to such drug costs between an applicable cost threshold 
and cost limit. For plan years ending in 2007, the applicable cost 
threshold is $265 and the cost limit is $5350.
    Based on CMS' Office of the Actuary's most recent CY 2007, we 
provided subsidy payments totaling $3.8 billion on behalf of 7.0 
million beneficiaries. Plans submit aggregate qualifying cost data and 
a list of eligible beneficiaries. We could determine the number of ESRD 
qualifying covered retirees under the RDS as a percentage of all 
qualifying covered retirees under RDS. We could further estimate the 
ESRD-related percentage of the $3.8 billion in subsidy payments and add 
this amount to the estimated aggregate payments in 2007. We note that 
since we do not receive patient-specific information on drug usage 
under the RDS program, it would not be possible to capture the effect 
of these drugs on the patient and facility-level adjustment factors. We 
refer readers to 42 CFR Sec.  423.880 through Sec.  423.894 for more 
information on the RDS provisions. We invite public comment on this 
approach and other possible approaches to enable us to capture drug 
payment information for all Medicare ESRD patients.
8. Total MAP
    The total MAP amount represents the total payments made in CY 2007 
for the composite rate and separately billable categories described 
above (that is, the sum of the payments for the items and services 
described in 1. through 7.) We propose to use the total MAP amount as 
the ESRD PPS base rate amount.
9. Total Medicare Hemodialysis-Equivalent Sessions
    In order to calculate the proposed ESRD PPS base rate per 
treatment, it was necessary to divide the total MAP amount described 
above by the number of Medicare HD-equivalent sessions. The number of 
Medicare HD-equivalent sessions represents the total Medicare 
treatments for outpatient dialysis as reported on the type 72X claims 
submitted by dialysis facilities. PD patient weeks were converted to 
HD-equivalent sessions. For this purpose one week of PD was considered 
equivalent to three HD treatments. Accordingly, a patient on PD for 21 
days would have (21/7) x 3 or 9 HD-equivalent sessions. In determining 
the total number of Medicare treatments, the number of HD-equivalent 
sessions were capped at 20 per patient per month. We propose to use the 
total number of CY 2007 Medicare HD-equivalent dialysis sessions, 
36,523,791, to calculate the ESRD PPS base rate.
10. Average MAP per Treatment
    We divided the total MAP in item 8, $9,239,987,362, by the total 
Medicare hemodialysis-equivalent sessions in item 9, 36,523,791, to 
yield an unadjusted rate per treatment for renal dialysis services in 
CY 2007. This unadjusted rate per treatment is $252.99. We propose to 
update this per treatment amount to reflect CY 2011 prices, and to 
standardize it to eliminate the effects of the case-mix and wage index 
adjustments in order to ensure duplicate payments do not occur under 
the ESRD PPS through the subsequent introduction of these variables in 
the payment formula. We also propose to further reduce the projected CY 
2011 payment rate for estimated outlier payments, and the budget 
neutrality offset as set forth in sections 1881(b)(14)(D)(ii) and 
1881(b)(14)(A)(ii) of the Act, respectively. This is the proposed 
amount per treatment that would be multiplied under the ESRD PPS to 
reflect patient-specific differences in case-mix, and other adjustments 
as set forth in section 1881(b)(14)(D) of the Act. We refer to this 
projected CY 2011 payment rate, after application of the 
standardization, outlier, and budget neutrality offsets, as the ESRD 
PPS base rate. The proposed definition of the base rate is set forth in 
proposed Sec.  413.171. Our proposed methodology for calculating the 
base rate to reflect the standardization, outlier, and budget 
neutrality reductions is explained in the sections that follow.

B. Determining the Update Factors for the Budget-Neutrality Calculation

    In order to estimate payments under the current payment system for 
each facility in CY 2011, the first year of the ESRD PPS, the 
components of the CY 2007 unadjusted per treatment rate were updated to 
reflect estimated 2011 prices, using the methodology as described in 
greater detail below. It is necessary to estimate 2011 payments under 
the current ESRD payment system (including all separately billable 
items) for each facility in order to meet the statutory budget-
neutrality requirement for the ESRD PPS. Section 1881(b)(14)(A)(ii) of 
the Act requires that the ESRD PPS payment system be 98 percent budget 
neutral in 2011. In other words, the estimated total amount of payments 
under the ESRD PPS in 2011, including any payment adjustments, must 
equal 98 percent of the estimated total amount of payments for renal 
dialysis services that would have been made with respect to services in 
2011 if the ESRD PPS system had not been implemented. Therefore, we 
must first estimate what ESRD facilities would have been paid under the 
current system in CY 2011, by updating the 2007 payments to reflect 
2011 prices. We then divide the total estimated CY 2011 payments by the 
number of CY 2007 treatments to determine the CY 2011 average payment 
per treatment. We do not make adjustments for future changes in 
treatments as this would require us to make assumptions about patient 
specific characteristics. If we were to project CY 2011 treatments we 
would increase the current basic case-mix adjusted composite payments 
by the same amount. This would in effect have no impact on the 
calculation of the per treatment amount. This CY 2011 unadjusted per 
treatment payment amount becomes the basis for meeting the budget 
neutrality requirement. Below we describe the update factors used to 
estimate CY 2011 payments for each component.
1. Composite Rate Services
    In order to update the basic case-mix adjusted composite payments 
to 2011,

[[Page 49943]]

we began with the CY 2009 base composite rate ($133.81) and the CY 2009 
drug add-on percentage of 15.2 percent. In accordance with section 
153(a) of MIPPA and 1881(b)(14) of the Act, we updated the composite 
rate by 1.0 percent for CY 2010 and by the estimated ESRD bundled 
market basket percentage increase minus 1 percentage point (1.5 
percent) for CY 2011 resulting in a 2011 composite rate of $137.18. A 
full description of the ESRD bundled (ESRDB) market basket is presented 
in section XII. of this proposed rule. We are proposing to use this 
base composite rate for CY 2011, which includes ESRD bundled market 
basket minus 1 percentage point, to update the CY 2010 composite rate 
for purposes of establishing the ESRD PPS base rate, given that we 
interpret section 1881(b)(14)(F)(ii) to require us to update the 
composite rate portion of the blend by the market basket percentage 
minus 1.0 percentage point in all years of the transition (which 
includes CY 2011). Therefore, using the market basket in this way would 
be a consistent approach. As described in section XII. of this 
preamble, we are proposing a market basket increase of 2.5 percent for 
CY 2011. Therefore, we are proposing a 1.5 percent update to the 
composite rate for CY 2011, resulting in a CY 2011 composite rate of 
$137.18 ($135.15 * 1.015). We note that the drug add-on percentage is 
reduced from 15.2 to 14.8 as a result of the increases to the composite 
rate in CYs 2010 and 2011. Since the drug add-on is calculated as 
percentage of the base composite rate, the drug add-on percentage 
decreases with increases in the composite rate. The CY 2009 Physician 
Fee Schedule final rule provides details on why increases to the base 
composite rate require decreases to the drug add-on percentage to 
ensure that the total drug add-on dollar amount remains the same (73 FR 
69755). We intend to update the drug add-on, if necessary, for the ESRD 
PPS final rule.
    We used the applicable facility-level and patient-level basic case-
mix adjustments from the CY 2007 claims to re-compute payment using the 
applicable basic case-mix adjustments applied to a 100 percent CBSA 
wage-adjusted composite rate using the most recently available ESRD 
wage index, which is the CY 2009 final rule ESRD wage index with a 0.60 
floor. We did this to use the most recent wage indexes available in 
estimating 2011 payments. The other components of the bundle, which are 
discussed below do not have payments which are computed with wage 
indexes. We used a 0.60 floor because we anticipate that floor will be 
in effect in CY 2011. We have been reducing the wage index floor by .05 
every year and we expect to continue this policy. (More information on 
CBSAs and the wage index floor is presented in section VIII.C.1 of this 
proposed rule).
    In addition, payment rates to facilities that have chosen to retain 
their exceptions under the basic case-mix composite payment system are 
not updated because, once approved, the exception amounts were fixed 
payment amounts, and hence the 2007 amounts represent the 2011 amounts. 
See the CY 2005 PFS final rule for a discussion regarding the 
application of statutory increases to exception amounts (69 FR 66332).
2. Self-Dialysis Support Services for Method II Patients
    The allowance per month under Method II for home dialysis support 
services may not exceed $121.15 per month for all forms of dialysis. 
Since home dialysis support services for Method II patients are subject 
to a monthly capitation payment that is not increased, the CY 2007 
amounts represent the CY 2011 amounts.
3. Part B Drugs and Biologicals
    Under the current system, payments for ESRD drugs and biologicals 
under Part B are paid on average sales price plus 6 percent (ASP+6 
percent) methodology. We reviewed ASP prices for four quarters of 2006, 
2007, 2008 and two quarters of 2009 for the top eleven separately 
billable drugs. Given the variability shown in the prices over the last 
several years and the lack of a clear pattern, we propose to use the 
2009 prices as proxy for 2011 values. At the time of the final rule, we 
will reevaluate this decision based on additional quarters of ASP drug 
pricing data. Thus, we used the growth from the average of the quarters 
for 2007 to the average of the two available quarters of 2009. For 
other ESRD-related Part B drugs, we used a weighted average of the top 
eleven Part B drugs to update those drug prices to 2011. Since the top 
eleven drugs represent 99.7 percent of total separately billable Part B 
drug payments, we believe that the overall weighted average was 
representative for the remaining 0.3 percent. See Table 10 for the 
growth factor that was applied to the 2007 drug payment levels.

                                Table 10
------------------------------------------------------------------------
                                                                 Price
                    Drugs and biologicals                       updates
                                                               (percent)
------------------------------------------------------------------------
EPO.........................................................         1.7
Paricalcitol................................................        -2.8
Sodium--ferric--glut........................................        -0.5
Iron--sucrose...............................................         4.8
Levocarnitine...............................................       -19.0
Doxercalciferol.............................................        17.8
Calcitriol..................................................       -14.1
Vancomycin..................................................       -11.1
Alteplase...................................................         2.3
Aranesp.....................................................        -8.2
Daptomycin..................................................        13.9
Other injectables...........................................         1.1
------------------------------------------------------------------------

4. Laboratory Tests
    We updated payments for laboratory tests paid through the 
laboratory fee schedule to 2011 using projected CPI-U increases and any 
legislative adjustments that would be applied to this fee schedule. 
This is the statutory update required for lab services. This amount 
totaled a growth of 5.1 percent from 2007 to 2011.
5. DME Supplies and Equipment
    Since payments for supplies and equipment for Method II patients 
are subject to a monthly capitation payment that has not increased, the 
CY 2007 amount represents the 2011 amounts.
6. Supplies and Other Services
    This category primarily includes the $0.50 administration fee for 
separately billable Part B drugs. Since this fee has not increased, 
there was no price update.
7. Former Part D Drugs
    Former Part D drugs were updated by the growth rates for overall 
prescription drug prices that were used in the National Health 
Expenditure Projections. See http://www.cms.hhs.gov/NationalHealthExpendData/03_NationalHealthAccountsProjected.asp#TopOfPage for further reference on 
the National Health Expenditure Projections. Since we do not currently 
have enough data to establish a trend for Part D prices and since we 
use this price growth in the overall Part D projections, we believe it 
is an adequate proxy. This amount totaled a growth of 12.2 percent from 
2007 to 2011.
    Once we determined updated CY 2011 payments for each component of 
the items and services discussed above, we added the components 
together to determine each ESRD facility's total payments under the 
current payment system in CY 2011. These estimated total 2011 MAPs 
divided by the total 2007 Medicare HD-equivalent sessions

[[Page 49944]]

yield the unadjusted per treatment base rate for renal dialysis 
services in CY 2011 of $261.58.
    We used $261.58 as the starting point for further adjustments in 
determining the proposed ESRD PPS per treatment base rate. The 2011 
unadjusted average payment per treatment of $261.58 was then used in 
the payment model to estimate total payments under the proposed ESRD 
PPS in CY 2011. These CY 2011 ESRD PPS estimated payments were based on 
treatment data from the CY 2007 claims file.

C. Standardization Adjustment

    CY 2011 payments under the proposed ESRD PPS were initially 
estimated without a budget-neutrality adjustment, using the unadjusted 
CY 2011 average payment per treatment amount of $261.58. We calculated 
the PPS payments using treatment counts from the 2007 claims file. The 
wage index and all applicable proposed patient-level and facility-level 
adjustments were applied to the unadjusted CY 2011 average payment per 
treatment to determine the estimated payment amount under the proposed 
ESRD PPS for each treatment and ESRD facility. We note that to simulate 
payments, we used the latest available final CY 2009 ESRD wage indexes, 
with no floor. While we anticipate a 0.60 floor for the ESRD wage index 
for the current basic case-mix composite payment system, we are 
proposing to eliminate the wage index floor for the ESRD wage index to 
be used for the proposed ESRD PPS in CY 2011 (see section VIII.C.1 for 
a detailed discussion of the ESRD wage index).
    Next, we standardized the ESRD PPS payments in order to account for 
the overall positive effects of the proposed ESRD PPS case-mix patient 
and facility adjustment factors and wage indexes. We must standardize 
payments in order to ensure that total projected PPS payments are equal 
to the payments under the current basic case-mix adjusted composite 
payment system. In order to standardize the ESRD PPS payments, we 
compared the proposed ESRD PPS amounts calculated from the treatment 
counts in the 2007 claims file to the current system payments from the 
2007 Medicare claims file updated to 2011 (as explained in greater 
detail in section VII.B. above). A standardization factor was 
calculated by dividing total estimated payments in 2011 under the 
current payment system by estimated payments under the proposed ESRD 
PPS in 2011. The standardization factor was calculated to be 0.7827, or 
a reduction of 21.73 percent. As a result, the CY 2011 unadjusted per 
treatment base rate of $261.58 was reduced by 21.73 percent to $204.74.
    We are proposing that the base rate per treatment be further 
modified by the adjustments described below.

D. Calculation of the Budget-Neutrality Adjustments

a. Outlier Adjustment
    Section 1881(b)(14)(D)(ii) of the Act provides that the ESRD PPS 
shall include a payment adjustment for high cost outliers due to 
unusual variations in the type or amount of medically necessary care, 
including variations in the amount of erythropoiesis-stimulating agents 
necessary for anemia management. We believe the payment adjustment 
under section 1881(b)(14)(D)(ii) of the Act for outlier cases should be 
applied in a budget neutral manner, as doing so will ensure that 
estimated total payments under the proposed ESRD PPS equals 98 percent 
of the estimated total amount of payments for renal dialysis services 
that would have been made with respect to services in 2011 if the ESRD 
PPS system had not been implemented.
    To ensure that the proposed outlier policy under the ESRD PPS is 
budget neutral, we propose to reduce the base rate by the proposed 
outlier percentage, or 1 percent. Specifically, we propose to reduce 
the base rate from $204.74 to $202.69. We did this to account for the 1 
percent of aggregate ESRD PPS payments estimated to be made as outlier 
payments. We then re-estimated the prospective payment amounts with the 
new reduced base rate of $202.69, allowing 1 percent of payments to be 
outliers. The appropriate outlier payment amount for each treatment was 
determined as described in greater detail in section X.A.2 of this 
proposed rule. The outlier amount was computed for all treatments, and 
the total outlier payment, across all treatment amounts was added to 
the prospective payment amount for all treatments.
    In summary, we are proposing an outlier percentage of 1 percent; 
therefore, the proposed base rate per treatment must include a 
reduction of 1 percent. Thus the proposed standardized base rate of 
$204.74 was reduced by 1 percent to yield a proposed base rate of 
$202.69.
b. 98 Percent Budget Neutrality Adjustment
    Section 1881(b)(14)(A)(ii) of the Act requires that the proposed 
ESRD PPS payment system be 98 percent budget neutral. In other words, 
the estimated total amount of payments under the ESRD PPS in 2011, 
including any payment adjustments, must equal 98 percent of the 
estimated total amount of payments for renal dialysis services that 
would have been made with respect to services in 2011 if the ESRD PPS 
had not been implemented. Therefore, we reduced the 2011 standardized 
base rate per treatment, which was already adjusted for 1 percent 
outlier payments, by an additional two percent, from $202.69, to yield 
a proposed base rate of $198.64.
    To summarize, the proposed base rate per treatment with an outlier 
adjustment and budget neutrality was calculated to be $198.64. This 
amount includes a 21.73-percent reduction from $261.58 to account for 
standardization to the projected CY 2011 current system payment per 
treatment, a 1-percent reduction to account for proposed outlier 
payments, and a 2-percent reduction for the required 98-percent budget 
neutrality. The outlier policy we are proposing is set forth at 
proposed Sec.  413.237.

E. Calculation of Transition Budget-Neutrality Adjustment

    Section 1881(b)(14)(E)(i) of the Act requires the Secretary to 
provide ``a four-year phase-in'' of the payments under the ESRD PPS for 
renal dialysis services furnished on or after January 1, 2011, with 
payments under the ESRD PPS ``fully implemented for renal dialysis 
services furnished on or after January 1, 2014.'' Although the statute 
uses the term ``phase-in,'' for purposes of the proposed ESRD PPS, we 
will use the term ``transition'' to be consistent with other Medicare 
payment systems.
    Section 1881(b)(14)(E)(ii) of the Act permits ESRD facilities to 
make a one-time election to be excluded from the transition. An ESRD 
facility that elects to be excluded from the transition receives 
payments for renal dialysis services provided on or after January 1, 
2011 based on 100 percent of the payment rate under the ESRD PPS, 
rather than a blended payment based in part on the payment rate with 
regard to the current basic case-mix adjusted composite payment system 
and in part on the payment rate under the ESRD PPS. The implementation 
of the transition is discussed in section XIII.A of this proposed rule. 
The transition period policy is set forth in proposed Sec.  413.239.
    Section 1881(b)(14)(E)(iii) of the Act also requires that we make 
an adjustment to payments for renal dialysis services provided by ESRD 
facilities during the transition so that the estimated total amount of 
payments under the ESRD PPS, including payments under the transition, 
equals

[[Page 49945]]

the estimated total amount of payments that would otherwise occur under 
the ESRD PPS without such a transition. The transition budget 
neutrality adjustment would be comprised of two parts. First, we would 
make a payment adjustment under the basic case-mix adjusted composite 
payment system portion of the blended rate during the transition, in 
addition to computing a factor that would make the estimated total 
amount of payments under the ESRD PPS including payments under the 
transition equal the estimated total amount of payments that would 
otherwise occur without such a transition. We describe each part in 
detail in the paragraphs that follow.
    First, to ensure that estimated total payments during the 
transition equal the estimated total amount of payments that would 
otherwise occur without such a transition, in addition to accounting 
for payments for composite rate services and items and services that 
are separately billable under Part B, it is necessary to reflect 
payments for ESRD-related Part D drugs that are currently separately 
payable under Title XVIII. Specifically, as we discussed in section 
III. of this proposed rule, section 1881(b)(14)(B) of the Act defines 
renal dialysis services to include, among other things, certain drugs 
and biologicals, including drugs and biologicals that were separately 
payable under Parts B and D. Under the current ESRD basic case-mix 
adjusted composite payment system, ESRD facilities generally do not 
furnish oral drugs and biologicals to their ESRD patients. ESRD 
patients currently acquire these drugs and biologicals either through 
Medicare Part D, private insurance, or independently.
    As described in section III. of this proposed rule, we are 
proposing to include renal dialysis service drugs formerly covered 
under Part D under the proposed ESRD PPS. As a result, we are further 
proposing that ESRD facilities would be required to furnish these and 
any other self-administered ESRD-related drugs to beneficiaries either 
directly or under arrangement.
    As further discussed in section VII. of this proposed rule, the 
cost of the drugs and biologicals currently separately payable under 
Part D that we propose to be designated as Part B renal dialysis 
services for purposes of the proposed ESRD PPS, would be reflected in 
the ESRD PPS portion of the blended payment. That is, once the ESRD PPS 
is implemented on January 1, 2011, ESRD-related Part D drugs would 
become Part B renal dialysis service drugs and would no longer be 
separately covered under Part D. This is due to section 
1881(b)(14)(A)(1) of the Act, which specifies that after January 1, 
2011, a single payment is made under title XVIII for renal dialysis 
services furnished by ESRD facilities in lieu of any other payment for 
such services, as well as the new statutory definition under section 
1881(b)(14)(B) of the Act. In addition, we note that ESRD-related Part 
D drugs are not part of the basic case-mix adjusted composite payment 
system or otherwise covered under Part B (in contrast to other 
separately billable ESRD-related items and services). As a result, ESRD 
facilities that elect to go through the transition would have no 
mechanism by which to receive payment for former Part D drugs with 
regard to the basic case-mix adjusted composite payment system portion 
of the payment blend (though such services would be captured with 
regard to the portion of the blended payment for the ESRD PPS). Because 
ESRD-related Part D drug payments would not be included in the portion 
of the blend based on the basic case-mix adjusted composite payment 
system, payments to ESRD facilities that elect to go through the 
transition may be understated during the transition.
    Additionally, as required by section 1881(b)(14)(A)(ii) of the Act 
and described in section VII.D.b of this preamble, the estimated total 
amount of payments under the proposed ESRD PPS in 2011, including any 
payment adjustments, must equal 98 percent of the estimated total 
amount of payments for renal dialysis services under title XVIII that 
would have been made with respect to services in 2011 if the ESRD PPS 
system had not been implemented. As we noted, Part D drugs are not part 
of the basic case-mix adjusted composite payment system or otherwise 
covered under part B as separately billable ESRD-related items or 
services. However, because the payments for the ESRD-related Part D 
drugs proposed for inclusion in the ESRD PPS were made under title 
XVIII, we are required to include such items in the 98 percent budget 
neutrality adjustment.
    Thus, to be consistent with the 98 percent budget neutrality 
requirement and to make estimated payments during the transition equal 
payments without the transition, we propose to provide a $14.00 per 
treatment adjustment to the portion of the blend with regard to the 
basic case-mix adjusted composite payment system. This amount is based 
on the 2011 per treatment ESRD-related Part D drug payments included in 
the proposed ESRD PPS base rate. We first computed the 2007 per Part D 
payment per treatment described in section VII.A. We then updated this 
amount to 2011 by applying the 12.2 percent update factor described in 
section VII.B.
    We further propose that the $14 per treatment adjustment that would 
be made to the portion of the blend with regard to the basic case-mix 
adjusted composite payment system would be made without regard to basic 
case-mix adjustments or wage index adjustments. This is because ESRD-
related Part D drugs were not included in the development of the 
adjustments for the basic case-mix adjusted composite payment system.
    We considered an alternative approach for meeting the statutory 
transition budget neutrality adjustment. Under this approach, we would 
exclude estimated payments for ESRD-related Part D drugs from the 
estimated 2011 payments related to the basic case-mix adjusted 
composite payment system. That is to say, we would not pay ESRD 
facilities for the ESRD-related Part D drug payment with regard to the 
basic case-mix adjusted composite payment system portion of the blended 
payment during the transition, and therefore, we estimate that ESRD 
facilities may receive smaller blended payment amounts during the 
transition. Excluding ESRD-related Part D drugs from the basic case-mix 
adjusted composite payment portion of the blended payment would likely 
lower blended payments under the transition and, as a result, we 
estimate that many more facilities would elect to be paid 100 percent 
of the ESRD PPS rather than electing to go through the transition. 
These facilities would have to give up their option to go through the 
transition in order to receive 100 percent ESRD PPS payments for ESRD-
related Part D drugs. The transition provides a more gradual change to 
ESRD PPS for those facilities that would receive lower payments under 
the proposed ESRD PPS. We believe it is more equitable to provide a $14 
per treatment adjustment the portion of the blend related to the basic 
case-mix adjusted composite payment system. In addition, we believe 
that the transition budget neutrality adjustment should not change 
facilities' incentives with respect to whether or not to opt out of the 
transition. This approach would change the incentives because excluding 
ESRD-related Part D drugs from portion of the blended payment related 
to the basic case-mix adjusted composite payment system might lower 
blended payments under the transition, thereby increasing the incentive 
to elect to be paid under 100 percent ESRD PPS. This approach also 
would skew the impact analysis because it compares payment amount 
related to the basic case-mix adjusted composite

[[Page 49946]]

payment system without Part D payments, while payments under the 
proposed ESRD PPS include payments for Part D drugs. For the impact 
analysis to accurately represent payments that are included in the 
proposed ESRD PPS and be consistent with the 98 percent budget 
neutrality requirement, we believe we need to include payments for 
ESRD-related Part D drugs in our estimate of what ESRD facilities would 
be paid in 2011 for both the basic case-mix adjusted composite payment 
system and the proposed ESRD PPS, had an ESRD PPS not been implemented. 
For these reasons we rejected this alternative.
    Accordingly, in order to make ESRD PPS budget neutral during the 
transition with respect to ESRD-related Part D drugs, we propose to 
make a $14 per treatment adjustment to the portion of the blend related 
to the basic case-mix adjusted composite rate payment system.
    The second part of the transition budget neutrality adjustment 
addresses the overall effect of the ESRD facilities' decision whether 
to be paid under the transition versus being paid under the ESRD PPS. 
In the absence of such an adjustment, total payments would be higher 
under the transition payment system (blended payment amount) than under 
a 100 percent fully implemented PPS payment system, as we presume that 
each provider would likely choose the option that is most beneficial to 
them. In other words, we believe ESRD facilities that estimate that 
their aggregate payments will be higher under the transition than under 
the ESRD PPS likely will elect to be paid under the transition. This in 
turn would increase the total payments paid by CMS, with total payments 
then likely to exceed the 98 percent budget neutrality target amount, 
as discussed in section VII.D.b of this proposed rule. We interpret 
this provision as requiring, during the first 3 years of the 
transition, a budget neutrality adjustment applied to all payments to 
ESRD facilities (both those paid under the transition and those 
electing to be paid under the ESRD PPS) to offset the additional 
payments to those ESRD facilities that elect to be paid a blended 
payment under the transition rather than to be paid based on 100 
percent of the payment amount under the proposed ESRD PPS. Thus, we are 
proposing to create a transition budget neutrality adjustment factor to 
be applied to all payments to ESRD facilities during the transition. 
This transition budget neutrality adjustment factor is intended to make 
the estimated total payments under the transition equal our estimate of 
total payments under the ESRD PPS were there no transition.
    One alternative we considered was applying the budget neutrality 
adjustment factor to the 2011 ESRD PPS base rate only. However, we 
believe this approach would unfairly penalize those facilities that opt 
to be paid based on 100 percent of the payment amount under the ESRD 
PPS, as it would lower all of their payments. Those facilities that are 
paid on a blended payment methodology would only have 25 percent of 
their payment lowered in CY 2011, as only 25 percent of the blended 
payment is based on the payment amount under the proposed ESRD PPS. 
Thus, in effect, this approach would result in those facilities 
electing to be paid based on 100 percent of the payment rate under the 
ESRD PPS subsidizing those electing to be paid under the transition. In 
addition, we believe that the transition budget neutrality adjustment 
should not change facilities' incentives with respect to whether or not 
to opt out of the transition. This alternative would change the 
incentives by lowering payments under the ESRD PPS by a larger 
percentage than the blended payments under the transition, thereby 
increasing the incentive to elect to be paid under the transition. For 
these reasons we rejected this alternative.
    Another alternative we considered was applying the adjustment only 
to the blended payments for facilities that elect to be paid under the 
transition. However, we believe that this approach would unfairly 
penalize those ESRD facilities that choose to be paid under the 
transition, as it would lower their payments but would not lower the 
payments to those facilities that elect to be paid based on 100 percent 
of the payment rate under the ESRD PPS. Similar to the alternative in 
the previous paragraph, this alternative would also affect ESRD 
facilities' incentives with respect to whether or not to opt out of the 
transition, and thus we also rejected this alternative.
    We therefore propose to apply the transition budget neutrality 
adjustment factor to all ESRD payments, including the component of the 
blended rates based on the current basic case-mix adjusted composite 
payment system. We propose this approach, because we believe that it 
would not unfairly penalize one group, it would evenly distribute the 
effect of the transition budget neutrality adjustment, and it would not 
change ESRD facilities' incentives with respect to whether to opt out 
of the transition.
    In calculating the transition budget neutrality adjustment factor, 
we propose to first determine the estimated increase in payments under 
the transition and then determine an offset factor. In order to do 
this, we must first make assumptions on which facilities would choose 
to opt out of the transition and be paid based on 100 percent of the 
payment rate under the ESRD PPS in 2011. In order to estimate which 
ESRD facilities will and will not elect to opt out of the transition, 
we are proposing to estimate aggregate payments for each ESRD facility 
under both the current basic case-mix adjusted composite payment 
system, including payments for separately billable services, and the 
proposed ESRD PPS (based on 100 percent of the payment amount under the 
ESRD PPS). We are assuming that facilities that would receive higher 
aggregate payments under the proposed ESRD PPS would elect to be paid 
based on 100 percent of the payment rates under the ESRD PPS. 
Conversely, ESRD facilities that would receive higher aggregate 
payments under the current basic case-mix adjusted composite payment 
system would elect to be paid the blended rate under the transition.
    Based on this approach, we estimate that 36 percent of ESRD 
facilities will choose to be excluded from the transition and that 64 
percent of ESRD facilities will choose to be paid the blended rate 
under the transition. Consequently, we estimate that during the first 
year of the transition, total payments to all ESRD facilities would 
exceed the estimated payments under the ESRD PPS in the absence of the 
transition. Thus, in order to maintain the 98 percent budget neutrality 
required by section 1881(b)(14)(E)(iii) of the Act during the initial 
year of the transition period, we are proposing to reduce all payments 
to ESRD facilities in CY 2011 by a factor that is equal to 1 minus the 
ratio of the estimated payments under the ESRD PPS were there no 
transition (that is, 98 percent of total estimated payments that would 
have been made under the current basic case-mix adjusted payment 
system) to the total estimated payments under the transition, or 3.0 
percent. For 2011, application of this factor would result in a 3.0 
percent reduction in all payments to ESRD facilities. We propose to 
apply this adjustment to both the blended payments made under the 
transition and payments made under the 100 percent ESRD PPS. We propose 
to calculate similar factors for CYs 2012 and 2013 that would allow a 
blended payment system to be budget neutral to a fully implemented 100 
percent ESRD PPS.
    We invite comments on the calculation and application of the

[[Page 49947]]

proposed two part transition budget neutrality adjustment factor.

VIII. Cost Regression Used To Develop Proposed Payment Adjustment 
Factors

A. Proposed Regression Analysis

1. Dependent Variables
    The proposed two-equation regression approach used to develop the 
proposed ESRD PPS includes a facility-based regression model for 
composite rate service, and a patient-level regression model for 
separately billable services. The measures of resource use that were 
specified as the dependent variables in each of the two equations are 
explained below.
a. Average Cost per Treatment for Composite Rate Services
    We measured resource use for the maintenance dialysis services 
included in the current bundle of composite rate services using ESRD 
facility data obtained from the Medicare cost reports for hospital-
based ESRD providers and independent ESRD facilities. The average 
composite rate cost per treatment for each ESRD facility was calculated 
by dividing the total reported allowable costs for composite rate 
services for CYs 2004, 2005, and 2006 (Worksheet B, column 11, rows 7-
16 on CMS 265-94; Worksheet I-2, column 11, rows 2-11 on CMS 2552-96) 
by the total number of dialysis treatments and Worksheet C, column 1, 
rows 1-10 on CMS 265-94; Worksheet I-4, column 1, rows 1-10 on CMS 
2552-96). Continuous ambulatory peritoneal dialysis (CAPD) and 
continuous cycling peritoneal dialysis (CCPD) patient weeks were 
multiplied by 3 to obtain the number of hemodialysis equivalent 
treatments. We point out that our computation of the total composite 
rate costs included in this per treatment calculation includes costs 
incurred for training expenses, as well as all costs incurred by ESRD 
facilities for home dialysis patients. The resulting composite rate 
cost per treatment was adjusted to eliminate the effects of varying 
wage levels among the areas in which ESRD facilities are located using 
the CY 2009 ESRD wage index and the estimated labor-related share of 
costs from the composite rate market basket. The description of that 
labor-related share was contained in the Secretary's 2008 Report to 
Congress. That is, 53.711 percent of each ESRD facility's composite 
rate cost per treatment was divided by the ESRD wage index to control 
for area wage differences. No floor or ceiling was imposed on the wage 
index values used to deflate the composite rate costs per treatment. We 
applied a natural log transformation to the wage-deflated composite 
rate costs per treatment to better satisfy the statistical assumptions 
of the regression model, and to be consistent with existing methods of 
adjusting for case-mix, in which a multiplicative payment adjuster is 
applied for each case-mix variable. As with other health care cost 
data, there was skewness in the cost distribution for composite rate 
services in which a relatively small fraction of observations account 
for a disproportionate fraction of costs. Cost per treatment values 
which were determined to be unusually high or low in accordance with 
predetermined statistical criteria were excluded from further analysis. 
(For an explanation of the statistical methodology used to identify 
outlier composite rate costs per treatment, see pp 45-48 of UM-KECC's 
February 2008 report.)
b. Average Medicare Allowable Payment (MAP) for Separately Billable 
Services
    Resource use for separately billable dialysis related services was 
measured at the patient level using the payment data on the Medicare 
claims for CYs 2004-2006. This time period corresponded to the most 
recent 3 years of Medicare cost report data that were available to 
measure resource use for composite rate services. Measures of resource 
use included the following separately billable services: injectable 
drugs billed by ESRD facilities, including ESAs; oral forms of ESAs and 
other oral drugs used to treat ESRD payable under Medicare part D; 
laboratory services provided to ESRD patients, billed by freestanding 
laboratory suppliers and ordered by physicians who receive monthly 
capitation payments for treating ESRD patients, or billed by ESRD 
facilities; other services billed by ESRD facilities, including support 
services for Method II home patients; medical equipment and supplies 
for Method II home patients billed by durable medical equipment 
suppliers.
    We obtained Medicare claims data for separately billable services 
for CYs 2004-2006 for patient months in which outpatient dialysis was 
provided and Medicare was the primary payer. For oral drugs (formerly) 
covered under Medicare part D, we used CY 2007 claims data for ESRD 
beneficiaries with Medicare part D coverage. Measures of resource use 
were based on MAPs, which were calculated using the payment data on the 
claims. Currently, the only payment data available for Part D claims 
are for CYs 2006 and 2007. However, these data were not available in 
sufficient time to be included in the development of the proposed 
separately billable case-mix adjusters, given the lead time necessary 
for the preparation of the proposed rule. We expect that additional 
Part D claims data will be available for the preparation of the final 
rule. Therefore, we intend to include appropriate available payment 
data from Part D claims for CYs 2006 through 2008 in our development of 
the regression based case-mix adjusters for the overall payment model, 
and will address their inclusion in the final rule. Payments for Part D 
drugs were included in the proposed ESRD base rate, which relied on 
claims for CY 2007. See section VII.A.7.
    Medicare payments were inflated by a factor of 1.25 for services 
that have a 20 percent patient coinsurance (for example, most 
injectable drugs) to yield the MAP. For laboratory tests that have no 
patient coinsurance obligation, the Medicare payment is identical to 
the MAP. As required under section 1881(b)(14)(B) of the Act, as added 
by section 153(b)(1) of MIPPA, vaccines are excluded from the ESRD PPS 
and therefore, were excluded from the computation of separately 
billable drugs. The MAP amounts do not include the annual part B 
payment deductible, which may apply to separately billable services 
because we were unable to determine whether the deductible amount was 
incurred in connection with another part B service. We point out that 
the part B payment deductible can apply in connection with any part B 
service, not just outpatient dialysis related services.
    For the case-mix analyses, MAP values based on CY 2004 through 2006 
claims were adjusted to approximate drug payments for the current year. 
In CY 2007 the top 11 separately billed Part B drugs accounted for 
approximately 99.8 percent of drug expenditures for Medicare ESRD 
beneficiaries. We repriced the MAPs for these drugs in 2004, 2005, and 
2006 by using a ratio. That ratio was obtained by dividing the Medicare 
payment rate in the first quarter of 2008 by the Medicare payment rate 
in 2004, 2005, and 2006. This repricing was done for the following 
injectable drugs: epoetin alfa, darbepoetin alfa (ARANESP[supreg]), 
iron dextran, iron sucrose, sodium ferric gluconate, calcitriol, 
doxercalciferol, paracalcitol, levocarnitine, alteplase recombinant, 
and vancomycin. (Although iron dextran was among the top 11 drugs in 
CYs 2004-2006, it was superseded by daptomycin in CY 2007.) The 
resulting MAP closely reflects the current prices based on Medicare 
reimbursement rates. The ratios used to

[[Page 49948]]

adjust the MAPs for the 11 specified injectable drugs are shown in 
Table 11.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TP29SE09.002

BILLING CODE 4120-01-C
    The adjusted MAP values were standardized to reflect the number of 
Medicare outpatient dialysis treatments reported on the claims. This 
approach is consistent with the unit of payment under the current 
composite payment system. For patients who received PD during the 
month, the number of PD days reported on the claims was multiplied by 
\3/7\ to obtain the number of HD-equivalent treatments. For example, 7 
PD days were converted to 3 treatments since hemodialysis is typically 
performed 3 times per week. Monthly treatments reported on the claims 
were capped at 20 treatments in excess of this number were considered 
implausible. The average MAP per treatment for EPO was limited to no 
more than 30,000 units, since higher doses were considered clinically 
suspect or inappropriate. The ratio of the adjusted MAP values for 
separately billable services divided by the total number of treatments 
was used to calculate the average adjusted MAP per treatment. As with 
the analysis of composite rate services, we applied a natural log 
transformation to the values of the separately billable MAPs per 
treatment, with statistical outlier values excluded from further 
analysis employing the same criteria used to identify aberrant 
composite rate costs.
2. Independent Variables
    Two major types of independent or predictor variables were included 
in the composite rate and separately billable regression equations--
case-mix payment variables and control variables. Case-mix payment 
variables were included as factors that may be used to adjust payments 
in either the composite rate or the separately billable equation. 
Control variables, which generally represent characteristics of ESRD 
facilities such as size, type of ownership, facility type (whether 
hospital-based or independent), etc., were specifically included to 
obtain more accurate estimates of the payment impact of the potential 
payment variables in each equation. Control variables were excluded 
from consideration as actual payment adjusters because they represent 
facility characteristics rather than patient characteristics. In the 
absence of using control variables in each regression equation, the 
relationship between the payment variables and measures of resource use 
may be biased.
a. Control Variables
    Seven control variables were included in the regression analysis. 
They were: (1) Renal dialysis facility type (hospital-

[[Page 49949]]

based versus independent facility); (2) facility size (<3,000 for less 
than three years, 3,000 to 5,000, 5,000-10,000, and >10,000 dialysis 
treatments); (3) type of ownership (independent, large dialysis 
organization, regional chain, unknown); (4) whether the ESRD facility 
received a composite rate payment exception between November 1993 and 
July 2001; (5) adequacy of dialysis, based on the percentage of 
patients having a urea reduction ratio (URR) <65 percent; (6) rural 
versus urban location; and (7) calendar year. Calendar years 2004, 
2005, and 2006 were included as a control variable in analyses that 
pooled three years of data.
b. Proposed Case-Mix Adjustment Variables
    Section 1881(b)(14)(D)(i) of the Act requires that the ESRD PPS 
include a payment adjustment based on case-mix, but gives the Secretary 
broad discretion with regard to the selection of patient-specific 
measures which would comprise the case-mix adjusters. As part of our 
case-mix analysis, we identified the same patient demographic variables 
used in connection with the basic case-mix adjusters under the current 
composite payment system: Age (five groups, excluding patients less 
than age 18), BSA, and low BMI (values less than 18.5 kg/m\2\). BSA was 
calculated as a function of height (H, in centimeters) and weight (W, 
in kilograms) using the following formula:

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

BMI values below 18.5 kg/m\2\ were used to identify patients who were 
underweight. BSA and low BMI are currently used as part of the basic 
case-mix adjustment for the composite payment system.
    The same set of independent variables was included in both the 
composite rate and separately billable regression equations. To define 
the independent variables for each equation, however, it was necessary 
to link patient and facility-level data. For example, measures for 
patient characteristics (for example, female gender) were included as 
potential payment variables in the facility level composite rate 
equation, while measures for facility characteristics (for example, 
hospital-based or independent facility) were included as control 
variables in the patient level separately billable equation. For the 
composite rate equation, we defined case-mix measures using data for 
all Medicare dialysis patients treated in each facility. Specifically, 
we determined the percentage of a facility's patients having each 
patient characteristic. For example, patient's sex was measured as the 
percentage of patients that were female. For the equation of the 
separately billable MAPs, we defined measures for facility 
characteristics using data for all facilities that treated each 
Medicare dialysis patient.
    These patient and facility control variables were weighted to give 
greater emphasis to patient and facility observations that accounted 
for more of the care that was delivered, based on the number of 
dialysis treatments. For example, in defining facility-level case-mix 
measures, the characteristics of patients who were treated at the 
dialysis facility for twelve full months (for example, with 13 
treatments each month), were given twelve times as much weight as the 
characteristics of patients who were treated at the facility for only 
one month (for example, with 13 treatments). Similarly, to define 
patient-level measures for the control variables, the characteristics 
of the facility that treated the patient for nine full months were 
given three times as much weight as the characteristics of the facility 
that treated the patient for the remaining three full months. The 
resulting case-mix variables were examined as potential payment 
variables in the composite rate equation (for example, percent female 
and average BSA among patients in each facility). This was the same 
approach used to define the basic case-mix measures under the composite 
payment system. The resulting facility variables were included as 
control variables in the separately billable equation (for example, 
percent of a patient's treatment furnished in a hospital-based 
facility). In the sections that follow, we describe how we considered 
and evaluated independent variables for use as potential case-mix 
adjusters in the proposed ESRD PPS to determine their relationship to 
composite rate costs and separately billable payments.

B. Proposed Patient-Level Adjustments

    The following are the patient level adjustments we considered for 
the proposed ESRD PPS. The patient level adjustments that we are 
proposing are set forth at proposed Sec.  413.235.
1. Patient Age
    Section 1881(b)(14)(D)(i) of the Act requires that the ESRD PPS 
include a payment adjustment based on case-mix that may take into 
account a patient's age. Consequently, we analyzed age as part of the 
regression analysis and found that age is a strong predictor of 
variation in payments for ESRD patients. In addition, age is an 
objective measure and data on age are readily available.
    As discussed previously in section I.B.3., the basic case-mix 
adjusted composite payment system currently in effect includes payment 
adjustments for age. As shown in Table 12 below, there are five age 
groupings and payment adjustment factors that describe the distribution 
of the patient population:

[[Page 49950]]

[GRAPHIC] [TIFF OMITTED] TP29SE09.086

    As we found when we developed the current basic case-mix adjusted 
composite payment system, the regression analysis for the proposed ESRD 
PPS indicates that MAPs rise as a patient's age increases. We analyzed 
information on patient age from the REMIS system and compared the costs 
for each age group to a reference group. Although the reference group 
for age under the current basic case-mix adjusted composite payment 
system was ages 60-69, the reference group used for the proposed ESRD 
PPS was determined to be ages 45-59. We selected the 45-59 age range as 
the reference group because it was identified as the lowest cost group 
and results in positive adjustments for all age categories except for 
the 45-59 age group, and avoids age adjustments that are less than one. 
In addition, we determined the age groupings based upon stability of 
the data and the similarity of the adjustments for the ages within the 
group.
    The proposed regression analysis for the proposed ESRD PPS revealed 
the following: (1) Patients in the 18-44 age grouping were 19.4 percent 
more costly than the reference group; (2) Patients age 45-59 were the 
reference group; (3) Patients age 60-69 were 1.2 percent more costly 
than the reference group; (4) Patients age 70-79 were 5.7 percent more 
costly than the reference group; and (4) Patients over 80 years of age 
were 7.6 percent more costly than patients in the reference group.
    This U-shaped relationship of age with average composite rate per 
treatment costs in the proposed ESRD PPS is similar to the pattern we 
observed in developing the current basic case-mix adjusted composite 
payment system. That is, elevated costs were observed for the youngest 
and oldest adult age groups (ages 18-44 and 80+, respectively) compared 
to the reference age group.
    Based on age, the model indicates that one of the largest 
increments in cost is for pediatric patients. We note, however, that 
using the current regression-based approach, the precision of the 
pediatric multiplier is limited by the small fraction of pediatric 
patients in most ESRD facilities and would distort the results. Due to 
the relatively small number of pediatric patients, we are proposing to 
use a separate regression analysis for pediatric patients, as discussed 
in section IX of this proposed rule.
    Under the ESRD PPS, we are proposing payment adjustment factors for 
five age groups as shown in Table 13 below.

                          Table 13--Patient Age
------------------------------------------------------------------------
                          Variable                            Multiplier
------------------------------------------------------------------------
Ages 18-44.................................................        1.194
Ages 45-59.................................................        1.000
Ages 60-69.................................................        1.012
Ages 70-79.................................................        1.057
Ages 80+...................................................        1.076
------------------------------------------------------------------------

2. Patient Sex
    Section 1881(b)(14)(D)(i) of the Act requires that the ESRD PPS 
include a payment adjustment based on case-mix that may take into 
account a number of variables and may include ``other appropriate 
factors.'' Consequently, we analyzed patient sex as part of the 
regression analysis and found that patient sex is a strong predictor of 
variation in payments for ESRD patients. In addition, patient sex is an 
objective measure and data on patient sex are readily available. In the 
regression analysis for the proposed ESRD PPS, we found that female 
ESRD patients are more costly to treat than male ESRD patients. We 
discuss below, prior research related to patient adjusters for males/
females in prior rulemaking for the current basic case-mix adjusted 
composite payment system, before addressing our proposal for such a 
case-mix adjuster.
    In the CY 2005 Physician Fee Schedule (PFS) proposed rule (69 FR 
47487 through 47730), published August 5, 2004, we included an 
adjustment for gender as part of our proposal for the current basic 
case-mix adjusted composite payment system. We analyzed the effect of a 
combination of gender and age on composite rate costs compared to the 
lowest cost combination (that is, female ages 65-79). No data on 
separately billable services was analyzed because those services are 
excluded from the basic case-mix adjusted composite payment system. We 
found that male patients were consistently more costly than females. 
However, we did not include an adjustment for gender because of the 
availability of certain data.
    As we explained in the CY 2005 PFS final rule with comment period 
(69 FR 66235 through 66915), published on November 15, 2004, gender was 
proposed as a surrogate measure for body size. We believed that using 
height and weight to measure body size would be better predictors of 
facility variation in composite rate costs, however, that information 
was not available on claims at the time the CY 2005 PFS proposed rule 
was published, whereas gender was reported on the outpatient bill.

[[Page 49951]]

    During development of the final basic case-mix adjusted composite 
payment system, we became aware that the National Uniform Billing 
Committee would be approving the use of two new value codes for 
reporting weight and height after publication of the final rule. We 
determined that mandatory reporting of such data would enable the 
development of case-mix measures that reflected the superior predictors 
related to body size, that is BMI and BSA. As a result, we adopted in 
the final rule BSA and low BMI, and eliminated gender as a patient 
classification variable for purposes of case-mix adjustment.
    In developing the proposed ESRD PPS, we again analyzed the extent 
to which the regression model explains composite rate and separately 
billable payments based on a patient's sex and, as a result of that 
analysis, are proposing an adjustment based on a patient's sex. (We 
believe using the term sex is a more accurate term than gender. Sex is 
defined as a classification according to an individual's reproductive 
function while gender is defined in terms of masculine/feminine 
characteristics). In analyzing more current data on patient sex from 
the REMIS system, we found that MAPs (including both composite rate and 
separately billable services) were higher for female patients even when 
body size measures are included. In the regression analysis, we found 
that females were 13.2 percent more costly on a per treatment basis 
than males primarily due to differences in use of ESAs between male and 
female patients. Therefore, we are proposing an adjustment of 13.2 
percent for female patients. We are soliciting public comments around 
unintended consequences of providing a payment adjustment for female 
patients that may lead to admission practices favoring female patients. 
Decisions for the final rule regarding this adjustment would be made 
based on analysis of more current data and public comments received on 
this issue.
3. Body Surface Area and Body Mass Index
    Section 1881(b)(14)(D)(i) of the Act requires that the bundled ESRD 
PPS must include a payment adjustment based on case-mix that may take 
into account patient weight, BMI, and other appropriate factors. 
Consequently, we evaluated height and weight because the combination of 
these two characteristics allows us to analyze two measures of body 
size; BSA and BMI. For this proposed rule, we analyzed both BSA and low 
BMI (<18.5kg/m\2\) individually as part of the regression analysis and 
found that both body size measures are strong predictors of variation 
in payments for ESRD patients. In addition, both BSA and low BMI are 
objective measures and the necessary data, that is, height and weight, 
to compute the BSA and low BMI are readily available from patient 
claims.
a. Body Surface Area
    As discussed previously in section I.B.3, the current basic case-
mix adjusted composite payment system includes a payment adjustment for 
BSA. The regression analysis conducted for the current basic case-mix 
adjusted composite payment system indicated that composite rate costs 
rise as a patient's BSA increases. The payment adjustment factor for 
BSA in the current basic case-mix adjusted composite payment system is 
1.037. This adjustment factor implies a 3.7 percent elevated cost for 
every 0.1m\2\ increase in BSA. The increased costs suggest that there 
are longer treatment times and additional resources for larger 
patients.
    As discussed in the CY 2005 PFS final rule with comment period, we 
chose to include BSA as a payment variable because effective January 1, 
2005, we were able to collect height and weight data from patient 
claims (for purposes of calculating the BSA) and determined that 
including the BSA variable improved the model's ability to predict the 
costs of the composite rate service compared to using BMI or weight 
alone. We adopted the DuBois and DuBois formula for BSA because based 
on our research, this formula was the most widely known and accepted. 
This formula is: BSA = W\0.425\ * H\0.725\ * 0.007184 (DuBois D. and 
DuBois, EF. ``A Formula to Estimate the Approximate Surface Area if 
Height and Weight be Known'': Arch. Int. Med. 1916 17:863-71.), where w 
and h represent weight in kilograms and height in centimeters, 
respectively.
    In addition, we explored a number of options for setting the 
reference values for the BSA. We examined the distributions for both 
the midpoint of the BSA and the count of dialysis patients by age, body 
surface and low BMI. Based on that analysis, we set the reference point 
at a BSA of 1.84 (the national patient average). Setting the reference 
point at the average BSA reflects the relationship of a specific 
patient's BSA to the average BSA of all patients. Therefore, some 
adjusters would be greater than 1.0 and some would be less than 1.0. In 
this way, we were able to minimize the magnitude of the budget 
neutrality offset to the composite payment rate. (For more information 
on this discussion, we refer readers to 69 FR 66239.)
    The BSA factor is defined as an exponent equal to the value of the 
patient's BSA minus the reference BSA of 1.84 divided by 0.1. The BSA 
adjustment factor of 1.037 is then exponentiated based on the 
calculated BSA factor as 1.037<SUP>(BSA-1.84)/0.1</SUP>
    As we found when we developed the current basic case-mix adjusted 
composite payment system, the regression analysis conducted for this 
proposed rule indicates that MAPs rise as a patient's BSA increases. 
However, we have found that the case-mix adjustment based on a 
patient's BSA under the proposed ESRD PPS reflects slightly different 
values from those used in connection with the current basic case-mix 
methodology under the composite payment system. The BSA case-mix 
adjustment factor in connection with the current basic case-mix 
adjustment was 3.7 percent for every 0.1 m\2\ change in BSA from the 
national average of 1.84. The BSA case-mix adjustment factor under the 
proposed ESRD PPS is 3.4 percent for every 0.1 m\2\ change in BSA from 
a national average of 1.87 based on updated and more complete data.
    In the regression analysis we conducted for this proposed rule, we 
found that BSA continues to be a strong predictor of cost variation 
among ESRD patients. Accordingly, we are proposing 1.034 as a payment 
adjustment factor for BSA in the proposed ESRD PPS.
b. BMI
    As discussed previously in section I.B.3, the current basic case-
mix adjusted composite payment system includes a payment adjustment for 
low BMI (<18.5 kg/m\2\). The regression analysis conducted for the 
current basic case-mix adjusted composite payment system indicated that 
those patients who are underweight consume more resources than other 
patients. The payment adjuster factor for low BMI in the current basic 
case-mix adjusted composite payment system is 1.112. This adjustment 
serves as a surrogate for the severity of co-morbid conditions 
associated with malnourishment in the dialysis population.
    As discussed in the CY 2005 PFS final rule with comment period, we 
elected to include low BMI as a payment variable because effective 
January 1, 2005, we were going to be able to collect height and weight 
data from patient claims and including the low BMI variable improved 
the model's ability to predict the costs of the composite rate services 
compared to using BMI or weight alone. We chose the measure of low BMI 
as

[[Page 49952]]

less than 18.5 kg/m\2\ because it was consistent with the CDC and the 
NIH's definition for malnourishment. Furthermore, our exploration of 
alternative BMI thresholds did not improve the model's ability to 
predict the costs of composite rate services. (For more information on 
this discussion, we refer readers to 69 FR 66329.)
    Based on the regression analysis conducted for this proposed rule, 
we found that low BMI continues to be a strong predictor of cost 
variation among ESRD patients. For the proposed ESRD PPS, we are 
proposing 1.020 as a payment adjustment factor for low BMI. Further 
discussion of co-morbidities and low BMI as case-mix adjusters can be 
found below in section VIII.B. of this proposed rule.
4. Onset of Dialysis (New Patient Adjustment)
    Section 1881(b)(14)(D)(i) of the Act, as added by MIPPA, requires 
that the ESRD PPS include a payment adjustment based on case-mix that 
may take into account a patient's length of time on dialysis. 
Consequently, we analyzed length of time patients have been receiving 
dialysis. The regression analysis performed for this proposed rule 
showed that patients who are in their first four months of dialysis 
have higher costs. This means that individuals who have been newly 
diagnosed with ESRD have higher costs for the first 4 months of 
dialysis. We looked at the amount of separately billable payments 
relative to the number of months the patient has been on dialysis. 
After reviewing the separately billable payment amounts for patients 
ranging from one month to twelve months since onset of dialysis, we 
found that there was a drop in the amount of separately billable 
payments after four months on dialysis. These higher costs for new 
patients may be due to stabilization of the patient's condition; 
administrative and labor costs associated with the patients being new 
to dialysis either in-center or home setting; or initial costs incurred 
to train patients and their caregivers to perform home dialysis.
    Based on our analysis and for purposes of the ESRD PPS, we propose 
to define onset of dialysis beginning with the starting date as 
reported on the ESRD Medical Evidence Report Form through the first 4 
months a patient is receiving dialysis.
    Accordingly, we are proposing an adjustment of 1.473 for patients 
in their first 4 months of dialysis. This adjustment factor is based on 
the results of regression analysis conducted for this proposed rule as 
described above. We are proposing that this adjustment be applied to 
both in-facility and home dialysis patients. We acknowledge that there 
may be patients whose first 4 months of initial dialysis occur when 
they are not eligible for the Medicare ESRD benefit. In these 
circumstances, no adjustment would be made. We also acknowledge that 
eligibility for the ESRD benefit may occur during the first 4 months. 
In that situation, only the period of time in the first 4 months of 
dialysis that occurs while the patient is under the ESRD benefit would 
apply. In other words, the onset of dialysis adjustment is made only in 
the initial first 4 months of dialysis and for the period of time that 
the individual is eligible for the ESRD benefit.
5. Co-morbidities
    As discussed above, section 1881(b)(14)(D)(i), as added by section 
153(b) of MIPPA, requires that the bundled ESRD PPS include a payment 
adjustment based on case-mix that may take into account patient co-
morbidities. Consequently, we analyzed co-morbidities as part of the 
regression analysis and found that certain co-morbidities are 
predictors of variation in payments for ESRD patients. The intent of 
the proposed co-morbidity adjustment is to recognize the increased 
costs associated with co-morbidities by providing additional payments 
for certain conditions that occur concurrently with the need for 
dialysis. In other words, co-morbidities are specific patient 
conditions that are secondary to the patient's principal diagnosis that 
necessitates dialysis, yet have a direct affect on dialysis. In 
addition, co-morbidities are an objective measure and data are readily 
available.
    In the CY 2005 PFS proposed rule (69 FR 47529 through 47533), we 
proposed case-mix adjustments for a limited number of patient 
characteristics including a large number of specific co-morbidities. 
Using linear regression analyses, we assessed the relationship of 
patient characteristics and co-morbidity measures to per session cost 
and Medicare payments to ESRD facilities. We noted that we were able to 
develop case-mix adjustment factors for a limited number of patient 
characteristics, which were modest predictors of variation in average 
costs for composite rate services. However, as ESRD facilities did not 
list individual composite rate items and services on dialysis claims, 
the available data did not identify use of resources by individual 
patients. We acknowledged that ESRD facilities could under report or 
not report co-morbidities as there was no requirement to do so as the 
current basic case-mix adjusted composite payment system does not 
provide for co-morbidity payment adjusters. In an attempt to obtain 
information on co-morbidities, in the CY 2005 PFS final rule with 
comment, ESRD facilities were encouraged to report co-morbidities. 
Therefore, we used a combination of data sources (discussed below), to 
determine co-morbidities for ESRD patients on maintenance dialysis.
    A stepwise regression analysis was conducted for the current basic 
case-mix adjusted composite payment system to identify case-mix factors 
that explained statistically significant variation in ESRD facility 
costs. Stepwise regression is used when there are a large number of 
potential explanatory variables with variables added or removed from 
the regression model to identify a subset of predictors and the highest 
R<SUP>2</SUP>. The forward (step-up) method begins with no variables in 
the model with variables individually included if they are 
statistically significant (no additional variables have a p-value level 
<0.05). Backward (step-down) method begins with a model of all 
variables and eliminates the least significant variables until no 
nonsignificant variables remain (until all remaining variables have a 
p-value <0.10). The step-up method was performed to identify payment 
variables while the step-down method was performed to determine how 
much co-morbidity categories affected the R<SUP>2</SUP>. As a result of 
our analysis, four patient characteristic variables (sex, age, AIDS and 
peripheral vascular disease) were found to be modest predictors of cost 
variation among ESRD facilities.
    In the CY 2005 PFS proposed rule, we explained that a number of co-
morbidities were analyzed, including several that did not have 
statistically significant relationships to facility costs, as well as 
co-morbidity conditions that were excluded due to lack of data. For 
example, we explained that a patient's history of cancer was associated 
with higher costs; however, we found the measure too broad to be 
clinically meaningful. We indicated that we would continue to evaluate 
cancer as a potential variable for refinement purposes.
    We also discussed in that proposed rule that we explored whether 
diabetes as a co-morbidity is predictive of high resource use and found 
that the predictive power of diabetes was dependent on whether 
peripheral vascular disease (PVD) was part of the model. We explained 
that PVD was always statistically significant, when accounted for, 
while most diabetic measures were not strongly associated with facility 
costs. Therefore, we

[[Page 49953]]

proposed a case-mix adjustment for PVD diagnoses. We note that 73 
percent of patients with diabetes also included PVD. (For more 
information on this discussion, we refer readers to 69 FR 47531).
    In the CY 2005 PFS final rule with comment period, which 
implemented the current basic case-mix adjusted composite payment 
system, we acknowledged that although the regression modeling suggested 
the inclusion of co-morbidities in the basic case-mix adjusted 
composite payment system, we were concerned that the available data to 
determine patient level co-morbidities might not accurately reflect 
relevant diagnoses. For example, we explained that AIDS would not 
likely be recorded on claims for outpatient dialysis patients and that 
requiring its inclusion could create powerful incentives for ESRD 
facilities to circumvent confidentiality requirements (69 FR 66326). We 
also explained that we found that the predictive power of diabetes was 
dependent on whether PVD, which was statistically significant, was part 
of the model (69 FR 47531). However, most measures of diabetes were not 
strongly associated with ESRD facility costs. While we proposed a case-
mix adjustment for PVD in the CY 2005 PFS proposed rule (69 FR 47531), 
we received comments indicating that there was apparent disagreement 
among clinicians as to whether certain diagnoses are reflective of PVD 
in ESRD patients. Therefore, we eliminated the case-mix adjustment for 
PVD in the CY 2005 PFS final rule with comment period.
    There also were other factors that contributed to our decision not 
to include patient-level co-morbidities in the basic case-mix adjusted 
composite payment system. For example, with regard to substance abuse, 
we acknowledged in the CY 2005 PFS proposed rule, while the presence of 
alcohol and drug dependence was found to be predictive of higher 
facility level costs, we did not propose an adjustment as we believed 
substance abuse was underreported. Accordingly, we concluded that we 
would not include co-morbidities as a case-mix adjustment. However, we 
did establish the case-mix adjustments based on age, BMI, and BSA. Our 
analysis indicated that patients with extremely low or high BMI were 
costly to treat and included these as we believed this factor could be 
an important measure of resource consumption related to the composite 
rate services and could serve as a surrogate for the severity of co-
morbidities. We also noted that the average patient BSA was found to be 
statistically significant and a consistent predictor of average 
treatment costs, indicating higher costs for larger adult patients. As 
discussed above, in the CY 2005 PFS final rule with comment period, we 
indicated that while co-morbidities were not part of the current basic 
case-mix adjusted composite payment system, we encouraged all 
facilities to report co-morbid conditions on the claims in order to 
enable future refinements to the basic case-mix adjustments that would 
reflect the type of co-morbidities that beneficiaries receiving ESRD 
services have which would provide a better database from which we can 
develop future case-mix measures for the ESRD PPS.
    As discussed in section VIII.A, we retained UM-KECC to assist us in 
developing a case-mix adjustment for the proposed ESRD PPS. One of the 
tasks was the identification of specific diagnoses within co-morbidity 
categories. For this proposed rule, to capture changes in patient 
conditions, patient co-morbidities were measured using a combination of 
the co-morbidities reported on the Medical Evidence Form (CMS-2728) to 
obtain co-morbidities at the onset of dialysis adjustment, and 
diagnoses reported on the Medicare claims to identify co-morbidities 
not obtained from the Medical Evidence Form (CMS-2728).
    We began with a long list of patient characteristics based on 
diagnostic categories developed for the Medicare Advantage Program and 
categories developed for the co-morbidities on the Medical Evidence 
Form (CMS 2728). We also used co-diagnoses reported in multiple types 
of Medicare claims (inpatient dialysis and other outpatient, skilled 
nursing facility, physician/supplier, hospice, and home health). We are 
soliciting recommendations on the type of claims that reflect the co-
morbidities for beneficiaries receiving renal dialysis services that 
could be used in future analyses.
    We acknowledge the likelihood that some diagnoses reported on 
laboratory claims may represent a condition being excluded by the test, 
and therefore, diagnoses reported on laboratory claims were not used. A 
potential limitation of excluding laboratory claims from the 
identification process is that we may have underestimated the frequency 
of certain conditions. Patient characteristics considered for inclusion 
in the model are based on the magnitude and statistical significance of 
relationship to composite rate costs and separately billable payments.
    To ensure that each potential case-mix adjuster has a relationship 
to cost which is statistically significant and to ensure that the 
magnitude of the relationship is economically meaningful, patient co-
morbidities having statistically significant, low magnitude association 
with cost, as well as co-morbidities with ambiguous definitions were 
excluded. Several patient co-morbidities having statistically 
significant, low magnitude association with cost in the preliminary 
models and additional co-morbidities with ambiguous definitions, high 
prevalence, or both, were excluded.
    A refined list of case-mix co-morbidities comprised of 1,022 ICD-9-
CM diagnoses codes were evaluated for persistence of effect and cost. 
The resulting co-morbidity categories were cardiac arrest; 
pericarditis; substance abuse; positive HIV status and AIDS; 
gastrointestinal tract bleeding; cancer since 1999 (excludes non-
melanoma skin cancer); septicemia/shock; opportunistic infections 
(pneumonias); aspiration and specified bacterial pneumonias; 
pneumococcal pneumonia, empyema, lung abscess; monoclonial gammopathy; 
myelodysplastic syndrome; leukemia; hereditary hemolytic anemias and 
sickle cell anemia; lymphoma; hepatitis B; and multiple myeloma.
    We used the stepwise regression model in analyzing co-morbidity 
data for case-mix adjustments in the proposed ESRD PPS. The 
relationship between patient characteristics and cost for composite 
rate services was estimated using a facility level regression model, as 
patient level data are not available. In other words, the average 
patient characteristics are related to the reported facility costs.
    A patient level model was used to identify potential payment 
adjusters for separately billable services. The regression model, 
weighted by the number of dialysis sessions examined the same refined 
list of patient characteristics used in the model of composite rate 
costs. Eleven co-morbidity variables had statistically significant 
relationships to cost. However, the magnitude of the co-morbidity 
effects varied substantially. The largest payment multipliers were 
associated with gastrointestinal (GI) bleeding (31.6 percent), HIV/AIDS 
(31.6 percent), bacterial and other pneumonias/opportunistic infections 
(30.7 percent), hereditary hemolytic/sickle cell anemias (22.6 percent) 
and pericarditis (19.5 percent). As infections, GI bleeding and 
pericarditis are acute conditions with a diagnosis not exceeding 3 
months, these diagnoses would result in a temporary payment adjustment. 
The chronic conditions

[[Page 49954]]

result in a permanent increase on payment which we believe may tend to 
have a more persistent effect on cost. For example, cancer diagnosis 
would be eligible for a payment adjustment if the cancer diagnosis has 
a direct effect on the cost of ESRD treatment. In other words, the fact 
that an individual has or had cancer would not in itself imply that a 
co-morbidity payment adjustment is warranted as the adjustment is 
intended to adjust for higher patient costs. The same applies for any 
diagnosis in any of the co-morbidity categories.
    While the modeling approach used separate equations for the 
composite rate and separately billable services to select patient 
characteristics as payment variables, we combined the estimated payment 
multipliers for composite rate and separately billable services. The 
payment multipliers were calculated as the weighted average of the 
composite rate and separately billable multipliers. The weights reflect 
each component's proportion of the total estimated costs, so that the 
resulting case-mix adjustment reflects the overall relationship between 
patient characteristics and estimated costs for the proposed ESRD PPS.
    We note that cancer is included in the proposed co-morbidity 
adjustment diagnoses. As discussed above, we indicated in the CY 2005 
PFS proposed rule that although a history of cancer was associated with 
higher costs, it was found that the measure was too broad to be 
meaningful. Subsequent to the research we performed in support of the 
basic case-mix adjusted composite payment system, we investigated the 
relationship between specific categories of cancer and costs. In an 
effort to create more clinically homogenous groups, we began with 
clinical categories that were developed for risk adjustment under the 
Medicare Advantage program. The source for these cancer diagnoses was 
the Medicare claims, based on any occurrence since 1999. Starting with 
all cancers except for non-melanoma skin cancers, we split them into 
groups of cancers that were used by the Medicare Advantage Program 
namely, lung; upper digestive tract and other severe cancers; lymphatic 
system, head, and other major cancers; metastatic cancers; breast, 
prostate, colorectal, and other cancers and tumors; lymphoma; multiple 
myeloma; and leukemia. We performed analyses to estimate the 
relationship between these diagnostic categories and separately 
billable MAPs. These analyses demonstrated statistically significant 
associations between each of the cancer categories and SB MAP. In fact, 
the coefficient estimates were similar across categories. To advance 
the goal of parsimony in the model, we recombined the categories.
    We also note that AIDS is included as a co-morbidity case-mix 
adjustment although it had been eliminated as an adjustment from the 
current basic case-mix adjusted composite payment system as reporting 
of AIDS was limited due to confidentiality requirements (69 FR 66326.) 
However, we found that inclusion of HIV/AIDS in the proposed ESRD PPS 
increases the explanatory power of the model and provides higher 
payments for patients who are substantially more costly to treat. We 
recognize that these benefits must be balanced against the goal to 
maintain patient confidentiality in this sensitive clinical area. The 
model that we are currently proposing is the result of applying a 
combination of empirical results and our policy decision regarding the 
appropriateness of adjusting for specific patient characteristics. We 
recognize that this may result in difficulties for ESRD facilities 
required by State law to maintain patient confidentiality and therefore 
are unable to comply with reporting HIV/AIDS diagnoses on claims. We 
also acknowledge facilities may not be aware of patients' HIV/AIDS 
status. We are specifically soliciting comments on our proposal to 
include HIV/AIDS diagnoses in the proposed model.
    Based upon our analysis, we are proposing adjustments for the 
following eleven co-morbidity categories under the proposed ESRD PPS as 
indicated in table 14 below, and seek comment on each adjustment.

               Table 14--Co-Morbidity Case-Mix Adjustment
------------------------------------------------------------------------
                                                            Modeled case-
                                                                 mix
             Case-mix adjustment  co-morbidity               adjustment
                                                                 \1\
------------------------------------------------------------------------
Alcohol/Drug Dependence...................................         1.150
Cardiac Arrest............................................         1.032
Pericarditis (0-3 months ago).............................         1.195
HIV/AIDS..................................................         1.316
Hepatitis B...............................................         1.089
Infection (0-3 months ago
    Septicemia............................................         1.234
    Bacterial Pneumonia and Other Pneumonias/Opportunistic         1.307
     Infections...........................................
Gastrointestinal Tract Bleeding (0-3 months ago)..........         1.316
Hereditary Hemolytic or sickle cell anemias...............         1.226
Cancer Since 1999 (exclude nonmelanoma skin cancer).......         1.128
Myelodysplastic Syndrome..................................         1.084
Monoclonial Gammopathy....................................        1.021
------------------------------------------------------------------------
\1\ Payment multipliers were calculated as the weighted average of the
  composite rate and separately billable multipliers. The weights used
  reflect each component's proportion of the total estimated costs so
  that the resulting case-mix adjustment reflects the overall
  relationships between patient characteristics and estimated costs for
  an expanded bundle of services.

    Diagnoses that relate to earlier periods of care and have no 
bearing on the current RRT are excluded from the proposed co-morbidity 
case-mix adjustment. Therefore, we are proposing that in order to be 
eligible for the proposed co-morbidity payment adjustment, the co-
morbid condition must exist (or have existed within the past 3 months 
for the diagnoses, as noted above) and affect treatment. For each 
claim, we are proposing that an ESRD facility may receive only one co-
morbidity case-mix adjustment per co-morbidity category, but it may 
receive an adjustment for more than one co-morbidity category.
    We are proposing that in order to receive a co-morbidity payment 
adjustment, the appropriate ICD-9-CM code that corresponds to the 
specific condition/disease that results in increased costs to ESRD 
facilities is to be placed on the claims and that coding guidelines are 
to be used in determining the appropriate codes. This includes using V 
codes for those conditions that reflect that a patient had a disease/
condition in the past and that the disease/condition has no effect on 
the cost of providing RRT. That is to say, we propose that these V 
codes (that is, history of a disease) for past disease/condition are 
not subject to any co-morbidity payment adjustment. We note we will 
issue through sub-regulatory guidance, any changes in codes eligible 
for a co-morbidity payment adjustment in the event of any changes in 
coding (for example, ICD-10-CM) in the future.
    We performed analyses on FY 2007 dialysis claims to determine the 
extent that specific diagnoses within the eleven co-morbidity 
categories are on ESRD claims. We found that less than 50,000 claims 
out of three million (representing 1.7 percent of 3 million claims) had 
a diagnostic code corresponding to the co-morbidity categories eligible 
for a co-morbidity payment adjustment. Of these, 40,609 diagnoses 
related to septicemia and shock; 2,853 related to cancer; 1,933

[[Page 49955]]

related to Hepatitis B, and 973 to HIV/AIDS.
    We also analyzed the ICD-9-CM diagnostic codes as identified by UM-
KECC. A complete list of the codes identified by UM-KECC is found in 
Table A of the Addenda.
    Table B, which can be found in the Addenda represents the codes 
associated with diseases/conditions that would be recognized for the 
purposes of an ESRD co-morbidity payment adjustment.
    Please note that we have eliminated specific ICD-9-CM codes 
associated with specific diseases/conditions that we propose would not 
be recognized for purposes of a co-morbidity payment adjustment. These 
ineligible codes are discussed further below.

ICD-9-CM Codes With Their Associated Conditions/Diseases Not Recognized 
for the Purposes of a Co-morbidity Payment Adjustment

    Based on our analyses, we are proposing that conditions/diseases 
associated with the following ICD-9 codes will not be recognized for 
the purposes of a co-morbidity case-mix adjustment. We explain the 
reason for not recognizing these codes in the sections discussed below. 
We are soliciting comments regarding the conditions/diseases associated 
with the excluded codes. We are also soliciting suggestions of ICD-9-CM 
codes for conditions/diseases associated with which we should consider 
for future refinements.

1. ICD-9-CM Co-morbidities Not Affecting Costs in Outpatient ESRD 
Facility and Not Recognized for Co-morbidity Payment Adjustment(s)

    We believe that patients with the following co-morbidity 
condition(s) in Table 15 below, would not result in higher costs in an 
ESRD facility. We believe that patients with these acute conditions/
diseases, many which are highly communicable, would not receive 
dialysis in an outpatient setting and therefore, a history of these 
conditions/diseases would not have an impact on ESRD provider/facility 
costs. Therefore, we are proposing that these conditions would not be 
recognized for purposes of the proposed co-morbidity adjustment. We are 
soliciting comments on these ICD-9-CM codes and their associated 
diseases/conditions.

Table 15--ICD-9-CM Co-Morbidities Not Affecting Costs in Outpatient ESRD
   Facility and Not Recognized for Co-Morbidity Payment Adjustment(s)
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
Drug and/or Alcohol Induced Mental Disorders
------------------------------------------------------------------------
291.0 Delirium tremors.
291.1 Alcohol psychosis, alcoholic amnestic syndrome.
291.2 Alcoholic psychosis, other alcohol dementia.
291.3 Alcoholic psychosis, alcoholic withdrawal hallucinosis.
291.4 Alcoholic psychosis, idiosyncratic alcohol intoxication.
291.5 Alcoholic psychoses, alcohol jealousy.
------------------------------------------------------------------------
Hepatitis B
------------------------------------------------------------------------
070.20 Viral hepatitis B with hepatic coma acute or unspecified w/o
 hepatitis delta.
070.21 Viral hepatitis B w/hepatic coma acute or unspecified w/hepatitis
 delta.
070.22 Viral hepatitis B w/hepatic coma chronic w/o hepatitis delta.
070.23 Viral hepatitis B w/hepatic coma chronic w/hepatitis delta.
------------------------------------------------------------------------
Septicemia and Shock
------------------------------------------------------------------------
020.2 Septicemic plague.
020.3 Primary pneumonic plague.
036.2 Meningococcemia.
038.3 Septicemia due to anaerobes.
040.82 Toxic shock syndrome.
054.5 Herpetic septicemia.
771.81 Newborn septicemia.
------------------------------------------------------------------------
Bacterial pneumonias/opportunistic infections/pneumococcal pneumonias
------------------------------------------------------------------------
003.22 Salmonella pneumonia.
006.4 Amebic lung abscess.
007.4 Cryptosporidosis.
020.4 Secondary pneumonic plague.
021.2 Pulmonary tularemia.
022.1 Pulmonary anthrax.
031.2 Disseminated mycobacteria.
039.1 Pulmonary actinomycosis.
078.5 Cytomagalovirus disease.
112.4 Candidiasis lung.
112.5 Candidiasis disseminated.
114.0 Primary coccidioidomycosis pulmonary.
114.4 Chronic pulmonary coccidioidomycosis.
115.05 Histoplasma capsulatum pneumonia.
115.15 Histoplasma duboisii pneumonia.
115.95 Histoplasmosis unspecified pneumonia.
117.3 Aspergillosis.
117.5 Cryptococcosis.
117.7 Zygomycosis (phycomycosis/mucomycosis).
121.2 Paragonimiais.
122.1 Echinoccus granulosis lung.

[[Page 49956]]

 
130.0 Toxoplasmosis meningoencephalitis.
130.4 Toxoplasmosis pneumonitis (strep pneumoniae pneumonia).
130.8 Multisystemic disseminated toxoplasmosis.
136.3 Pneumocytosis.
------------------------------------------------------------------------

2. ICD-9-CM NEC/NOS/Unspecified Codes Not Recognized for Purposes of a 
Co-Morbidity Payment Adjustment(s) Payment

    The following ICD-9-CM codes/diagnoses in Table 16 are designated 
as not otherwise specified (NOS); not elsewhere specified (NEC) or are 
unspecified. As these codes are general and do not provide meaningful 
identification of a disease, we are proposing that these ICD-9-CM 
codes/diagnoses will not be recognized for purposes of a co-morbidity 
case-mix adjustment.

Table 16--ICD-9-CM NEC/NOS/Unspecified Codes Not Recognized for Purposes
             of a Co-Morbidity Payment Adjustment(s) Payment
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
Cancer (Excludes Non-Melanoma Skin Cancer)
------------------------------------------------------------------------
141.9 malignant neoplasm tongue NOS.
142.8 malignant neoplasm major salivary NEC.
142.9 malignant neoplasm salivary NOS.
143.8 malignant neoplasm gum NEC.
143.9 malignant neoplasm gum NOS.
144.9 malignant neoplasm mouth floor NOS.
145.5 malignant neoplasm palate NOS.
145.9 malignant neoplasm mouth NOS.
146.9 malignant neoplasm oropharynx NOS.
147.8 malignant neoplasm nasopharynx NEC.
147.9 malignant neoplasm nasopharynx NOS.
148.9 malignant neoplasm hypopharynx NOS.
149.0 malignant neoplasm pharynx NOS.
150.8 malignant neoplasm esophagus NEC.
150.9 malignant neoplasm esophagus NOS.
151.8 malignant neoplasm stomach NEC.
151.9 malignant neoplasm stomach NOS.
152.9 malignant neoplasm small bowel NOS.
153.8 malignant neoplasm colon NEC.
153.9 malignant neoplasm colon NOS.
154.3 malignant neoplasm anus NOS.
154.8 malignant neoplasm rectum/anus NEC.
155.2 malignant neoplasm liver NOS.
156.9 malignant neoplasm biliary NOS.
157.9 malignant neoplasm pancreas NOS.
158.9 malignant neoplasm peritoneum NOS.
159.0 malignant neoplasm intestine NOS.
159.1 malignant neoplasm spleen NEC.
159.8 malignant neoplasm gastrointestinal/intra-abdominal NEC.
159.9 malignant neoplasm gastrointestinal tract ill-defined.
160.9 malignant neoplasm access sinus NOS.
161.9 malignant neoplasm larynx NOS.
162.8 malignant neoplasm bronchus/lung NEC.
162.9 malignant neoplasm bronchus/lung NOS.
163.8 malignant neoplasm pleura NEC.
163.9 malignant neoplasm pleura NOS.
164.8 malignant neoplasm mediastinum NEC.
164.9 malignant neoplasm mediastinum NOS.
165.0 malignant neoplasm upper respiratory NOS.
165.9 malignant neoplasm respiratory system NOS.
170.9 malignant neoplasm bone NOS.
171.7 malignant neoplasm trunk NOS.
171.8 malignant neoplasm soft tissue NEC.
171.9 malignant neoplasm soft tissue NOS.
172.8 malignant melanoma skin NEC.
172.9 malignant melanoma skin NOS.
172.3 malignant melanoma face NEC/NOS.
174.8 malignant neoplasm breast NEC.
174.9 malignant neoplasm breast NOS.
175.9 malignant neoplasm male breast NEC.
176.9 Kaposi's sarcoma NOS.
179.9 malignant neoplasm uterus NOS.
180.9 malignant neoplasm cervix uteri NOS.

[[Page 49957]]

 
183.8 malignant neoplasm adnexa NEC.
183.9 malignant neoplasm adnexa NOS.
184.4 malignant neoplasm vulva NOS.
184.8 malignant neoplasm female genitals NEC.
184.9 malignant neoplasm female genitals NOS.
187.4 malignant neoplasm penis NOS.
187.9 malignant neoplasm male genital NOS.
187.8 malignant neoplasm male genital NEC.
188.8 malignant neoplasm bladder NEC.
188.9 malignant neoplasm bladder NOS.
189.8 malignant neoplasm urinary NEC.
189.9 malignant neoplasm urinary NOS.
190.9 malignant neoplasm eye NOS.
191.6 mal neoplasm cerebellum NOS.
191.8 malignant neoplasm brain NEC.
191.9 malignant neoplasm brain NOS.
192.8 malignant neoplasm nervous system NEC.
192.9 malignant neoplasm nervous system NOS.
194.8 malignant neoplasm endocrine NEC.
194.9 malignant neoplasm endocrine NOS.
195.8 malignant neoplasm site NEC.
196.9 malignant neoplasm lymph node NOS.
197.3 secondary malignant neoplasm respiratory NEC.
197.8 secondary malignant neoplasm gastrointestinal NEC.
198.82 secondary malignant neoplasm genital.
198.89 secondary malignant neoplasm NEC.
199.1 malignant neoplasm NOS.
200.80 other variant unspecified extranodal.
208.20 subacute leukemia unspecified cell without remission.
208.21 subacute leukemia unspecified cell with remission.
208.80 other leukemia unspecified cell type without remission.
208.81 other leukemia unspecified cell type with remission.
208.90 leukemia NOS without remission.
208.91 leukemia NOS with remission.
209.00 malignant carcinoid tumor small intestine unspecified portion.
209.10 malignant carcinoid tumor large intestine unspecified portion.
209.20 malignant carcinoid tumor of unknown primary site.
209.25 malignant carcinoid tumor of foregut, NOS.
209.26 malignant carcinoid tumor of midgut, NOS.
209.27 malignant carcinoid tumor of hindgut, NOS.
209.29 malignant carcinoid tumor of other sites.
209.30 malignant poorly differentiated neuroendocrine cancer, any site.
237.70 neurofibromatosis NOS.
237.9 uncharacteristic behavior neurologic nervous system NEC.
239.6 brain neoplasm NOS.
259.2 other endocrine disorders, carcinoid syndrome.
------------------------------------------------------------------------
Drug and/or alcohol induced mental disorders
------------------------------------------------------------------------
291.81 alcohol psychosis other specified alcohol psychosis/alcohol
 withdrawal.
291.89 alcohol psychosis, other specified alcohol psychosis, other.
291.9 alcoholic psychoses/unspecified alcohol psycho.
292.0 drug withdrawal.
292.11 paranoid/hallucinatory drugs induced, drug-induced organic
 delusion syndrome.
292.12 drug psychiatric disorder with hallucinations.
292.2 pathologic drug intoxication.
292.81 other specified drug-induced mental disorders, drug-induced
 delirium.
292.82 other specified drug-induced mental disorders, drug-induced
 dementia.
292.84 other specified drug-induced mental disorders, drug-induced
 organic affective syndrome.
292.89 other specified drug-induced mental disorders, other.
292.9 unspecified drug-induced mental disorders.
303.00 acute alcohol intoxication-unspecified.
303.01 alcohol dependent syndrome, acute alcohol intoxication,
 continuous.
303.90 alcohol dependence syndrome, other & unspecified alcohol
 dependence unspecified.
304.00 drug dependence, opioid, unspecified.
304.10 drug dependence barbiturate/similarly acting sedative/hypnotic
 dependence unspecified.
304.20 drug dependence, cocaine unspecified.
304.30 drug dependence, cannabis unspecified.
304.40 drug dependence amphetamine/other psychostimulator unspecified.
304.50 drug dependence hallucinogen unspecified.
304.60 other specified drug dependence unspecified.
304.70 drug dependence opioid type w/other drug unspecified.
304.80 drug depend comb w/o opioid type unspecified.

[[Page 49958]]

 
304.90 drug dependence unspecified depend unspecified.
305.00 nondependence drug abuse alcohol unspecified.
571.3 alcoholic liver damage unspecified.
V11.3 personal mental disorder history alcoholism.
------------------------------------------------------------------------
Pericarditis
------------------------------------------------------------------------
420.0 acute pericarditis in diseases classified elsewhere.
420.99 other/unspecified pericarditis other.
------------------------------------------------------------------------
HIV/AIDS
------------------------------------------------------------------------
079.53 HIV-2 infection other disease.
------------------------------------------------------------------------
Septicemia and shock
------------------------------------------------------------------------
038.10 septicemia, staphylococcal unspecified.
038.19 septicemia, staphylococcal other.
038.9 septicemia other unspecified.
785.59 other shock: endotoxic, gram negative hypovolemia.
------------------------------------------------------------------------
Bacterial Pneumonias/Opportunistic Infections/Pneumococcal Pneumonias
------------------------------------------------------------------------
482.30 streptococcus pneumonia unspecified.
482.39 streptococcus other strep pneumonia.
482.40 pneumonia due to staphlococcus unspecified.
482.49 pneumonia due to other staphlococcus pneumonia.
482.83 pneumonia due to other gram negative bacteria.
482.89 pneumonia due to other specified bacteria.
484.7 other systemic mycoses pneumonia.
------------------------------------------------------------------------
Gastrointestinal tract bleeding
------------------------------------------------------------------------
531.40 chronic/unspecified gastric ulcer w/hemorrhage w/o obstruction.
531.41 chronic/unspecified gastric ulcer w/hemorrhage w/obstruction.
531.60 chronic/unspecified gastric ulcer w/hemorrhage/perforation w/o
 obstruction.
531.61 chronic/unspecified gastric ulcer w/hemorrhage/perforation w/
 obstruction.
532.40 chronic/unspecified duodenal ulcer w/hemorrhage w/o obstruction.
532.41 chronic/unspecified duodenal ulcer w/hemorrhage w/obstruction.
532.60 chronic/unspecified duodenal ulcer w/hemorrhage/perforation w/o
 obstruction.
532.61 chronic/unspecified duodenal ulcer w/hemorrhage/perforation w/
 obstruction.
533.40 chronic/unspecified peptic ulcer w/hemorrhage w/o obstruction.
533.41 chronic/unspecified peptic ulcer w/hemorrhage w/obstruction.
533.60 chronic/unspecified peptic ulcer w/hemorrhage/perforation w/o
 obstruction.
533.61 chronic/unspecified peptic ulcer w/hemorrhage/perforation w/
 obstruction.
534.40 chronic/unspecified gastrojejunal ulcer w/hemorrhage w/o
 obstruction.
534.41 chronic/unspecified gastrojejunal ulcer w/hemorrhage w/
 obstruction.
534.60 chronic/unspecified gastrojejunal ulcer w/hemorrhage/perforation
 w/o obstruction.
534.61 chronic/unspecified gastrojejunal ulcer w/hemorrhage/perforation
 w/obstruction.
------------------------------------------------------------------------
Hereditary hemolytic anemias/sickle cell anemias
------------------------------------------------------------------------
282.69 sickle-cell disease other sickle-cell disease w/crisis.
282.9 hereditary hemolytic anemia unspecified.
------------------------------------------------------------------------

3. ICD-9-CM Benign Tumor Codes Not Recognized for Co-Morbidity Payment 
Adjustment(s)

    As noted previously, the intent of the case-mix adjustment is to 
provide additional payment for conditions which are predictors of 
variation of average costs. Although the regression analysis identified 
cancer as a co-morbidity category because it resulted in higher costs, 
we believe that this would exclude benign tumors. Therefore, we are 
proposing that the following benign tumor codes/diagnoses in Table 17 
will not be recognized for the proposed cancer co-morbidity payment 
adjustment.

  Table 17--ICD-9-CM Benign Tumor Codes Not Recognized for Co-Morbidity
                          Payment Adjustment(s)
------------------------------------------------------------------------
   209.40 Benign carcinoid tumor small intestine unspecified portion.
-------------------------------------------------------------------------
209.40 Benign carcinoid tumor small intestine, unspecified portion.
209.41 Benign carcinoid tumor of the duodenum.
209.42 Benign carcinoid tumor of the jejunum.
209.43 Benign carcinoid tumor of the ileum.
209.50 Benign carcinoid tumor large intestine, unspecified portion.
209.51 Benign carcinoid tumor of the appendix.
209.52 Benign carcinoid tumor of the cecum.

[[Page 49959]]

 
209.53 Benign carcinoid tumor ascend colon.
209.54 Benign carcinoid tumor of the transverse colon.
209.55 Benign carcinoid tumor descend colon.
209.56 Benign carcinoid tumor of the sigmoid colon.
209.57 Benign carcinoid tumor of the rectum.
209.60 Benign carcinoid tumor unknown primary site.
209.61 Benign carcinoid tumor bronchus/lung.
209.62 Benign carcinoid tumor thymus.
209.63 Benign carcinoid tumor of the stomach.
209.64 Benign carcinoid tumor of the kidney.
22.5 Benign neoplasm brain/other nervous system parts.
225.0 Benign neoplasm brain.
225.1 Benign neoplasm cranial nerves.
225.2 Benign neoplasm cerebral meninges.
225.3 Benign neoplasm spinal cord.
225.4 Benign neoplasm spinal meninges.
225.8 Benign neoplasm nervous system NEC.
225.9 Benign neoplasm nervous system NOS.
226 Benign neoplasm thyroid.
227.3 Benign neoplasm pituitary.
227.4 Benign neoplasm pineal gland.
------------------------------------------------------------------------

    .4. ICD-9 Codes as Category Headings and Not Recognized for Co-
Morbidity Payment Adjustment(s)
    We are proposing that the following ICD-9-CM codes/diagnoses in 
Table 18 will not be recognized for purposes of a co-morbidity case-mix 
adjustment because these codes are ICD-9-CM category headings not be 
used to identify diagnoses.

  Table 18--ICD-9 Codes as Category Headings and Not Recognized for Co-
                     Morbidity Payment Adjustment(s)
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
Cancer (excludes non-melanoma skin cancer)
------------------------------------------------------------------------
141 malignant neoplasm tongue.
142 malignant neoplasm major salivary/parotid.
143 malignant neoplasm gum.
144 malignant neoplasm floor of mouth.
145 malignant neo other/unspecified mouth parts.
146 malignant neoplasm oropharynx.
147 malignant neoplasm nasopharynx.
148 malignant neoplasm hypopharynx.
149 mal neoplasm other/ill-defined lip/oral cavity/pharynx.
150 malignant neoplasm esophagus.
151 malignant neoplasm stomach.
152 malignant neoplasm intestine/duodenum.
153 malignant neoplasm colon.
154 malignant neo rectum/rectosigmoid junction/anus.
155 malignant neoplasm liver/intrahepatic bile ducts.
156 malignant neoplasm gall bladder/extrahepatic bile ducts.
157 malignant neoplasm pancreas.
158 malignant neoplasm retroperitoneum/peritoneum.
159 malignant neoplasm other/ill-defined digest org/peritoneum.
160 malignant neoplasm nasal cavities/middle ear/access sinuses.
161 malignant neoplasm larynx.
162 malignant neoplasm trachea/bronchus/lung.
163 malignant neoplasm pleura.
164 malignant neoplasm thymus/heart/mediastinum.
------------------------------------------------------------------------
Cancer (excludes non-melanoma skin cancer)
------------------------------------------------------------------------
165 malignant neoplasm other/ill-defined respiratory system/
 intrathoracic.
170 malignant neoplasm bone/articular cartilage.
171 malignant neoplasm connective/other soft tissue.
172 malignant melanoma skin.
174 malignant neoplasm female breast.
175 malignant neoplasm male breast.
176 Kaposi's sarcoma.
180 malignant neoplasm cervix uteri.
182 malignant neoplasm uterine body.
183 malignant neoplasm ovary/other uterine adnexa.
184 malignant neoplasm other/unspecified female genitals.
186 malignant neoplasm testis.

[[Page 49960]]

 
187 malignant neoplasm penis/other male genitals.
188 malignant neoplasm bladder.
189 malignant neoplasm kidney/other/unspecified urinary organs.
190 malignant neoplasm eye.
191 malignant neoplasm brain.
192 malignant neoplasm other/unspecified nervous system.
194 malignant neoplasm other endocrine/related structures.
195 malignant neoplasm other/ill-defined sites.
196 secondary/unspecified malignant neoplasm lymph nodes.
197 secondary malignant neoplasm respiratory/digestive systems.
198 secondary malignant neoplasm other specified sites.
199 malignant neoplasm without site specification.
200 lymphosarcoma & reticulosarcoma.
200.1 lymphosarcoma/reticulosarcoma/lymphosarcoma.
200.2 lymphosarc/reticulosarcoma, Berkett tumor/lymphoma.
------------------------------------------------------------------------
Cancer (excludes non-melanoma skin cancer)
------------------------------------------------------------------------
200.8 lymphosarcoma/reticulsarcoma other variants.
201 Hodgkin's disease.
201.0 Hodgkin's disease Hodgkin's paragranuloma.
201.1 Hodgkin's disease Hodgkin's granuloma.
201.2 Hodgkin's disease Hodgkin's sarcoma.
201.4 Hodgkin's disease lymphocystic-histiocytic.
201.5 Hodgkin's disease nodular sclerosis.
201.6 Hodgkin's disease mixed cellularity.
201.7 Hodgkin's disease lymphocytic depletion.
201.9 Hodgkin's disease unspecified.
202 other malignant neoplasm lymphoid/histiocytic tissue.
202.0 nodular lymphoma.
202.1 other malignant neoplasm lymphoid/histiocytic tissue; mycosis
 fungoides.
202.2 other malignant neoplasm lymphoid/histiocytic tissue; Sezary's
 disease.
202.3 other malignant neoplasm lymphoid/histiocytic tissue; malignant
 histiocytosis.
202.4 other malignant neoplasm lymphoid/histiocytic tissue, leukemic
 reticuloendotheliosis.
202.5 other malignant neoplasm lymphoid/histiocytic tissue, Letterer-
 Siwe disease.
202.6 other malignant neoplasm lymphoid/histiocytic tissue, malignant
 mast cell tumors.
202.8 other lymphomas.
202.9 other malignant neoplasm lymphoid/histiocytic tissue, other/
 unspecified.
203 multiple myeloma/immunoproliferative neoplasms.
203.0 multiple myeloma.
203.1 plasma cell leukemia.
203.8 other immunoproliferative neoplasms.
204 lymphoid leukemia.
204.0 acute lymphoid leukemia.
204.1 chronic lymphoid leukemia.
------------------------------------------------------------------------
Cancer (excludes non-melanoma skin cancer)
------------------------------------------------------------------------
204.2 subacute lymphoid leukemia.
204.8 lymphoid leukemia other.
204.9 lymphoid leukemia unspecified.
205 myeloid leukemia.
205.0 acute myeloid leukemia.
205.1 chronic myeloid leukemia.
205.2 subacute myeloid leukemia.
205.3 myeloid leukemia, myeloid sarcoma.
205.8 myeloid leukemia other.
205.9 myeloid leukemia unspecified.
206 monocytic leukemia.
206.0 acute monocytic leukemia.
206.1 chronic monocytic leukemia.
206.2 subacute monocytic leukemia.
206.8 monocytic leukemia other.
206.9 monocytic leukemia unspecified.
207 other specified leukemia.
207.0 other specified leukemia, acute erythremia/erythroleukemia.
207.1 other specified leukemia, chronic erythremia.
207.2 other specified leukemia megakaryocytic leukemia.
207.8 other specified leukemia other.
208 leukemia unspecified cell type.
208.0 acute leukemia unspecified cell type.
208.1 chronic leukemia unspecified cell type.
208.2 subacute leukemia unspecified cell type.

[[Page 49961]]

 
208.8 leukemia unspecified cell type other.
208.9 leukemia unspecified cell type unspecified.
22.5 benign neoplasm brain/other nervous system parts.
237.7 neurofibromatosis.
------------------------------------------------------------------------
Drug and/or Alcohol Induced Mental Disorders
------------------------------------------------------------------------
291 Alcoholic psychosis.
291.8 Alcohol psychoses, other specified alcohol psychosis.
292 Drug psychoses.
292.1 Paranoid/hallucinatory induced by drugs.
292.8 other specified drug-induced mental disorders.
303 alcohol dependence syndrome.
303.0 alcohol dependence syndrome, acute alcohol intoxication.
303.9 alcohol dependence syndrome, other & unspecified alcohol
 dependence.
304 drug dependence.
304.0 drug dependence, opioid.
304.1 drug dependence barbiturate/similarly acting sedative/hypnotic
 dependence.
304.2 drug dependence, cocaine.
304.3 drug dependence, cannabis.
304.4 drug dependence, amphetamine/other psychostimulant.
304.5 drug dependence hallucinogen.
304.6 other specified drug dependence.
304.7 drug dependence opioid type with other drug.
304.8 drug dependence combination without opioid.
304.9 drug dependence unspecified dependence.
305.0 nondependence drug abuse alcohol.
------------------------------------------------------------------------
Pericarditis
------------------------------------------------------------------------
420 acute pericarditis.
420.9 other/unspecified pericarditis.
------------------------------------------------------------------------
Hepatitis B
------------------------------------------------------------------------
070.2 viral hepatitis B w/hepatic coma.
070.3 viral hepatitis B w/o hepatic coma.
------------------------------------------------------------------------
Septicemia and Shock
------------------------------------------------------------------------
031 diseases due to other mycobacteria.
038 septicemia.
038.1 septicemia, staphylococcal.
038.4 septicemia due to other gram negative organisms.
------------------------------------------------------------------------
Bacterial pneumonias/opportunistic infections/pneumococcal pneumonias
------------------------------------------------------------------------
482 other bacterial pneumonias.
482.3 streptococcus pneumonia.
482.4 pneumonia due to staphylococcus.
482.8 pneumonia due to other specified bacteria.
507 pneumonitis due to solids & liquids.
510 empyema.
513 lung/mediastinum abscess.
------------------------------------------------------------------------
Gastrointestinal Tract Bleeding
------------------------------------------------------------------------
531.0 acute gastric ulcer w/hemorrhage.
531.2 acute gastric ulcer w/hemorrhage/perforation.
531.4 chronic/unspecified gastric ulcer w/hemorrhage.
531.6 chronic/unspecified gastric ulcer w/hemorrhage/perforation.
532.0 acute duodenal ulcer w/hemorrhage.
532.2 acute duodenal ulcer w/hemorrhage/perforation.
532.4 chronic/unspecified duodenal ulcer with hemorrhage.
532.6 chronic/unspecified duodenal ulcer without hemorrhage/perforation.
533.0 acute peptic ulcer w/hemorrhage.
533.2 acute peptic ulcer w/hemorrhage/perforation.
533.4 chronic/unspecified peptic ulcer w/hemorrhage.
533.6 chronic/unspecified peptic ulcer w/hemorrhage/perforation.
534.0 acute gastrojejunal ulcer w/hemorrhage.
534.2 acute gastrojejunal ulcer w/hemorrhage/perforation.
534.4 chronic/unspecified gastrojejunal ulcer w/hemorrhage.
534.6 chronic/unspecified gastrojejunal ulcer w/hemorrhage/perforation.
------------------------------------------------------------------------

[[Page 49962]]

 
Hereditary hemollytic anemias/sickle cell anemias
------------------------------------------------------------------------
282 hereditary hemolytic anemias.
282.4 Thalassemias.
282.6 sickle-cell disease.
------------------------------------------------------------------------
Myelodysplastic Syndrome
------------------------------------------------------------------------
238.7 neoplasm other lymphatic/hematopoietic tissues includes
 myelodysplastic syndrome.
------------------------------------------------------------------------

6. Race/Ethnicity
    Section 1881(b)(14)(D)(i) of the Act requires that the ESRD PPS 
include a payment adjustment based on case-mix that may take into 
account a patient's race and ethnicity. Consequently, we analyzed race 
and ethnicity as part of the regression analysis for the proposed ESRD 
PPS to inform our proposal for this rule.
    Prior to the enactment of MIPPA, we considered race and ethnicity 
as potential patient level payment adjusters. First, race was one of 
the 35 patient characteristics that were examined in developing the 
basic case-mix adjustments to the ESRD composite rate required under 
section 1881(b)(12) of the Act. Ultimately, however, the final basic 
case-mix adjusted composite payment system published in the CY 2005 PFS 
final rule with comment period did not include adjustments for race and 
ethnicity. (For more information, we refer readers to 69 FR 66330.)
    We again considered race and ethnicity as potential patient level 
payment adjusters as part of our research for the Secretary's 2008 
Report to Congress. In the Report, we concluded that although race and 
ethnicity perhaps had a statistically significant relationship with 
costs and payments, such indicators were judged not to be suitable for 
making payment distinctions in a bundled ESRD PPS given that race/
ethnicity is not objectively measured.
    Specifically, because there is no quantifiable mechanism by which 
to measure one's race or ethnicity, the classification is commonly 
based on self-reported information. We believed that more measurable 
indicators of cost and payment would be the patient's underlying 
clinical conditions. We further noted in the Report a demonstrated 
significance that race has on provider costs and drug utilization, 
indicating that this adjustment may warrant further consideration in 
the development and implementation of a new ESRD PPS. We note that any 
relationship between race/ethnicity and costs and payments revealed in 
the analyses conducted for purposes of this ESRD PPS proposed rule is 
discussed further in the sections that follow.
    The regression analysis conducted for purposes of this proposed 
rule relied on two separate data sources for race and ethnicity status 
to assess the extent to which race and ethnicity would account for cost 
factors that are otherwise unexplained in the model. The first analysis 
was based on race and ethnicity data retrieved from the Renal 
Management Information System (REMIS) and the second analysis was based 
on data retrieved from the Medicare Enrollment Database (EDB). In Table 
19 below, the table captures the key differences in racial and ethnic 
categorizations between the REMIS and EDB databases.

                           Table 19--Race/Ethnicity of Medicare Dialysis Patients 1, 2
----------------------------------------------------------------------------------------------------------------
                                                                  Medicare Enrollment Database
              REMIS/CMS Form 2728                   Percent                   (EDB)                   Percent
----------------------------------------------------------------------------------------------------------------
Race:                                           ..............  Race:                             ..............
    American Indian/Alaskan Native............             1.6   North American Native..........             1.4
    Asian/Pacific Islander....................             3.6   Asian..........................             2.7
    Black.....................................            38.5   Black..........................            37.7
    White.....................................            55.2   White..........................            48.7
    Other.....................................             1.1   Hispanic.......................             5.2
    Unknown...................................            <0.1   Other..........................             2.1
                                                ..............   Unknown........................             2.2
Ethnicity:
    Hispanic..................................            12.2
    Not Hispanic..............................            83.8
    Unknown...................................             4.0
----------------------------------------------------------------------------------------------------------------
\1\ n = 890,776 patient years.
\2\ Hispanic ethnicity is reported separately from race on CMS Form 2728 (the Medical Evidence Form), while
  Hispanic is a race category in the Medicare Enrollment Database.

    Most notably, REMIS data includes both beneficiary race and 
ethnicity designations whereas EDB data includes ethnicity as a racial 
category. For example, an individual self-identifying as being of 
Hispanic ethnicity and White race would be reflected as both Hispanic 
and White in the REMIS database but this same individual would be 
categorized as either Hispanic or White in EDB. A summary of each 
analysis is set forth below.
a. REMIS Data Analysis
    REMIS, a tracking system for the ESRD patient population for both 
Medicare and non-Medicare patients, is populated by the ESRD Networks 
with race and ethnicity data that are collected on the ESRD Medical 
Evidence Report (Form CMS-2728). The form is completed, signed and 
certified by the patient's physician at the onset of ESRD treatment.

[[Page 49963]]

    As noted previously, the proposed ESRD PPS model set forth is based 
on 2004-2006 data. During this 3-year timeframe, two versions of the 
Medical Evidence Report Form were used, each with differing 
categorizations for race and ethnicity.
    The earlier version (dated 6/1997), included three ethnicity 
categories from which to choose--(1) Hispanic: Mexican, (2) Hispanic: 
Other, and (3) Non-Hispanic. The form did not specify whether to check 
one or more ethnicity categories. In addition, the form included nine 
race categories from which to choose--(1) White, (2) Black, (3) 
American Indian/Alaskan Native, (4) Asian, (5) Pacific Islander, (6) 
Mid-East/Arabian, (7) Indian sub-Continent, (8) Other, specify, and (9) 
Unknown. The form instructed individuals to check the one race category 
that applied.
    The later version (dated 6/2004), includes two ethnicity categories 
from which to choose--(1) Not Hispanic or Latino and (2) Hispanic or 
Latino (including country/area of origin or ancestry). While the form 
does not include instructions for selecting ethnicity, it is assumed 
that the individual would choose one of the two categories. In 
addition, the form includes five race categories from which to choose--
(1) White, (2) Black or African American, (3) American Indian/Alaskan 
Native, (4) Asian, and (5) Native Hawaiian or Other Pacific Islander. 
This form instructs individuals to check all race categories that 
apply.
    Reporting using the later version (dated 6/2004) became mandatory 
on June 1, 2005. Therefore, for purposes of our analysis using REMIS 
race and ethnicity data, beneficiaries for whom the Medical Evidence 
Report Form 2728 was completed prior to June 2005 comprise the race and 
ethnicity categories of the earlier version of the form whereas 
beneficiaries for whom the Medical Evidence Report Form was completed 
between June through December of 2005 and 2006 comprise the race and 
ethnicity categories of the later version of the form. We note that for 
comparison purposes between the two versions of the Medical Evidence 
Form, it was necessary to designate the following beneficiaries into 
the category of ``Other'': (1) beneficiaries for whom more than one 
racial category was marked on the 2004 version of the form and (2) 
beneficiaries for whom the Mid-East/Arabian or the Indian sub-Continent 
categories were marked on the 1997 version of the form.
    Relying on REMIS as the basis of race and ethnicity data, it was 
possible to evaluate the potential for race and ethnicity to predict 
differences in composite rate costs among ESRD facilities as well as 
differences in MAP for separately billable services at the patient 
level.
    In our analysis using REMIS data in examining race, we found that 
combined composite rate and separately billable payments are lowest in 
the category ``Asian/Pacific Islander.'' As a result, this category was 
used as the reference group. Compared to the reference group, ``Native 
American/Alaskan Natives'' are 12.6 percent costlier; ``Whites'' are 
14.2 percent costlier; ``Blacks'' are 20.7 percent costlier; and 
individuals in the category ``Other'' are 64.6 percent costlier. As 
noted previously, for purposes of our analysis, it was necessary to 
default beneficiaries into the ``Other'' category to reconcile 
differences between the two versions of the Medical Evidence Report 
Form and in instances where multiple race categories were selected on 
the form. As a result of defaulting individuals into the ``Other'' 
category, we believe that this designation may fail to reflect an 
individual's true racial status.
    In our analysis using REMIS data in examining ethnic background, we 
found that non-Hispanic patients are 6.5 percent more costly than 
Hispanic patients.
b. EDB Data Analysis
    The EDB is the source of enrollment and entitlement information for 
all people who are or were ever entitled to Medicare. The EDB is 
populated with race and ethnicity data that come from the Social 
Security Administration (SSA). The SSA's race and ethnicity data are 
collected on the SS-5 form. Unlike CMS' Medical Evidence Report Form 
that captures both race and ethnicity, the SSA's SS-5 form combines 
these two elements, instructing the individual to voluntarily select 
one of the following 5 categories: (1) Asian, Asian-American or Pacific 
Islander; (2) Hispanic; (3) Black (Not Hispanic); (4) North American 
Indian or Alaskan Native; or (5) White (Not Hispanic). The SS-5 form is 
completed when an individual does the following: (1) applies for a 
social security number; (2) requests a replacement of the social 
security card; or (3) requests changes to personal information on their 
record, such as a name change (Social Security Administration Web site 
instructions http://www.ssa.gov/online/ss-5.pdf). Prior to 1980, the 
SS-5 form included 3 categories for race: White, Black or Other.
    The EDB is also populated with data collected by the Railroad 
Retirement Board (RRB). However, the data are not inclusive of race and 
ethnicity as these elements are not collected or maintained within the 
RRB's system. In 1964, the RRB began requiring new railroad industry 
employees to obtain social security numbers from the SSA, despite 
ineligibility for Social Security benefits. As a result, race or 
ethnicity data voluntarily specified by these individuals are reflected 
in EDB. However, the EDB does not include race or ethnicity on behalf 
of railroad industry beneficiaries lacking social security numbers; 
that is, those individuals entering the RRB system prior to 1964. As a 
result, the race and ethnicity of these individuals is defaulted to 
``Unknown'' within EDB.
    Each January, CMS creates a finder file consisting of those 
beneficiaries who were added to CMS' EDB during the previous calendar 
year as well as all living beneficiaries whose race is identified as 
``Other'' or ``Unknown.'' This finder file is sent to the SSA to be 
processed against their Numerical Identification file, referred to as 
``NUMIDENT'', which contains the expanded race categories captured on 
the SS-5 form. When the results are returned to us, the EDB is updated 
with the latest information. During subsequent iterations of this 
annual process, we do not include those beneficiaries that were 
processed in previous years into the subsequent finder file unless the 
race was either ``Unknown'' or ``Other.''
    In addition to the NUMIDENT file provided by the SSA, several other 
efforts have been undertaken in an attempt to improve the validity of 
EDB data including (1) a one-time, voluntary survey of beneficiaries, 
conducted by CMS in 1997, whose race was identified as ``Unknown'' or 
``Other,'' and (2) coordination with the Indian Health Service (IHS) 
since 2000 on a quarterly basis to record beneficiaries race as 
American Indian or Alaskan native. Despite these efforts, researchers 
have identified concerns with CMS' continued reliance on SSA race and 
ethnicity data collected through the SS-5 form, pointing to 
deficiencies in data among the smaller minority groups of Asians, 
Hispanics, and American Indians/Alaskan Natives. A study of 2002 data 
revealed that only 52 percent of Asian, 33 percent of Hispanic, and 33 
percent of American Indian/Alaskan Native Medicare beneficiaries can be 
correctly identified in the Medicare data (McBean, M, ``Medicare Race 
and Ethnicity Data Report.'' December 2004.). However, EDB codes are 
generally reliable for White and Black affiliations (Waldo, D, 
``Accuracy and Bias of Race/Ethnicity Codes in the

[[Page 49964]]

Medicare Enrollment Database.'' HCFA Review Vol. 26 No. 2 (Winter 2004-
2005): 61-72).
    Linking race and ethnicity data from the EDB to ESRD patients, we 
evaluated the potential for race and ethnicity to predict differences 
in composite rate costs among ESRD facilities, as well as differences 
in MAP for separately billable services at the patient level.
    In our analysis using EDB data in examining race and ethnicity, we 
found that combined composite rate and separately billable payments are 
lowest among those individuals categorized as ``Other'' and 
``Hispanic.'' In using the category ``Asian'' as the reference group, 
individuals categorized as ``Other'' and ``Hispanic'' have 
approximately 6 percent and 4 percent lower costs, respectively than 
the reference group. Individuals categorized as ``North American 
Native'' have 7.4 percent higher costs; individuals categorized as 
``White'' have 11.9 percent higher costs; and individuals categorized 
as ``Black'' have 17.8 percent higher costs. Please see Table 20 below.
BILLING CODE 4120-01-P

[[Page 49965]]

[GRAPHIC] [TIFF OMITTED] TP29SE09.003


[[Page 49966]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.004

BILLING CODE 4120-01-C
c. Concerns With Available Race/Ethnicity Data
    There are several specific concerns with the quality of the REMIS 
and the EDB data. The race and ethnicity data in REMIS have been 
collected with different versions of the Medical Evidence Report Form, 
making it difficult to accurately assess the effect of race and 
ethnicity on composite rate costs and separately billable payments. 
That is, a significant portion of the payment is reflected in the 
default category ``Other''. In addition, while not relevant for 
purposes of modeling the ESRD PPS, we are concerned about relying on 
the race and ethnicity data collected from the Medical Evidence Report 
Form for purposes of future refinements to the ESRD PPS. This form is 
routinely completed and signed by the physician at the ESRD facility. 
To mitigate the potential for provider manipulation of Medical Evidence 
Report Form in the interest of racial or ethnic payment adjustment, we 
would expect that ESRD facilities would accurately document race or 
ethnicity within the patient's medical record along with any care 
planning activities that may be based on the individual's race or 
ethnicity. There are also concerns related to relying on EDB data for 
modeling race and ethnicity data within the proposed ESRD PPS. 
Specifically, race and ethnicity classification on behalf of some 
segments of the population is either unavailable or defaulted into the 
``Unknown'' category within EDB, for example, RRB beneficiaries that 
entered the RRB system prior to 1964. In addition, we have concerns 
regarding the race and ethnicity data for individuals entering the SSA 
system via the enumeration at birth (EAB) process that has been in 
place since 1989. The EAB process allows the parent, at the time of the 
child's birth, to indicate on the child's birth certificate that they 
are interested in obtaining a social security number (SSN) for their 
child. Therefore, the parent is not required to file a separate 
application for an SSN for the child. The State vital statistics office 
receives the request with the birth registration data from the hospital 
and then forwards this information to SSA. Absent the SS-5 form that 
includes race and ethnicity fields, we are not aware of any current 
mechanism by which these data elements are captured by the SSA on 
behalf of individuals entering the SSA system via the EAB process.
    We note that relying on EDB data for purposes of ESRD PPS modeling 
is that they are not updated in real time. To the extent a beneficiary 
completes a new SS-5 form for any of the reasons discussed above and 
there are changes in race information, those changes are not currently 
reflected in CMS' EDB data in real time. Rather, they occur only after 
the annual NUMIDENT update.
    In addition to the REMIS and EDB data concerns, racial and ethnic 
categories are not well defined as evidenced by the ongoing changes to 
the instruments used in collecting these data. Lastly, it is not 
possible to quantify an individual's race absent a genetic test to 
determine racial status. This presents the greatest challenge when 
considering individuals who identify with more than one race. 
Collection tools such as the SSA's SS-5 form and the Census Bureau's 
survey instrument depend on the individual to self select the one 
racial category with which they associate. While the current Medical 
Evidence Report Form allows for selection of more than one racial 
category, absent a mechanism for establishing a primary race, it is 
difficult to conduct comparisons without first defaulting those with 
multiple race selections into the ``Other'' category.
    In summary, the analyses of REMIS and EDB race and ethnicity data 
demonstrate associations between these patient characteristics and 
facility level composite rate costs and patient level separately 
billable payments. As such, including these factors may improve the 
predictive value of the proposed ESRD PPS. However, we have concerns 
about whether the data are of sufficient quality upon which to base 
payment adjustments. The race or ethnicity status designations within 
the current CMS data systems may fall short in assigning individuals to 
the most correct racial and ethnic categories and reflecting the unique 
and measurable traits of individuals. As a result, ESRD facilities may 
be overpaid for certain patients and underpaid for others. However, to 
the extent that including race and ethnicity in the model explains 
additional variation in treatment costs not otherwise reflected, such 
adjustments may be warranted. We specifically invite public comment on 
the data issues presented in this section, other data sources for race 
and ethnicity we should consider, and specifically, the need for 
adjustments for race and ethnicity in the final ESRD PPS. It is 
important to note that any adjustments for race would result in 
additional reductions to the base rate through the standardization 
process described in section VII.C.
d. CMS Initiatives to Evaluate Health Disparities Based on Race and 
Ethnicity
    In accordance with MIPPA, we plan to explore opportunities for 
improving Medicare program data on race and ethnicity. Specifically, 
section 185 of MIPPA amends the Act to add new section 1809 entitled 
``Addressing Health Care Disparities.'' This section charges the 
Secretary with several key

[[Page 49967]]

tasks and goals including (1) evaluating approaches for Medicare data 
collection that will allow for collection and evaluation of data on 
disparities in health care services and performance based on race, 
ethnicity and gender; (2) submitting several Reports to Congress that 
describe the evaluation of Medicare data and make recommendations for 
improving the identification of health care disparities for Medicare 
beneficiaries; and (3) implementing the identified approaches for the 
ongoing, accurate, and timely collection and evaluation of data on 
health care disparities on the basis of race, ethnicity and gender.
    In addition to the tasks associated with MIPPA section 185 that 
will focus on addressing health care disparities, health care 
disparities across several settings of care are currently being 
monitored by the Quality Improvement Organization (QIO) Program. In 
three cases, active intervention projects are underway to reduce health 
care disparities. As part of this department-wide effort, we will 
continue to explore additional approaches to improve the accuracy of 
this data. Some of these approaches will involve cooperation with 
entities outside of the Department of Health and Human Services (for 
example, the SSA), as described above. The first Report to Congress 
summarizing the possible approaches is due January 1, 2010.
    In summary, we believe that the analyses that we will conduct for 
purposes of developing the Reports to Congress will serve as the basis 
for improving the accuracy of Medicare race and ethnicity data.
7. Modality
    Section 1881(b)(14)(D)(iv) of the Act, as added by section 153(b) 
of MIPPA, gives the Secretary the discretionary authority to establish 
an ESRD PPS, which may include payment adjustments as the Secretary 
determines appropriate. PD, which is the primary mode for home 
dialysis, is a substantially less costly mode of dialysis compared to 
in-center HD. Therefore, the Act gives the Secretary the authority to 
develop an ESRD PPS, which would establish payment rates based on 
dialysis modality.
    Table K.5 from the 2008 Annual Data Report of the U.S. Renal Data 
System indicates that the average annual cost for all HD patients in 
2006 was $71,889, whereas the corresponding figure for PD patients was 
$53,327 (Table K.7). Data from the Medicare cost reports and Medicare 
claims for CYs 2004-2006 show a similar difference in resource 
utilization, with PD patients incurring significantly lower composite 
rate and separately billable expenses.

                         Comparison of Composite Rate Costs by Modality, CY 2004-06 \1\
----------------------------------------------------------------------------------------------------------------
                                                           Hemodialysis                 Peritoneal dialysis
                                                 ---------------------------------------------------------------
                                                                      Average                         Average
                  Facility type                   Facility years  composite rate  Facility years  composite rate
                                                        (n)          cost per           (n)          cost per
                                                                     treatment                       treatment
----------------------------------------------------------------------------------------------------------------
Freestanding....................................          11,058         $159.60           3,839         $150.39
Hospital based..................................             878          248.92             349          155.99
                                                 ---------------------------------------------------------------
    Total.......................................          11,936          168.99           4,188          151.15
----------------------------------------------------------------------------------------------------------------
\1\ Based on the Medicare Independent Renal Dialysis Facility and Hospital Cost Reports. ESRD facilities that
  opened or closed or reported less than one full dialysis patient year for the modality (156 hemodialysis-
  equivalent treatments) during the calendar year were excluded. Excludes potential outliers using a standard
  outer fence methodology that was applied on the log scale. Average CR costs were weighted by the total
  hemodialysis-equivalent treatments in the facility.


            Comparison of Separately Billable Medicare Allowable Payments by Modality, CY 2004-06 \1\
----------------------------------------------------------------------------------------------------------------
                              Hemodialysis                                          Peritoneal dialysis
----------------------------------------------------------------------------------------------------------------
                                                      Average separately                      Average separately
             Patient facility months (n)               billable MAP per    Patient facility    billable MAP per
                                                           treatment          months (n)           treatment
----------------------------------------------------------------------------------------------------------------
2,817,067...........................................             $87.20             186,296              $35.15
----------------------------------------------------------------------------------------------------------------
\1\ Based on the Medicare claims. MAP for the top 11 injectable drugs were repriced to reflect the payment rates
  used in the first quarter of 2008. MAP for EPO were capped at 30,000 units per treatment. Average SB MAPs were
  weighted by the Medicare hemodialysis-equivalent treatments in each patient facility month.

    Despite this distinction, we are proposing not to develop an ESRD 
PPS which uses type of dialysis modality as a payment variable, despite 
the increased predictive power a modality variable would yield in the 
resulting regression equations. Because composite rate costs and 
separately billable payments are lower for PD, the use of a modality 
payment variable would result in substantially lower payments for PD 
patients. The payment rates for HD patients would be slightly higher, 
because of the greater volume of HD patients, and the exclusion of PD 
patients from the average payment amount that would apply to HD 
patients. We believe that the substantially lower payments for PD 
patients that would result if modality were used as a payment adjuster 
in the ESRD PPS would discourage the increased use of PD for patients 
able to use that modality. Because we want to encourage home dialysis, 
in which PD is currently the prevailing mode of treatment, we are 
proposing an ESRD PPS which does not rely on separate payment rates 
based on modality. By establishing prospective payment rates that are 
higher for PD patients than they otherwise would be if separate 
payments were established based on modality, we believe home dialysis 
will be encouraged for patients able to use PD. We invite comment on 
this approach.
    However, we note that the case-mix adjustments we are proposing for 
pediatric patients, described in section IX. of the proposed rule, 
distinguish between HD and PD as a payment variable. The small number 
of pediatric

[[Page 49968]]

dialysis patients, the limited ability of the two-equation regression 
model to accurately predict the separately billable MAP for pediatric 
patients, and the far greater prevalence of PD among pediatric 
patients, led us to examine alternative approaches in devising case-mix 
adjustments for those patients. The pediatric payment adjustments 
described in section IX., use modality, in part, to determine the case-
mix adjusters for pediatric dialysis patients. Except for pediatric 
patients, modality is not otherwise used in developing the proposed 
case-mix adjustments under the ESRD PPS.

C. Proposed Facility-Level Adjustments

1. Wage Index
    Section 1881(b)(14)(D)(iv)(II) of the Act, as added by section 
153(b) of MIPPA, specifies that the ESRD PPS may include such other 
payment adjustments as the Secretary determines appropriate, such as a 
payment adjustment by a geographic index, such as the index referred to 
under the existing basic case-mix adjusted composite payment system, as 
the Secretary determines to be appropriate.
    In the current basic case-mix adjusted composite payment system, we 
use an index based on hospital wage and employment data from Medicare 
cost reports. In the CY 2006 PFS final rule with comment period (70 FR 
70167), we announced our adoption of the Office of Management and 
Budget's (OMB's) CBSA-based geographic area designations to develop 
revised urban/rural definitions and corresponding wage index values for 
purposes of calculating ESRD composite rates under the basic case-mix 
adjusted composite payment system. OMB's CBSA-based geographic area 
designations are described in OMB Bulletin 03-04, originally issued 
June 6, 2003, and is available online at: http://www.whitehouse.gov/omb/bulletins/b03-04.html. In addition, OMB has published subsequent 
bulletins regarding CBSA changes, including changes in CBSA numbers and 
titles. We stated that this and all subsequent ESRD rules and notices 
are considered to incorporate the CBSA changes published in the most 
recent OMB bulletin that applies to the hospital wage index (73 FR 
69758). The OMB bulletins may be accessed online at: http://www.whitehouse.gov/omb/bulletins/index.html.
    We also stated that we intended to update the ESRD wage index 
values annually (70 FR 70167). The ESRD wage index values used in the 
basic case-mix adjusted composite payment system are calculated without 
regard to geographic reclassifications authorized under section 
1886(d)(8) and (d)(10) of the Act and utilize pre-floor hospital data 
that are unadjusted for occupational mix (71 FR 69685; 73 FR 69758). We 
apply the current ESRD wage index to a 53.711 labor share of the 
composite rate. As we indicated, this labor share was developed from 
the labor-related components of the ESRD composite rate market basket 
(70 FR 70168). The ESRD wage index in the current basic case-mix 
adjusted composite payment system applies a wage index budget 
neutrality factor to ensure that the ESRD wage index is made in a 
budget neutral manner (70 FR 70170). As we previously noted, in our 
current basic case-mix adjusted composite payment system, we 
incorporate the wage index budget neutrality factor into the wage 
index. We compute a wage index factor and adjust it so that wage index 
budget neutrality can be achieved by the labor share component only.
    For purposes of the current basic case-mix adjusted composite 
payment system, section 1881(b)(12)(D) of the Act required the 
Secretary to adjust payment rates, as the Secretary determined 
appropriate, and if the Secretary applied a geographic adjustment that 
differed from the current index applied under the old (composite rate) 
system, the Secretary would be required to phase in such an index over 
a multi-year period. Under this authority, CMS elected a 4-year 
transition from the wage index based on MSAs to an updated wage index 
based on CBSAs. This 4-year transition began in CY 2006 and ended in CY 
2009, when ESRD facilities receive a wage adjusted composite rate that 
is computed using 100 percent CBSAs in CY 2009 (70 FR 70167).
    For the proposed ESRD PPS, we are proposing to use the same method 
and source of wage index values as we have been using for the basic 
case-mix adjusted composite payment system. Specifically, we propose 
that the ESRD wage index values used in the proposed ESRD PPS be 
calculated without regard to geographic reclassifications authorized 
under section 1886(d)(8) and (d)(10) of the Act, and utilize pre-floor 
hospital data that are unadjusted for occupational mix. We also propose 
to use the OMB's CBSA-based geographic area designations to define 
urban/rural areas and corresponding wage index values. OMB's CBSA-based 
geographic area designations are described in OMB Bulletin 03-04, 
originally issued June 6, 2003, and is available online at: http://www.whitehouse.gov/omb/bulletins/b03-04.html.
    In addition, as we indicated above, OMB has published subsequent 
bulletins regarding CBSA changes, including changes in CBSA numbers and 
titles. We propose that this and all subsequent ESRD PPS rules and 
notices are considered to incorporate the CBSA changes published in the 
most recent OMB bulletin that applies to the hospital wage index. The 
OMB bulletins may be accessed online at: http://www.whitehouse.gov/omb/bulletins/index.html. Consistent with those definitions, we are 
proposing to define urban and rural areas in proposed Sec.  413.231(b) 
of this proposed rule as follows: The term ``urban area'' would mean a 
Metropolitan Statistical Area or a Metropolitan division (in the case 
where a Metropolitan Statistical Area is divided into Metropolitan 
Divisions), as defined by OMB. The term ``rural area'' would mean any 
area outside an urban area.
    Under the current basic case-mix adjusted composite payment system, 
we apply a floor as a substitute wage index for areas with very low 
wage index values. However, we have gradually reduced the ESRD wage 
index floor from 0.90 in CY 2005, to 0.85 in CY 2006, 0.80 in CY 2007, 
0.75 in CY 2008, and 0.70 in CY 2009 (73 FR 69758). We also stated that 
a gradual reduction was needed to ensure that patient access in areas 
that have low wage index values, and that we would continue to reassess 
the need for a wage index floor in future years.
    For the ESRD PPS proposed rule, we are proposing not to adopt a 
wage index floor, as we believe we have provided a gradual reduction to 
the ESRD wage index floor through the existing basic case-mix adjusted 
composite payment system and that the impact on ESRD facilities will be 
minimal. We note that ESRD facilities affected by the floor may opt to 
go through the transition to the ESRD PPS, where the portion of their 
payment that is based on the ESRD PPS will be gradually increased from 
25 percent of their payments in 2011 to 100 percent of their payments 
in 2014. We intend to continue to gradually reduce the ESRD wage index 
floor for the portion of the payment that is based on the current basic 
case-mix adjusted composite payment system. Applying a gradual 
reduction only to the floor that applies to the existing basic case-mix 
adjusted composite payment system ESRD wage index will accelerate the 
decline in the floor so that ESRD facilities are less dependent on the 
floor and at the end of the transition we would apply their actual wage 
index values.

[[Page 49969]]

    In CY 2006, while adopting the CBSA designations, we identified a 
small number of ESRD facilities in both urban and rural areas where 
there are no hospital data from which to calculate ESRD wage index 
values. Since there are ESRD facilities in these areas, we developed 
policies for each of these areas, and we provide the details of these 
policies below (72 FR 66283). The areas with ESRD facilities that have 
no hospital data are rural Massachusetts, rural Puerto Rico, and 
Hinesville, GA (CBSA 25980). In the CY 2008 PFS final rule with comment 
(72 FR 66283), we stated that we would continue to evaluate exiting 
hospital wage data and possibly wage data from other sources such as 
the Bureau of Labor Statistics, to determine if other methodologies 
might be appropriate for imputing wage index values for areas without 
hospital wage data for CY 2009 and subsequent years. To date, no data 
from other sources, superior to that currently used in connection with 
the inpatient hospital PPS wage index, have emerged. Therefore, for 
purposes of the proposed ESRD PPS, we are proposing to continue with 
our current policies for rural Massachusetts and Hinesville, Georgia:
    <bullet> For rural Massachusetts, we propose to adopt the 
methodology originally adopted for CY 2008 for establishing a wage 
index value for rural Massachusetts. Because we had used the same wage 
index value for 2 years with no update, we believed it was appropriate 
to establish a methodology which employed reasonable proxy data for 
rural areas (including rural Massachusetts) and also permitted annual 
updates to the wage index based on that proxy data. We used the average 
wage index values from all contiguous CBSAs as a reasonable proxy for 
rural Massachusetts. In determining an imputed rural wage index, we 
interpret the term ``contiguous'' to mean sharing a border. In the case 
of Massachusetts, the entire rural area consists of Dukes and Nantucket 
Counties. We determined that the borders of Dukes and Nantucket 
counties are contiguous with CBSA 12700, Barnstable Town, MA and CBSA 
39300, Providence-New Bedford-Fall River, RI-MA. We propose to continue 
to use this methodology that averages the wage index values for the 
contiguous CBSAs, Barnstable Town, MA (CBSA 12700) and Providence-New 
Bedford-Fall River, RI-MA (CBSA 39300) for an imputed wage index value 
for rural Massachusetts for CY 2011.
    <bullet> For Hinesville, GA (CBSA 25980), which is an urban area 
without specific hospital wage data, we propose to continue to use the 
methodology that was adopted in the CY 2007 PFS final rule (71 FR 231), 
which was to impute a wage index value for Hinesville, GA, using the 
average proposed ESRD wage index value for all urban areas within the 
State of Georgia.
    With regard to rural Puerto Rico, we are proposing a different 
policy under the proposed ESRD PPS. In particular, we have previously 
applied the ESRD wage index floor for rural Puerto Rico because all 
areas in Puerto Rico that have a wage index were eligible for the ESRD 
wage index floor. However, as we stated earlier in this section, for 
the proposed ESRD PPS, we are proposing to eliminate the use of a wage 
index floor under the proposed ESRD PPS wage index. Therefore, for 
rural Puerto Rico, we propose to use the value for rural Puerto Rico 
(0.4047) that has been used by other payment systems that do not use a 
wage index floor. This wage index value is the latest available wage 
index value for rural Puerto Rico and is currently used for rural 
Puerto Rico by other payments systems that do not have a wage index 
floor. We note that there are currently no ESRD facilities located in 
rural Puerto Rico.
    We are also proposing to use the labor share as measured by the 
proposed ESRD bundled market basket, which is 38.160 percent (as 
described in section XII. of this proposed rule). We note that the 
labor-related share from the proposed ESRD bundled market basket 
(38.160 percent) is lower than the labor-related share from the 
existing ESRD composite rate index (53.711 percent) because there are 
no labor costs associated with the separately billable portion of the 
proposed ESRD bundled market basket. Our proposed adjustment for wages 
is set forth in proposed Sec.  413.231. For this proposed rule, we used 
the most current final wage index that was available at the time 
analysis was completed. This was the final CY 2009 wage index data. As 
stated earlier in this section, the ESRD wage index values used in the 
basic case-mix adjusted composite payment system are calculated without 
regard to geographic reclassifications authorized under section 
1886(d)(8) and (d)(10) of the Act and utilize pre-floor hospital data 
that are unadjusted for occupational mix (71 FR 69685; 73 FR 69758). We 
are proposing to use the same wage index for the ESRD PPS.
    As we previously noted, in our current basic case-mix adjusted 
composite payment system, we incorporate the wage index budget 
neutrality factor into the wage index values. Since the CY 2009 ESRD 
wage index has the same values as the FY 2009 SNF PPS wage index, we 
recommend that entities wishing to replicate our analysis refer to the 
FY 2009 final rule where the FY 2009 Skilled Nursing Facility (SNF) PPS 
wage index was published. The FY 2009 SNF PPS final rule (73 FR 46415) 
includes tables with these wage index values. Table 8 shows the wage 
index values for urban areas (73 FR 46441 through 46462) and table 9 
shows the wage index values for rural areas (73 FR 46462).
    Since the ESRD PPS will be implemented in CY 2011, we believe it is 
appropriate to use CY 2011 wage index values. However, the wage data 
will not yet be available when the ESRD PPS final rule is published. 
Therefore, we propose to include the proposed CY 2011 ESRD PPS wage 
index data for purposes of the ESRD PPS (that would not include any 
wage index budget neutrality adjustment) along with the CY 2011 
proposed update to the existing basic case-mix adjusted composite 
payment system. We anticipate that this would be published in the CY 
2011 Physician Fee Schedule proposed rule, which we expect to be 
published in the summer of 2010. We also propose to publish the final 
CY 2011 ESRD PPS wage index along with the CY 2011 final rule update to 
the existing basic case-mix adjusted composite payment system. We 
anticipate that this would be published in the CY 2011 Physician Fee 
Schedule final rule, which we expect to be published in November of 
2010.
2. Low-Volume Adjustment
a. Statutory Authority
    Section 1881(b)(14)(D)(iii) of the Act requires a payment 
adjustment that ``reflects the extent to which costs incurred by low-
volume facilities (as defined by the Secretary) in furnishing renal 
dialysis services exceed the costs incurred by other facilities in 
furnishing such services, and for payment for renal dialysis services 
furnished on or after January 1, 2011, and before January 1, 2014, such 
payment adjustment shall not be less than 10 percent.''
b. Defining a Low-Volume Facility
    As indicated above, section 1881(b)(14)(D)(iii) of the Act 
authorizes the Secretary to define ``low-volume facilities'' for 
purposes of a payment adjustment in the proposed ESRD PPS. We believe 
the low-volume adjustment should encourage small ESRD facilities to 
continue to provide access to care to an ESRD patient population where 
providing that care would otherwise be problematic. UM-KECC has 
performed analyses using data from CMS Medicare cost reports, SIMS, and 
OSCAR for years 2004-2006 to assist us in determining

[[Page 49970]]

what the ESRD facility-level characteristics are that best demonstrate 
what is a low-volume facility.
    To begin our process of developing the methodology for defining a 
low-volume facility, we set parameters for ESRD facility size. In this 
explanation and throughout this section, the term `year' is established 
by the ESRD facility's final-settled cost report, where the final-
settled cost report reports costs for 12-consecutive months. Under the 
initial categorization, an ESRD facility with less than 5,000 
treatments per year was considered small, a ESRD facility with 5,000 to 
10,000 treatments per year was considered medium, and an ESRD facility 
with 10,000 treatments per year or more was considered large. The 
average ESRD facility size is relatively close to 10,000 treatments and 
this threshold has been used by others, for example, MedPAC.
    With the data compiled and analyzed by UM-KECC, we were interested 
to see the distribution of ESRD facility size across the different ESRD 
facility ownership types. For purposes of defining a low-volume 
facility, we chose to categorize all ESRD facilities into four ESRD 
facility ownership types; (1) Independent, (2) regional chains, (3) 
Large Dialysis Organizations (LDOs), and (4) unknown ownership type. Of 
the hospital-based ESRD facilities, we found that 75.5 percent are 
independent, 10.7 percent are members of a regional chain/other 
category, 0.7 percent are members of an LDO, and 13.2 percent have 
unknown chain status. UM-KECC's comparison between ESRD facility size 
and ownership type, (Table 21: ESRD facility size and ownership type, 
2004-2006), indicated that ownership varies with ESRD facility size and 
smaller ESRD facilities, especially those with less than 3,000 
treatments, are relatively more likely to be independent than larger 
ESRD facilities. For example, 31 percent of ESRD facilities with less 
than 3,000 treatments are independent while only 18 percent of ESRD 
facilities with more than 10,000 treatments are independent.
BILLING CODE 4120-01-P
[GRAPHIC] [TIFF OMITTED] TP29SE09.087

BILLING CODE 4120-01-C
    UM-KECC's comparison also indicated that while smaller ESRD 
facilities are less likely to be members of an LDO than larger ESRD 
facilities, a relatively large fraction of smaller ESRD facilities are 
members of an LDO. For an example, 61.4 percent of ESRD facilities with 
less than 5,000 treatments and 41.9 percent of ESRD facilities with 
less than 2,000 treatments are members of an LDO. As a result of the 
comparison between ESRD facility size and ESRD facility ownership type, 
we chose to use ESRD facility ownership type as a variable in a two-
equation regression analysis to test whether cost varies by ESRD 
facility ownership type within a ESRD facility size category.
    With the data analyzed by UM-KECC, we were also interested to see 
the distribution of ESRD facility size across ESRD facilities that have 
an urban or rural status. UM-KECC`s comparison of ESRD facility size 
and urban/rural status, (Table 22: ESRD facility size and rural status, 
2004-2006 (n=11,814)), indicated that nearly half of the small ESRD 
facilities are rural and larger ESRD facilities are less likely to be 
rural.

[[Page 49971]]



                                          Table 22--ESRD Facility Size and Rural Status, 2004-2006 (n=11,814)*
                                                                      [Preliminary]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                        ESRD facility rural status
                                                --------------------------------------------------------------------------------------------------------
 Total dialysis sessions at ESRD facility based                 Rural                               Urban                              All
                on Cost Reports                 --------------------------------------------------------------------------------------------------------
                                                  Facility                  % of      Facility                  % of      Facility                % of
                                                 years (n)    % of row     column    years (n)    % of row     column    years (n)   % of row    column
--------------------------------------------------------------------------------------------------------------------------------------------------------
<1,000.........................................         11         19.6        0.4          45         80.4        0.5          56        100        0.5
1 to 2,000.....................................         78         47.3        2.9          87         52.7        1.0         165        100        1.4
2 to 3,000.....................................        210         49.3        7.7         216         50.7        2.4         426        100        3.6
3 to 4,000.....................................        312         44.4       11.5         390         55.6        4.3         702        100        5.9
4 to 5,000.....................................        334         41.1       12.3         481         59.0        5.3         815        100        6.9
5 to 10,000....................................       1164         28.8       42.8        2877         71.2       31.6        4041        100       34.2
10,000+........................................        611         10.9       22.5        4998         89.1       55.0        5609        100       47.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Total......................................       2720         23        100.0        9094         77        100.0       11814        100      100.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Excludes facilities that opened or closed during the year. Based on data reported in SIMS.

    UM-KECC's comparison also indicated that because most ESRD 
facilities are urban, even with the lower percentage of small ESRD 
facilities in urban areas, more urban ESRD facilities than rural ESRD 
facilities would benefit from a low-volume payment adjustment. As a 
result of the comparison between ESRD facility size and urban/rural 
status, we chose to use urban/rural status as a variable in a two-
equation regression analysis to test whether cost varies by urban/rural 
status within a ESRD facility size category.
    UM-KECC was able to develop a two-equation regression analysis 
using the variables discussed above (Table 23: Analysis for ESRD 
facility size, rural/urban status, and ownership type, 2004-2006 Model 
2 and Table 24: Analysis for ESRD facility size, rural/urban status, 
and ownership type, 2004-2006 Model 4).
BILLING CODE 4120-01-P

[[Page 49972]]

[GRAPHIC] [TIFF OMITTED] TP29SE09.088


[[Page 49973]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.089

BILLING CODE 4120-01-C
    In Table 23, UM-KECC split the ESRD facility size variable into 7 
categories including rural/urban status with increments of 1,000 
treatments (<1,000, 1,000-1,999, 2,000-2,999, 3,000-3,999, 4,000-4,999, 
5,000-10,000, and 10,000+). They then estimated ESRD facility-level 
models for composite rate costs and patient-level models for separately 
billable MAP per treatment. UM-KECC attempted to exclude ESRD 
facilities whose small number of treatments might be a temporary 
phenomenon (for example, ESRD facilities that opened, changed 
ownership, or closed). This was done using the initial certification 
date reported in OSCAR and the date of ESRD facility closure reported 
in SIMS. Changes of ownership where the new owner of the existing ESRD 
facility continues under the existing ESRD facility's provider number 
were included in the analysis. UM-KECC's analysis indicated that 
composite rate costs per treatment decline substantially as ESRD 
facility size increases and separately billable MAPs per treatment do 
not change substantially by ESRD facility size. UM-KECC's analysis also 
indicated that by controlling for ESRD facility size, being a member of 
an LDO does not lower costs and rural ESRD facilities do not report 
higher costs than urban ESRD facilities.
    UM-KECC's two-equation regression analysis gave us the ability to 
see what other factors can be targeted to ensure that we have the right 
population of ESRD facilities that are low-volume. From UM-KECC's 
comparisons discussed above, we were able to determine that small rural 
ESRD facilities did not have higher composite rate costs in any of the 
small ESRD facility categories when compared to small urban ESRD 
facilities. In Table 24 we were able to see interactions between LDO 
status/small ESRD facility size/rural vs. urban status. We found that 
small ESRD facilities owned by LDOs were shown to have higher costs 
than small ESRD facilities that are non-LDOs.
    We further evaluated how many dialysis treatments per year would 
best describe low-volume. As mentioned above, we began with our 
definition of a small ESRD facility, that is, less than 5,000 
treatments. UM-KECC was able to provide us with another two-equation 
regression analysis that controlled for ESRD facility size and divided 
the small ESRD facility size variable into 3 categories; less than 
2,000 treatments, less than 3,000 treatments, and less than 4,000 
treatments. (Table 25: Analysis for low-volume ESRD facility size, 
2004-2006).

[[Page 49974]]



              Table 25--Analysis for Low-Volume ESRD Facility Size, 2004-2006--Include Additional Controls for ESRD Facility Size: Model 1
                                                             [Preliminary January 29, 2009]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                      *Facility level log-linear model of average     **Patient level log-linear model of MAP per
                                       cost per session (n=11,814) R-sq: 45.8%,        session (n=890,776) R-sq: 8.7%,  Average
                                                Average $169.67/session                             $82.45/session                    Combined payment
             Variable              ------------------------------------------------------------------------------------------------ multiplier[supcaret]
                                     Modeled CR                    CR payment        Modeled CR                    CR payment
                                     multiplier    p-value    multiplier[supcaret]   multiplier    p-value    multiplier[supcaret]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Facility size < 2,000 treatments          1.497       <.0001             1.439            0.878       0.0929             0.876                 1.254
 during each year from 2004-06....
Facility size < 2,000 treatments          1.520       <.0001             1.000            1.055       0.0002             1.000                 1.000
 during current year but not
 during all 3 years...............
Facility size 2,000-4,999                 1.290       <.0001             1.000            0.992       0.0101             1.000                 1.000
 treatments.......................
Facility size 5,000-9,999                 1.122       <.0001             1.000            1.011       <.0001             1.000                 1.000
 treatments.......................
Facility size 10,000+ treatments..        1.000          ref             1.000            1.000          ref             1.000                 1.000
Rural.............................        0.997       0.4674  ....................        0.981       <.0001  ....................  ....................
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                                                    Table 26--Model 2
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                      *Facility level log-linear model of average     **Patient level log-linear model of MAP per
                                       cost per session (n=11,814) R-sq: 46.0%,        session (n=890,776) R-sq: 8.7%,  Average
                                                Average $169.67/session                             $82.45/session                    Combined payment
             Variable              ------------------------------------------------------------------------------------------------ multiplier[supcaret]
                                     Modeled CR                    CR payment        Modeled CR                    CR payment
                                     multiplier    p-value    multiplier[supcaret]   multiplier    p-value    multiplier[supcaret]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Facility size < 3,000 treatments          1.383       <.0001             1.330            0.940       <.0001             0.938                 1.202
 during each year from 2004-06....
Facility size < 3,000 treatments          1.478       <.0001             1.000            0.976       0.0036             1.000                 1.000
 during current year, but not
 during all 3 years...............
Facility size 3,000-4,999                 1.268       <.0001             1.000            1.000       0.9622             1.000                 1.000
 treatments.......................
Facility size 5,000-9,999                 1.122       <.0001             1.000            1.011       <.0001             1.000                 1.000
 treatments.......................
Facility size 10,000+ treatments..        1.000          ref             1.000            1.000          ref             1.000                 1.000
Rural.............................        0.997       0.4419  ....................        0.981       <.0001  ....................  ....................
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                                                    Table 27--Model 3
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                      *Facility level log-linear model of average     **Patient level log-linear model of MAP per
                                       cost per session (n=11,814) R-sq: 45.9%,        session (n=890,776) R-sq: 8.7%,  Average
                                                Average $169.67/session                             $82.45/session                    Combined payment
             Variable              ------------------------------------------------------------------------------------------------ multiplier[supcaret]
                                     Modeled CR                    CR payment        Modeled CR                    CR payment
                                     multiplier    p-value    multiplier[supcaret]   multiplier    p-value    multiplier[supcaret]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Facility size < 4.000 treatments          1.348       <.0001             1.300            0.978       0.0002             0.976                 1.194
 during each year from 2004-06....
Facility size < 4,000 treatments          1.373       <.0001             1.000            0.997       0.5825             1.000                 1.000
 during current year, but not
 during all 3 years...............
Facility size 4,000-4,999                 1.237       <.0001             1.000            0.999        0.766             1.000                 1.000
 treatments.......................
Facility size 5,000-9,999                 1.122       <.0001             1.000            1.011       <.0001             1.000                 1.000
 treatments.......................
Facility size 10,000+ treatments..        1.000          ref             1.000            1.000          ref             1.000                 1.000
Rural.............................        0.997        0.427  ....................        0.981       <.0001  ....................  ....................
--------------------------------------------------------------------------------------------------------------------------------------------------------
[supcaret] The potential low-volume payment adjustment was calculated relative to all other facilities combined (i.e., using a weighted average of the
  other ESRD facility size coefficients).
* Other variables included in the CR model are age, female, body surface area, duration of RRT: <4 month, alcohol/drug dependence, HIV/AIDS, hepatitis
  B, bacterial pneumonia and other pneumonias/opportunistic infections, hereditary hemolytic or sickle cell anemias, cancer, calendar year, ESRD
  facility ownership type, composite rate payment exception, and % of patients in the ESRD facility with URR <65%.
** Other variables included in the SB model are age, female, body surface area, low BMI, duration of RRT: <4 month, alcohol/drug dependence, cardiac
  arrest, pericarditis, HIV/AIDS, hepatitis B, septicemia, bacterial pneumonia and other pneumonias/opportunistic infections, gastro-intestinal tract
  bleeding, hereditary hemolytic or sickle cell anemias, cancer, myelodysplastic syndrome, monoclonal gammopathy, calendar year, ESRD facility ownership
  type, composite rate payment exception, and % of patients in the ESRD facility with URR <65%.

    We found that the cost multipliers for small ESRD facilities are 
greater than 1.1 for any of the definitions for small ESRD facility 
size with respect to number of treatments per year and that they 
decline for successively higher cutoffs for defining small ESRD 
facilities. We also found that if a payment multiplier fully reflects 
the cost multiplier, there will be a strong disincentive for ESRD 
facilities to increase volume above cutoff. However, to the extent that 
a payment multiplier is smaller than the cost multiplier, this 
disincentive is somewhat diminished.
    Since UM-KECC's analyses included data that spanned a 3-year period 
(2004-2006), we further evaluated the three ESRD facility size 
categories that we applied in the previous paragraph's regression 
analysis, that is, less than 2,000 treatments, less than 3,000 
treatments, and less than 4,000

[[Page 49975]]

treatments per year. We were interested to see the number of small ESRD 
facilities that were able to maintain their ESRD facility size status 
each year of the 3-year period.
    In this evaluation, we excluded ESRD facilities that opened, 
changed ownership, or closed during any one of the 3 years used for 
data. Status as a ``closed'' ESRD facility was based on information in 
the SIMS that the ESRD facility closed. Status as an ``opening'' ESRD 
facility was based on the initial Medicare certification date reported 
in OSCAR. Changes of ownership where the new owner of an existing ESRD 
facility continues under the existing ESRD facility's provider number 
were included in the analysis. We found there were 25 dialysis ESRD 
facilities that provided less than 2,000 treatments annually across the 
3-year period (2004-2006), 89 ESRD facilities provided less than 3,000 
treatments annually across the 3-year period, and 241 ESRD facilities 
provided less than 4,000 treatments annually across the 3-year period. 
These data indicate that ESRD facilities that provide less than 2,000 
treatments per year across the 3-year period would result in low-volume 
adjustments being applied to very few ESRD facilities. These data also 
indicate that ESRD facilities that provide less than 4,000 treatments 
across the 3-year period would apply to almost 10 times more the number 
of ESRD facilities that provided less than 2,000 treatments and almost 
3 times more the number of ESRD facilities that provided less than 
3,000 treatments.
    Accordingly, we propose to use a threshold of ESRD facilities that 
provide less than 3,000 treatments per year across the 3-year period. 
The threshold at 3,000 treatments strikes a balance between 
establishing an increment in payment that reflects the substantially 
higher treatment costs incurred by low-volume facilities (an increment 
that decreases relatively quickly as the low-volume threshold is 
raised) but still applies to a sufficiently large number of ESRD 
facilities to have an impact.
    As mentioned above, the statute gives the Secretary the authority 
to define ``low-volume facilities''. Based on the above results, we 
propose in Sec.  413.232, that a ``low-volume facility'' is an ESRD 
facility that meets the following criteria: (1) Furnished less than 
3,000 treatments in each of the 3 years preceding the payment year; and 
(2) has not opened, closed, or received a new provider number due to a 
change in ownership during the 3 years preceding the payment year. In 
the event an ESRD facility provides 3,000 or more treatments during 
their payment year, that is, no longer eligible for the low-volume 
adjustment; the ESRD facility would stop receiving the adjustment at 
the time they reach their 3,000th treatment. Where a change of 
ownership occurs and the new owner receives a new provider number 
during the 3-year period, the ESRD facility would not be eligible for 
the adjustment until it demonstrates that it meets the low-volume 
criteria under its new provider number. We are aware that there are 
Medicare-certified ESRD facilities that solely furnish support services 
and training for home peritoneal dialysis and home hemodialysis ESRD 
beneficiaries. Therefore, we are concerned that it may not be 
appropriate to extend low-volume eligibility to these types of 
facilities. We also are concerned that a treatment threshold may create 
an incentive for ESRD facilities to turn away patients rather than lose 
their low-volume status. We are requesting comment on the change of 
ownership element of our proposed definition, the appropriateness of 
applying the low-volume adjustment to training ESRD facilities, and the 
possible unintended effects of having a treatment threshold.
    We believe that this approach would identify appropriate ESRD 
facilities for an adjustment and provide access to care for a 
vulnerable patient population. Under this proposal, new ESRD facilities 
would not be able to benefit from a low-volume adjustment until the 4th 
year in operation. For example, an ESRD facility opening in 2008 would 
need to meet the low-volume criteria for 2009, 2010, and 2011 to be 
eligible for the low-volume adjustment in 2012.
    We are very concerned about potential misuse of the proposed 20.2 
percent low-volume adjustment (the proposed figure is discussed below). 
Specifically, our concern is that the low-volume adjustment could 
incentivize dialysis companies to establish small ESRD facilities in 
close geographic proximity to other ESRD facilities, thereby leading to 
unnecessary inefficiencies, in order to obtain the low-volume 
adjustment. To address our concern, we are proposing additional 
criteria described below in connection with the proposed definition 
discussed above.
    We propose, for purposes of determining the number of treatments 
under the proposed definition of a low-volume facility, that the number 
of treatments considered furnished by the ESRD facility would be equal 
to the aggregate number of treatments actually furnished by the ESRD 
facility and the number of treatments furnished by other ESRD 
facilities that are both: (i) Under common ownership with and; (ii) 25 
road miles or less from the ESRD facility in question. Under our 
proposal, ``common ownership'' means the same individual, individuals, 
entity, or entities directly or indirectly own 5 percent or more of 
each ESRD facility. Our intention is to create a disincentive for 
commonly-owned ESRD facilities to purposively establish new ESRD 
facilities in close geographic proximity to other ESRD facilities, 
which could lead to unnecessary inefficiencies. The 25 road mile 
threshold is a standard that is used for low-volume adjustments in 
Medicare. For example, this criterion is used in the prospective 
payment system for inpatient hospital services. We are soliciting 
comment on our proposed definition of a ``low volume facility'' and our 
proposed geographic requirement with regard to determining the number 
of treatments furnished. We are also requesting comment concerning 
other potential vulnerabilities of the proposed low-volume definition 
and ways to address them.
    Although we propose to limit the application of the low-volume 
adjustment to ESRD facilities with common ownership in a certain 
geographic location for purposes of determining the number of 
treatments under the proposed definition, we propose to grandfather 
those commonly owned ESRD facilities that have been in existence and 
certified for Medicare participation on or before December 31, 2010. 
Specifically, ESRD facilities that are in existence and certified for 
Medicare participation prior to January 1, 2011, will be exempt from 
treatment determination requirement and the geographic proximity 
restriction discussed above. We intend to monitor this grandfathering 
provision for abuse on a going forward basis and invite comment on the 
vulnerability it may present and ways to address them.
    We also intend to work with our Regional Offices to monitor changes 
in the ESRD industry's behaviors and emerging trends in the ESRD 
industry nationwide. In this way, we would be able to monitor survey 
and certification activities and impose additional safeguards that 
maybe necessary in the interest of program integrity.
    In order to identify which existing ESRD facilities meet the low-
volume criteria, we propose that ESRD facilities could attest to the 
FI/MAC that they qualify as a low-volume facility. In this approach the 
FI/MAC would verify the ESRD facility's attestation of their low-volume 
status using the ESRD facility's final-settled cost reports. We invite 
comments on this approach and welcome other suggestions to identify

[[Page 49976]]

existing low-volume facilities. Instruction as to how the FIs/MACs 
would implement the proposed ESRD PPS will be provided in future 
guidance.
c. Defining the Percent of Increase
    As discussed above, section 1881(14)(D)(iii) of the Act also 
requires the ESRD PPS to include a ``payment adjustment that reflects 
the extent to which costs incurred by low-volume facilities (as defined 
by the Secretary) * * * and for payment for renal dialysis services 
furnished on or after January 1, 2011, and before January 1, 2014, such 
payment adjustment not be less than 10 percent.'' Based on the 
definition described above and on the analysis discussed above in Table 
26, Model 2, limiting the low-volume category to ESRD facilities that 
had not open, closed, or received a new provider number due to a change 
in ownership and remained small, that is, less than 3,000 treatments 
during all 3 years from 2004-2006 and including additional controls for 
ESRD facility size, the resulting low-volume payment adjustment was 
determined to be 20.2 percent. This chart takes into consideration 
paying the low-volume facilities based on the model's multiplier 
relative to the weighted average of the multipliers of the other ESRD 
facility size classes, therefore the extra payment would be calculated 
relative to an ESRD facility of typical size, not a ESRD facility in 
the largest size category.
    Using our proposed low-volume criteria, we measured the payments 
received by these ESRD facilities and determined that 76.4 percent of 
ESRD facilities meeting the proposed low-volume criteria would get an 
adjustment of 10 percent or more increase in payment relative to what 
they received under the current system (see Table 28: Measured costs, 
current payments and proposed payment per dialysis session for an 
expanded bundle, 2006).
BILLING CODE 4120-01-P

[[Page 49977]]

[GRAPHIC] [TIFF OMITTED] TP29SE09.090

BILLING CODE 4120-01-C
    Based on the analysis provided by UM-KECC, we are proposing a 20.2 
percent increase to the base rate to account for the costs incurred by 
low-volume facilities for renal dialysis services furnished on or after 
January 1, 2011, and before January 1, 2014.
    The proposed low-volume adjustment policy is set forth in proposed 
Sec.  413.232. We invite comments on the low-volume facility proposed 
adjustment.
    For purposes of determining the appropriate adjustment for the low-
volume facilities defined above, we are considering other options in 
addition to the 20.2 percent adjustment we described. As mentioned 
previously, section 1881(14)(D)(iii) of the Act requires the payment 
adjustment for low-volume facilities be not less than 10 percent during 
the transition. We

[[Page 49978]]

believe that adopting the statutory adjustment of 10 percent would 
provide relief to low-volume facilities of the costs they incur to 
provide services. In addition, providing a lower payment adjustment 
results in less of a decrease in the ESRD PPS base rate which would 
apply to treatments furnished by all ESRD facilities.
    Another option for the low-volume adjustment would be the midpoint 
between the statutory adjustment of 10 percent and the results of our 
data analysis which is 20.2 percent. We believe that a 15 percent 
increase could establish an appropriate adjustment amount that would 
provide low-volume facilities the incentive to utilize resources more 
efficiently and control their costs.
    We invite comments on these alternative options for determining the 
percent low-volume adjustment.
3. Alaska/Hawaii Facilities
    Section 1881(b)(14)(D)(iv) of the Act permits the Secretary to 
include other payment adjustments as the Secretary determines 
appropriate. The basic case-mix adjusted composite payment system 
currently does not provide a separate adjustment for ESRD facilities 
located in Hawaii and Alaska. However, some prospective payment 
systems, such as the hospital inpatient PPS and the inpatient 
psychiatric facility PPS, provide a cost of living adjustment (COLA) 
for facilities located in Alaska and Hawaii. These COLA adjustments are 
applied to the non-labor portion of the payment and are based on the 
rationale that the wage index adjustment to the labor portion of the 
payment is not sufficient to provide for the higher costs incurred by 
facilities in Alaska and Hawaii. For example, the same supplies used by 
an ESRD facility located in Hawaii cost more because there are 
additional (higher) transportation costs incurred to receive the same 
supplies compared to an ESRD facility located in the mainland United 
States. Analysis completed for the 2008 Report to Congress indicated 
there was no need for a COLA for these areas. After all adjustments 
(including wage and other adjustments), our analysis of ESRD facilities 
located in Alaska and Hawaii did not demonstrate any adverse impact 
from the proposed ESRD PPS.
    Our analysis continues to support that the proposed ESRD PPS would 
adequately reimburse ESRD facilities located in Alaska and Hawaii. 
Therefore, we are not proposing to adopt COLA adjustments for ESRD 
facilities in Alaska and Hawaii under the proposed ESRD PPS. We invite 
public comments on this proposal.
4. Rural
    Section 1881(b)(14)(D)(iv)(III) of the Act provides that the ESRD 
PPS may include payment adjustments as the Secretary determines 
appropriate such as a payment adjustment for facilities located in 
rural areas. Accordingly, we analyzed rural status as part of the 
regression analysis for the proposed ESRD PPS to inform our proposal 
for this rule.
    As discussed previously in section VIII. C. 1. of the proposed 
rule, we are proposing to define rural facilities in proposed Sec.  
413.231(b)(2) as facilities that are outside a Metropolitan Statistical 
Area or a Metropolitan division (in the case where a Metropolitan 
Statistical Area is divided into Metropolitan Divisions), as defined by 
OMB. To decrease distortion among independent variables, rural 
facilities were considered control variables rather than payment 
variables.
    We do not believe that the proposed ESRD PPS would result in 
decreased access to care for beneficiaries residing in rural areas 
based on the results of the impact analysis. Specifically, as 
illustrated in the impact table in Table 48, the proposed ESRD PPS 
reveals an overall decrease in payment of 2.5 percent for rural 
facilities under the proposed ESRD PPS in 2011 as compared to the 
current basic case-mix adjusted composite payment system. However, 2 
percent of this amount is associated with the statutory requirement 
that payments under the ESRD PPS equal 98 percent of what ESRD 
facilities would have received had this ESRD PPS not been implemented 
(98 percent of payments to ESRD facilities under the current payment 
system). In summary, this analysis reveals that rural ESRD facilities 
would be adequately reimbursed under the proposed ESRD PPS.
    We also included facility treatment volume as a control variable in 
the payment model. Based on the analysis conducted by UM-KECC, 66 of 
the 166 ESRD facilities that met the low volume criteria discussed 
further in section VIII.C.2 of this proposed rule are located in rural 
areas. Thus, some of the effects of rural status on cost and payment 
are captured via the low volume payment adjustments. Therefore, we are 
not proposing a facility level adjustment that is based on rural 
location. We invite public comments on this proposal.
5. Site Neutral ESRD PPS Rate
    For dialysis services furnished prior to January 1, 2009, the basic 
case-mix composite rate differentiated between hospital-based and 
independent ESRD facilities. That is to say, the composite rate for 
hospital-based facilities was on average $4.00 more per treatment more 
than the composite rate for independent dialysis facilities.
    Section 1881(b)(12)(A) of the Act, as amended by section 153(a)(2), 
requires a site neutral composite rate so that the payment rate for 
services furnished on or after January 1, 2009, by hospital-based 
facilities is the same as the payment rate paid to independent renal 
dialysis facilities under the current system. In addition, section 
1881(b)(12)(A) of the Act, as amended by section 153(a)(2) of MIPPA, 
requires that in applying the geographic index to hospital-based 
facilities, the labor share shall be based on the labor share otherwise 
applied to the renal dialysis facilities. In the CY 2009 final rule (72 
FR 69881 and 69935), we revised Sec.  413.174, which described the 
methodology for prospective rates for ESRD facilities, to conform to 
the statutory requirement.
    Section 1881(b)(14)(A)(i) of the Act, as amended by section 153(b) 
of MIPPA, provides that for services furnished on or after January 1, 
2011, the Secretary shall implement a payment system under which a 
single payment is made under this title to ESRD facilities for renal 
dialysis services, in lieu of any other payment. Therefore, the site 
neutral payment provisions discussed above will automatically be 
incorporated under the ESRD PPS and used to establish a single base 
rate that will apply to ESRD facilities.

D. Determination of ESRD PPS Payment Adjusters

    We have described the selection of patient characteristics as 
potential case-mix adjusters using a modeling approach that has relied 
on separate regression equations for CR and SB services. The predictive 
power of the separate estimating equation for CR services in terms of 
the proportion of variance explained (R\2\) was 46.0 percent. The 
comparable figure for the SB regression equation was 8.7 percent. The 
overall estimated R\2\ for the ESRD PPS payment model is 39.0 percent. 
While the case-mix adjustments were based on separate estimating 
equations, the equations can be combined into a single payment formula 
for the ESRD PPS.
BILLING CODE 4120-01-P

[[Page 49979]]

[GRAPHIC] [TIFF OMITTED] TP29SE09.005


[[Page 49980]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.006

    Table 29 shows how the payment adjusters from the separate CR and 
SB regressions were combined. The first two columns in Table 29 
represent the CR and SB model results for each of the regression 
equations, carried to three significant figures. The third column of 
Table 29 presents a single payment multiplier for each patient 
characteristic based on its relationship to resource use for both CR 
and SB services. The payment adjusters in the third column (PmtMultEB) 
were calculated as the weighted average of the CR and SB multipliers. 
The weights correspond to each component's proportion of the sum of the 
average CR costs and SB payments per treatment for CYs 2004-2006, as 
shown in Table 30.

[[Page 49981]]

[GRAPHIC] [TIFF OMITTED] TP29SE09.007

BILLING CODE 4120-01-C
    The weights were calculated using the 3 years of pooled data. Based 
on this analysis, the average cost for CR services per treatment as 
computed from the Medicare cost reports was $169.67. The average MAP 
per treatment for SB services based on Medicare claims for the same 
period was $82.45. Based on total estimated costs of $252.12 per 
treatment ($169.67 + $82.45), the relative weights are weightCR = 0.673 
for composite rate services ($169.67/$252.12) and weightSB = 0.327 for 
separately billable services ($82.45/$252.12). The payment multipliers 
presented in the third column of Table 29 were calculated as PmtMultEB 
= 0.673 x PmtMultCR + 0.327 PmtMultSB. In this manner, the separate 
case-mix adjusters for composite rate and separately billable services 
were combined to obtain a single set of multipliers (shown in the third 
column of Table 29) to compute the payment rates under the proposed 
ESRD PPS.
    Six co-morbidities were identified as payment adjusters for 
separately billable services only, as they did not have a statistically 
significant association with composite rate costs based on the 
regression results. These patient characteristic variables have a 
composite rate multiplier in Table 29 of 1.000. For these co-
morbidities, there is no payment adjuster for composite rate services. 
Therefore, the payment multiplier is equal to 0.673 x 1.000 + 0.327 x 
PmtMultSB. The payment multipliers in the third column of Table 29 
reflect the combined results from the two-equation model previously 
described in this proposed rule, and represent the case-mix adjustment 
factors that we propose to apply to the base rate to compute the 
payment amount per treatment under the proposed ESRD PPS.

IX. Pediatric Patients

    Section 1881(b)(14)(D)(iv)(I) of the Act, as added by section 
153(b) of MIPPA, gives the Secretary the discretionary authority to 
develop pediatric payment adjustments in connection with the ESRD PPS. 
Below we discuss the current system with regard to ESRD facilities that 
furnish renal dialysis services to pediatric patients, as well as our 
proposed methodology for developing a pediatric payment adjustment 
under the proposed ESRD PPS.

A. Current System

    The current basic case-mix adjusted composite payment system uses a 
set of case-mix adjusters or multipliers based on three variables--age, 
BSA, and low BMI. Employing the same 2000 to 2002 data and regression 
methodology used to derive the basic case-mix adjusters, we attempted, 
when implementing the current payment system, to develop case-mix 
adjusters for outpatient ESRD patients under age 18. However, we found 
that for the approximately 600 Medicare pediatric patients for whom 
claims were available from 2000 through 2002, the results were highly 
variable and statistically unstable, and therefore, inappropriate for 
the development of case-mix adjusters in accordance with the same 
methodology otherwise applicable to adult Medicare ESRD patients (see 
69 FR 66326-27 published November 15, 2004). Section 623(b)(1)(D) of 
the MMA amended section 422(a)(2) of BIPA to provide that beginning 
October 1, 2002, ESRD facilities in which at least 50 percent of 
patients are under age 18, are considered ESRD pediatric facilities, 
and are eligible for a pediatric exception to the composite payment 
rate. However, due to the relative costliness of pediatric ESRD 
patients, we believed that it was appropriate to develop a temporary 
methodology applicable to ESRD facilities, which furnish outpatient 
dialysis to pediatric patients, regardless of whether the facility met 
the definition of a pediatric facility. Our intent was to rely on a 
temporary methodology pending the completion of research, which could 
yield empirically based case-mix adjusters under a bundled ESRD PPS.
    In the CY 2005 PFS final rule with comment period, published on 
November 15, 2004 (69 FR 66327), implementing the basic case-mix 
adjustment to the composite payment system we described the methodology 
used to develop a 62 percent pediatric increase (that is, an adjustment 
factor of

[[Page 49982]]

1.62) automatically applied to the composite payment rate per treatment 
for any facility furnishing outpatient dialysis services to pediatric 
patients. That factor was based on the average amount of the atypical 
services exceptions granted for 20 ESRD facilities, each of which 
sought and received an exception for the atypical costs incurred for 
the treatment of outpatient pediatric patients, compared to the average 
unadjusted composite payment rate (that is, the payment without regard 
to exception amounts) for these same 20 facilities. We explained that 
application of the pediatric adjustment factor of 1.62 in lieu of an 
explicit pediatric case-mix adjustment was temporary, and would be 
eliminated once an appropriate methodology, preferably one applicable 
to both pediatric and adult Medicare patients, could be developed.
    The Secretary's 2008 Report presented a design for a case-mix 
adjusted ESRD PPS, which included not only composite rate services but 
also separately billable dialysis services, weighted in accordance with 
the two-equation model described in section VIII. of this notice of 
proposed rulemaking.
    In applying the case-mix adjustment factors resulting from the two-
equation regression model described in the Secretary's 2008 Report to 
pediatric patients, we noted the following:

    [P]ediatric dialysis patients are comparatively rare among 
Medicare dialysis patients, comprising about 0.2 percent of the 
population. The impact of the BSA adjustment in the above example is 
a payment reduction of over 37 percent, compared to the age related 
increase of 9.1 percent. UM-KECC has performed analyses which 
demonstrate that the predicted separately billable MAP falls 
substantially short of the actual separately billable MAP for 
pediatric patients (that is, those less than age 18). This occurs 
because the BSA multiplier of 1.035 does not accurately reflect the 
relationship between BSA and separately billable services for 
pediatric patients because of their small size and relative rarity 
in the Medicare dialysis population. Given the small number of 
pediatric patients, there is a lack of statistical robustness in the 
payment model with respect to those patients. The data limitations 
do not permit a ready solution to this problem. We are currently 
examining approaches to determine if modifications to the regression 
based payment methodology for pediatric patients is feasible.
    See Secretary's February 2008 Report to Congress, pp. 47-48.

    Based on UM-KECC research subsequent to the issuance of the 
Secretary's 2008 Report, we believe that a separate regression based 
case-mix model is feasible for pediatric patients using a limited 
number of variables. In the following sections, we describe the payment 
model used to develop the payment adjusters which we are proposing to 
apply for Medicare pediatric ESRD patients.

B. Selection of a Pediatric Composite Rate Payment Adjustment

    One approach to developing a payment adjustment is to use the 
results of an updated composite rate cost model. Such a model could 
employ one or several age categories for pediatric patients. Table 31 
presents a model of composite rate costs for the purpose of 
demonstrating a method for arriving at a pediatric composite rate 
multiplier, with a single pediatric age category. This model was 
estimated using Medicare cost report, claims, and other data for CYs 
2004-2006. The model uses ESRD facility data on composite rate costs 
and average patient characteristics. Because pediatric patients 
comprise such a low percentage of the total patient load of most 
facilities, the measures of many patient characteristics at the 
facility level (that is, the average patient characteristics at the 
facility) are dominated by the characteristics of adult patients. 
Therefore, while average patient characteristics are shown in Table 31 
in the model, they are only used as control variables. That is, while 
statistically significant payment adjusters may be shown in Table 31 
for patient characteristic variables, there is no actual associated 
payment adjustment that would apply to composite rate services for 
pediatric patients. For example, the pediatric composite rate cost 
model assumes no payment adjustment for body size (BSA or low BMI), 
gender, duration of renal replacement therapy, or co-morbidities. The 
key coefficient is the one for the age less than 18 variable. The 
estimated regression-based multiplier of 1.199 reflects an increase in 
the composite rate portion of the base payment rate of 19.9 percent for 
patients less than 18, relative to patients age 45-59. The model shown 
in Table 31 with a single pediatric age category is the model we are 
proposing to use to adjust the composite rate portion of the proposed 
ESRD for pediatric patients.
BILLING CODE 4120-01-P

[[Page 49983]]

[GRAPHIC] [TIFF OMITTED] TP29SE09.091

BILLING CODE 4120-01-C
    The type of cost model shown in Table 31 could also employ multiple 
pediatric age categories. However, because of the small number of 
patients in each pediatric age category, the payment adjusters, based 
on the coefficients of the age variables, are unstable. Therefore, with 
respect to a payment adjustment applicable to composite rate services 
for pediatric patients, we believe that a single age

[[Page 49984]]

category is most appropriate. Although the proposed payment adjuster of 
1.199 for the composite rate portion of the ESRD PPS for pediatric 
patients is substantially less than the current adjustment of 1.62, we 
point out that this is an empirically developed measure derived from 
data for all Medicare outpatient ESRD pediatric patients treated by 
ESRD facilities. The 1.62 value was developed from only those 
facilities that sought and obtained an exception to their otherwise 
applicable composite payment rates.

C. Selection of a Pediatric Separately Billable Payment Adjustment

    Although the number of pediatric patients is small, we believe that 
it is feasible to estimate a payment model for separately billable 
services furnished to pediatric patients. However, the small sample 
size limits statistical power and results in a more limited set of 
potential payment adjusters. Unlike the adult separately billable 
payment model, which includes multipliers for particular patient co-
morbidities, age, body size, and other variables, we evaluated 
pediatric separately billable payment models based on categories 
defined by patient characteristics including age, the presence of co-
morbidities, and dialysis modality. This model structure is feasible 
because of the relatively small number of characteristics generating 
adjustments.
    We considered several factors in developing the payment model for 
separately billable services: The number and definition of the age 
categories; the number and set of co-morbidities; the reflection of 
modality as a payment variable; and the potential inclusion of other 
patient characteristics, such as gender, onset of renal dialysis, and 
history of transplantation. We developed several exploratory models for 
separately billable services furnished to pediatric patients in order 
to develop the model proposed in this notice.
    All of the analyses were performed using log-linear regression 
models of the average separately billable MAP per treatment during the 
year as the dependent variable. The data were pooled over the 3-year 
period CY 2004-2006, resulting in up to three yearly observations for 
each pediatric patient. The potential payment multipliers that were 
estimated by the model often required a statistical ``smearing'' 
adjustment to limit retransformation bias.
    Under statistical ``smearing'', a correction factor is applied to 
the predictions from a model that is estimated on the logarithmic scale 
(for example, the log of the average MAP per treatment). In the context 
of examining healthcare cost data that are not normally distributed, 
retransformation bias may occur when converting predicted values that 
are made on the log scale (that is, log dollars) back to the original 
scale (that is, dollars), yielding biased estimates of the mean cost in 
dollars. In order to make valid inferences about the relationships 
between patient characteristics and the MAPs (that is, in dollars), it 
is essential that retransformation bias be limited as much as possible. 
Because the difference between the measured MAP and predicted MAP for 
each observation (that is, the residuals) did not vary in the desired 
random pattern, indicating correlation between the variance of the 
residuals and some of the patient characteristics in each model 
(statistically known as ``heteroscedasticity''), separate smearing 
factors were applied by patient subgroup. The smearing adjustments were 
based on the average retransformed residual for each patient category. 
For further information on the use of statistical smearing, 
retransformation, and heteroscedasticity, see Duan, N., Smearing 
estimate: a nonparametric retransformation method, Journal of the 
American Statistical Association, 78, 1983, pp. 605-610, and Manning, 
W. G., The logged dependent variable, heteroscedasticity, and the 
retransformation problem, Journal of Health Economics, 17, 1998, pp. 
283-295.
    We examined numerous separately billable payment models to 
determine the most appropriate age categories (defined by two age 
groups), and the selection of co-morbidity categories, defined as two 
groups (no co-morbidities, and the presence of one or more of the co-
morbidities listed in the footnotes to Table 32). Individual co-
morbidities that were considered for inclusion in the co-morbidity 
categories were each identified as statistically significant predictors 
of separately billable MAP per treatment based on a stepwise regression 
model. Some of the more important factors which we considered before 
arriving at the pediatric payment model we are proposing in this notice 
of proposed rulemaking are discussed below. Because our consideration 
of each of these factors resulted in the pediatric payment adjustments 
we are proposing in this rule, we invite comment on their use.
(1) Use of two age categories <13, and 13-17
    Because of the small number of pediatric patients, we limited the 
number of age groups to two. Because the data revealed a natural break 
relating to increased body size and greater utilization of resources 
corresponding with the onset of adolescence, we defined the pediatric 
age categories as less than 13, and age 13-17.
(2) Omission of hyperparathyroidism as a co-morbidity
    Hyperparathyroidism had a relatively low reported incidence in the 
claims data. However, hyperparathyroidism clinically is a frequently 
encountered condition in pediatric dialysis patients. This co-morbidity 
has a relatively high potential for overreporting compared to other co-
morbidities. Because hyperparathyroidism was associated with a 
relatively small payment increase, omitting this diagnosis from the 
list of co-morbidities generating a payment adjustment increases the 
potential payment multipliers for other co-morbidities. However, given 
the widespread occurrence of hyperparathyroidism in the pediatric 
dialysis patient population, we believe its omission results in minimal 
distortion in the adjusters for most payment categories. We invite 
comment on our proposal to omit hyperparathyroidism as a co-morbidity 
in our proposed pediatric payment model.
(3) Capping Separately Billable MAP per Treatment at $289.00 per 
Treatment for All Pediatric Patients
    The cap of $289.00 was based on a standard outer fence method for 
identifying statistically aberrant values. (For a further explanation 
on the application of this method, see p. 46 of UM-KECC's February 2008 
report, ``End Stage Renal Disease Payment System: Results of Research 
on Case-Mix Adjustment for an Expanded Bundle'' and footnote 35 of the 
Secretary's February 2008 Report to Congress, both cited previously in 
this proposed rule. The outer fence was defined as the 75th percentile 
of the separately billable MAP per treatment, plus three times the 
interquartile range, which is the 75th percentile minus the 25th 
percentile.) Capping the separately billable MAP does not lead to 
substantially different payment multipliers. The standard deviation of 
the prediction error falls substantially for some of the payment 
groups, especially those that were quite large. Some of this reduction 
may be

[[Page 49985]]

due to the elimination of erroneous data through the capping mechanism. 
In any case, the fact that the case-mix payment adjusters did not 
materially change regardless of the application of the standard outer 
fence method for eliminating aberrant values suggests that the 
predicted payments are not biased through the inclusion of valid or 
invalid values.
(4) Adjustment for Dialysis Modality
    Our analysis revealed that the main problem with a separately 
billable payment model that does not recognize modality is that it 
results in an underpayment for HD and an overpayment for PD. For models 
that did not pay differentially by modality, the average prediction 
errors were all positive for PD and negative for HD. The errors in both 
directions were large relative to the predicted means. By contrast, the 
prediction errors in models that distinguish payment by modality were 
much smaller and did not consistently favor PD over HD. Hence, payment 
by modality reduces the difference between actual and predicted 
payments. In doing so, it reduces the incentive to steer patients to a 
particular modality based purely on the payment implications. It also 
substantially improves the predictive power of the payment models.
    However, payment by modality introduces an inconsistency with how 
modality is treated currently under the basic case-mix adjusted 
composite payment system, and with how we are proposing to treat it for 
adults under the proposed ESRD PPS. There are a small number of payment 
groups with relatively large differences between actual and predicted 
payments even when the models adjust for modality. Paying by modality 
for pediatric patients is also inconsistent with the payment goal of 
encouraging home dialysis. However, we note that partly because of the 
popularity of PD among pediatric patients, it may not be necessary to 
encourage home therapies for this population. In addition, paying by 
modality doubles the number of payment categories from four to eight, 
increasing administrative complexity. We are specifically soliciting 
comments on our proposal to use modality as a payment variable in our 
pediatric payment model.
(5) Exclusion of Other Patient Characteristic Variables
    Among the other patient characteristics that were considered as 
potential payment adjusters for separately billable pediatric services, 
gender, and onset of dialysis (that is, the start of dialysis within 4 
months of the current treatment), were not identified as statistically 
significant predictors of MAP using CY 2004-2006 data. Based on models 
that included adjustments for age, dialysis modality, and number of co-
morbidities, history of transplantation was associated with a higher 
separately billable MAP per treatment. However, the inclusion of an 
additional adjustment for history of transplantation did not 
substantially improve the explanatory power of the model, or 
substantially reduce the prediction errors for most patient subgroups. 
In addition, its inclusion would double the number of payment 
categories in the model from 8 to 16, six of which had very small 
numbers of patients (less than 50 patients).
    Given the results of the analyses described, we are proposing a 
pediatric payment adjustment for separately billable services that uses 
two age categories (<age 13, age 13-17), two co-morbidity categories 
(none, and one or more co-morbidities from among the following 
diagnoses: HIV/AIDS, septicemia, cardiac arrest, and diabetes), and 
dialysis modality (HD or PD), as the bases for classifying pediatric 
patients into one of eight groups. The specified co-morbidities were 
the only statistically significant predictors of SB MAP resulting from 
the application of the stepwise regression. Using data available for CY 
2004-2006, we present the results in Table 32. Similar to the adult 
ESRD PPS payment model, the proposed pediatric separately billable 
payment model reflects the repricing of the top 11 Part B separately 
billable drugs to the payment rates used in the first quarter of 2008. 
The ratios used to adjust the MAPs for the 11 specified injectable 
drugs are identical to those used to reprice the drugs for the adult 
separately billable MAPs shown in Table 11.
BILLING CODE 4120-01-P

[[Page 49986]]

[GRAPHIC] [TIFF OMITTED] TP29SE09.008

BILLING CODE 4120-01-C
    For purposes of the payment adjustments, the relevant column is 
labeled ``Modeled separately billable (SB) multiplier''. These values 
reflect the relative costliness of separately billable services for 
each of the eight pediatric patient groups, with the reference category 
(under 13, PD, no co-morbidities) having a multiplier set to 1.00. We 
invite comment on our proposed use of these variables to construct the 
proposed pediatric ESRD payment model.

D. A Combined Composite Rate and Separately Billable Payment Model for 
Pediatric Patients

    Similar to the payment model for adult patients described in 
section X of this proposed rule, a payment model for pediatric patients 
can be constructed from cost/payment models of composite rate and 
separately billable services. A composite rate cost model can be 
estimated to generate a payment adjuster or multiplier for patients in 
a pediatric age group or groups. Because this kind of composite rate 
cost model is based on ESRD facility data, and there are very few 
pediatric patients, estimating additional pediatric co-morbidity 
multipliers is not feasible. However, a separately billable cost model 
can be estimated that would generate payment adjustments for particular 
patient characteristics. While the results from the composite rate and 
separately billable cost models can be combined into a single payment 
model following the same approach used in connection with the two 
equation adult payment methodology, the payment model for adult 
patients cannot be applied to pediatric patients without modification.
    The results presented in Tables 31 and 32 can be used to develop a 
payment model for ESRD pediatric patients (age < 18). The method which 
we propose combines results from a facility-level model for CR services 
(Table 31) and a pediatric patient-level model for SB services (Table 
32). The outcome is a single set of payment multipliers that can be 
used to determine the case-mix adjusted payment rate for individual 
pediatric patients.
    The process of combining the CR and SB adjustments required 
decisions about the following issues:
    1. How to apply the modeled SB multipliers, which are based on a 
separate payment model for pediatric patients, to the SB portion of the 
overall base rate, which applies to both adult and pediatric patients 
as described in section VII.
    2. The relative weighting of CR and SB services for pediatric 
patients.
    For each of the 8 pediatric classification categories in Table 32, 
the modeled SB multipliers are expressed relative to a reference 
category of pediatric patients (age < 13, PD, no co-morbidities). To 
obtain payment multipliers that can be applied to an overall base rate, 
the modeled SB multipliers need to be expressed relative to the 
estimated SB portion of the overall base rate for all patients. This 
can be accomplished by adjusting the modeled SB payment multipliers by 
the ratio of the actual SB MAP for the pediatric reference category 
($12.28 per treatment for patients < age 13, PD, no co-morbidities) to 
the actual SB MAP among patients of all ages ($82.38 per treatment). 
These SB MAP values were computed from claims for CYs 2004 through 
2006, the latest available in time for the preparation of this proposed 
rule. This results in an SB adjustment factor of $12.28/$82.38 or 
0.1491. This adjustment was applied to each of the modeled SB 
multipliers in Table 33, and results in SB payment multipliers which 
range from 0.149 to 1.272 across the 8 pediatric classification groups. 
These payment multipliers can be applied to the SB portion of the 
overall base rate described in section VII. under the ESRD PPS.
    The pediatric SB MAP for CYs 2004 through 2006 is $49.11. This SB 
MAP

[[Page 49987]]

reveals that most pediatric patients use substantially fewer SB 
services than adult patients, for which the comparable SB MAP is 
$82.45. Consequently, SB services account for a relatively smaller 
portion of total ESRD facility costs for pediatric patients. To develop 
overall payment adjustments that reflect the different mix of resources 
required to treat pediatric patients, the CR and SB multipliers were 
weighted according to the relative utilization of resources among 
pediatric patients. Based on the average SB MAP of $49.11 per treatment 
for pediatric patients and an overall average ESRD facility CR cost for 
CYs 2004 through 2006 of $169.67 per treatment, the resulting SB and CR 
weights were calculated as follows:

SBweight = $49.11/ ($49.11 + $169.67) = 0.2245
CRweight = $169.67/ ($49.11 + $169.67) = 0.7755

    The multipliers from the CR and SB models can be used to calculate 
combined payment multipliers using the following formula:

MultPPS = (MultCR * CRweight) + (MultSB * SBAdjFactor * SBweight)

    Using the SB adjustment factor of 0.1491, and the CR and SB weights 
of 0.7755 and 0.2245, respectively, that were calculated above, the 
formula becomes:

MultPPS = (MultCR * 0.7755) + (MultSB * 0.1491 * 0.2245)

    By applying this formula to each of the 8 pediatric classification 
groups, we obtained the payment multipliers shown in the last column of 
Table 33.

           Table 33--Calculating Combined Payment Multipliers for Pediatric Patients Based on Adjustments for Age, Modality, and Co-Morbidity
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     Patient characteristics                                            Payment multipliers
                                    --------------------------------------------------------   Modeled   -----------------------------------------------
                                                                                              separately                                     Expanded
                Cell                                                                           billable     SB payment      CR payment    bundle payment
                                       Age           Modality           Comorbidities \1\        (SB)       multiplier      multiplier      multiplier
                                                                                              multiplier  (PmtMult \SB\)  (PmtMult \CR\)  (PmtMult \EB\)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1..................................      <13  PD....................  None.................        1.000           0.149           1.199           0.963
2..................................      <13  PD....................  1 or more............        1.485           0.221           1.199           0.980
3..................................      <13  Hemo..................  None.................        3.861           0.576           1.199           1.059
4..................................      <13  Hemo..................  1 or more............        5.647           0.842           1.199           1.119
5..................................    13-17  PD....................  None.................        1.508           0.225           1.199           0.980
6..................................    13-17  PD....................  1 or more............        2.244           0.335           1.199           1.005
7..................................    13-17  Hemo..................  None.................        5.831           0.869           1.199           1.125
8..................................    13-17  Hemo..................  1 or more............        8.534           1.272           1.199           1.215
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ The comorbidity adjustment is based on the presence of HIV/AIDS (2728 or claims since 2000), septicemia within 3 months, diabetes (2728 or claims
  since 2000), and cardiac arrest (2728 or claims since 2000).

    These combined multipliers range from 0.963 to 1.215. These are the 
proposed pediatric patient-specific case-mix adjustment factors that 
would be applied to the base rate under the ESRD PPS. For comprehensive 
examples of how the proposed pediatric payment adjusters would be 
applied, see examples 6 and 7 in section XI. of this proposed rule.
    Using CY 2007 claims data, we calculated combined payment 
multipliers for pediatric patients. The average pediatric patient-
specific payment adjustment multiplier was 1.067, without any 
adjustment for budget neutrality. This compares with an average payment 
multiplier of 1.287 for adult patients based on CY 2007 claims. These 
average payment multipliers reflect both the case-mix and low volume 
adjustments.
    The multipliers in Table 33 do not include the proposed adjustment 
for low-volume ESRD facilities described in section VIII.C.2. of this 
proposed rule. In CY 2007, approximately 24 percent of pediatric 
outpatient Medicare dialysis treatments were provided in facilities 
with less than 3,000 total treatments. This figure compares to 2.3 
percent of Medicare dialysis treatments among adult patients. In 
addition, approximately 12.6 percent of Medicare treatments for 
pediatric patients were furnished in facilities with less than 3,000 
treatments during each year from CY 2004 through 2006, and which 
neither opened nor closed during CY 2006. The comparable figure for 
adult patients was 0.6 percent. Therefore, pediatric patients would be 
much more likely to be eligible for the low-volume facility adjustment 
of 20.2 percent, which we have proposed, as described in section 
VIII.C.2. of this proposed rule.

X. Other Proposed Adjustments

A. 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 
variations in the amount of erythropoiesis stimulating agents necessary 
for anemia management. The outlier payment policy would be designed to 
protect an ESRD facility from significant financial losses due to 
unusually high costs. Any outlier payment due would be added to the 
per-treatment, patient and facility-level adjusted ESRD PPS payment 
amount.
    Generally, outlier payment mechanisms in Medicare prospective 
payment systems are based on a provider's cost for care compared to 
projected payments under the PPS. When a provider's cost exceeds a 
threshold amount (the projected payment plus a fixed dollar loss 
amount), Medicare pays a percentage of the difference (the loss sharing 
percentage) as an outlier payment. We propose that the ESRD outlier 
policy parallel the outlier policies adopted under other Medicare PPSs.
    Specifically, as discussed in more detail below, we would compare 
an ESRD facility's predicted Medicare Allowable Payment (MAP) amount 
per treatment for outlier services to the facility's imputed MAP amount 
per treatment for outlier services to determine whether the ESRD 
facility would be eligible for additional payment under the proposed 
outlier policy. We propose to limit the outlier services to those items 
and services that currently are separately billable under Part B and 
renal dialysis service drugs proposed for inclusion under the ESRD PPS 
that currently are separately billable under Part D.
    An ESRD facility would be eligible for an outlier payment when its 
imputed MAP amount per treatment for the outlier services exceeds the 
outlier

[[Page 49988]]

threshold, or the facility's predicted MAP amount per treatment for the 
outlier services plus the fixed dollar loss amount. We propose that the 
outlier payment would be equal to 80 percent of the amount by which the 
facility's imputed costs exceeds the outlier threshold.
    The current basic case-mix adjusted composite payment system does 
not provide for outlier payments. However, in the 2008 Report to 
Congress entitled ``A Design for a Bundled End Stage Renal Disease 
Prospective Payment System'', we discussed outlier payments as a way of 
mitigating risk incurred by ESRD facilities in providing treatment to 
patients with characteristics associated with higher costs. The 2008 
report described a hypothetical outlier policy that would target higher 
payments to facilities for patients who encountered higher than average 
monthly Medicare Allowable Payments (MAPs) for items and services that 
currently are separately billable under Part B. Specifically, the 
report proposed setting the hypothetical outlier payment amount at 80 
percent of the difference between the separately billable MAP and a 
threshold amount. The report proposed that the threshold amount be 
based on the average separately billable MAP amount per treatment plus 
2 or more standard deviations. ESRD facilities meeting this criterion 
were assumed to receive an outlier payment equal to a percentage of the 
difference between the separately billable MAP amount and the threshold 
amount.
    To maintain budget neutrality, the 2008 report proposed that the 
portion of the base rate attributable to items and services that 
currently are separately billable under Part B be reduced by 2.5 
percent to fund projected outlier payments. This percentage would have 
qualified approximately 5 percent of total patient months as outliers. 
A copy of the 2008 report is available at: http://www.cms.hhs.gov/ESRDGeneralInformation/Downloads/ESRDReportToCongress.pdf.
1. Eligibility for Outlier Payment
    We are proposing that an ESRD facility would be eligible for an 
additional payment under the ESRD PPS where the facility's imputed, 
average per treatment costs for ESRD outlier services furnished to a 
beneficiary exceed the predicted per treatment MAP amount for outlier 
services plus the fixed dollar loss amount, as indicated in proposed 
Sec.  413.237(b). We propose to base eligibility for outlier payments 
on ESRD outlier services, that is, only those items and services that 
are separately billable under Medicare Part B with regard to the 
current basic case-mix adjusted composite payment system and renal 
dialysis service drugs proposed for inclusion in the ESRD PPS bundle 
that currently are covered under Medicare Part D, rather than all items 
and services comprising the bundled payment under the proposed ESRD 
PPS.
    The comprehensive listing of our outlier policy definitions are set 
forth in Sec.  413.237 of this proposed rule.
a. ESRD Outlier Services
    Section 1881(b)(14)(D)(ii) of the Act provides that the ESRD PPS 
shall include a payment adjustment for high cost outliers due to 
unusual variations in the type or amount of medically necessary care, 
including variations in the amount of erythropoiesis stimulating agents 
necessary for anemia management.
    We believe that any unusual variation in the cost of the renal 
dialysis services comprising the base rate under the proposed ESRD PPS 
is likely to be due to variation in the items and services that 
currently are separately billable under Part B and those renal dialysis 
service drugs currently covered under Part D. Therefore, including 
these items and services that are either currently separately billable 
under Part B or covered under Part D under the proposed ESRD PPS 
creates new financial risk for ESRD facilities. In addition, 
significant variations in these services may impair access to 
appropriate care, as an ESRD facility may have a disincentive to 
provide adequate treatment to those ESRD patients likely to have 
significantly higher than average costs. We believe these concerns 
could be addressed by an outlier policy.
    As set forth in proposed Sec.  413.237(a), we are proposing to base 
eligibility for outlier payments under the ESRD PPS on a comparison of 
the predicted MAP amounts and imputed MAP amounts for (1) items and 
services that currently are separately billable under Medicare Part B, 
including ESRD-related drugs, ESRD-related laboratory tests, and ESRD-
related services; and (2) renal dialysis service drugs proposed for 
inclusion in the ESRD PPS bundle that currently are covered under 
Medicare Part D. From this point forward, we refer to these services as 
the ``ESRD outlier services.''
    As described further in section XIV, of this proposed rule, we are 
considering the extent to which the 50 percent rule that pertains to 
the Automated Multi-Channel Chemistry (AMCC) separately billable 
laboratory tests under the basic case mix adjusted composite payment 
system should continue to apply in the context of the proposed ESRD 
PPS.
    Section 1881(b)(14) prohibits the unbundling of services, including 
laboratory services. Thus, under the proposed ESRD PPS, Medicare would 
not make separate payment for laboratory tests, rendering the 50 
percent rule irrelevant for payment purposes. The 50 percent rule's 
relevance would be limited to its use in determining eligibility for 
outlier payment.
    As described above, we are proposing to define outlier services as 
items and services that currently are separately billable under 
Medicare Part B, including ESRD-related drugs, ESRD-related laboratory 
tests, and ESRD-related services; and (2) renal dialysis service drugs 
proposed for inclusion in the ESRD PPS bundle that currently are 
covered under Medicare Part D. Under this proposal, to ensure that the 
AMCC tests qualify as separately billable under the basic case mix 
adjusted composite payment system, and thus, qualify as outlier 
services, it would be necessary for ESRD facilities to continue 
applying the 50 percent rule under the proposed ESRD PPS. Conversely, 
excluding AAMC tests to which the 50 percent rule apply from the 
definition of outlier services would negate the need to apply the 50 
percent rule under the proposed ESRD PPS.
    We believe that the overall impact of excluding the AMCC tests to 
which the 50 percent rule applies from the definition of outlier 
services would be small. As shown in table 8, laboratory tests comprise 
3.45 percent of the total MAP amount which is the basis of the ESRD PPS 
base rate. The subset of laboratory tests associated with the AMCC 
tests to which the 50 percent rule applies under the basic case mix 
adjusted composite payment system comprises an even smaller proportion 
of the overall base rate. As a result, we are considering excluding 
AAMC tests to which the 50 percent rule apply from the definition of 
outlier services, thus negating the need to apply the 50 percent rule 
under the proposed ESRD PPS. We request public comments on whether or 
not to include the the AMCC tests to which the 50 percent rule applies 
within the definition of outlier services and retain the 50 percent 
rule under the proposed ESRD PPS. We also invite comment on our 
proposal to limit the ESRD outlier services to items and services 
currently separately billable under Part B and those renal dialysis 
service drugs currently covered under Part D.
    We note that if we also were to base eligibility for outlier 
payments on

[[Page 49989]]

variation in the cost of all items and services included in the ESRD 
PPS bundle, including those services included in the bundle under the 
current ESRD basic case-mix adjusted composite payment amount 
(hereinafter the ``composite rate items and services''), this may 
require an expansion in the data that we currently collect from ESRD 
facilities, which would increase ESRD facilities' reporting burden. 
Specifically, if we were to base eligibility for outlier payments on 
variation in the cost of all items and services included in the ESRD 
PPS bundle, we would need to compare a more comprehensive predicted MAP 
amount for a treatment to the ESRD facility's more comprehensive 
imputed MAP amount for the treatment. However, composite rate items and 
services, and the ESRD facilities' costs associated with providing 
these items and services, are not listed individually on the claims. As 
a result, it would not be possible to compare an imputed MAP amount for 
the more comprehensive definition of outlier services, that is, all 
items and services included in the ESRD PPS bundle, to the predicted 
MAP amount for these items and services.
    To correct this deficiency, we could collect patient-level data 
reflecting the cost of the composite rate items and services. Under 
this approach, we believe that it would be necessary to revise the ESRD 
facility claim form. For example, ESRD facilities would need to report 
by line item all composite rate services and the associated charges of 
each of those services. However, we are not proposing revisions to the 
ESRD facility claim.
    We believe that under a bundled payment system, in the future we 
may be able to simulate ESRD facility costs for outlier services using 
charges on the claims and applying the cost-to-charge ratios calculated 
using the cost reports. However, this data would only become available 
after the 2011 cost reports had been settled.
b. Predicted ESRD Outlier Services MAP Amounts
    Predicted outlier services MAP amounts for a patient would be 
determined by multiplying the adjusted average outlier services MAP 
amount, described further below, by the product of the patient-specific 
case-mix adjusters applicable using the outlier services payment 
multipliers used in the regression analysis to compute the payment 
adjustments.
    As described previously in section VIII. of this proposed rule, the 
predicted separately billable MAP amounts are based on the patient-
level regression model for separately billable services. Thus, it is 
possible to predict patient-specific separately billable MAP amounts 
for these services by multiplying the average separately billable MAP 
amounts by the separately billable case-mix adjusters. However, 
although in this proposed rule we have included the cost of the Part D 
drugs in the base rate, the Part D drugs have not been incorporated 
into the separately billable services regression model that generates 
case-mix payment adjusters. Therefore, we are unable to predict payment 
for renal dialysis service drugs proposed for inclusion in the ESRD PPS 
that are currently covered under Medicare Part D. As a result, the 
predicted MAP amounts are understated. Nonetheless, within this 
proposed rule, our references to predicted outlier services MAP amounts 
assume the inclusion of these additional drugs to demonstrate the way 
in which the outlier policy would apply when these additional drugs are 
incorporated into the regression model for purposes of the final rule. 
For the final rule we intend to incorporate these drugs into the 
regression analysis to derive a comprehensive predicted MAP amount for 
all proposed ESRD outlier services, including (1) the items and 
services that currently are separately billable under Medicare Part B 
and (2) renal dialysis service drugs proposed for inclusion in the ESRD 
PPS that currently are covered under Medicare Part D.
    Specifically, for the final rule, the separately billable case-mix 
adjusters could either be updated to reflect Part D drugs, assigning 
appropriate weights to the separately billable and Part D portions of 
the outlier services case-mix adjusters, or distinct payment 
multipliers for the Part D drugs could be developed.
    Please refer to Table 34 below for the list of case-mix adjustment 
multipliers for outlier services for adult patients.

          Table 34--Payment Multipliers for an Expanded Bundle of Services, Ages 18 and Older, 2004-06
----------------------------------------------------------------------------------------------------------------
                                                                   Estimated payment multipliers  Modeled  case-
                                                                   based on a two-equation model   mix  adjust-
                                                                 --------------------------------    ment 3,4
                            Variable                              Composite rate      Outlier    ---------------
                                                                   services \1\    services \2\
                                                                 --------------------------------   PmtMult EB
                                                                    PmtMult CR      PmtMult SB
----------------------------------------------------------------------------------------------------------------
Adjustments for dialysis patient characteristics:
    Age:
        18-44...................................................           1.280           1.018           1.194
        45-59...................................................           1.000           1.000           1.000
        60-69...................................................           1.014           1.006           1.012
        70-79...................................................           1.105           0.960           1.057
        80+.....................................................           1.150           0.923           1.076
Female..........................................................           1.124           1.149           1.132
Body surface area (BSA, per 0.1 m\2\; mean BSA = 1.87)..........           1.035           1.033           1.034
Underweight (BMI <18.5).........................................   [caret] 1.000           1.060           1.020
Time since onset of renal dialysis: < 4 months..................           1.508           1.401           1.473
Alcohol/drug dependence (claims since 2000 or 2728).............           1.155           1.139           1.150
Cardiac arrest (claims since 2000 or 2728)......................   [caret] 1.000           1.098           1.032
Pericarditis from same month to three months ago................   [caret] 1.000           1.595           1.195
HIV/AIDS (claims since 2000 or 2728)............................           1.363           1.220           1.316
Hepatitis B (claims since 2000).................................           1.115           1.035           1.089
    Specified infection from same month to 3 months ago
        Septicemia..............................................   [caret] 1.000           1.715           1.234
        Bacterial pneumonia and other pneumonias/opportunistic             1.256           1.412           1.307
         infections.............................................
Gastro-intestinal tract bleeding from same month to 3 months ago   [caret] 1.000           1.965           1.316
Hereditary hemolytic or sickle cell anemias (claims since 2000).           1.248           1.179           1.226

[[Page 49990]]

 
    Cancer (claims since 2000; excludes non-melanoma skin                  1.143           1.097           1.128
     cancer)
        Myelodysplastic syndrome (claims since 2000)............   [caret] 1.000           1.257           1.084
Monoclonal gammopathy (claims since 2000).......................   [caret] 1.000           1.063           1.021
Low volume facility adjustment
        Facility size < 3,000 treatments during each year from             1.383           0.940           1.202
         2004-06................................................
----------------------------------------------------------------------------------------------------------------
[caret] A multiplier 1.000 was used for factors that lacked statistical significance in models of resource use
  or lacked stability over time in the estimated multipliers.
\1\ The CR payment multipliers (PmtMultCR) are based on a facility level log-linear regression model of the
  average composite rate cost/session for 2004-06 (n = 11,814 facility years). This model also included facility
  characteristics (an indicator of low volume facilities as a potential payment variable as well as control
  variables for other facility size categories, urban/rural location, calendar year, facility ownership type,
  composite rate payment exception, and % of patients in the facility with URR < 65%) and the percent of
  pediatric patients as additional covariates (R-sq = 46.0%).
\2\ Although we refer to outlier services, these multipliers are limited to the inclusion of items and services
  that currently are separately billable under Medicare Part B and do not reflect renal dialysis service drugs
  proposed for inclusion in the ESRD PPS that are currently covered under Medicare Part D. Based on a patient
  level log-linear regression model of separately billable Medicare Allowable Payments/session for 2004-06 (n =
  890,776 patient years) that included included facility characteristics (an indicator of low volume facilities
  as a potential payment variable as well as control variables for other facility size categories, urban/rural
  location, calendar year, facility ownership type, composite rate payment exception, and % of patients in the
  facility with URR<65%) as additional covariates (R-sq = 8.7%).
\3\ The combined payment multipliers for patient characteristics were calculated as PmtMultEB =
  WeightCRxPmtMultCR + WeightSBxPmtMultSB, where PmtMultCR is the estimated multiplier from a facility level
  model of composite rate costs and PmtMultSB is the estimated multiplier from a patient level model of
  separately billable costs. Based on total estimated costs of $169.67 per session for composite rate services,
  $82.45 per session for separately billable services, and $252.12 per session for an expanded bundle ($169.67 +
  $82.45), the relative weights are WeightCR = 0.673 for composite rate services ($169.67/$252.12) and WeightSB
  = 0.327 for separately billable services ($82.45/$252.12).
\4\ To determine the incremental payment for low volume facilities, the low volume facility payment multiplier
  was calculated relative to all other facilities combined. The estimated low volume coefficients from the
  regression models (which correspond to the CR and SB multipliers of 1.383 and 0.940, respectively, in the
  table above) were first divided by the weighted average of the other facility size coefficients in the models.
  A similar weighting procedure to that described above for the other payment multipliers was then used in
  calculating the resulting low volume adjustment of 1.202. The same payment adjustment is being used for both
  adult and pediatric patients in a low volume facility.

    Please refer to Table 35 below for the list of case-mix adjustment 
multipliers for outlier services for pediatric patients.

            Table 35--Calculating Combined Payment Multipliers for Pediatric Patients Based on Adjustments for Age, Modality, and Comorbidity
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     Patient characteristics                                            Payment multipliers
                                    --------------------------------------------------------             -----------------------------------------------
                                                                                               Modeled        Outlier
                Cell                                                                           outlier      Services\2\     CR payment       Expanded
                                       Age           Modality           Comorbidities\1\     services\2\      payment       multiplier    bundle payment
                                                                                              multiplier    multiplier      (PmtMultCR)     multiplier
                                                                                                            (PmtMultSB)                     (PmtMultEB)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1..................................      <13  PD...................  None..................        1.000           0.149           1.199           0.963
2..................................      <13  PD...................  1 or more.............        1.485           0.221           1.199           0.980
3..................................      <13  Hemo.................  None..................        3.861           0.576           1.199           1.059
4..................................      <13  Hemo.................  1 or more.............        5.647           0.842           1.199           1.119
5..................................    13-17  PD...................  None..................        1.508           0.225           1.199           0.980
6..................................    13-17  PD...................  1 or more.............        2.244           0.335           1.199           1.005
7..................................    13-17  Hemo.................  None..................        5.831           0.869           1.199           1.125
8..................................    13-17  Hemo.................  1 or more.............        8.534           1.272           1.199           1.215
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\The comorbidity adjustment is based on the presence of HIV/AIDS (2728 or claims since 2000), septicemia within 3 months, diabetes (2728 or claims
  since 2000), and cardiac arrest (2728 or claims since 2000).
\2\Although we refer to outlier services, these multipliers are limited to the inclusion of items and services that currently are separately billable
  under Medicare Part B and do not reflect renal dialysis service drugs proposed for inclusion in the ESRD PPS that are currently covered under Medicare
  Part D.

    To generate the adjusted average outlier services MAP amount that 
is multiplied by the product of the patient-specific outlier services 
case-mix adjusters, we begin with the average outlier services MAP 
amount per treatment. The average outlier services MAP amount per 
treatment is based on payment amounts reported on 2007 claims and 
adjusted to reflect projected prices for 2011. As discussed above, 
payments for Part D drugs are not included. The average MAP amount per 
treatment for outlier services is then adjusted by the case-mix and 
wage adjustment standardization factor, a MIPPA reduction of .98, and 
the outlier policy of .99 resulting in the adjusted average outlier 
services MAP amount by which the product of the patient-

[[Page 49991]]

specific outlier services case-mix adjusters are multiplied.
    The proposed adjusted average outlier services MAP amount is 
$64.54. As illustrated in the hypothetical examples in section X.A.3, 
the adjusted average outlier services MAP amount would be multiplied by 
the product of the patient-specific outlier services payment 
multipliers to yield the predicted outlier services MAP amount.
    As described further in section X.A.1.d., the fixed dollar loss 
amount would be added to this amount.

         Table 36--Adjusted Average Outlier Services MAP Amount
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Average outlier services MAP amount per                           $84.99
 treatment \1\...............................
Adjustments
    Standardization for case mix and wage                         0.7827
     adjustments \2\.........................
    MIPPA reduction..........................                       0.98
    Outlier policy...........................                       0.99
Adjusted average outlier services MAP amount                      $64.54
 \3\.........................................
------------------------------------------------------------------------


 
                                                       Patient age
                                               -------------------------
                                                                18 and
                                                    <18         older
------------------------------------------------------------------------
Fixed dollar loss amount that is added to the       $174.31      $134.96
 predicted MAP to determine the outlier
 threshold \4\................................
------------------------------------------------------------------------
\1\ Excludes patients for whom not all case mix measures were available
  to calculate projected payments under an expanded bundle.
\2\ Applied to the average outlier MAP per treatment.
\3\ Because Part D drugs are not yet reflected in the outlier services
  payment multipliers, this number is understated. This is the amount to
  which the separately billable (SB) payment multipliers are applied to
  calculate the predicted outlier services MAP for each patient.
\4\ The fixed dollar loss amounts were calculated using 2007 data to
  yield total outlier payments that represent 1% of total projected
  payments for an expanded ESRD PPS. These amounts correspond to 1.963
  times the standard deviation of the prediction error for ages <18 and
  1.952 times the standard deviation of the prediction error for ages 18
  and older.

c. Estimating the Imputed ESRD Outlier Services MAP Amounts
    As discussed above, we propose to base eligibility for outlier 
payments on a comparison of an ESRD facility's predicted Medicare 
Allowable Payment (MAP) amount per treatment for the ESRD outlier 
services to the facility's imputed MAP amount per treatment for the 
ESRD outlier services. We discuss above our proposed methodology for 
determining the predicted outlier services MAP amounts for a patient. 
In estimating a provider's imputed costs, under some Medicare PPSs, 
such as the Hospital Inpatient Prospective Payment System, we estimate 
a provider's costs by applying a provider-specific cost-to-charge ratio 
to the covered charges for the treatment. The cost-to-charge ratio is 
based in part on the provider's cost report. Under other Medicare PPSs, 
we estimate a provider's costs using available data. For example, under 
the Prospective Payment System for Home Health Agencies we impute the 
cost for each episode by multiplying the national per-visit amount of 
each discipline by the number of visits in the discipline and computing 
the total imputed cost for all disciplines (42 CFR Sec.  484.240(d)). 
For the reasons discussed below, we are proposing to estimate an ESRD 
facility's imputed costs for the ESRD outlier services based on 
available data rather than a provider-specific cost-to-charge ratio.
    Although ESRD facilities currently identify costs associated with 
certain ESRD outlier services such as EPO and vaccines, our analysis 
revealed that other ESRD-related drugs and biologicals appear to be 
under-reported or not reported. For this reason, we do not believe that 
a cost-to-charge ratio that would be based on such reported information 
would accurately reflect an ESRD facility's cost for drugs. We 
therefore are proposing to estimate a provider's costs based on 
available data, rather than applying a cost-to-charge ratio to facility 
charges to impute their cost.
    As described in greater detail below, the imputed separately 
billable MAP amounts would be based on pricing mechanisms currently in 
place for these services. Whereas, in the case of Part D drugs proposed 
for inclusion in the ESRD PPS, we have not proposed a preferred pricing 
mechanism for the imputed MAP amounts but rather, solicit comments on 
several approaches for imputing these drug prices.
i. Data Used to Estimate Imputed ESRD Outlier Services MAP Amounts
    With respect to estimating the imputed MAP amounts of ESRD outlier 
services that are separately billable under Part B, we propose to use 
Average Sales Prices (ASP) data for the Part B ESRD-related drugs 
(which is updated quarterly) and annual laboratory fee schedules for 
the previously separately billable laboratory tests. We propose to use 
various pricing mechanisms for the other separately billable ESRD-
related services. Specifically, for medical/surgical supplies used to 
administer separately billable drugs, we propose to estimate MAP 
amounts based on the predetermined fees that apply to these items under 
the current base case-mix adjusted composite payment system. For 
example, we pay $0.50 for each syringe identified on an ESRD facility's 
claims form. For other medical/surgical supplies such as IV sets and 
gloves, the claims processing manual currently allows Medicare 
contractors to elect among various options to price these supplies, 
such as the Drug Topics Red Book, Med-Span, or First Data Bank (CMS Pub 
100-04, Chapter 8, Section 60.2.1). We propose that the FI/MAC would 
continue to use the pricing mechanisms that are currently in place for 
items and services that currently are separately billable under Part B 
to estimate costs for these other medical/surgical supplies.
    Finally, payment for blood, supplies used to administer blood, and 
blood processing fees furnished by hospital-based ESRD facilities under 
the current basic case-mix adjusted composite payment system is based 
on a reasonable cost basis. Payment for blood, supplies used to 
administer the blood, and blood processing fees, on behalf of patients 
in independent ESRD facilities currently is made at the lower of the 
actual charge on the bill or a reasonable charge that the MAC/FI 
determines. We are proposing to estimate hospital-based and independent 
ESRD facilities' costs for blood, supplies used to administer blood, 
and blood processing fees using the pricing mechanisms that are 
currently in place for items and services that currently are separately 
billable

[[Page 49992]]

under Part B. We are not in this proposed rule, specifying the 
mechanism by which we propose to estimate the imputed MAP amounts for 
drugs formerly covered under Medicare Part D but that would become 
renal dialysis service drugs when the ESRD PPS would be implemented in 
2011. Rather, we request public comment on the following potential 
approaches for estimating the imputed MAP amounts of these drugs and on 
alternative approaches.

Approach 1:

    First, although we believe ASP pricing data for renal dialysis 
service drugs currently covered under Part D would facilitate the 
computation of the estimated costs of these drugs, we do not collect 
ASP pricing information under section 1927 of the Act for these drugs. 
We request public comment on whether manufacturers would be willing to 
submit ASP pricing data for renal dialysis service drugs currently 
covered under Part D on a voluntary basis.

Approach 2:

    An alternate approach for estimating the imputed MAP amounts of 
renal dialysis service drugs proposed for inclusion in the ESRD PPS but 
currently covered under Part D would be to use data retrieved from the 
online Medicare Prescription Drug Plan Finder. (This online tool, 
available at medicare.gov provides the prices that are charged by each 
Part D plan's network pharmacy.) For example, the Part D drug prices 
for each drug designated as a Part B renal dialysis service could be 
estimated based on a national average price charged by all Part D plans 
and their network pharmacies. We believe that establishing a single 
national average price for each drug designated as a Part B renal 
dialysis service would be consistent with the approach for Part B drugs 
in which we use national ASP pricing.
    These national average prices could be updated on an ongoing basis 
using data on the Medicare Prescription Drug Plan Finder. Similar to 
the way in which we update Part B ASP pricing, national average 
Medicare Prescription Drug Plan Finder prices could be updated on a 
quarterly basis. The prices reflected in the Medicare Prescription Drug 
Plan Finder are reflective of the prices that are negotiated by larger 
buying groups. As a result, our primary concern with this pricing 
approach is that such prices may fail to reflect the drug prices that 
smaller facilities may pay in acquiring these drugs and could therefore 
disadvantage these facilities.

Approach 3:

    An alternative approach for estimating the imputed MAP amounts of 
renal dialysis service drugs proposed for inclusion in the ESRD PPS but 
currently covered under Part D would be to use Wholesale Acquisition 
Cost (WAC). Because WAC is the manufacturer's list price to 
wholesalers, we believe that it is more reflective of the price paid by 
the end user than the Average Wholesale Price. In addition, as set 
forth in CMS Pub 100-04, Chapter 17, Section 20.1.3, payment allowance 
limits for drugs and biological that are not included in the ASP 
Medicare Part B Drug Pricing File or Not Otherwise Classified (NOC) 
Pricing File, other than new drugs that are produced or distributed 
under a new drug application (or other application) approved by the 
Food and Drug Administration, are based on the published Wholesale 
Acquisition Cost (WAC) or invoice pricing, except under OPPS where the 
payment allowance limit is 95 percent of the published AWP. As a 
result, we believe that this pricing mechanism would be consistent with 
pricing that currently occurs for drugs that are separately billable 
under Part B.

Approach 4:

    Another alternative option for estimating the imputed MAP amounts 
of the renal dialysis service drugs proposed for inclusion in the ESRD 
PPS bundle but currently covered under Part D would be to use the 
national average prescription drug event (PDE) data that is submitted 
for each Part D claim. To correct for the lag time for receipt of 
complete PDE data by CMS, we would update the most recent PDE data by 
the CPI update for drugs.

Approach 5:

    A final approach for estimating the imputed MAP amounts for renal 
dialysis service drugs currently covered under Part D would be to 
require ESRD facilities to list on their claims forms their costs for 
the renal dialysis service drugs proposed for inclusion in the ESRD PPS 
but currently covered under Part D. The facility cost that would be 
reported on the claim would need to be the amount after accounting for 
manufacturer rebates, discounts, and other price concessions. Under 
this approach, payment would be based on an ESRD facility's cost as 
identified on the claim. As indicated previously, while it may be 
possible to use cost-to-charge ratios on the cost report to simulate 
cost in the future, that information would not be available when the 
ESRD PPS would begin in 2011.
    We believe that most, if not all, of the renal dialysis service 
drugs proposed for inclusion in the ESRD PPS but currently covered 
under Part D have clinical treatment indications beyond ESRD, such as 
for the treatment of bone disease in advanced chronic kidney disease 
patients. These drugs therefore will continue to be covered under Part 
D for these other indications. Consequently, Part D pricing information 
would continue to be available for these drugs and could be used in the 
computation of outlier eligibility and payment under the approaches 
<greek-i>2, and <greek-i>4 discussed above.
    We request public comment on the potential approaches set forth 
above for estimating the imputed MAP amounts of renal dialysis service 
drugs proposed for inclusion in the ESRD PPS bundle that currently are 
covered under Part D. We are also interested in any other potential 
data sources for estimating the imputed MAP amount of those ESRD-
related drugs currently paid under Part D.
ii. Determining Imputed Per Treatment ESRD Outlier Services MAP Amount
    ESRD facilities currently submit claims on a monthly basis that 
identify line item dates of service. For purposes of determining 
whether an ESRD facility would be eligible for an outlier payment, it 
would be necessary for the ESRD facility to identify the actual ESRD 
outlier services furnished to the patient. Specifically, we are 
proposing that the ESRD facility would identify by line item on the 
monthly claim, all ESRD outlier services furnished to the patient. We 
would then estimate the imputed MAP amount for these services applying 
one of the proposed methodologies discussed above in section X.A.1.
    c. i. The imputed outlier services MAP amounts for each of these 
services would be aggregated and then divided by the corresponding 
number of treatments identified on the claim to yield the imputed 
outlier services MAP amount per treatment. An ESRD facility would be 
eligible for an outlier payment if the imputed average outlier services 
MAP amount per treatment exceeds the sum of the predicted, outlier 
services MAP amount per treatment and the fixed dollar loss amount, as 
described below.
d. Outlier Percentage and Fixed Dollar Loss Amounts
    As discussed in section VII.D.a, we are proposing that payments 
under section 1881(b)(14)(D)(ii) of the Act for outlier cases be 
applied in a budget

[[Page 49993]]

neutral manner. Therefore, to ensure that the proposed outlier policy 
under the ESRD PPS is budget neutral, we propose to reduce the base 
rate by the proposed outlier percentage, or the percentage of total 
ESRD PPS payments that are intended for payment of outlier cases, as 
defined in proposed Sec.  413.220(b)(4).
    Using an outlier loss sharing percentage of 80 percent (which is 
discussed in the following section), we considered various percentages 
from 1 percent to 3 percent of aggregate payments and the fixed dollar 
loss amount that is computed from these two factors. (As discussed 
below, we are proposing separate fixed dollar loss amounts for the 
pediatric and adult populations.) The appropriate outlier amount was 
determined by comparing the predicted outlier services MAP amount 
(which, for the reasons explained previously was limited to items and 
services that were separately billable under Medicare Part B), for the 
treatment plus the fixed dollar loss amount to the imputed per 
treatment ESRD outlier services MAP amount. For example, using an 
outlier percentage of 1 percent, if the total outlier payment amount 
for all providers was determined to be higher or lower than 1 percent 
of the total payments under the proposed ESRD PPS, then the fixed 
dollar loss amount was adjusted accordingly. This was done in an 
iterative fashion until the fixed dollar amount produced total outlier 
payment amounts for all ESRD facilities equal to 1 percent of total 
payments. We applied a similar process to identify the fixed dollar 
loss amount associated with other outlier percentages.
    We analyzed outlier percentages from 1 to 3 percent of total ESRD 
PPS payments and the corresponding fixed dollar loss amounts and 
percentage of patient months qualifying for outlier payments, which are 
presented in Table 37.

             Table 37--Impact of Outlier Percentage on Patient Months Qualifying for Outlier Payment
----------------------------------------------------------------------------------------------------------------
                                                               1%        1.5%        2%        2.5%        3%
----------------------------------------------------------------------------------------------------------------
Age 18 and Older: Patient months qualifying for outlier         5.3%       7.3%       9.3%      11.5%      13.8%
 payment.................................................
Age < 18: Patient months qualifying for outlier payment..       2.6%       3.8%       5.7%       7.6%      10.7%
Age 18 and Older: fixed dollar loss amount...............    $134.96    $109.24     $89.88     $74.32     $61.67
Age < 18: Fixed dollar loss amount.......................    $174.31    $124.32     $90.04     $65.62     $47.70
----------------------------------------------------------------------------------------------------------------

    Based on consideration of the various outlier percentages, we are 
proposing that the outlier percentage would be 1 percent of total ESRD 
PPS payments. We believe an outlier percentage of 1 percent strikes an 
appropriate balance between our objectives of paying an adequate amount 
for the most costly patients while providing an appropriate level of 
payment for those patients who do not qualify for outlier payments. In 
addition, this outlier percentage is consistent with other Medicare 
PPSs, such as the 1 percent policy paid under the Outpatient PPS.
    The fixed dollar loss amounts that would be added to the predicted, 
outlier services MAP amounts would differ for adult and pediatric 
patients due to differences in the usage of separately billable 
services among adult and pediatric patients, especially drugs. As a 
result, we are proposing separate fixed dollar loss amounts, defined in 
proposed Sec.  413.237(a)(4-5) of $134.96 for adult patients and 
$174.31 for pediatric patients.
2. Outlier Payments
    The loss sharing percentage is the percentage of costs exceeding 
the fixed dollar loss amount that is paid by Medicare. We considered 
various loss sharing percentages for the proposed ESRD PPS outlier 
policy. We are proposing an 80 percent loss sharing percentage because 
this percentage is consistent with certain other Medicare payment 
systems, including the Inpatient Rehabilitation Facility and Home 
Health PPSs, and, more importantly, is consistent with the amount 
Medicare pays, in general, for Part B services.
    In addition, while for the reasons stated above we believe it is 
important to ensure that we pay ESRD facilities an outlier payment that 
is an adequate amount for treatments involving high costs, at the same 
time we want to preserve the efficiency incentives inherent under a 
prospective payment system. We believe an 80 percent loss sharing 
percentage strikes a reasonable balance between these policy 
objectives. In particular, we note that to the extent the cost to ESRD 
facilities of the inputs required to deliver additional services beyond 
the outlier threshold (the sum of the predicted outlier services MAP 
amount plus the fixed dollar loss amount) is greater than the 80 
percent loss sharing ratio, there would be less incentive to increase 
utilization of outlier services inappropriately to receive outlier 
payments.
    We propose to implement an annual monitoring process that would 
identify patterns of increased utilization of outlier services and any 
associated outlier payments across ESRD facilities. For example, we 
would be most interested in identifying ESRD facilities that receive 
significant outlier payments. We believe that this monitoring effort 
would prevent potential abuse and provide us with an outlet for 
addressing abuse.
    For treatments eligible for outlier payments, we are proposing that 
the per treatment outlier payment equal 80 percent (the loss sharing 
percentage) of the imputed average ESRD outlier service MAP amounts in 
excess of the sum of the predicted, outlier services MAP amount per 
treatment and the fixed dollar loss amount, as specified in proposed 
Sec.  413.237(c). For treatments eligible for the outlier payment, the 
outlier payment would be added to each ESRD PPS per treatment payment 
amount.
3. Hypothetical Outlier Payment Examples
    Please refer to the hypothetical outlier examples for both adult 
and pediatric patients set forth below for an illustration of (1) the 
way in which predicted and imputed ESRD outlier services MAP amounts 
are calculated and compared in determining eligibility for outlier 
payment, and (2) the way in which outlier payments would be calculated.
    Hypothetical Example--Adult Patient:
    Martha, a 66 year old female who is 167.64 cm. tall, weighs 105 kg. 
and has three co-morbid conditions; HIV/AIDS, septicemia and hereditary 
hemolytic or sickle cell anemia. As described in hypothetical example 
number 4 within section XI. of this proposed rule, a patient of this 
weight and height is not below the threshold for underweight status and 
thus would not qualify for a low BMI adjustment.
    The formula for calculation of a patient's BSA is:

BSA = 0.007184 * heightcm <SUP>.725</SUP> * weightkg <SUP>.425</SUP>

    Martha's BSA is calculated as:


[[Page 49994]]


BSAMartha = 0.00718 * 167.64<SUP>.725</SUP> * 105<SUP>.425</SUP>
= 0.007184 * 40.9896 * 7.2278
= 2.1284

    As identified in table 29, the separately billable multiplier for 
BSA would be 1.033. Martha's case-mix adjustment based on her BSA of 
2.1284 would be:

= 1.033 <SUP>(2.1284-1.87/0.1)</SUP> = 1.088
= 1.033 <SUP>2.584</SUP>
= 1.088

    Step 1: Determine the predicted, ESRD outlier services MAP amount.
    The product of the patient-level outlier services case-mix 
adjusters as identified in table 34:= 66 year old: 1.006, female: 
1.149, BSA: 1.088, HIV/AIDS: 1.220, septicemia: 1.715, and hereditary 
hemolytic or sickle cell anemias: 1.179

= 1.006 * 1.149 * 1.088 * 1.220 * 1.715 * 1.179
= 3.10231

    The adjusted, average, ESRD outlier services MAP amount

= $64.54

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

=$64.54 * 3.10231
= $200.22

    Step 2: Determine the imputed average, per treatment, ESRD outlier 
services MAP amount.

The imputed monthly ESRD outlier services amount = $4000
The corresponding total number of treatments = 10
The imputed, average, per treatment, outlier services MAP amount =
= $4000/10
= $400

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

The fixed dollar loss amount = $134.96
The predicted, ESRD outlier services MAP amount = $200.22
= $200.22 + $134.96
= $335.18

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

= ($400 - $335.18) * .80
= $64.82 * .80
= $51.22

    Hypothetical Example--Pediatric Patient:
    John, a 13 year old hemodialysis pediatric patient with 1 or more 
co-morbidities.
    Step 1: Determine the predicted, ESRD outlier services MAP amount.
    As identified in table 35, the patient-level ESRD outlier services 
case-mix adjuster:
=13 year old hemodialysis patient with 1 or more co-morbidities

= 1.272
The adjusted, average, ESRD outlier services MAP amount = $64.54
    The adjusted, average, ESRD outlier services MAP amount * the 
product of the outlier services case-mix adjusters:

= $64.54 * 1.272
= $80.09

    Step 2: Determine the imputed, average, per treatment, ESRD outlier 
services MAP amount.
The imputed monthly ESRD outlier services amount = $4000
The corresponding total number of treatments = 10
The imputed, average, per treatment, outlier services MAP amount =
= $4000/10
= $400
    Step 3: Add the fixed dollar loss amount to the predicted, ESRD 
outlier services MAP amount.

The fixed dollar loss amount = $174.31
The predicted, ESRD outlier services MAP amount = $80.09
= $80.09 + $174.31
= $254.40
    Step 4: Calculate outlier payment.
    Outlier payment = imputed, average, per treatment, outlier services 
MAP amount - (predicted, ESRD outlier services MAP amount plus the 
fixed dollar loss amount) * loss sharing percentage:

= ($400 - $254.40) * .80
= $145.60 * .80
= $116.48

    The outlier payment amount would be added to the ESRD PPS payment 
amount, per treatment. For a detailed description of calculating the 
ESRD PPS payment amount per treatment, please refer to the hypothetical 
examples in section XI. of this proposed rule.
4. Application of Outlier Policy During the Transition and in Relation 
to the ESA Monitoring Policy
    As discussed in section XIII. A. of this proposed rule, section 
1881(b)(14)(E)(i) of the Act requires the Secretary to provide a four-
year transition from the current basic case-mix adjusted composite 
payment system to the ESRD PPS for renal dialysis services furnished 
beginning January 1, 2011. Under the transition, ESRD facilities would 
receive a blended rate based in part on the payment rates under the 
current basic case-mix adjusted composite rate payment system and in 
part on the payment rates under the ESRD PPS. Section 
1881(b)(14)(E)(ii) of the Act permits ESRD facilities to make a one-
time election to be excluded from the transition from the current case-
mix adjusted composite payment system to the ESRD PPS. Those ESRD 
providers and facilities that elect to be excluded from the transition 
would receive payments for renal dialysis services provided on or after 
January 1, 2011 based on 100 percent of the payment rate under the ESRD 
PPS, rather than a blended rate.
    As indicated above, the current ESRD basic case-mix adjusted 
composite payment system does not provide for outlier payments. Rather, 
the proposed outlier payment policy would be limited to the proposed 
ESRD PPS. We therefore propose that for those ESRD facilities that do 
not elect to be excluded from the 4-year transition, outlier payments 
would be limited to the portion of the blended rate based on the 
payment rates under the proposed ESRD PPS.
    Nothing within this proposed outlier payment policy would replace 
the claims monitoring implications related to the utilization of 
separately billable erythropoiesis-stimulating agents (ESAs) including 
currently available epoetin alfa (EPOGEN[supreg], or EPO), darbepoetin 
alfa (ARANESP[supreg]) or any ESAs that may be developed in the future 
and used by beneficiaries receiving renal dialysis services. As we 
discuss in section XIV.B of this proposed rule, we are evaluating the 
extent to which we could continue to apply the ESA Monitoring Policy 
under the proposed ESRD PPS. We are also considering ways in which 
outlier payments would be computed under the proposed ESRD PPS. We 
believe that any dosing reductions associated with the application of 
the ESA Monitoring Policy would be factored in prior to determining 
eligibility for outlier payment.
    We expect that ESRD facilities would exercise prudent clinical 
judgment in prescribing ESAs for patients who are resistant to these 
drugs, so as not to over-prescribe with the intent of capitalizing on 
outlier payments. However, we request public comments that would 
outline additional safeguards to protect against overuse of ESAs among 
the ESA-resistant patient population.

XI. Comprehensive Payment Model Examples

    In section VIII., we demonstrated how the case-mix adjustments 
based on separate estimating equations for CR and SB services (that is, 
the two equation model), were combined to obtain a single payment 
formula under

[[Page 49995]]

the proposed ESRD PPS. Table 29 in that section contained the proposed 
case-mix adjustments applicable to adult patients. In section IX, we 
presented our proposed pediatric payment model under the ESRD PPS. 
Table 33 in that section contained the pediatric classification 
categories and corresponding case-mix adjusters which we propose to 
apply to pediatric ESRD patients. In this section, we explain how the 
area wage index and the case-mix adjustments would be applied to the 
proposed base rate described in section VII. reflecting combined CR and 
SB services, resulting in a patient-specific per treatment payment 
amount under the proposed ESRD PPS, as set forth in proposed Sec.  
413.215. We demonstrate how the proposed case-mix adjustments presented 
in Tables 29 and 33 would be applied for 7 hypothetical ESRD patients 
to obtain the per treatment payment amounts under the ESRD PPS. The 
product of the applicable case-mix adjustment factors is the patient 
multiplier or PM. The ESRD PPS case-mix adjusters are shown in Table 29 
for adult patients and Table 33 for pediatric patients. Each example 
uses the base rate of $198.64, covering Part B renal dialysis services 
and self-care home dialysis services as set forth under section 
1881(b)(4) of the Act. Each example also assumes an ESRD wage index 
value of 1.1000. Therefore, our starting point in each example prior to 
determining the patient-specific PM is a wage index adjusted base rate 
of $206.22. This amount was computed as follows:
    Base rate $198.64
    Labor-related share of base rate

($198.64 * .38160 = $75.80) 75.80

    Wage index adjusted labor-related share

($75.80 * 1.1000) = $83.38 83.38

    Non labor-related share of base rate

($198.64 * (1 - 0.38160) = $122.84 122.84

    Wage index adjusted base rate

($83.38 + $122.84) = $206.22 $206.22

(The labor-related and non labor-related shares of the base rate (that 
is, 38.160 percent and 1-0.38160 or 61.840 percent, respectively, 
represent the labor-related and non labor-related components of the 
bundled ESRD PPS market basket, described in section XII. of this 
proposed rule.)

Example 1--Relatively Healthy ESRD Patient With no Co-morbidities; no 
Outlier Payments Apply

    John, a 45 year old male Medicare beneficiary, is 187.96 cm. 
(1.8796 m.) in height and weighs 95 kg. John was diagnosed with ESRD in 
early 2009 and has been on HD since August 2009. He has chronic 
glomerulonephritis and hypertension, and has an AV fistula. The patient 
also has secondary hyperparathyroidism.
    Table 29 reveals that none of John's co-morbidities is among those 
for which a case-mix adjustment applies. The only pertinent factors to 
adjust the base rate amount are age, height, and weight. Using the 
formula for BMI, we see that John is not underweight, having a BMI of 
26.89 kg/m\2\, which is greater than the threshold value of 18.5, the 
cut-off for underweight status:

BMI = weightkg/height (m\2\)
= 95/1.8796\2\
= 95/3.5329
= 26.89

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

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

    John's BSA is calculated as:

BSAJohn = 0.007184 * 187.96\.725\ * 95\.425\
= 0.007184 * 44.5346 * 6.9268
= 2.2161
    Using the Table 29 multiplier of 1.034, John's case-mix adjustment 
based on his BSA of 2.2161 is computed as follows:

PmtMultBSA = <SUP>1.034(2.2161-187)/0.1</SUP>
= 1.034<SUP>3.461</SUP>
= 1.1227

    John's PM would reflect the applicable case-mix adjustments from 
Table 29 for both age and BSA and may be expressed as:

PM = PmtMultage * PmtMultBSA
= 1.000 * 1.1227
= 1.1227

    The ESRD PPS payment rate per treatment would be:

$206.22 * 1.1227 = $231.52

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

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

PM = PmtMultDialOnset * PmtMultage * PmtMultBSA
= 1.473 * 1.000 * 1.1227
= 1.6537

    The ESRD PPS payment rate per treatment would be:

$206.22 * 1.6537 = $341.03

Example 3--Same as Example 1, with outlier payments. (For a description 
of the outlier payment methodology, see section X.)

    John normally receives HD 3 times weekly. However, in January 2011 
he suffered a compound ankle fracture and was hospitalized for 5 days. 
During the hospitalization John did not undergo any dialysis 
treatments. After John was discharged and he resumed receiving 
outpatient dialysis, it was noted that John's dialysis clinical 
indicators were depressed, requiring additional laboratory testing and 
above average doses of several injectable drugs, particularly EPO[reg], 
to bring them to normal levels. During January, John, who received HD 
at his usual facility, received only 9 treatments. The facility 
submitted a bill for allowable total SB drugs and biologicals, 
laboratory tests, and supplies for January totaling $3000.00.
    John's dialysis facility would receive $231.52 for each of the 9 
treatments it furnished. The SB MAP per treatment averaged $3000.00/9 
or $333.33 per session. We first determine if John's dialysis facility 
would be entitled to outlier payments:
    Using Table 29 we compute the predicted SB MAP per treatment based 
on SB case-mix adjustments for BSA and age.

BSA PmtMultSB = 1.033 <SUP>(2.2161-1.87)/0.1</SUP>
= 1.033 \3.461\
= 1.1189
Age PmtMultSB = 1.000
PMSB = 1.1189 * 1.000 = 1.1189
SB MAP per treatment (see section X.A.1.b) $64.54

    The case-mix adjusted predicted SB MAP is:
$64.54 * 1.1189 = $72.21
    The fixed dollar loss amount for the predicted SB MAP, reflecting 
the case-mix adjustments for BSA and age, becomes:

$72.21 + $134.96 = $207.17

    Because John's average SB MAP for services furnished was $333.33, 
which exceeds the case-mix adjusted fixed dollar loss amount of 
$207.17, John's ESRD facility is eligible for outlier payments beyond 
the otherwise applicable $231.52 ESRD PPS amount. The outlier payments 
are computed as follows:
    Amount in excess of fixed dollar loss amount

($333.33--$207.17) = $126.16
Loss sharing ratio 80%

    Outlier payments per treatment

($126.16 * .80) = $100.93 $100.93


[[Page 49996]]


    Outlier payments

($100.93 * 9 treatments) = $908.37

    The total ESRD payments to this facility on behalf of John for 
January would be:
    Regular ESRD payments

$231.52 * 9 = $2083.68
Outlier payments 908.37
Total payments $2992.05

Example 4--ESRD Patient With Multiple Co-morbidities

    Mary, a 66 year old female, is 167.64 cm. in height and weighs 105 
kg. She has diabetes mellitus, a history of chronic Hepatitis B, 
parathyroidism, and liver cirrhosis. She was diagnosed with ESRD in 
2005, esophageal varices in 2006, and had a diagnosis of upper 
gastrointestinal (GI) bleeding in January 2011. Mary receives HD at an 
ESRD facility which qualifies for the low volume adjustment. We will 
not repeat the calculation for BMI in this example. Suffice it to say 
that this patient does not have a BMI less than 18.5 kg/m\2\, the 
required threshold for underweight status. Table 29 reveals that the PM 
in this example must be calculated to reflect the case-mix adjustments 
for gender, BSA, Hepatitis B, and upper GI bleeding, as well as a 
facility low volume adjustment. The formula for calculation of a 
patient's BSA is:

BSA = 0.007184 * heightcm\.725\ * weightkg\.425\
    Mary's BSA is calculated as:

BSAMary = 0.00718 * 167.64\.725\ * 105\.425\
= 0.007184 * 40.9896 * 7.2278
= 2.1284

    Based on the Table 29 multiplier of 1.034, Mary's case-mix 
adjustment based on her BSA of 2.1284 would be:

PmtMultBSA = 1.034 <SUP>(2.1284-1.87)/0.1</SUP>
= 1.034 \2.584\
= 1.0902

    Mary's PM, including application of the low volume payment 
adjuster, may be expressed as:

PM = PmtMultgender * PmtMultBSA * PmtMultHepB * PmtMultGIBleed * 
PmtMultLV
= 1.132 * 1.0902 * 1.089 * 1.316 * 1.202
= 2.1259

    The ESRD PPS payment rate per treatment applicable to Mary would 
be:

$206.22 * 2.1259 = $438.40

Example 5--Aged ESRD Patient With Low BMI (< 18.5kg/m\2\) and History 
of Hospitalization

    Agnes, an 82 year old female, is 160.02 cm. (1.6002 m.) in height 
and weighs 45.36 kg. She has longstanding type II diabetes mellitus and 
was diagnosed with ESRD in 2004. The patient has coronary artery 
disease and peripheral vascular disease. In January 2008 Agnes began 
dialyzing with an upper arm AV fistula, which had been created in 2006. 
In March 2009, after an unsuccessful attempt to declot the AV fistula 
during hospitalization, Agnes experienced additional bleeding 
complications, and has been dialyzed using a catheter ever since. In 
December 2010, the patient was admitted to the hospital after suffering 
an observed cardiac arrest during outpatient dialysis. She was 
diagnosed with myocardial infarction, and underwent coronary artery 
angioplasty and coronary artery stent placement during that 
hospitalization. Agnes was again admitted to the hospital on January 3, 
2011 for congestive heart failure, and discharged January 11. She 
resumed outpatient dialysis on January 13, 2011.
    We must first use Agnes' height and weight to determine if a case-
mix adjustment for low BMI applies, and the magnitude of the case-mix 
adjustment for BSA. The patient's BMI is computed as follows:

BMI = weightkg/height(m \2\)
= 45.36/1.6002 \2\
= 45.36/2.5606
= 17.71

    Agnes' BMI is less than 18.5. Therefore, her PM will include a 2.0 
percent case-mix adjustment for underweight status.
    The formula for calculation of a patient's BSA is:

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

    Agnes' BSA is computed as:

BSAAgnes = 0.007184 * 160.02\.725\ * 45.36\.425\
= 0.007184 * 39.6302 * 5.0592
= 1.4404

    Using the Table 29 multiplier of 1.034, Agnes' case-mix adjustment 
based on her BSA of 1.4404 is calculated as follows:

PmtMultBSA = 1.034 <SUP>(1.4404-1.87)/0.1</SUP>
=1.034 <SUP>(-4.296)</SUP>
= .8662

    Agnes's PM would reflect the applicable case-mix adjustments from 
Table 29 for age, gender, BSA, low BMI, and cardiac arrest. It may be 
expressed as:

M = PmtMultage * PmtMultgender * PmtMultBSA * PmtMultBMI * 
PmtMultCardArrest
= 1.076 * 1.132 * .8662 * 1.020 * 1.032
= 1.1106

    The ESRD PPS payment rate per treatment for Agnes would be:

$206.22 * 1.1106 = $229.03

Example 6--Pediatric ESRD Patient With 2 Co-morbidities; no Outlier 
Payments Apply

    Jonathan, a 24-month old male, began dialysis 8 months ago due to 
autosomal recessive polycystic kidney disease. Jonathan inherited HIV/
AIDS from his mother, who has a history of drug abuse. Jonathan also 
has diabetes. The patient undergoes PD, with the assistance of a 
cycler.
    Table 33 reveals that Jonathan has two qualifying co-morbidities, 
diabetes and HIV/AIDS. Because Jonathan is less than 13 years old, and 
undergoes PD, his pediatric classification group is category 2, for 
which the PM is 0.980. Jonathan's ESRD PPS payment rate per treatment 
would be:

$206.22 * 0.980 = $202.10
    For as long as Jonathan is on PD, his treating dialysis facility 
would receive 3 times $202.10 or $606.30 weekly.

Example 7--Pediatric ESRD Patient With 1 Co-morbidity; Outlier Payments 
Apply. (For a Description of the Outlier Payment Methodology, See 
Section X.)

    Timmy is a 16 year old male with ESRD due to renal hypoplasia. The 
patient was on PD until 2005, when he received a deceased donor kidney 
transplant. Timmy's transplant failed in August 2007, and he has been 
on HD since that time. The patient receives dialysis through an AV 
fistula. Timmy has a history of post-transplant lymphoma, which is in 
remission. He also has diabetes mellitus, which developed after the 
kidney transplantation. Timmy weighs 66.2 kg. and is 161.6 cm in 
height. He was hospitalized one month ago with Klebsiella bacteremia. 
As part of his HD, Timmy receives Aranesp[reg] 60 mcg. IV q 2 weeks, 
paracalcitol 4 mcg. IV 3 times a week, and iron dextran 100 mg. IV 
every 2 weeks. The patient also takes 2 tablets (667 mg. each) of 
calcium acetate 3 times per day. Timmy had 12 HD treatments in January 
2011. The facility submitted a bill for allowable SB drugs and 
biologicals, laboratory tests, and supplies totaling $3250.00.
    Table 33 reveals that Timmy has 1 qualifying co-morbidity, 
diabetes. Because Timmy is 16 and undergoes HD, his pediatric 
classification group is category 8, for which the PM is 1.215. Timmy's 
payment rate per treatment, without regard to outlier payments, would 
be:

$206.22 * 1.215 = $250.56

    Timmy's dialysis facility would receive $250.56 for each of the 12 
treatments it furnished in January. Based on the total allowable billed 
SB services of $3250, the SB MAP per

[[Page 49997]]

treatment averaged $3250/12 or $270.83 per session. We must determine 
if Timmy's dialysis facility would be eligible for outlier payments.
    Using Table 33, we must calculate the case-mix adjusted predicted 
SB MAP. (See section X.A.1.b)

SB MAP * PmtMult = $64.54 * 1.272 = $82.09

    The fixed dollar loss amount for the predicted SB MAP is:
$82.09 + $174.31 = $256.40

    Because Timmy's average SB MAP for services furnished was $270.83, 
which exceeds the case-mix adjusted fixed dollar loss amount of 
$256.40, Timmy's ESRD facility is eligible for outlier payments beyond 
the otherwise applicable $250.56 ESRD PPS amount. The outlier payments 
are computed as follows:
    Amount in excess of fixed dollar loss amount

($270.83--$256.40) = $14.43
Loss sharing ratio 80%

    Outlier payments per treatment

($14.43 * .80) = $11.54 $11.54

    Outlier payments
($11.54 * 12) = $138.48 $138.48

    The total ESRD payments to this facility on behalf of Timmy for 
January would be:
    Regular ESRD payments

($250.56 * 12) = $3006.72 $3006.72

Outlier payments 138.48
Total payments $3145.20

XII. ESRD Bundled Market Basket

    Under section 1881(b)(14)(F)(i) of the Act, as added by section 
153(b) of MIPPA, beginning in 2012, the ESRD bundled payment amounts 
are required to be annually increased by an ESRD market basket increase 
factor minus 1.0 percentage point. The statute further provides that 
the market basket increase factor should reflect the changes over time 
in the prices of an appropriate mix of goods and services used to 
furnish renal dialysis services. As noted in section VII.B of this 
proposed rule, under section 1881(b)(14)(F)(ii) of the Act, the ESRD 
bundled rate market basket will also be used to update the composite 
rate portion of ESRD payments during the PPS phase-in period from 2011 
through 2013.
    As required under section 1881(b)(14) of the Act, effective for CY 
2012, CMS has developed an all inclusive ESRD bundled rate (ESRDB) 
input price index. Although ``market basket'' technically describes the 
mix of goods and services used to produce ESRD care, this term is also 
commonly used to denote the input price index (that is, cost 
categories, their respective weights, and price proxies combined) 
derived from that market basket. Accordingly, the term ``ESRDB market 
basket'' as used in this document refers to the ESRDB input price 
index.
    A market basket has historically been used under the Medicare 
program to account for the price increases of the requisite inputs 
associated with the services furnished by providers. The percentage 
change in the ESRDB market basket reflects the average change in the 
price of goods and services purchased by ESRD facilities in providing 
renal dialysis services. Since we are proposing a single payment rate 
for both operating and capital-related costs, the proposed ESRDB market 
basket for ESRD facilities includes both operating and capital-related 
costs.
    The following discussion includes an explanation of the methodology 
and results of the proposed ESRDB market basket. First, we describe the 
methodology behind the development of the proposed cost category 
weights. Next, we explain the basis for the selection of each price 
measure used to proxy the rate of price change for each expenditure or 
cost category. Next, we present the results of the proposed ESRDB 
market basket, and finally we propose our definition of the ESRDB 
labor-related share.
    The ESRDB market basket is constructed in three steps. First, a 
base period is selected and total base period expenditures are 
estimated for a set of mutually exclusive and exhaustive spending 
categories. Then, the proportion of total costs that each category 
represents is determined. These proportions are called cost or 
expenditure weights. Each expenditure weight category is then matched 
to an appropriate price or wage variable, referred to as a price proxy. 
These price proxies are price index levels derived from publicly 
available statistical series that are published on a consistent 
schedule, preferably at least on a quarterly basis. Finally, the 
expenditure weight for each category is multiplied by the index level 
of the respective price proxy to arrive at a weighted index level for 
each cost category. The sum of the products (that is, the expenditure 
weights multiplied by the price levels) for all cost categories yields 
the aggregate index level of the market basket in a given year. 
Repeating this step for different time periods produces a series of 
market basket index levels over time. Dividing an index level in one 
period by an index level in an earlier period produces a rate of growth 
in the input price index over that time period.
    We are proposing to use CY 2007 as the base year for the 
development of the ESRDB market basket cost weights. The cost weights 
for this proposed ESRDB market basket are based on the cost report data 
for independent ESRD facilities.
    We refer to the market basket as a CY market basket because the 
base period for all price proxies and weights are set to CY 2007 = 100. 
Source data included CY 2007 Medicare cost reports (Form CMS-265-94), 
supplemented with 2002 data from the U.S. Department of Commerce, 
Bureau of the Census' Business Expenditure Survey (BES). The BES data 
were aged to 2007 using appropriate price proxies to estimate price 
growth. The price proxies used for the aging of the BES data come from 
publicly available price indexes such as various producer price indexes 
(PPI), consumer price indexes (CPI), or employment cost indexes (ECI). 
All of these price proxies are published by the U.S. Department of 
Labor, Bureau of Labor Statistics (BLS). We are proposing to use CY 
2007 because it is the most recent year that both relatively complete 
Medicare cost report data and supplemental BES data is available. 
Analysis of Medicare cost reports for CY 2002 through CY 2006 showed 
little difference in cost weights compared to CY 2007. Medicare cost 
reports from hospital-based ESRD providers were not used to construct 
the proposed ESRDB market basket because data from independent ESRD 
facilities tend to better reflect the actual cost structure faced by 
the ESRD facility itself, and are not influenced by the allocation of 
overhead over the entire institution, as can be the case with hospital-
based providers. This approach is consistent with our standard 
methodology used in the development of other market baskets, 
particularly those used for updating the skilled nursing facility PPS 
and home health PPS.

Cost Category Weights

    Using Worksheets A, A2, and B from the CY 2007 Medicare cost 
reports, we first computed cost shares for nine major expenditure 
categories: Wages and Salaries, Employee Benefits for direct patient 
care, Pharmaceuticals, Supplies, Laboratory Services, Blood Products, 
Administrative and General and Other (A&O), Housekeeping and 
Operations, and Capital-Related costs. Edits were applied to include 
only cost reports that had total costs greater than zero. In order to 
reduce potential distortions from outliers in the calculation of the 
cost weights for the major expenditure categories, cost values for each 
category less than the 5th percentile or greater than the 95th 
percentile were excluded from the

[[Page 49998]]

computations. The resulting data set included information from 
approximately 3,572 independent ESRD facilities' cost reports from an 
available pool of 3,970 cost reports. Expenditures for the nine cost 
categories as a proportion of total expenditures are shown in Table 38.
[GRAPHIC] [TIFF OMITTED] TP29SE09.009

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

Wages and Salaries

    The weight for wages and salaries for direct patient care that was 
initially computed was derived from Worksheet B of the Medicare cost 
report. However, because Worksheet B only includes direct patient care 
salaries, it was necessary to derive a methodology to include all 
salaries, not just direct patient care salaries, in order to calculate 
the appropriate market basket cost weight. This was accomplished in the 
following steps.
    (1) From the trial balance of the cost report (Worksheet A), we 
computed the ratio of salaries to total costs in each cost center. The 
cost centers for which we calculated this ratio were drugs, 
housekeeping and operations, A&O, supplies, blood and blood products, 
laboratories, capital-related machinery, and EPO.
    (2) We then multiplied the ratios computed in step 1 by the total 
costs for each corresponding cost center from Worksheet B. This 
provided us with an estimate of non-direct patient care salaries for 
each cost center.
    (3) The estimated non-direct patient care salaries for each of the 
cost centers on Worksheet B estimated in step 2 were subsequently 
summed and added to the direct patient care salary figure (resulting in 
a new total salaries figure).
    (4) The estimated non-direct patient care salaries (see step 2) 
were then subtracted from their respective cost categories to avoid 
double-counting their values in the total costs.
    As a result of this process, we moved from an estimated Wages and 
Salaries cost weight of 20.965 percent (as estimated using only direct 
patient care salaries as a percent of total costs found on the Medicare 
cost report) to a weight of 25.106 percent (capturing both direct and 
non-direct patient care salaries and, again, dividing that by total 
costs found on the Medicare cost report), as seen in Table 38.
    When we add the expenditures related to lab expenses that were 
previously paid for under the Medicare fee schedule and not included in 
the Medicare cost report and the ESRD-related drug expenditures 
currently covered under Part D that were not included in the Medicare 
cost report, and remove the estimated vaccine costs that are to be paid 
outside of the bundle, then the cost weight for the Wages and Salaries 
category falls to 22.798 percent.
    The final adjustment made to this category is to include contract 
labor costs. These costs appear on the Medicare cost report, however, 
they are embedded in the Administrative and General and Other category 
and cannot be disentangled using the Medicare cost reports alone. To 
move the appropriate expenses from the A&O category to Wages and 
Salaries, we used data from the BES. We first summed total contract 
labor costs in the survey. We then took 80 percent of that figure and 
added it to Wages and Salaries. At the same time, we subtracted that 
same amount from A&O. The 80 percent figure that was used was 
determined by taking salaries as a percentage of total compensation 
(excluding contract labor). The resulting cost weight for Wages and 
Salaries increases to 24.516 percent.

Benefits

    The Benefits weight was derived from the 2002 BES data aged forward 
to 2007 as a benefit share for all employees is not available from the 
ESRD Medicare cost report. The cost report only reflects benefits for 
direct patient care. In order to include the benefits related to non-

[[Page 49999]]

direct patient care, we estimated this marginal increase from the BES 
Benefits weight. This resulted in a Benefits weight that was 0.672 
percentage point larger (5.748 vs. 5.076) than the Benefits weight for 
direct patient care calculated directly from the cost reports. To avoid 
double-counting and to ensure all of the market basket weights still 
totaled 100 percent, we removed this additional 0.672 percentage point 
for Benefits from Pharmaceuticals, Biological Products, Administrative 
and General and Other, Supplies, Laboratory Services, Housekeeping and 
Operations, and the Capital-related Machinery components. This 
calculation reapportions the benefits expense for each of these 
categories using a method similar to the method used for distributing 
non-direct patient care salaries as described above.
    The final adjustment made to this category is to include contract 
labor costs. Once again, these costs appear on the Medicare cost 
report, however, they are embedded in the Administrative and General 
and Other category and cannot be disentangled using the Medicare cost 
report alone. To move the appropriate expenses from the A&O category to 
Benefits, we followed the same methodology used to apportion contract 
labor wages and salaries noted immediately above. For Benefits, we 
applied the remaining 20 percent of total contract labor costs, as 
estimated using the BES, and included that in the Benefits cost weight. 
At the same time, we subtracted that same amount from A&O. The 20 
percent figure that was used was determined by summing direct patient 
care benefits (as estimated using the Medicare cost report) and non-
direct patient care benefits (as estimated using the BES) and taking 
that sum as a percentage of total compensation (excluding contract 
labor). The resulting cost weight for Benefits increases to 6.177 
percent.

Utilities

    We developed a weight for Utility expenses using the 2002 BES data, 
as utilities are not separately identified on the Medicare cost report. 
We aged the 2002 utility expenditures to 2007. We then disaggregated 
the Utilities category to reflect three subcategories: Electricity, 
Fuel (natural gas), and Water and Sewerage. We computed the ratio of 
each BES category to the total BES operating expenses. We then applied 
each ratio to the total operating expense percentage share as 
calculated from the cost reports, including the additions of ESRD-
related drugs currently covered under Part D and additional lab 
expenses, to estimate the ESRD facility weight for each utility 
expenditure category. These amounts were then deducted from the share 
of the combined Operation & Maintenance of Plant and Housekeeping cost 
category, where the expenses are included on the Medicare cost report 
(but cannot be separately identified). The resulting Electricity, Fuel 
(Natural Gas), and Water and Sewerage ESRDB market basket weights are 
0.586, 0.111, and 0.483 percent, respectively, yielding a combined 
Utilities cost weight of 1.180 percent.

Pharmaceuticals

    The proposed ESRDB market basket includes expenditures for all 
drugs, including separately billable drugs and ESRD-related drugs 
currently covered under Medicare Part D. We were able to calculate an 
expenditure weight for pharmaceuticals directly from the Drugs cost 
center on Worksheet B plus the expenditures of EPO which are reported 
on worksheet A2 of the Medicare cost reports. Vaccine expenditures, 
which are mandated as separately reimbursable, were excluded when 
calculating this cost weight. Section 1842(o)(1)(A)(iv) of the Act 
requires that influenza, pneumococcal, and hepatitis B vaccines 
described in subparagraph (A) or (B) of section 1861(s)(10) of the Act 
be paid based on 95 percent of average wholesale price (AWP) of the 
drug. Since these drugs are excluded from other prospective payment 
systems, we exclude them from the proposed ESRDB market basket, as 
well. We estimate that expenditures for these three vaccines are 
approximately 1 percent of the total Medicare-allowable payments for 
separately billable drugs. 2007 expenditures for ESRD-related drugs 
currently covered under Part D were added to cost report totals.
    Finally, to avoid double-counting, the weight for the 
Pharmaceuticals category was reduced to exclude the estimated share of 
non-direct patient care salaries and benefits associated with the Drugs 
and Epoetin cost centers. This resulted in a proposed ESRDB market 
basket weight for Pharmaceuticals of 30.743 percent. EPO expenditures 
accounted for 19.351 percentage points of the Pharmaceuticals weight, 
ESRD-related drugs currently covered under Part D accounted for 4.681 
percentage points of the Pharmaceuticals weight, and all other drugs 
accounted for the remaining 6.710 percentage points of the 
Pharmaceuticals weight.

Blood Products

    We calculated the weight for Blood Products in the ESRDB market 
basket using the separately billable expenditure amounts for the Whole 
Blood and Packed Red Blood Cells cost center on Worksheet A of the 
Medicare cost report. We then added the expenditures for A&O for Whole 
Blood and Packed Red Blood Cells from Worksheet B to the net expenses 
from worksheet A to arrive at a total expenditure amount for Blood 
Products. This total was divided by total expenses to derive a weight 
for the Blood Products component in the bundled rate market basket. 
Similar to other expenditure category adjustments, we reduced the 
computed weight to exclude non-direct patient care salaries and 
benefits associated with the Blood cost centers. The proposed adjusted 
Blood Products market basket weight is 0.035 percent.

Supplies

    We calculated the weight for Supplies included in the bundled rate 
using the reimbursable and separately billable expenditure amounts for 
the Supplies cost center on Worksheet B of the Medicare cost report. 
Supplies that are separately billable are reported as a separate line 
item on the cost reports and were also included. This total was divided 
by total expenses to derive a weight for the Supplies component in the 
ESRDB market basket. The computed weight for this category was reduced 
by the non-direct patient care salaries and benefits associated with 
the Supplies cost center. The resulting proposed market basket weight 
for Supplies is 8.543 percent.

Laboratory Services

    We calculated the weight for Laboratory Services included in the 
bundled rate using the reimbursable and separately billable expenditure 
amounts for the Laboratory cost center on Worksheet B of the Medicare 
cost report. The cost report expenditures do not include laboratory 
services paid for under the Medicare fee schedule, only facility-
furnished laboratory tests. Since a large majority of laboratory tests 
are paid via the fee schedule, we adjusted the laboratory fees upward. 
The inflation factor was computed from the ratio of ESRD facility 
Medicare laboratory payment data to the other facility Medicare 
laboratory payment data. This provides a measure of the extent to which 
laboratory services fall under the Medicare fee schedule. For 2007, we 
increased the laboratory expenditures by a factor of 16.298, as 
estimated by KECC. The weight for this category was similarly reduced 
by the non-direct patient care salaries and benefits associated with 
the Laboratory cost center. The resulting proposed

[[Page 50000]]

market basket weight for Laboratory Services is 4.875 percent.

Housekeeping and Operations

    We developed a market basket weight for this category using data 
from Worksheet A of the Medicare cost reports. Worksheet B combines the 
capital-related costs for buildings and fixtures with the Operation and 
Maintenance of Plant (Operations) and Housekeeping cost centers, so we 
were unable to calculate a weight directly from Worksheet B. We 
separated these expenses from capital-related costs because we believe 
housekeeping and operations expenditures, such as janitorial and 
building services costs, are largely service-related and would be more 
appropriately proxied by a service-related price index. To avoid 
double-counting, we subtracted from the Housekeeping and Operations 
weight the utilities proportion described above, as well as the non-
direct patient care salaries and benefits share associated with the 
Operations and Housekeeping cost center. The resulting proposed market 
basket weight for Housekeeping and Operations is 1.766 percent.

Administrative and General and Other (A&O)

    We computed the proportion of total A&O expenditures using the A&O 
cost center data from Worksheet B of the Medicare cost reports minus 
the A&O expenditures related to the Blood Products category. As 
described above, we exclude contract labor from this cost category and 
apportion these costs to the salary and benefits cost weights. Similar 
to other expenditure category adjustments, we then reduced the computed 
weight to exclude salaries and benefits associated with the A&O cost 
center. The resulting A&O cost weight is 13.617 percent. This A&O cost 
weight is then fully apportioned to derive detailed cost weights for 
Professional Fees, Telephone, All Other Labor-related Services, and All 
Other Nonlabor-related Services.

Professional Fees

    A separate weight for Professional Fees was developed using the 
2002 BES data aged to 2007. Professional fees include fees associated 
with the following: Advertising, accounting, bookkeeping, legal, 
management, consulting, administrative, and other professional services 
fees. To estimate professional fees, we first calculated the ratio of 
BES professional fees to a total of administrative and other expenses 
from BES. We applied this ratio to the A&O total cost weight to 
estimate the proportion of ESRD facility professional fees. The 
resulting weight is 1.692 percent. This proposed cost weight is then 
separated into Labor-related Professional Fees (1.478 percent) and 
Nonlabor-related Professional Fees (0.214 percent), which is described 
in more detail below.

Telephone

    Because telephone service expenses are not separately identified on 
the Medicare cost report, we developed a Telephone Services weight 
using the 2002 BES expenses aged to 2007. We estimated a ratio of 
telephone services expenses to total administrative and other expenses 
from BES. We applied this ratio to the total A&O cost weight to 
estimate the proportion of ESRD facility telephone expenses. The 
resulting proposed market basket cost weight for Telephone Services is 
0.590 percent.

All Other Labor-related Services

    A separate weight for All Other Labor-related Services was 
developed using the 2002 BES data aged to 2007. All other labor-related 
services include repair and maintenance fees. We estimated a ratio of 
all other labor-related services expenses to total administrative and 
other expenses from BES. We applied this ratio to the total A&O cost 
weight to estimate the cost weight for ESRD facility All Other Labor-
related Services. The resulting proposed market basket cost weight is 
1.163 percent.

All Other Nonlabor-related Services

    A separate weight for All Other Nonlabor-related Services was 
developed using the 2002 BES data aged to 2007. Non labor-related 
services include insurance, transportation, shipping, warehousing, 
printing, data processing services, and all other operating expenses 
not otherwise classified. We estimated a ratio of all other nonlabor-
related services expenses to total administrative and other expenses 
from BES. We applied this ratio to the total A&O cost weight to 
estimate the cost weight for ESRD facility All Other Nonlabor-related 
Services. The resulting proposed market basket cost weight is 10.172 
percent.

Capital

    We developed a market basket weight for the Capital category using 
data from Worksheet B of the Medicare cost reports. Capital-related 
costs include depreciation and lease expense for buildings, fixtures, 
movable equipment, property taxes, insurance, the costs of capital 
improvements, and maintenance expense for buildings, fixtures, and 
machinery. Because housekeeping and operations costs are included in 
the Worksheet B cost center for Buildings and Fixtures capital-related 
expense, we excluded these costs and developed a separate expenditure 
category as noted above. Similar to the methodology used for other 
market basket cost categories with a salaries component, we computed a 
share for non-direct patient care salaries and benefits associated with 
the Capital-related Machinery cost center. We used Worksheet B to 
develop two capital-related cost categories, one for Buildings and 
Fixtures, and one for Machinery. We reasoned this was particularly 
important given the critical role played by dialysis machines. 
Likewise, because price changes associated with Buildings and Fixtures 
could move differently than those associated with Machinery, we felt 
that separate price proxies would be more appropriate to track price 
changes for the different capital-related categories over time. The 
resulting proposed market basket weights for Capital-related Buildings 
and Equipment and Capital-related Machinery are 6.653 and 1.894 
percent, respectively.
    Table 39 lists all of the expenditure categories in the ESRDB 
market basket and their corresponding CY 2007 cost weights and proxies, 
as developed in accordance with the methodology described above.

[[Page 50001]]



 Table 39--ESRDB Market Basket Cost Categories, Price Proxies, and Cost
                                 Weights
------------------------------------------------------------------------
                Cost                       Price/wage           ESRDB
------------------------------------------------------------    market
                                                                basket
                                                            ------------
                                                               CY 2007
              Category                      Variable           weights
                                                            ------------
                                                              (Percent)
------------------------------------------------------------------------
Total Compensation.................  ......................       30.693
Wages and Salaries.................  ECI--Health Care and         24.516
                                      Social Assistance
                                      (Civilian).
Employee Benefits..................  ECI--Benefits Health          6.177
                                      Care and Social
                                      Assistance (Civilian).
Utilities..........................  ......................        1.180
Electricity........................  PPI--Commercial               0.586
                                      Electric Power.
Natural Gas........................  PPI--Commercial               0.111
                                      Natural Gas.
Water and Sewerage.................  CPI--Water & Sewerage.        0.483
All Other Materials................  ......................       44.196
Pharmaceuticals....................  PPI--Prescription            30.743
                                      Drugs.
Blood Products.....................  PPI--Blood and Organ          0.035
                                      Banks.
Supplies...........................  PPI- Medical,                 8.543
                                      surgical, and
                                      personal aid devices.
Laboratories.......................  PPI--Medical                  4.875
                                      Laboratories.
All Other Services.................  ......................       15.383
Telephone..........................  CPI--Telephone                0.590
                                      Services.
Housekeeping and Operations........  PPI--Building,                1.766
                                      cleaning, and
                                      maintenance.
Labor-Related......................  ......................        2.641
Professional fees Labor-Related....  ECI--Compensation             1.478
                                      Professional and
                                      Related (Priv.).
All Other Labor-Related Services...  ECI--Compensation             1.163
                                      Service Occupations
                                      (Priv.).
Nonlabor-Related...................  ......................       10.386
Professional fees Nonlabor-Related.  ECI--Compensation             0.214
                                      Professional and
                                      Related (Priv.).
All Other Nonlabor-Related Services  CPI--All items less          10.172
                                      food and energy.
Capital Costs......................  ......................        8.547
Capital Related-Building and         CPI--Residential Rent.        6.653
 Equipment.
Capital Related-Machinery..........  PPI-Electrical                1.894
                                      Machinery and
                                      Equipment.
------------------------------------------------------------------------

Price Proxies

    Once we determined the proposed CY 2007 ESRDB market basket 
expenditure categories and weights, appropriate wage and price series 
or proxies were selected to measure the rate of price change for each 
category. All of the proxies are based on BLS data, and are grouped 
into one of the following three BLS categories:
    PPIs--PPIs measure changes in the prices producers receive for 
their outputs. PPIs are the preferable price proxies for goods and 
services that ESRD facilities purchase as inputs in producing dialysis 
services, since these facilities generally make purchases in the 
wholesale market. The PPIs that we use measure price change at the 
final stage of production.
    CPIs--CPIs measure changes in the prices of final goods and 
services purchased by the typical consumer. Because these indexes may 
not reflect the prices faced by a producer, we used CPIs only if an 
appropriate PPI was not available, or if the expenditure more closely 
resembled a retail rather than wholesale purchase. For example, we used 
the CPI for telephone services as a proxy for the Telephone cost 
category because there is no corresponding PPI, and we reasoned that 
commercial and residential rates change similarly.
    ECIs--ECIs measure the rate of change in employee wage rates and 
employer costs for employee benefits per hour worked. They are fixed-
weight indexes that strictly measure changes in wages and benefits per 
hour, and are not affected by shifts in employment mix.
    We evaluated the price proxies using the criteria of reliability, 
timeliness, availability, and relevance. Reliability indicates that the 
index is based on valid statistical methods and has low sampling 
variability. Timeliness implies that the proxy is published regularly, 
preferably at least once a quarter. Availability means that the proxy 
is publicly available. Finally, relevance means that the proxy is 
applicable and representative of the cost category weight to which it 
is applied. The CPIs, PPIs, and ECIs we propose to use meet these 
criteria.

Wages and Salaries

    We propose to use the ECI (Wages and Salaries) for Health Care and 
Social Assistance Workers (Civilian) as the measure of price growth for 
Wages and Salaries in the ESRDB market basket. We feel that this price 
proxy most closely reflects both the types of occupations employed by 
ESRD facilities, and the competitive nature of the dialysis and health 
services labor markets.

Benefits

    We propose to use the ECI for Employee Benefits for Health Care and 
Social Assistance Workers (Civilian) as the measure of price growth for 
Benefits in the ESRDB market basket. We selected this price proxy 
because it most accurately represents the labor conditions associated 
with ESRD facilities' employee benefit costs, similar to our finding 
for wages and salaries.

Professional Fees

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

Utilities

    We propose to use the PPI for Commercial Electric Power and the PPI 
for Commercial Natural Gas as the proxies for the Electricity and 
Natural Gas cost categories, respectively. We propose to use the CPI 
for Water and sewerage as the price proxy for the water and sewerage 
cost category.

[[Page 50002]]

Capital-Related--Building and Equipment

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

Capital-Related--Machinery

    We propose to use the PPI for Electrical Machinery and Equipment as 
the price proxy for the Capital-related Machinery cost category. This 
PPI includes dialysis machines, which are a significant component of 
machine equipment costs reported by ESRD facilities. Therefore, we 
believe that this price proxy is the best measure of the price growth 
of this cost category.

Pharmaceuticals

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

Blood Products

    We propose to use the industry PPI for Blood and Organ Banks as the 
price proxy for this cost category. This is the price proxy that we 
recently proposed to use in the 2006-based inpatient hospital market 
basket (74 FR 24157).

Supplies

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

Laboratory Services

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

Telephone

    We propose to use the CPI for Telephone Services as the price proxy 
for the Telephone cost category. This index is used as the price proxy 
for Telephone Services in other market baskets produced by CMS.

Housekeeping and Operations

    We propose to use the PPI for Building Cleaning and Maintenance 
Services as the price proxy for the Housekeeping and Operations cost 
category. This PPI includes housekeeping, janitorial, and maintenance 
(excluding repairs) services, and is representative of the types of 
costs included in this cost category.

All Other Labor-Related Services

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

All Other Nonlabor-Related Services

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

ESRDB Market Basket Increases

    The proposed ESRDB market basket reflects the combination of 
weights and proxies discussed above. Table 40 contains the forecasted 
rate of growth for CY 2009 through CY 2019 for the ESRDB market basket. 
Over this time period, the ESRDB market basket average increase is 
projected to be 2.7 percent.

  Table 40--Forecast of the 2007-Based ESRD Bundled Rate Market Basket
                    Percent Change, 2009 Through 2019
------------------------------------------------------------------------
                  Cy beginning January 1st                      ESRDB
------------------------------------------------------------------------
CY2009.....................................................          3.4
CY2010.....................................................          2.3
CY2011.....................................................          2.5
CY2012.....................................................          2.6
CY2013.....................................................          2.6
CY2014.....................................................          2.7
CY2015.....................................................          2.7
CY2016.....................................................          2.7
CY2017.....................................................          2.7
CY2018.....................................................          2.7
CY2019.....................................................          2.7
------------------------------------------------------------------------
Note: These percent changes do not reflect the -1 percentage point
  update in the market basket as mandated by MIPPA.

[[Page 50003]]

 
Source: 2009 2nd Quarter Forecast from IHS Global Insight.

ESRD Labor-Related Share

    The labor-related share of a market basket is determined by 
identifying the national average proportion of operating costs that are 
related to, influenced by, or vary with the local labor market. The 
labor-related share is typically the sum of Wages and Salaries, 
Benefits, Professional Fees, Labor-related Services, and a portion of 
the Capital share from a given market basket.
    We used the 2007-based ESRDB market basket costs to determine the 
proposed labor-related share for ESRD facilities under a bundled 
system. Under the proposed ESRDB market basket, the labor-related share 
for ESRD facilities is 38.160 percent; as shown in Table 41 below. 
These figures represent the sum of Wages and Salaries, Benefits, 
Housekeeping and Operations, All Other Labor-related Services, 87 
percent of the weight for Professional Fees (details discussed below), 
and 46 percent of the weight for Capital-related Building and Equipment 
expenses (details discussed below).

              Table 41--ESRDB Market Baskets Labor-Related
------------------------------------------------------------------------
                                                              2007-based
                                                             ESRDB labor-
                    Share cost category                        related
                                                                share
                                                              (percent)
------------------------------------------------------------------------
Wages......................................................       24.516
Benefits...................................................        6.177
Housekeeping and operations................................        1.766
All other labor-related services...........................        1.163
Professional fees labor-related............................        1.478
Capital labor-related......................................        3.060
                                                            ------------
  Total....................................................       38.160
------------------------------------------------------------------------

    The labor-related share for Professional Fees (87 percent) reflects 
the proportion of ESRD facilities' professional fees expenses that we 
believe varies with local labor market. We recently conducted a survey 
of ESRD facilities to better understand the proportion of contracted 
professional services that ESRD facilities typically purchase outside 
of their local labor market. These purchased professional services 
include functions such as accounting and auditing, management 
consulting, engineering, and legal services. Based on the survey 
results, we determined that, on average, 87 percent of professional 
services are purchased from local firms and 13 percent are purchased 
from businesses located outside of the ESRD's local labor market. Thus, 
we are proposing to include 87 percent of the cost weight for 
Professional Fees in the labor-related share.
    The labor-related share for capital-related expenses (46 percent of 
ESRD facilities' adjusted Capital-related Building and Equipment 
expenses) reflects the proportion of ESRD facilities' capital-related 
expenses that we believe varies with local labor market wages. Capital-
related expenses are affected in some proportion by variations in local 
labor market costs (such as construction worker wages) that are 
reflected in the price of the capital asset. However, many other inputs 
that determine capital costs are not related to local labor market 
costs, such as interest rates. The 46-percent figure is based on 
regressions run for the inpatient hospital capital PPS in 1991 (56 FR 
43375). We use a similar methodology to calculate capital-related 
expenses for the labor-related shares for rehabilitation facilities (70 
FR 30233), psychiatric facilities, long-term care facilities, and 
skilled nursing facilities (66 FR 39585).

XIII. Proposed Implementation for the ESRD PPS

A. Transition Period

    Section 1881(b)(14) of the Act replaces the current basic case-mix 
adjusted composite payment system with a case-mix adjusted bundled 
prospective payment system, or the ESRD PPS, for Medicare outpatient 
ESRD facilities beginning January 1, 2011. Section 1881(b)(14)(E)(i) of 
the Act requires the Secretary to provide ``a four-year phase-in'' of 
the payments under the ESRD PPS for renal dialysis services furnished 
on or after January 1, 2011. Although the statute uses the term 
``phase-in'', other Medicare payment systems use the term 
``transition'' to describe the timeframe during which payments are 
based on a blend of the payment rates under the prior payment system 
and the new payment system. For purposes of this ESRD PPS proposed 
rule, we will use the term ``transition'' to describe this timeframe. 
Section 1881(b)(14)(E)(i) of the Act further requires that the 
transition occur ``in equal increments,'' with payments under the ESRD 
PPS ``fully implemented for renal dialysis services furnished on or 
after January 1, 2014.'' In addition, section 1881(b)(14)(E)(ii) of the 
Act permits an ESRD facility to make a one-time election to be excluded 
from the transition from the current basic case-mix adjusted composite 
payment system, with its payment amount for renal dialysis services 
based entirely on the payment amount under the ESRD PPS. This election 
must be made prior to January 1, 2011. In addition, section 
1881(b)(14)(E)(iii) of the Act requires that we make an adjustment 
during the transition so that payments during the transition equal the 
estimated total amount of payments that would otherwise occur under the 
ESRD PPS without such a transition. The transition budget-neutrality 
adjustment is discussed further in section VII.E.
    In accordance with section 1881(b)(14)(E) of the Act, we propose to 
implement the transition from the current basic case-mix adjusted 
composite payment system in equal increments, with renal dialysis 
services and home dialysis furnished on or after January 1, 2014, paid 
entirely based on the payment amount under the ESRD PPS. Specifically, 
we propose that for renal dialysis services and home dialysis services 
provided during the transition period beginning January 1, 2011 and 
ending December 31, 2013, ESRD facilities receive a blended payment for 
each dialysis treatment consisting of the payment amount under the 
basic-case mix adjusted composite system and the payment amount under 
the ESRD PPS. Therefore, because ESRD facilities would receive an all-
inclusive payment during the transition for all renal dialysis services 
and home dialysis items and services, other entities, such as Method II 
DME suppliers, laboratories, and Part D plans would no longer bill 
Medicare beginning January 1, 2011. To the extent these entities 
furnish items or services to ESRD patients, the entities would need to 
seek payments from the patient's ESRD facility. Further discussion on 
Method II DME suppliers, laboratories, and Part D plans can be found 
below.
    For CY 2011, we are proposing to make payments based on 75 percent 
of the payment rate under the basic case-mix adjusted composite payment 
system and 25 percent of the payment rate under the ESRD PPS. For CY 
2012 we are proposing to make payment based on 50 percent of the 
payment rate under the basic case-mix adjusted composite payment system 
and 50 percent of the payment rate under the ESRD PPS. For CY 2013 we 
are proposing to make payment based on 25 percent of the payment rate 
under the basic case-mix adjusted composite payment system and 75 
percent of the payment rate under the ESRD PPS. For renal dialysis 
services furnished on or after January 1, 2014, we propose that payment 
to ESRD facilities be based on 100 percent of the payment amount under 
the ESRD PPS.
    In particular, we propose that the portion of the blended rate 
based on the

[[Page 50004]]

payment amount with regard to the basic case-mix adjusted composite 
payment system would be comprised of the composite payment rate (which 
is adjusted by the basic case-mix and a wage index), the drug add-on 
amount, and payment amounts for items and services furnished to 
dialysis patients that are currently separately paid under Part B by 
Medicare to entities other than the ESRD facility. In addition to the 
above components of the basic case-mix adjusted payment system, as part 
of the transitional budget neutrality adjustment (describe in section 
VII.E.), we are also proposing to include a 14 dollar adjustment to the 
portion of the blended rate related to the basic case-mix adjusted 
payment system during the transition. The 14 dollar adjustment to the 
portion of the blended payment amount related to the basic case-mix 
adjusted payment system accounts for the ESRD related drugs and 
biological that are currently separately paid under Part D and are 
being proposed to be included in the ESRD PPS base rate.
    For the years during which the phase-in (transition) is applicable, 
section 1881(b)(14)(F)(ii) of the Act requires the Secretary to 
annually increase the portion of the proposed ESRD PPS that is based on 
the composite rate that would otherwise apply if the ESRD PPS had not 
been enacted. In particular, section 1881(b)(14)(F)(ii)(II) of the Act 
requires the composite rate portion of the blended payment to be 
updated annually by the ESRDB market basket minus 1.0 percentage point. 
Our interpretation of section 1881(b)(14)(F)(ii) of the Act is that the 
ESRDB market basket minus 1.0 percentage point would be applied only to 
the composite payment rate portion of the blended payment amount for 
each year of the transition (which includes CY 2011). A full 
description of the ESRDB market basket is presented in section XII.
    Therefore, for each year of the transition, we are proposing that 
the composite payment rate portion of the blended amount would be 
updated by a case-mix adjustment, the drug add-on adjustment, the 
current wage index, the ESRDB market basket minus 1.0 percentage point, 
and an adjustment to account for former ESRD-related Part D drugs to 
maintain transitional budget neutrality. Payments for items and 
services furnished to dialysis patients that are paid separately under 
Part B with regard to the current composite payment rate methodology, 
that is, ESRD-related laboratory tests, ESRD-related drugs, and ESRD-
related supplies, blood, and blood products would no longer be paid 
separately. Instead, those items and services would be priced to 
reflect how they are currently paid, for example, using a fee schedule 
or ASP amount.
    We note that there are ESRD facilities that have existing exception 
amounts that are used for payment in lieu of the composite rate, drug 
add-on payment, and basic case-mix adjustments (further discussion of 
exceptions under the basic case-mix adjustment composite payment system 
can be found in section I.B.3). Any existing exception amount would not 
be updated by the ESRDB market basket throughout the transition.
    The portion of the blended rate based on the payment amount under 
the ESRD PPS includes the base rate and all applicable patient-level 
and facility-level adjustments, as would be determined under proposed 
Sec.  413.231 and Sec.  413.235. As set forth in proposed Sec.  
413.237, we propose that the ESRD PPS portion of the blended rate would 
also include outlier payments.
    As specified in proposed Sec.  413.178, bad debt is paid separately 
from the ESRD PPS and any payment for bad debt would occur at the time 
a FI/MAC reviews an ESRD facility's cost report and makes a final 
determination on if there are any overpayments/underpayments due to the 
ESRD facility/Medicare. For more information regarding bad debt 
payments see section XIV.D.
    As previously noted, section 1881(b)(14)(E)(ii) of the Act gives an 
ESRD facility the option to make a one-time election to be excluded 
from the four-year transition from the current basic case-mix adjusted 
composite payment system in the form and manner specified by the 
Secretary. Once made, this election may not be rescinded. ESRD 
facilities may choose to be paid the blended rate under the transition 
period in order to give them time to determine the impact of the ESRD 
PPS on their operations and to adjust their operations accordingly. We 
believe ESRD facilities will choose to be excluded from the transition 
if they conclude that they would benefit financially from the payment 
amount under the ESRD PPS.
    Section 1881(b)(14)(E)(ii) of the Act requires that ESRD facilities 
wishing to be excluded from the transition make their election prior to 
January 1, 2011, in the form and manner specified by the Secretary. We 
are proposing that ESRD facilities notify CMS of their election choice 
in a manner established by their respective FI/MAC no later than 
November 1, 2010 regardless of any postmarks or anticipated delivery 
dates. A timeframe of 60 days before implementation is consistent with 
the timeframe that a FI/MAC is given to incorporate any updates to 
rates. We are also proposing that those ESRD facilities that become 
certified for Medicare participation and begin to provide renal 
dialysis services between November 1, 2010 and December 31, 2010 would 
notify their FI/MAC of their election choice at the time of enrollment. 
Once an ESRD facility notifies their respective FI/MAC of their 
election choice, on or before November 1, 2010 (or at the time of 
enrollment for newly certified ESRD facilities that begin to provide 
renal dialysis services between November 1, 2010 and December 31, 
2010), the ESRD facility's election cannot be rescinded. We note that 
section 1881(b)(14)(E)(ii) of the Act provides that all ESRD facilities 
wishing to be excluded from the transition must make an election to be 
excluded from the transition. We therefore are further proposing that 
those ESRD facilities that fail to affirmatively make an election by 
November 1, 2010, would be paid based on the blended amount under the 
transition. Elections submitted by ESRD facilities that wish to be 
excluded from the transition that are received, postmarked, or 
delivered by other means after November 1, 2010 would not be accepted. 
All ESRD facilities wishing to be excluded from the transition should 
submit their election choice by the proposed deadline if they wish to 
be excluded from the transition and paid entirely based on the payment 
amount under the ESRD PPS for renal dialysis services furnished on or 
after January 1, 2011. Instruction as to how the FIs/MACs would 
implement the proposed ESRD PPS would be provided in future guidance. 
If the FIs/MACs express concern about the November 1, 2010 date, we 
would revisit the deadline in the ESRD PPS final rule. The proposed 
transition period policy is set forth in proposed Sec.  413.239.
    We are requesting public comment regarding our proposed blended 
payment rates and our proposed process for making the election to be 
excluded from the transition period.
1. New ESRD Facilities
    Although the first sentence of section 1881(b)(14)(E)(i) of the Act 
permits ``a provider of services or renal dialysis facility'' to make a 
one-time election to be excluded from the transition, the second 
sentence provides that this election must be made prior to January 1, 
2011. Reading these two sentences together, we believe that only ESRD 
facilities providing renal dialysis services to Medicare beneficiaries 
before January 1, 2011, should have the option to choose whether to be 
paid under the

[[Page 50005]]

transition or under the ESRD PPS. We further note that the transition 
period provided for under section 1881(b)(14)(E)(i) of the Act is 
intended to provide existing ESRD facilities time to adjust from 
payments based on the current basic case-mix adjusted composite payment 
methodology to bundled payments under the ESRD PPS. New ESRD facilities 
that begin providing renal dialysis services and home dialysis to 
Medicare beneficiaries on or after January 1, 2011, would not have 
received payment under the current basic case-mix adjusted composite 
payment system; therefore, we do not believe new ESRD facilities 
require a transition period in order to make adjustments to their 
operating procedures. Accordingly, we propose that ESRD facilities that 
are certified for Medicare participation and begin providing renal 
dialysis services and home dialysis on or after January 1, 2011, not 
have the option to choose whether to be paid a blended rate under the 
transition or the payment amount under the ESRD PPS. Rather, we propose 
that new ESRD facilities be paid based on 100 percent of the payment 
amount under the ESRD PPS.
    As set forth in Sec.  413.171 of this proposed rule, we are 
proposing to define a new ESRD facility as an ESRD facility that is 
certified for Medicare participation on or after January 1, 2011.
2. Limitation on Beneficiary Charges Under the Proposed ESRD PPS and 
Beneficiary Deductible and Coinsurance Obligations
    Section 1833 of the Act governs payments of benefits for Part B 
services and the cost sharing amounts for services that are considered 
medical and other health services. In general, many Part B services are 
subject to a payment structure that requires beneficiaries to be 
responsible for a 20 percent coinsurance after the deductible (and 
Medicare pays 80 percent). With respect to dialysis services furnished 
by ESRD facilities to individuals with ESRD, under section 
1881(b)(2)(a) of the Act, payment amounts are 80 percent (and 20 
percent by the individual).
    In this rule, we have proposed the items and services that would be 
considered renal dialysis services included in the ESRD PPS payment 
such as the composite rate related services, certain separately 
billable drugs, former Part D drugs used in the treatment of ESRD, 
laboratory testing, etc. We understand that certain items and services 
such as laboratory tests and Part D drugs have different beneficiary 
coinsurance structures. However, these items and services would be 
considered renal dialysis services after the ESRD PPS is implemented 
when furnished by an ESRD dialysis facility to an ESRD beneficiary. 
Therefore, a 20 percent beneficiary coinsurance would be applicable to 
the ESRD PPS payment for these services including any adjustments to 
the ESRD PPS payment such as adjustments for case-mix, geographic wage 
index, outlier, etc.
    Thus, we are proposing that an ESRD facility receiving an ESRD PPS 
payment may charge the Medicare beneficiary or other person only for 
the applicable deductible and coinsurance amounts as specified in Sec.  
413.176. The beneficiary coinsurance amount for the ESRD PPS base rate 
is 20 percent of the total ESRD PPS payment (including payments made 
under the transition). We note that the amount of coinsurance is based 
on the proposed ESRD PPS payment for renal dialysis services and home 
dialysis in 42 CFR part 413. In general, facilities are paid monthly by 
Medicare for the ESRD services they furnished to a beneficiary even 
though payment is on a per treatment basis. We are proposing to 
continue this practice to pay ESRD facilities monthly for services 
furnished to a beneficiary beginning January 1, 2011. During the 
transition period before January 1, 2014, ESRD facilities that do not 
elect to go 100 percent into the ESRD PPS in 2011 would receive a 
blended payment amount of the prospective payment system in effect 
prior to January 1, 2011, and the ESRD PPS payment amount for services 
furnished to a beneficiary. ESRD Facilities would receive a monthly 
payment that is a blended payment amount for services furnished to a 
beneficiary. The services included in this blended monthly payment 
amount would be subject to a 20 percent beneficiary coinsurance.
    Additionally, in accordance with section 1881(b)(1) of the Act and 
consistent with other established prospective payment systems policies, 
we are proposing in Sec.  413.172(b) that an ESRD facility may not 
charge a beneficiary for any service for which payment is made by 
Medicare. This policy would apply, even if the ESRD facility's costs of 
furnishing services to that beneficiary are greater than the amount the 
ESRD facility would be paid under the proposed ESRD PPS.

B. Claims Processing

    As indicated above, section 1881(b)(14)(A)(i) of the Act requires 
the Secretary to implement a payment system under which a single 
payment is made for renal dialysis services and other items and 
services related to home dialysis. For example, those services would 
include supplies and equipment used to administer dialysis in the ESRD 
facility or at a patient's home, drugs, biologicals, laboratory tests, 
and support services.
    Implementation of the proposed ESRD PPS will require a significant 
amount of changes to the way we process claims. Some of the changes 
could entail consolidated billing rules and edits and the data elements 
reported on claims, as discussed below.
1. Consolidated Billing
    Since the ESRD PPS payment model represents an all-inclusive 
payment for renal dialysis services and home dialysis items and 
services, the ESRD facility itself is responsible for virtually all of 
the services mentioned above that its patients receive. It is important 
that billing and payment for these services, which could be provided by 
other entities, such as laboratories, is made only to the ESRD facility 
so that duplicate payment is not made by Medicare. Therefore, as stated 
previously in section XIII.B, suppliers, laboratories, and Part D plans 
would not be permitted to bill Medicare for renal dialysis services and 
home dialysis items and services that they furnish to ESRD 
beneficiaries. The consolidated billing approach essentially confers to 
the ESRD facility itself the Medicare billing responsibility for all of 
the renal dialysis services that its patients receive.
a. Laboratory Tests
    ESRD patients generally have many co-morbid conditions and are 
treated by other specialists for those conditions. As such, many of the 
same laboratory tests ordered by a physician to monitor a patient's 
ESRD, could also be ordered by other physician specialists treating the 
ESRD patient for other medical conditions. Therefore, it is difficult 
to differentiate between an ESRD related laboratory test and a test 
ordered for another condition. While the ideal scenario would be to 
require that payment for all potential ESRD related laboratory tests be 
made only to the ESRD facility, ESRD facilities may not be able to 
control the ordering of tests by physicians not treating the patient's 
renal disease. A consolidated billing approach could identify the 
source of a given laboratory test to allow separate payment when the 
test was not ordered in connection with the patient's ESRD condition. 
In order to ensure proper payment in all settings, we are exploring the 
use of modifiers to identify those services furnished to ESRD 
beneficiaries, which are excluded from the proposed ESRD PPS.

[[Page 50006]]

b. Drugs and Biologicals
    Certain drugs and biologicals routinely furnished to ESRD 
beneficiaries that are paid under the Medicare ESRD benefit are 
included in the current basic case-mix adjusted composite rate. Other 
ESRD-related injectable drugs are separately paid under Medicare Part 
B. However, as mentioned above, section 1881(b)(14)(B) of the Act 
requires the inclusion of all drugs and biologicals used for the 
treatment of ESRD, including drugs and biologicals that were formerly 
covered under Medicare Part D. Therefore, we would include these drugs 
as part of the consolidated billing mechanism discussed above. As a 
result of including these former Part D ESRD drugs and biologicals in 
the proposed ESRD PPS, we are proposing that ESRD facilities would be 
required to furnish these and any other self-administered ESRD-related 
drugs to beneficiaries either directly or under arrangement. Such 
arrangements would prevent potential Medicare overpayments made under 
both Parts B and D. Further discussion regarding payment for former 
Part D drugs and biologicals can be found in section III.C.
c. Home Dialysis
    Section 1881(b)(14)(A)(i) of the Act requires the costs of home 
dialysis supplies and services furnished under Method I and Method II, 
regardless of home treatment modality, be included in the proposed ESRD 
PPS. Thus, we are proposing that the Method II home dialysis approach 
in its present form would no longer exist under the proposed ESRD PPS 
effective January 1, 2011. This proposal does not eliminate Method I in 
its present form. Therefore, a supplier could only furnish, under 
arrangement with the ESRD facility, home dialysis equipment and 
supplies to a Medicare home dialysis beneficiary, and the supplier 
would have to look to the ESRD facility for payment. We believe that 
this approach is simpler and would reduce the administrative burden of 
maintaining two payment methods for home dialysis patients, as we 
believe that section 1881(b)(14)(A)(i) of the Act requires that all 
Medicare home dialysis supplies and services be paid under the proposed 
ESRD PPS and such payment be made to the ESRD facility. Further 
discussion of this proposal and information on home dialysis can be 
found in section III.E.
2. Expansion of the Data Elements Reported on Claims
    Under the current basic case-mix composite adjusted payment system, 
ESRD facilities are paid a composite rate for each dialysis treatment 
performed. Currently the composite rate includes a number of items and 
services beyond the dialysis treatment itself. The services that are 
billed on the claim do not provide any detail of the composite rate 
items and services that are furnished to the patient beyond the 
treatment itself. Examples of additional types of items and services 
that are included in the composite rate but are not captured on the 
claims and that we believe would be helpful in our ability to predict 
composite rate costs are: time on machine, nutritional services, social 
work services, and nursing services. We are not proposing additional 
reporting requirements at this time, but we believe that collecting 
additional data at patient-level is necessary for refinements to the 
proposed case-mix adjustments of the proposed ESRD PPS payment model.
    In the future, we may implement new reporting requirements where 
data elements, such as time on machine, nutritional services, social 
work services, and nursing services, would be relevant for case-mix 
refinements. We are requesting public comment regarding these data 
elements and other claim-based information that would identify patients 
who are high cost. Identifying other factors that explain costs could 
assist us in developing future patient-level adjusters that would 
further refine the model that we used to develop the proposed ESRD PPS. 
Detailed instruction as to how claims would be processed under the 
proposed ESRD PPS will be provided in future guidance.

C. Operational Issues Surrounding Payment for Self Administered ESRD-
Related Drugs and Biologicals

    As we discussed in section III. of this proposed rule, section 
1881(b)(14)(B)of the Act defines renal dialysis services to include, 
among other things, certain drugs and biologicals, including drugs and 
biologicals that were separately payable under Parts B and D. Under the 
current ESRD basic case-mix adjusted composite payment system, ESRD 
facilities generally do not furnish oral drugs and biologicals to their 
ESRD patients. ESRD patients currently acquire these drugs and 
biologicals either through Medicare Part D, private insurance, or 
independently.
    As described in section III. of this proposed rule, we are 
proposing to include renal dialysis service drugs formerly covered 
under Part D under the proposed ESRD PPS. As a result, we are further 
proposing that ESRD facilities would be required to furnish these and 
any other self-administered ESRD-related drugs to beneficiaries either 
directly or under arrangement. Regardless of the mechanism by which 
these drugs would be furnished (directly or under arrangement), as ESRD 
facilities assume responsibility for the provision of these drugs that 
were formerly furnished by the Part D plans, we believe that some of 
the Part D provisions set forth in the 42 CFR Part 423, would become 
relevant for ESRD facilities. We are particularly interested in 
assuring beneficiary access to these drugs. As such, we request public 
comment on the extent to which Part D access requirements including, 
but not limited to, pharmacy networks and formularies may be relevant 
in the context of ESRD facilities' provision of renal dialysis service 
drugs.
    In addition, consistent with the patients' rights processes set 
forth in Sec.  494.70(a) and the condition: governance processes set 
forth in Sec.  494.180(e) of the conditions for coverage for ESRD 
facilities, we would expect that the ESRD facilities would update their 
grievance processes to account for all self-administered ESRD-related 
drugs. Patients would continue to have access to both internal and 
external grievance processes including the ESRD Network and the State 
survey agency.
    In the case of any ESRD facility that would seek to furnish drugs 
directly by dispensing on-site, we would expect that such facility 
comply with state pharmacy licensure requirements. As an alternative, 
we believe that many ESRD facilities would forego the process of 
becoming licensed as a pharmacy and instead, furnish renal dialysis 
service drugs formerly covered under Part D under arrangement with a 
licensed pharmacy. Under this scenario, the patient's MCP physician 
would prescribe the drugs or biologicals. The patient would obtain 
these drugs from a retail or mail order pharmacy with which the ESRD 
facility has contracted. We would expect that the ESRD facility would 
provide their patients with a listing of pharmacies with which it would 
have arrangements with to dispense the renal dialysis service drugs.
    As indicated in proposed Sec.  413.241 of this proposed rule, we 
would further expect that the ESRD facilities would establish 
arrangements with pharmacies in a manner that would facilitate 
beneficiary access to renal dialysis service drugs. That is to say, at 
a minimum, we would expect that the arrangement would take into account 
variables like the terrain, whether the patient's home is located in an 
urban or

[[Page 50007]]

rural area, the availability of transportation, the usual distances 
traveled by patients in the area to obtain health care services, and 
the pharmacy's capability to provide all classes of renal dialysis 
service drugs to patients in a timely manner.
    In addition, we would expect that ESRD facilities would coordinate 
the provision of renal dialysis service drugs on behalf of traveling 
patients to facilitate ongoing compliance with the plan of care during 
periods of travel.
    To prevent duplicate payment under both Part D and Part B for 
bundled drugs and biologicals formerly covered under Part D, we are 
considering the incorporation of an ESRD indicator on the Part D 
eligibility information that would prevent Part D drug payments for 
bundled ESRD drugs and biologicals at the pharmacy. For example, 
similar to the Part D requirements in Sec.  423.120(c), ESRD facilities 
could issue a card or other type of technology that its enrollees may 
use to access renal dialysis service drugs through pharmacies with 
which they have established arrangements.
    The pharmacy would bill the ESRD facility for all renal dialysis 
service drugs and biologicals included in the proposed ESRD PPS that 
were dispensed, but would not be permitted to bill the patient for the 
usual Part B coinsurance amount, nor treat these drugs in accordance 
with the Part D rules. As discussed in section XIII.A.2. of this 
proposed rule, the ESRD facility would collect applicable beneficiary 
coinsurance that is based on the proposed ESRD PPS per treatment 
payment amount.
    As discussed in section VII. of this proposed rule, the cost of the 
drugs and biologicals currently separately payable under Part D that we 
propose to be designated as Part B renal dialysis services for purposes 
of the proposed ESRD PPS, would be reflected in the ESRD PPS portion of 
the blended payment. In addition, the mechanism by which we propose to 
address payment for these drugs during the transition as an adjustment 
to the blended payment related to basic case-mix adjusted composite 
payment system is discussed in section VII.D.b. of this proposed rule.

XIV. Evaluation of Existing ESRD Policies and Other Issues

    We reviewed existing ESRD policies to determine their applicability 
to the proposed ESRD PPS. We propose to eliminate the exceptions for 
isolated essential facilities, self dialysis training costs, atypical 
service intensity (patient mix) and pediatric facilities that exist 
under the case-mix adjusted composite payment system. We would maintain 
the current erythropoeisis stimulating agent monitoring policy, bad 
debt policy, reporting requirements for circumstances whereby Medicare 
is the secondary payer (MSP), and the 50-cent deduction to fund the 
ESRD Networks. We also propose to set forth in Sec.  413.195 the 
limitation on review with regard to the ESRD PPS. In addition, we are 
considering the extent to which the laboratory services 50 percent rule 
would continue to apply under the proposed ESRD PPS.

A. Exceptions Under the Case-Mix Adjusted Composite Payment System

    Section 1881(b)(7) of the Act and Sec.  413.182 generally address 
exceptions to the composite payment rates. Section 422(a)(2) of BIPA 
prohibited the granting of new exceptions to the composite payment 
rates after December 31, 2000, but did allow the continuation of the 
existing exceptions as long as the exception rate exceeded the 
applicable composite payment rate. Section 623(b) of the MMA amended 
section 422(a)(2) of BIPA to restore composite rate exceptions for 
pediatric facilities that did not have an exception rate in effect as 
of October 1, 2002. Section 422(a)(2)(D) of BIPA defined a pediatric 
facility as a renal dialysis facility at least 50 percent of whose 
patients are under 18 years of age.
    In the calendar year (CY) 2005 Physician Fee Schedule (PFS) 
proposed rule (69 FR 47535), we explained that section 422(a)(2)(C) of 
BIPA provided that any ESRD composite rate exception in effect on 
December 31, 2000, would continue as long as the exception rate exceeds 
the applicable composite payment rate. We further explained that when 
computing an exception amount, the facility's patient population and 
the higher costs relating to case-mix are taken into consideration. We 
indicated that we were proposing to allow each dialysis facility the 
option of continuing to be paid at its exception rate or at the basic 
case-mix adjusted composite rate. On April 1, 2004, we opened the 
exception window for pediatric facilities and noted that the window 
would close in September 27, 2004. In the CY 2005 PFS final rule with 
comment period (69 FR 66332), we stated that the exception process was 
opened each time there is a legislative change in the composite payment 
rate or when we open the exception window. We indicated our intent to 
open the pediatric exception windows on an annual basis. We also noted 
that we would provide for the continuation of the home training 
exception to allow for facilities with home training exceptions to 
retain their current training exception rates as well as take advantage 
of the case-mix adjusted rates for non-training dialysis.
    While section 153 of the MIPPA does not directly address 
exceptions, we believe that the ESRD PPS under section 1881(b)(14) of 
the Act, creates an ESRD bundled prospective payment in lieu of payment 
under previous ESRD payment systems and given that the ESRD PPS no 
longer directly addresses changes in the ESRD composite rate, we 
believe that the exceptions currently in place would no longer apply. 
We also believe that we have addressed the higher costs relating to 
case-mix through the patient characteristic adjustments and outlier 
payments that are discussed in detail in sections VIII.B and X.A. 
Therefore, we are proposing the elimination of the isolated essential 
facility, self dialysis training costs, atypical service intensity 
(patient mix) and pediatric facility exceptions effective for ESRD 
renal dialysis services furnished on or after January 1, 2014 (at the 
conclusion of the phase-in). In other words, any existing exceptions 
would terminate effective for ESRD treatment on or after January 1, 
2014. Additionally, no further exception windows would be open 
effective for ESRD treatment furnished on or after January 1, 2011, the 
effective date of the ESRD PPS. In the event that an ESRD facility 
elects to receive full payment under the ESRD PPS for renal dialysis 
services furnished on or after January 1, 2011, any existing exceptions 
would no longer be recognized. In the event that an ESRD facility 
elects to receive payment under the transition period, any existing 
exceptions would be recognized for purpose of the basic case-mix 
adjusted composite payment system portion of the blended payment 
through the transition. We propose to include the periods of exceptions 
and the elimination of the exceptions to the composite payment rates in 
Sec.  413.180 of the regulations. With respect to appeals under Sec.  
413.194(b) we point out that such appeals apply only to exceptions to 
the composite rate granted before January 1, 2011.

B. Erythropoiesis Stimulating Agent (ESA) Monitoring Policy

    In 2003, we solicited input from the ESRD community, in order to 
develop an erythropoiesis stimulating agent (ESA) Monitoring Policy. 
After input from the community, we implemented, through administrative 
issuance, the first iteration of the monitoring policy effective for 
services provided on or after April 1, 2006. On July 20, 2007, we 
issued through administrative issuance, a revised policy effective for 
services

[[Page 50008]]

furnished on or after January 1, 2008. We are currently evaluating the 
extent to which we could continue the ESA Monitoring Policy for renal 
dialysis services furnished on or after January 1, 2011. Specifically, 
at the current time it is not known how the reduction in payment that 
is currently applied to the separately billed ESAs would be applied 
under the proposed ESRD PPS. As discussed in section X.A, we are also 
continuing to evaluate how to establish eligibility for outlier 
payments in instances where the ESA Monitoring Policy is implicated. We 
request public comments on this issue to inform our evaluation.

C. ESRD Facility Network Deduction

    Pursuant to section 1881(b)(7) of the Act, to fund the ESRD 
Networks, 50 cents is deducted from the amount of each payment for each 
treatment (subject to such adjustments as may be required to reflect 
modes of dialysis other than hemodialysis). The reduction amount 
applies to all treatment modalities. The methodology for calculating 
the reduction is described in the Medicare Claims Processing Manual, 
Pub. 100-04, Ch. 8, section 110. We would continue this deduction with 
the ESRD PPS effective for services provided on or after January 1, 
2011, with a 50 cent reduction per treatment from the payment made to 
ESRD facilities under the ESRD PPS for facilities that elect to receive 
payment under the ESRD PPS (subject to such adjustments as may be 
required to reflect modes of dialysis other than hemodialysis). For 
facilities that elect to receive ESRD payment during the transition, we 
would apply the reduction methodology as described above to the blended 
payment amount during the transition.

D. Bad Debt

    Section 413.89 of the regulations and Chapter 3 of the Provider 
Reimbursement Manual, Part 1 (PRM) (CMS Pub. 15-1) set forth the 
general requirements and policies for payment of bad debts attributable 
to unpaid Medicare deductibles and coinsurance amounts. Additional 
requirements for ESRD facilities are set forth at Sec.  413.178.
    Under the basic case-mix adjusted payment system, Medicare pays 
ESRD facilities 80 percent of a prospectively set composite rate for 
outpatient dialysis services. The Medicare beneficiary is responsible 
for the remaining 20 percent as coinsurance, as well as any applicable 
deductible amounts as set forth in Sec.  413.176 of the regulations. If 
the ESRD facility makes reasonable collection efforts, as described in 
the Section 310 of the PRM, but is unable to collect the deductible or 
coinsurance amounts for items or services associated with the composite 
rate, we consider the uncollected amount to be a ``bad debt'' if the 
facility meets the requirements at Sec.  413.178 and Sec.  413.89 of 
the regulations and Chapter 3 of this proposed rule.
    At the end of the ESRD facility cost reporting period, Medicare 
recognizes a facility's Medicare bad debts. However, Sec.  413.178(a) 
requires CMS to reimburse ESRD facilities for its allowable bad debt up 
to the facility's costs as determined under Medicare principles.
    In developing the proposed changes to the ESRD payment system 
described in this proposed rule, section 153(a)(4) of MIPPA states, as 
a Rule of Construction, that, ``nothing in this subsection or the 
amendments made by this subsection shall be construed as authorizing or 
requiring the Secretary of Health and Human Services to make payments 
under the payment system implemented under paragraph (14)(A)(i) of 
section 1881(b) of the Social Security Act (42 U.S.C. 1395rr(b)), as 
added by paragraph (1), for any unrecovered amount for any bad debt 
attributable to deductible and coinsurance on items and services not 
included in the basic case-mix adjusted composite rate under paragraph 
(12) of such section as in effect before the date of the enactment of 
this Act.''
    Therefore, under the proposed ESRD PPS, bad debt payments will 
continue to be made for the unpaid Medicare deductibles and coinsurance 
amounts for only those items and services associated with the basic 
case-mix adjusted composite rate. However, since the proposed single 
ESRD payment rate is for items and services included in the composite 
rate and for drugs and laboratory tests, we are proposing to use only 
the composite rate portion of the proposed single ESRD payment rate to 
determine bad debt payments. We are proposing that bad debt payments 
for ESRD facilities would continue to be capped as required under Sec.  
413.178(a). The Medicare cost report and instructions in the PRM, Part 
2 (CMS Pub. 15-2) may be revised to report the case mix adjusted 
composite rate payment and associated cost data necessary to compute 
the ESRD facility bad debt payments.
    In addition, we are proposing to make a conforming change to 
regulation text at Sec.  413.178(d) regarding ESRD bad debt payment 
made under the proposed ESRD payment system described in this proposed 
rule. We are also including a cross-reference to Sec.  413.178 in Sec.  
413.89(h) and (i).

E. Limitation on Review

    In addition to requiring the establishment of the ESRD PPS, section 
153(b) of MIPPA amends section 1881(b) of the Act to provide for a 
limitation on review. Specifically, section 1881(b)(14)(G) of the Act 
provides the following: ``There shall be no administrative or judicial 
review under section 1869 of the Act, section 1878 of the Act or 
otherwise of the determination of payment amounts under [section 
1881(b)(14)(A)], the establishment of an appropriate unit of payment 
under [section 1881(b)(14)(C)], the identification of of renal dialysis 
services included in the bundled payment, the adjustments under 
[section 1881(B)(14)(D)], the application of the phase-in under 
[section 1881(b)(14)(E)], and the establishment of the market basket 
percentage increase factors under [section 1881(b)(14)(F)].'' We 
propose to codify this limitation on review in Sec.  413.195 of the 
regulations.

F. 50 Percent Rule Utilized in Laboratory Payments

    As specified in CMS Pub 100-04, Chapter 16, Sect. 40.6, for a 
particular date of service to a beneficiary, if 50 percent or more of 
the covered laboratory tests within an Automated Multi-Channel 
Chemistry (AMCC) test are included under the composite rate payment, 
then all submitted tests are included within the composite payment and 
no separate payment in addition to the composite rate is made for any 
of the separately billable tests. If less than 50 percent of the 
covered laboratory tests within the AMCC are composite rate tests, then 
all AMCC tests submitted are separately payable. When ordering ESRD-
related AMCC tests, ESRD facilities identify, for a particular date of 
service, each test that is included in the composite rate and each test 
that is not included. A ``non-composite rate test'' is defined as ``any 
test separately payable outside the composite rate or beyond the normal 
frequency covered under the composite rate that is reasonable and 
necessary.''
    During the transition period, the 50 percent rule would continue to 
apply to the basic case mix adjusted composite payment system portion 
of the blended payment. Under the proposed consolidated billing 
provisions discussed further in section XIII B. of this proposed rule, 
the ESRD facility itself would assume the Medicare billing 
responsibility for all of the renal dialysis services that its patients 
receive, including laboratory tests. As a result, the ESRD facilities 
would apply the 50 percent rule billing procedures

[[Page 50009]]

including application of the relevant modifiers.
    As described in section X of this proposed rule, under the proposed 
ESRD PPS, Medicare would not make separate payment for laboratory 
tests, rendering the 50 percent rule irrelevant for payment purposes. 
The 50 percent rule's relevance would be limited to its use in 
determining eligibility for outlier payment.
    In addition, preliminary analyses reveal a small impact upon 
removing from eligibility for outlier services the AMCC tests to which 
the 50 percent rule applies. As a result, we are considering excluding 
AAMC tests to which the 50 percent rule applies from the definition of 
outlier services, thus negating the need to apply the 50 percent rule 
under the proposed ESRD PPS. We plan to continue to evaluate the impact 
of this approach and include further discussion in the final rule. We 
request public comments on whether or not to include the AMCC tests to 
which the 50 percent rule applies within the definition of outlier 
services and retain the 50 percent rule under the proposed ESRD PPS.

G. Medicare as a Secondary Payer

    Medicare may be a secondary payer (MSP) when the primary payer is a 
group health plan for ESRD items and services furnished to Medicare 
beneficiaries during the 30-month Medicare coordination of benefit 
period. At this time, we are unable to identify the systems operations 
and billing procedures impact of this relationship under the current 
basic case-mix adjusted composite payment system, and we are exploring 
how it will be utilized and managed under the proposed ESRD prospective 
payment system. We believe that while there may need to be system 
changes in order to process MSP claims under the Proposed ESRD 
prospective payment system, there should be no impact on ESRD providers 
and on primary payers. We will issue through administrative issuance, 
any changes in the manner of reporting information, should that be 
required. We are soliciting public comment on the operational issues of 
MSP under the proposed ESRD payment system.

XV. Quality Incentives in the End-Stage Renal Disease (ESRD) Program

A. Introduction

    Section 1881(h) of the Social Security Act (the Act), as added by 
section 153(c) of the Medicare Improvements for Patients and Providers 
Act of 2008 (MIPPA), requires the Secretary to develop a quality 
incentive program (QIP) that will result in payment reductions to 
providers of services and dialysis facilities that do not meet or 
exceed a total performance score with respect to performance standards 
established with respect to certain specified measures. As provided 
under section 1881(h) of the Act, the payment reductions, which will be 
up to 2.0 percent of the payments otherwise made to providers and 
facilities under section 1881(b)(14), will apply to renal dialysis 
services furnished on or after January 1, 2012, and the total 
performance score that providers and facilities must meet or exceed in 
order to receive their full payment will be based on a specific 
performance period prior to this date. The payment reductions will 
apply with respect to the year involved and will not be taken into 
account when computing future payment rates.
    The CMS is committed to developing and implementing an ESRD QIP, 
and we intend to issue a subsequent proposed rule that makes detailed 
proposals regarding how we plan to implement section 1881(h) of the 
Act. However, in the interim, with one exception described below, we 
believe it is important to describe the QIP conceptual model that CMS 
is considering proposing for purposes of the payment reduction that 
will apply with respect to renal dialysis services furnished on or 
after January 1, 2012. Therefore, we will present the model below so 
that the public has an opportunity to comment on it, and we will use 
the comments to inform our evaluative, analytic, and guidance efforts 
during the development of the QIP.
    The one exception mentioned above is the measure set that will 
apply for purposes of the CY 2012 payment reduction. We are making 
specific proposals with respect to that measure set in this proposed 
rule so that the public will be informed as early as possible regarding 
the measures on which the performance standards will be based.

B. Background

    Quality monitoring and provider accountability is important in the 
ESRD payment system and has been done for over 30 years. We will 
describe the evolution of our ESRD quality monitoring initiatives by 
category below:
1. ESRD Network Organization Program
    In the End-Stage Renal Disease Amendments of 1978 (Pub. L. 95-292), 
Congress required the formation of ESRD Network Organizations to 
further support the ESRD program. CMS currently contracts with 18 ESRD 
Networks throughout the United States to perform oversight activities 
and to ensure that dialysis patients are provided appropriate care. The 
Networks' responsibilities include monitoring the quality and 
improvement of care received, providing technical assistance to 
patients who have ESRD and providers/facilities that treat ESRD 
patients, and addressing patient grievances. In 1994, CMS and the 
Networks, with input from the renal community, established the ESRD 
Core Indicators Project (CIP). The ESRD CIP was CMS's first nationwide 
population-based study designed to assess and identify opportunities to 
improve the care of patients with ESRD. This project established the 
first consistent clinical ESRD database. Information included in the 
database included clinical measures thought to be indicative of key 
components of care surrounding dialysis.
2. Clinical Performance Measures (CPMs)
    Section 4558(b) of the Balanced Budget Act of 1997 required CMS to 
develop and implement, by January 1, 2000, a method to measure and 
report the quality of renal dialysis services furnished under the 
Medicare program. To implement this legislation, CMS developed the ESRD 
Clinical Performance Measures (CPM) Project, based on the National 
Kidney Foundation's Dialysis Outcome Quality Initiative (NKF-DOQI) 
Clinical Practice Guidelines. The purpose of the ESRD CPM Project is to 
provide comparative data to ESRD facilities to assist them in assessing 
and improving the care furnished to ESRD patients. Sixteen CPMs were 
developed in 1998 to measure and report the quality of dialysis 
services furnished under Medicare in the areas of hemodialysis and 
peritoneal dialysis adequacy, anemia management, and vascular access 
management. The first data collection effort for the ESRD CPMs began in 
1999. These CPMs are calculated using information contained in 
patients' records. CPMs are collected on a national random sample of 
adult in-center hemodialysis patients, all in-center hemodialysis 
patients less than 18 years of age, and a national random sample of 
peritoneal dialysis patients. Data are collected annually and submitted 
to CMS via a predominantly paper-based process. The CPMs are calculated 
and released in the Department of Health and Human Services' Annual 
Report on the ESRD CPM Project.

[[Page 50010]]

3. Dialysis Facility Compare (DFC)
    Also in response to the Balanced Budget Act of 1997, we created 
Dialysis Facility Compare (DFC) as a new feature on http://www.medicare.gov that was modeled after Nursing Home Compare. We worked 
with a contractor and a consumer workgroup to identify dialysis 
facility-specific measures that could be provided to the public for 
consumer choice and information purposes. This tool was launched in 
January 2001 on the http://www.medicare.gov Web site to provide 
information to the public for comparing the quality of dialysis 
facilities and providers across the country, including specific 
information about services and the quality of care furnished by a 
specific dialysis facility/provider. DFC captures administrative and 
quality related data submitted by dialysis facilities and providers.
    The key quality measures captured in this tool include facility-
level measures of anemia control, adequacy of hemodialysis treatment 
and patient survival. Medicare claims data are used to calculate the 
anemia management and dialysis adequacy rates and administrative data 
(non-clinically based data such as demographic data, and data acquired 
from the Social Security Administration and obtained from the CMS forms 
2728 and 2746) used to determine the patient survival rates. The anemia 
measure shows the raw number or the percentage of patients at a given 
facility/provider whose anemia (low red blood cell count) was not 
controlled. More specifically, the anemia measure is the percentage of 
patients whose hematocrit levels are at 33 percent (33 percent out of 
100 percent) or more (or hemoglobin levels of 11 g/dL or more). The 
dialysis adequacy measure shows the raw number or the percentage of in-
center hemodialysis patients at a facility that get effective 
treatments during dialysis. More specifically, the measure is the 
percentage of patients with urea reduction ratio (URR) levels of 65 
percent or more. The patient survival measure shows whether patients 
treated at a certain facility generally live longer, as long, or not as 
long as expected. These measures are updated annually on the DFC Web 
site, usually at the end of the year, using data from the previous year 
for the dialysis adequacy and anemia measures and data from the past 
four years for the patient survival measure.
    In November 2008, the anemia management measure was updated using 
facility and claims data from 2007. Recent evidence about increased 
risk of certain adverse events associated with the use of 
erythropoiesis-stimulating agents (ESAs), which are used to treat 
anemia, raised concerns about patients who have hemoglobin levels too 
high, as well as patients whose hemoglobin levels are too low. The Food 
and Drug Administration (FDA) responded by requiring manufacturers to 
develop a Medication Guide (http://www.fda.gov/cder/drug/advisory/RHE200711.htm) and to ensure that this information is provided to 
patients. The labeling guideline states ``The dosing recommendations 
for anemic patients with chronic renal failure have been revised to 
recommend maintaining hemoglobin levels within 10 g/dL to 12 g/dL'' 
(http://www.fda.gov/cder/drug/advisory/RHE200711.htm). As a result of 
this guideline, DFC was revised to include two anemia measures: one 
measure shows the percentage of patients whose hemoglobin levels are 
considered too low (that is, below 10 g/dL), and a second measure shows 
the percentage of patients whose hemoglobin levels are too high (that 
is, above 12 g/dL). In addition, CMS has updated the way it reports 
patient survival rates on DFC to reflect whether patients treated at a 
provider/facility generally live longer than, as long, or not as long 
as expected.
4. ESRD Quality Initiative
    In 2004, the ESRD Quality Initiative was launched. The objective 
was to stimulate and support significant improvements in the quality of 
dialysis care. The initiative aimed to refine and standardize dialysis 
care measures, ESRD data definitions, and data transmission to support 
the needs of the ESRD program; empower patients and consumers by 
providing access to facility service and quality information; provide 
quality improvement support to dialysis providers; assure compliance 
with conditions of coverage; and build strategic partnerships with 
patients, providers, professionals, and other stakeholders. Components 
of this Quality Initiative included the DFC, the CPM Project, and the 
Fistula First Breakthrough Initiative.
5. ESRD Conditions for Coverage
    The ESRD Conditions for Coverage final rule published on April 15, 
2008, and contains revised requirements that dialysis providers and 
facilities must meet in order to be certified under the Medicare 
program. As part of the revised requirements, dialysis providers and 
facilities are required to implement a quality assessment and 
performance improvement program. In addition, providers and facilities 
are required to submit the CPMs electronically on all their patients on 
an annual basis. The CPMs were updated and expanded in April 2008 
through a National Quality Forum (NQF) endorsement process. The current 
CPMs include 26 measures in the areas of anemia management; 
hemodialysis adequacy; peritoneal dialysis adequacy; mineral 
metabolism; vascular access; patient education/perception of care/
quality of life; and patient survival. The anemia management measures 
for patients receiving erythropoiesis-stimulating agents (ESAs) and the 
urea reduction ratio (URR) measure (in-center hemodialysis) are not NQF 
endorsed.
6. CROWNWeb
    CMS has developed a new Web-based system, Consolidated Renal 
Operations in a Web-Enabled Network (CROWNWeb) for the purposes of 
collecting CPM data electronically from dialysis facilities. Use of the 
CROWNWeb system will increase the efficiency of data collection for 
both CMS and providers/facilities, improve data quality, and provide a 
more stable and accessible platform for continual improvements in 
functionality. In February 2009, CMS began implementing the CROWNWeb 
system with a number of providers/facilities and plans to expand 
reporting to additional providers/facilities as soon as practicable.

C. The ESRD Quality Incentive Program as Authorized by Section 1881(h) 
of the Act

    Recognizing the need for additional quality monitoring in an ESRD 
payment system, Congress required in section 153 of MIPPA that the 
Secretary implement an ESRD quality incentive program (QIP). We believe 
that the QIP is the next step in the evolution of the ESRD quality 
program because it measures provider/facility performance versus being 
focused on reporting outcome data.
    Specifically, section 1881(h) of the Act, as added by section 
153(c) of MIPPA, requires the Secretary to develop a QIP that will 
result in payment reductions to providers of services and dialysis 
facilities that do not meet or exceed a total performance score with 
respect to performance standards established with respect to certain 
specified measures. As provided under this section, the payment 
reductions, which will be up to 2.0 percent of payments otherwise made 
to providers and facilities under section 1881(b)(14), will apply to 
renal dialysis services furnished on or after January 1, 2012, and the 
total performance score that providers and facilities must meet

[[Page 50011]]

or exceed in order to receive their full payment will be based on a 
specific performance period prior to this date. Under section 
1881(h)(1)(C), the payment reduction will only apply with respect to 
the year involved and will not be taken into account when computing 
future payment rates.
    For the ESRD quality incentive program, section 1881(h) of the Act 
generally requires the Secretary to: (1) Select measures; (2) establish 
the performance standards that apply to the individual measures; (3) 
specify a performance period with respect to a year; (4) develop a 
methodology for assessing the total performance of each provider and 
facility based on the performance standards with respect to the 
measures for a performance period; and (5) apply an appropriate payment 
reduction to providers and facilities that do not meet or exceed the 
established total performance score.
    We view the ESRD QIP required by section 1881(h) of the Act as the 
next step in the evolution of the ESRD quality program that began more 
than 30 years ago. Our vision is to develop a robust, comprehensive 
ESRD QIP that builds on the foundation that has already been 
established. As we move towards this larger goal, we understand the 
importance of giving providers and facilities time to prepare for the 
implementation of this new quality incentive program and to assess how 
the new program will affect them.
    Therefore, we are outlining below a conceptual model that describes 
various components of an ESRD QIP that we are considering proposing in 
a future proposed rule. We want to make clear that this is only a 
model, with one exception. The exception, more fully described below, 
is that we are proposing to initially adopt for the QIP three measures, 
two of which assess anemia management and one which assesses 
hemodialysis adequacy, which can be calculated using Medicare claims 
data.
    Our goal is to propose to implement other components of the QIP in 
future rulemaking. Our purpose in describing a model in this proposed 
rule is to notify the public regarding what we believe at this time to 
be essential components of the QIP in the hope of receiving detailed 
comments on those components. We also note that the model described 
below represents our thinking on what we are considering implementing 
only for payment consequence year 2012 because we anticipate that the 
program will evolve as we conduct additional analyses, gather 
experience, and respond to industry feedback.
1. Proposed Anemia Management and Dialysis Adequacy Measures
    Section 1881(h)(2)(A)(i) of the Act requires that the measures 
specified for the QIP include measures on anemia management that 
reflect the labeling approved by the Food and Drug Administration for 
such management, and measures on dialysis adequacy. To implement this 
section, we are proposing that for the first QIP performance period, we 
will adopt the two anemia management measures and one hemodialysis 
adequacy measure that are currently used for DFC. Data needed to 
calculate these measures can be collected from Medicare claims 
submitted by ESRD providers and facilities on a patient-specific basis.
    The anemia management measures used for DFC assess the percentage 
of patients at a facility whose anemia was not controlled at both the 
high and low ends of the FDA recommended hemoglobin levels. 
Specifically, these measures are: (1) The percentage of patients at a 
provider/facility whose hemoglobin levels were less than 10 g/dL, and 
(2) the percentage of patients at a provider/facility whose hemoglobin 
levels were greater than 12 g/dL.
    Section 1881(h)(2)(A)(i) of the Act provides that the anemia 
management measures must reflect the labeling approved by the FDA for 
such management. The current FDA labeling guideline released November 
8, 2007 for the administration of erythropoesis-stimulating agents 
(ESAs) to patients with chronic kidney disease, including ESRD 
patients, states ``The dosing recommendations for anemic patients with 
chronic renal failure have been revised to recommend maintaining 
hemoglobin levels within 10 g/dL to 12 g/dL.''
    We believe that the proposed anemia management measures reflect the 
approved FDA labeling for anemia management because they assess the 
number of patients whose hemoglobin levels are at the low and high end 
of the FDA label recommendation. In addition, we believe that it is 
more appropriate to adopt two measures which together assess the high 
and low ends of the FDA recommended hemoglobin level range, rather than 
a single measure that reflects the percentage of patients who have 
hemoglobin levels within the 10 through 12 g/dL range, because two 
measures will provide a richer picture of provider/facility 
performance. These data will also allow us to calculate the percentage 
of patients who have hemoglobin levels within the 10 through 12 range 
g/dL. Therefore, we propose to adopt these two anemia management 
measures for the QIP.
    Anemia data has been reported on Dialysis Facility Compare (DFC) 
since January 2001. As we noted above, we updated the reporting of 
anemia data for DFC in November of 2008 to be consistent with the new 
FDA labeling guideline released in November 2007; however, the 
methodology for calculating the provider/facility, state, and national 
averages for anemia measures has not changed since the initial release 
of DFC. We are proposing to use the same methodology we use to 
calculate the anemia management measures for purposes of DFC to 
calculate them for purposes of the QIP because the methodology is 
consistent with how we have calculated that data since 2001. Under this 
methodology, we will calculate the measures using hemoglobin data for 
Medicare patients who have been diagnosed with ESRD for at least 90 
days and whose Medicare claims submitted by providers/facilities 
indicated the use of an ESA during that 90-day period. Data from 
patients whose first ESRD maintenance dialysis starts before day 90 or 
who have hemoglobin values of less than 5 or greater than 20 will be 
excluded from the measure calculation. In addition, there must be for 
the same patient at least 4 claims meeting this criteria for that data 
to be included in the data for a specific provider or facility. 
Technical details on the methodology we are proposing to use to 
calculate the anemia measures are available on the University of 
Michigan Kidney Epidemiology and Cost Center Web site at http://www.sph.umich.edu/kecc/assets/documents/facguide.pdf.
    The hemodialysis adequacy measure (urea reduction ratio [URR]) that 
we are proposing to adopt is also used for DFC and assesses the 
percentage of patients at a provider or facility that get their blood 
cleaned adequately (blood urea is removed during their in-center 
hemodialysis). Specifically, this measure assesses the percentage of 
hemodialysis patients at a provider or facility whose urea reduction 
ratio (URR) is 65 percent or greater, a standard based on the National 
Kidney Foundation's Kidney Disease Quality Initiative Clinical Practice 
Guidelines (NKF-KDOQI). These guidelines are widely used and generally 
accepted throughout the ESRD community. More information on the 
calculation of the URR is available on the DFC Web site at http://www.medicare.gov. This measure has been endorsed by the National 
Quality Forum (NQF), an organization that endorses quality measures 
through a public consensus process, although we note that NQF

[[Page 50012]]

endorsement of dialysis adequacy measures is not a requirement under 
section 1881(h)(2)(A)(i).
    The methodology for calculating the provider/facility, state, and 
national averages for the in-center hemodialysis measure has been used 
since January 2001 with the initial release of DFC, and we are 
proposing to use the same methodology to calculate the measure for 
purposes of the QIP to be consistent with how that data has been 
calculated since 2001. Under this methodology, we will calculate URR 
data only for Medicare patients who have been diagnosed with ESRD and 
received maintenance dialysis for at least 183 days from the date that 
they received their first maintenance dialysis treatment, and whose 
Medicare claims submitted by providers/facilities included a value for 
the URR. In addition, there must be for the same patient at least 4 
claims meeting the criteria above for that data to be included in the 
data for a specific provider or facility. Technical details about the 
methodology we are proposing to use to calculate the hemodialysis 
adequacy measure are available on the University of Michigan Kidney 
Epidemiology and Cost Center Website at http://www.sph.umich.edu/kecc/assets/documents/facguide.pdf.
    We note that the data we need to calculate the proposed anemia 
management and hemodialysis adequacy measures described above can be 
collected through ESRD claims, which is the only complete provider and 
facility level data set available to CMS at this time. For this reason, 
we are proposing to adopt only the two anemia management measures and 
one dialysis adequacy measure described above. Although we recognize 
that section 1881(h)(2)(A)(i) states that the measures shall include 
``measures on anemia management that reflect the labeling approved by 
the Food and Drug Administration for such management and measures on 
dialysis adequacy,'' only one dialysis adequacy measure is collected 
nationally and available to determine provider and facility-specific 
values. For this reason, we are proposing at this time to adopt only 
one dialysis adequacy measure. We also note that section 
1881(h)(2)(A)(iii) states that the measures shall include, to the 
extent feasible, other measures as the Secretary specifies including 
measures on iron management, bone mineral metabolism, and vascular 
access (including for maximizing the placement of arterial venous 
fistula). CMS is not proposing to adopt any measures in these 
categories at this time since we are not currently collecting data that 
would allow determination of provider and facility-specific performance 
with respect to these categories of measures. We are working to 
identify appropriate sources from which we can adequately capture data 
to support the future adoption of additional measures. Finally, it is 
not feasible to propose a patient satisfaction measure at this time 
because there is no validated data collection tool available to collect 
relevant and industry accepted patient satisfaction measure data. 
Therefore, it is not feasible to propose more than the aforementioned 
measures at this time because of the lack of complete and accurate 
data. Subsequent rulemaking will address other measures.
2. Performance Standards for the ESRD QIP Measures
    Section 1881(h)(4)(A) of the Act requires the Secretary to 
establish performance standards with respect to the measures selected 
for the QIP for a performance period with respect to a year. Section 
1881(h)(4)(B) provides that the performance standards shall include 
levels of achievement and improvement, as determined appropriate by the 
Secretary. However, in our model, for the first performance period, we 
would establish a performance standard for the proposed anemia 
management and hemodialysis adequacy measures based on the special rule 
in Section 1881(h)(4)(E). This provision requires the Secretary to 
``initially'' use as a performance standard for the anemia management 
and dialysis adequacy measures the lesser of a facility-specific 
performance rate in the year selected by the Secretary under the second 
sentence of section 1881(b)(14)(A)(ii), or a standard based on the 
national performance rate for such measures in a period determined by 
the Secretary. We would not include in this performance standard levels 
of achievement or improvement because we do not believe that section 
1881(h)(4)(E) requires that we include such levels. In addition, we 
would interpret the term ``initially'' to apply only to the performance 
period applicable for payment consequence year 2012. For subsequent 
performance periods, we plan to propose performance standards under 
section 1881(h)(4)(A). Such standards will include levels of 
achievement and improvement, as required under section 1881(h)(4)(B).
    As stated above, to implement the special rule for the proposed 
anemia management and hemodialysis adequacy measures, we would need to 
compare the performance of a provider or facility on these measures 
during the year selected by the Secretary for purposes of calculating 
the ESRD bundle with the performance of the provider or facility using 
a performance standard based on the national performance rates for 
these measures in a period determined by the Secretary. For purposes of 
making this comparison in our model, the provider/facility-level 
performance year referenced in section 1881(h)(4)(E)(i) would be 2007, 
2008, or 2009, depending on which of those years is selected by the 
Secretary for purposes of calculating the ESRD bundle. We would refer 
to this year as the ``base utilization year.'' The provider/facility-
specific rates for 2007 are currently posted on the DFC Web site.
    In terms of establishing a performance standard based on national 
performance rates as required under section 1881(h)(4)(E)(ii), we are 
considering adopting a standard that is equal to the average 
performance of all dialysis providers and facilities based on 2008 
data. These data for the anemia management and hemodialysis adequacy 
measures will be posted on DFC in November 2009.
    Although the 2008 data are not yet available on DFC, the national 
averages currently posted on the DFC website for 2007 are
    <bullet> For the proposed anemia management measure (Anemia 
Management Measure less than 10)--the percentage of Medicare patients 
who have an average hemoglobin value less than 10.0 g/dL in a provider/
facility: 2 Percent
    <bullet> For the proposed anemia management measure (Anemia 
Management Measure more than 12)--the percentage of Medicare patients 
who have an average hemoglobin value greater than 12.0 g/dL in a 
provider/facility: 44 Percent

    <bullet> For the proposed hemodialysis adequacy measure 
(Hemodialysis Adequacy One)--the percentage of Medicare patients in a 
provider/facility with URR levels above 65 percent: 95 Percent.
We expect that these averages will change for 2008.
    This means that, for purposes of implementing the special rule in 
our model for the proposed anemia management and hemodialysis adequacy 
measures, the performance standard for the initial performance period 
would be the lesser of (1) the provider/facility-specific rate for the 
base utilization year, or (2) the national average results from 2008 
claims data. If a provider or facility performed below the national 
average, then we would

[[Page 50013]]

look at the provider/facility-specific rate for the base utilization 
year to determine whether the provider/facility's performance during 
the initial performance period meets or exceeds the performance 
standard.
    We note that the proposed hemodialysis adequacy measure would 
assess hemoglobin values only in hemodialysis patients who receive 
treatment at a provider or facility (and not in hemodialysis or 
peritoneal dialysis patients treated at home). In addition, the 
proposed hemodialysis adequacy measure would not assess hemoglobin 
values in pediatric dialysis patients. Therefore, we are seeking public 
input about this issue and ideas about whether and how we could assess 
dialysis adequacy for home dialysis (home hemodialysis and peritoneal 
dialysis) and pediatric dialysis.
3. Performance Period for the ESRD QIP Measures
    Section 1881(h)(4)(D) of the Act requires the Secretary to 
establish a performance period with respect to a year, and for that 
performance period to occur prior to the beginning of such year. 
Because we are required under section 1881(h)(1)(A) to implement the 
payment reduction beginning with renal dialysis services furnished on 
or after January 1, 2012, the first performance period would need to 
occur prior to that date.
    In selecting a performance period, we need to allow sufficient time 
to calculate the provider/facility-specific scores, determine whether 
providers and facilities meet the performance standards and prepare the 
pricing files needed to implement applicable payment reductions 
beginning on January 1, 2012. Among potential performance periods in 
our model would be all or portions of 2010. However, we are also 
considering other performance periods. We seek public comments about 
performance periods and will propose a specific performance period in 
future rulemaking.
4. Methodology for Calculating the Total Performance Score for the ESRD 
QIP Measures
    Section 1881(h)(3)(A)(i) of the Act requires the Secretary to 
develop a methodology for assessing the total performance of each 
provider and facility based on the performance standards with respect 
to the measures selected for a performance period. Section 
1881(h)(3)(A)(iii) states that the methodology must also include a 
process to weight the performance scores with respect to individual 
measures to reflect priorities for quality improvement, such as 
weighting scores to ensure that providers/facilities have strong 
incentives to meet or exceed anemia management and dialysis adequacy 
performance standards, as determined appropriate by the Secretary. In 
addition, section 1881(h)(3)(B) requires the Secretary to calculate 
separate performance scores for each measure.
    Finally, under section 1881(h)(3)(A)(ii), for those providers and 
facilities that do not meet (or exceed) the total performance score, 
the Secretary is directed to ensure that the application of the scoring 
methodology results in an appropriate distribution of reductions in 
payments to providers and facilities, with providers and facilities 
achieving the lowest total performance scores receiving the largest 
reductions.
    As discussed earlier, we are proposing to adopt for the initial 
performance period two anemia management measures and one hemodialysis 
adequacy measure that are currently used for DFC. In our model, for 
purposes of calculating the total performance of each provider and 
facility during the initial performance period, we are considering 
assigning 10 points to each of these measures. That is, if a provider 
or facility meets the performance standard for one measure, then it 
would receive 10 points for that measure, and if the provider or 
facility meets the performance standards for all three measures, it 
would receive a total performance score of 30 points.
    In our model, we are considering, for scoring purposes, that a 
provider or facility that does not meet the performance standard set 
for a measure would receive fewer than 10 points, with the exact number 
of points corresponding to how far from the set standard the provider/
facility's performance falls. Specifically, we are considering 
implementing a scoring methodology that subtracts 2 points for each 2 
percentage point increment range the provider or facility's performance 
falls from the set performance standard. For example, if we used as the 
performance standard during the initial performance period the national 
average of 44 percent (based on 2007 DFC data) for one of the proposed 
anemia management measures (percentage of patients whose hemoglobin 
levels are greater than 12 g/dL), and a particular provider/facility 
had 46 percent of patients with hemoglobin levels greater than 12 g/dL 
during that period, the provider/facility would receive 8 points for 
its performance on the measure because 46 percent is within the first 2 
percentage point increment range from 44 percent (see Table 42 below). 
However, applying the special rule for the initial performance period, 
as required by section 1881(h)(4)(E), the provider/facility's 
performance of 46 percent would become the performance standard for 
scoring purposes, and the provider/facility would receive 10 points for 
this measure (see Table 43 below).
    Under our model, providers and facilities that exceed the 
performance standards based on the national average for the period that 
the Secretary has determined and if their performance rate improved 
from the ``base utilization year'' then the provider or facility would 
receive additional points. Using the 2007 DFC data again to illustrate, 
if a provider/facility had 43 percent of patients with hemoglobin 
levels greater than 12 g/dL during the initial performance period, the 
provider/facility's performance would be better than the 2007 national 
average of 44 percent. In addition, if the provider/facility had a 
performance rate of 46 percent in the base utilization year then the 
provider/facility's performance of 43 percent for the initial 
performance period would also be better. Therefore, the provider/
facility would receive 12 points, which is an additional 2 points or a 
``bonus'' (maximum bonus in this conceptual model) above the 10 points 
that could be received for meeting the performance standard of a 
measure. We believe providers and facilities should only receive 
additional points if they achieve higher levels of performance, that 
is, their actual performance exceeds the performance standard for the 
national average for the period that the Secretary has determined and 
improves above the base utilization year.
    As we noted above, the right side of Table 42 that represents the 
percentage of patients whose hemoglobin levels are greater than 12 g/
dL, illustrates how this scoring methodology could work for a provider/
facility for which, after applying the special rule, the performance 
standard for the proposed anemia management measures is the national 
performance rates for 2007. Likewise, Table 43 shows an example using a 
provider/facility-specific rate as the performance standard (after 
applying the special rule) for the proposed anemia management measures. 
In addition, Table 44 illustrates how the scoring methodology would 
work using the national performance rate for 2007 as the performance 
standard (after applying the special rule) for the proposed 
hemodialysis adequacy measure, and Table 45 shows an example of the 
scoring for the proposed hemodialysis adequacy measure using a 
facility-

[[Page 50014]]

specific rate as the performance standard (after applying the special 
rule).
    Note that the bolded rows show the performance standard for the 
applicable measure.

 Table 42--Model Scoring Methodology for Proposed Anemia Management Measures Using National Performance Rates in
                                        2007 as the Performance Standards
----------------------------------------------------------------------------------------------------------------
                                                        Proposed anemia management measures
                                  ------------------------------------------------------------------------------
                                        Percentage of patients whose            Percentage of patients whose
                                    hemoglobin levels are less than 10 g/  hemoglobin levels are greater than 12
              Points                                 dL                                     g/dL
                                  ------------------------------------------------------------------------------
                                                          Distribution of                        Distribution of
                                        Percentage          facilities          Percentage         facilities
----------------------------------------------------------------------------------------------------------------
12 points**......................  Below 2 percent.....             2,523  Below 44 percent...             2,283
10 points........................  2 percent...........               657  44 percent.........                73
8 points.........................  3 to 4 percent......               884  45 to 46 percent...               155
6 points.........................  5 to 6 percent......               358  47 to 48 percent...               143
4 points.........................  7 to 8 percent......               149  49 to 50 percent...               228
2 points.........................  9 to 10 percent.....                54  51 to 52 percent...                76
0 point..........................  Over 11percent......               119  Over 53 percent....             1,786
----------------------------------------------------------------------------------------------------------------
* Provider/Facility must be above both performance standards to receive the bonus points for the anemia
  management measures.


   Table 43--Model Scoring Methodology for Proposed Anemia Management
   Measures Using Facility-Specific Rates as the Performance Standards
------------------------------------------------------------------------
                                  Proposed anemia management measures
                             -------------------------------------------
                                  Percentage of         Percentage of
                                 patients whose        patients whose
           Points               hemoglobin levels     hemoglobin levels
                               are less than 10 g/   are less than 12 g/
                                       dL                    dL
                             -------------------------------------------
                                   Percentage            Percentage
------------------------------------------------------------------------
12 points*..................  Below 3 percent.....  Below 46 percent.
10 points...................  3 percent...........  46 percent
                              (Example of a         (Example of a
                               facility-specific     facility-specific
                               score).               score).
8 points....................  4 to 5 percent......  47 to 48 percent.
6 points....................  6 to 7 percent......  49 to 50 percent.
4 points....................  8 to 9 percent......  51 to 52 percent.
2 points....................  10 to 11 percent....  53 to 54 percent.
0 point.....................  Over 12 percent.....  Over 55 percent.
------------------------------------------------------------------------
* Provider/Facility must be above both performance standards to receive
  the bonus points for the anemia management measures.


 Table 44--Model Scoring Methodology for Proposed Hemodialysis Adequacy
   Measure Using National Performance Rates in 2007 as the Performance
                                Standard
------------------------------------------------------------------------
                                       Proposed hemodialysis adequacy
                                                  measure
                                  --------------------------------------
              Points                  Percentage of
                                    patients whose URR   Distribution of
                                    levels are greater     facilities
                                     than 65 percent
------------------------------------------------------------------------
12 points**......................  Over 95 percent....             3,142
10 points........................  95 percent.........               296
8 points.........................  93 to 94 percent...               417
6 points.........................  91 to 92 percent...               245
4 points.........................  89 to 90 percent...               181
2 points.........................  87 to 88 percent...               102
0 point..........................  Below 86 percent...               296
------------------------------------------------------------------------
** Provider/Facility must be above both performance standards to receive
  the bonus points for the hemodialysis adequacy measure.


[[Page 50015]]


 Table 45--Model Scoring Methodology for Proposed Hemodialysis Adequacy
  Measure Using the Facility-Specific Rates as the Performance Standard
------------------------------------------------------------------------
                                                Proposed hemodialysis
                                                  adequacy measure
                                           -----------------------------
                  Points                    Percentage of patients whose
                                            URR levels are  greater than
                                                     65 percent
------------------------------------------------------------------------
12 points**...............................  Above 92 percent.
10 points.................................  92 percent
                                            (Example of a facility-
                                            specific score).
8 points..................................  90 to 91 percent.
6 points..................................  88 to 89 percent.
4 points..................................  86 to 87 percent.
2 points..................................  84 to 85 percent.
0 point...................................  Below 83 percent.
------------------------------------------------------------------------
Provider/Facility must be above both performance standards to receive
  the bonus points for the hemodialysis adequacy measure.

    Another example of how the scoring methodology might work follows 
below. The example assumes that Facility A achieves the following 
results during the initial performance period:
    1. Anemia Management (less than 10 g/dL): Percentage of patients 
whose hemoglobin levels are less than 10 g/dL is 4 percent.
    2. Anemia Management (more than 12 g/dL): Percentage of patients 
whose hemoglobin levels are greater than 12 g/dL is 43 percent.
    3. Hemodialysis Adequacy: Percentage of patients whose URR levels 
are greater than 65 percent is 93 percent.
    The total performance score for Facility A would be 30 points. 
Facility A would receive bonus points for the anemia management (more 
than 12 g/dL) because the facility was above the national performance 
standard for the period determined by the Secretary, which in this 
example is 2007, and improved above the base utilization year, which is 
also 2007 in this example. However, the facility would not receive 
bonus points for the hemodialysis adequacy measure even though it 
improved from its base utilization year because it did not receive a 
percentage higher than the national average so the facility would 
receive a score of 10 points. Table 46 shows how the total performance 
score would be calculated for Facility A.

                    Table 46--Example of Total Performance Score Methodology Using Facility A
----------------------------------------------------------------------------------------------------------------
                                         Facility performance      Performance standard
               Measure                           rate               using special rule             Score
----------------------------------------------------------------------------------------------------------------
Anemia Management: Percentage of       4 percent...............  3 Percent...............  8 points.
 patients whose hemoglobin levels are                            (Use Table 43)..........
 less than 10 g/dL.
Anemia Management: Percentage of       43 percent..............  44 Percent and 46         12 points.
 patients whose hemoglobin levels are                             Percent.
 greater than 12 g/dL.                                           (Use Tables 42 and 43)..
Hemodialysis Adequacy: Percentage of   93 percent..............  92 Percent..............  10 points.
 patients whose URR levels are                                   (Use Table 45)..........
 greater than 65 percent.
                                                                                          ----------------------
    Total............................                                                      30 points.
----------------------------------------------------------------------------------------------------------------

    We believe this total performance score methodology is appropriate 
for the initial performance period in the new ESRD QIP because it is 
basic and straightforward, allowing providers and facilities to 
familiarize themselves with the new pay-for-performance quality system. 
We plan to propose a total performance scoring methodology using the 
applicable set of measures in future rulemaking. However, we are 
seeking input on this model of a total performance score methodology to 
be applied for payment consequence year 2012.
    In our model, the initial scoring method weights each of the three 
proposed measures equally. As we stated above, we also plan to 
implement performance standards that include levels of achievement and 
improvement after the initial performance period. From a clinical 
perspective, we believe that providers and facilities may be concerned 
about whether they have as much opportunity to improve their 
performance on one of the proposed anemia management measures 
(hemoglobin levels less than 10 g/dL) as they might with the other two 
proposed measures. We are specifically soliciting comments on whether 
this is truly a concern among providers and facilities and, if so, 
whether we should consider assigning less weight to the measure based 
on that concern. We are also soliciting comments on how reassigning 
weights to measures in general (that is, less to some, more to others) 
might affect providers and facilities in terms of the payment 
consequence.
5. Application of Payment Reductions Using the Total Performance Score
    With respect to the providers/facilities that do not meet (or 
exceed) the total performance score, section 1881(h)(3)(A)(ii) of the 
Act requires the Secretary to ensure that the application of the 
scoring methodology results in an appropriate distribution of 
reductions in payments among providers and facilities achieving 
different levels of total performance scores, with providers and 
facilities achieving the lowest total performance scores receiving the 
largest reductions.
    Under our model, for payment consequence year 2012, we are thinking 
about implementing a sliding scale of payment reductions, where the 
payment reduction for the lowest total performance score would be 2.0 
percent.
    Under our model, the minimum total performance score that providers 
and facilities would need to achieve in order to avoid a payment 
reduction would be 28 points. The range for the payment reductions is 
shown in Table 6:

               Table 47--Model Range of Payment Reductions
------------------------------------------------------------------------
          Total performance score           Percent of payment reduction
------------------------------------------------------------------------
28 to 30 Points...........................  0 Percent.
24 to 26 Points...........................  .25 Percent.
20 to 22 Points...........................  .50 Percent.
16 to 18 Points...........................  .75 Percent.
12 to 14 Points...........................  1.0 Percent.
8 to 10 Points............................  1.25 Percent.
4 to 6 Points.............................  1.50 Percent.
2 Points..................................  1.75 Percent.

[[Page 50016]]

 
0 Points..................................  2.0 Percent.
------------------------------------------------------------------------

    Based on our example involving Facility A above, this facility 
would not receive a payment reduction in 2012 because it achieved a 
total performance score of 30 points.
    We recognize that under our model, a provider or facility that 
scores poorly on one measure could nonetheless receive no reduction in 
payment because the provider or facility also exceeded the performance 
standard for one or both of the other two measures. We are concerned 
about this possibility and are considering proposing that, for any 
measure for which a provider or facility receives 4 points or less, the 
provider/facility receive a 0.25 percent payment reduction even if it 
receives a total performance score of 28 points. We are seeking 
comments on our modeled methodology for applying payment reductions in 
2012.
6. Public Reporting of Measures
    Section 1881(h)(6) requires the Secretary to establish procedures 
for making information regarding performance under the QIP available to 
the public, including information on the total performance score and 
performance scores for individual measures achieved by each provider 
and facility. Providers and facilities are required to have an 
opportunity to review this information prior to it being made public. 
The Secretary is also directed in section 1881(h)(6)(D) to post a list 
of providers and facilities on the CMS Web site that indicates the 
total performance score and the performance scores for individual 
measures achieved by each provider and facility. In addition, under 
section 1881(h)(6)(C), the Secretary is required to provide 
certificates to providers and facilities that indicate the total 
performance score achieved by the provider or facility, and the 
provider or facility must prominently display the certificate in 
patient areas.
    We plan to establish procedures for making information available to 
the public in a future rulemaking, but welcome comments on how to best 
implement these statutory requirements.

XVI. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
    <bullet> The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
    <bullet> The accuracy of our estimate of the information collection 
burden.
    <bullet> The quality, utility, and clarity of the information to be 
collected.
    <bullet> Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We are soliciting public comment on each of these issues for the 
following sections of this document that contain information collection 
requirements (ICRs):

A. ICRs Regarding a Low-Volume Adjustment (Sec.  413.232(f))

    As discussed in section VIII.A.2.b. of this proposed rule, to 
receive the low-volume adjustment, we propose that an ESRD facility 
must provide an attestation to the Medicare administrative contractor 
or fiscal intermediary that it has met the criteria to qualify as a 
low-volume facility. The Medicare administrative contractor or fiscal 
intermediary would verify the ESRD facility's attestation of their low-
volume status using the ESRD facility's final-settled cost reports.
    The burden associated with the requirement is the time and effort 
necessary for an ESRD facility attesting as a low-volume facility to 
develop an attestation and submit it to the Medicare administrative 
contractor or fiscal intermediary. In the 2006 data analysis conducted 
by our contractor, UM-KECC, 489 ESRD facilities were identified as 
below the low-volume threshold of 3,000 treatments per year. Of these 
488 facilities, 166 met the additional low-volume criteria as specified 
in Sec.  413.232 of this proposed rule. We estimate that it would 
require an administrative staff member from each low-volume facility 5 
minutes to develop the attestation and a negligible amount of time to 
submit it to the Medicare administrative contractor or fiscal 
intermediary. We further estimate several dozen additional ESRD 
facilities may meet the criteria of a low-volume facility prior to 
implementation of the ESRD PPS and therefore, we round the total number 
of estimated low-volume facilities to 200. Therefore, we estimate that 
the total initial ESRD facility burden would be 16.6 hours.

B. ICRs Regarding Transition Period (Sec.  413.239)

    As discussed in section XIII.A. of this proposed rule, prior to 
January 1, 2011, an ESRD facility may make a one-time election to be 
excluded from the four-year transition to the ESRD PPS. That is, a 
facility may elect to be paid entirely based on the proposed ESRD PPS 
beginning January 1, 2011. Proposed Sec.  413.239(b) states that an 
ESRD facility may make a one-time election to be paid for items and 
services provided during transition based on 100 percent of the payment 
amount determined under Sec.  413.215 of this part, rather than based 
on the payment amount determined under paragraph (a) of this section. 
The section specifies that such election must be submitted to the 
facility's Medicare administrative contractor or fiscal intermediary no 
later than November 1, 2010.
    We estimate that it would require an accountant or financial 
management staff member from each of the 4,921 ESRD facilities 1 hour 
to simulate average aggregate payments under the proposed ESRD PPS and 
compare them to average aggregate payments under the current basic 
case-mix adjusted composite payment system, for a total of 4,921 hours. 
In addition, for those facilities electing to be excluded from the 
four-year transition, the burden associated with the requirement in 
proposed Sec.  413.239(b) is the time and effort necessary to develop 
an election and submit it to the Medicare administrative contractor or 
fiscal intermediary. We estimate that it would require an 
administrative staff member from each facility 15 minutes to develop 
the notice and a negligible amount of time to submit it. We estimate 
that 36 percent of the estimated 4,921 ESRD facilities, or 1,794 ESRD 
facilities, would make the election no later than November 1, 2010. 
Therefore, we estimate that the total one-time ESRD facility burden 
would be 448.5 hours.

[[Page 50017]]



----------------------------------------------------------------------------------------------------------------
                                                                                    Burden per
     Regulation section(s)         OMB control      Respondents      Responses       response      Total annual
                                      number                                          (hours)     burden (hours)
----------------------------------------------------------------------------------------------------------------
413.232........................  None...........             488             200            .083            16.6
413.239(b).....................  None...........           4,921           1,794             .25           448.5
----------------------------------------------------------------------------------------------------------------

    If you comment on these information collection and recordkeeping 
requirements, please do either of the following:
    1. Submit your comments electronically as specified in the 
ADDRESSES section of this proposed rule; or
    2. Submit your comments to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, Attention: CMS Desk Officer, 
CMS 1418-P. Fax: (202) 395-6974; or E-mail: <a href="/cdn-cgi/l/email-protection#bff0f6edfee0cccaddd2d6ccccd6d0d1ffd0d2dd91d8d0c9"><span class="__cf_email__" data-cfemail="7f30362d3e200c0a1d12160c0c1610113f10121d51181009">[email protected]</span></a>.

XVII. Regulatory Impact Analysis

A. Overall Impact

    We have examined the impacts of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), the 
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), 
section 1102(b) of the Social Security Act, section 202 of the Unfunded 
Mandates Reform Act of 1995 (Pub. L. 104-4), Executive Order 13132 on 
Federalism (August 4, 1999), and the Congressional Review Act (5 U.S.C. 
804(2)).
    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). A regulatory impact 
analysis (RIA) must be prepared for major rules with economically 
significant effects ($100 million or more in any 1 year). This proposed 
rule is an economically significant rule because we estimate that the 
requirement under section 1881(b)(14)(A)(ii) of the Act--that the 
estimated total payments for renal dialysis services in CY 2011 equal 
98 percent of the estimated total payments that would have been made if 
the ESRD PPS were not implemented--equates to an approximate $200 
million decrease in payments to ESRD facilities in CY 2011. In 
addition, given this estimated impact, this proposed rule also is a 
major rule under the Congressional Review Act. Accordingly, we have 
prepared a RIA that to the best of our ability presents the costs and 
benefits of the proposed rule. We request comments on the economic 
analysis provided in this proposed rule.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses if a rule has a significant impact on a substantial 
number of small entities. For purposes of the RFA, approximately 21 
percent of ESRD dialysis facilities are considered small entities 
according to the Small Business Administration's size standards, which 
considers small businesses those dialysis facilities having total 
Medicare revenues of $34.5 million or less in any 1 year, and 19 
percent of dialysis facilities are nonprofit organizations. For more 
information on SBA's size standards, see the Small Business 
Administration's Web site at http://sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf (Kidney Dialysis 
Centers are listed as 621492 with a size standard of $34.5 million). 
For purposes of the RFA, we estimate that approximately 21 percent of 
ESRD facilities are small entities as that term is used in the RFA 
(which includes small businesses, nonprofit organizations, and small 
governmental jurisdictions). This amount is based on the number of ESRD 
facilities shown in the ownership category in the impact Table 48. 
Using the definitions in this ownership category, we consider the 550 
facilities that are independent and the 471 facilities that are shown 
as hospital-based to be small entities. The ESRD facilities that are 
owned and operated by large dialysis organizations (LDOs) and regional 
chains would have total revenues more than $34.5 million in any year 
when the total revenues for all locations are combined for each 
business (individual LDO or regional chain). Overall, a hospital based 
ESRD facility (as defined by ownership type) is estimated to receive a 
2.4 percent increase in payments under the new ESRD PPS for 2011. An 
independent facility (as defined by ownership type) is estimated to 
receive a 0.0 percent increase in payments under the proposed ESRD PPS 
for 2011. Therefore, the Secretary has determined that this proposed 
rule will not have a significant economic impact on a substantial 
number of small entities.
    The claims data we use to estimate payments to ESRD facilities in 
this RFA and RIA does not identify which dialysis facilities are part 
of an LDO, regional chain, or other type of ownership. As each 
individual dialysis facility has its own provider number and bills 
Medicare using this number. Therefore, in previous RFAs and RIAs 
presented in proposed and final rules that updated to the basic case-
mix adjusted composite payment system, we considered each ESRD to be a 
small entity for purposes of the RFA. However, we conducted a special 
analysis for this proposed rule that enabled us to identify the ESRD 
facilities that are part of an LDO or regional chain. The results of 
this analysis are presented in the type of ownership category of impact 
Table 48.
    We do not believe ESRD facilities are operated by small government 
entities such as counties or towns with populations 50,000 or less and 
therefore, they are not enumerated or included in this initial RFA. 
Individuals and States are not included in the definition of a small 
entity.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. Any 
such regulatory impact analysis must conform to the provisions of 
section 603 of the RFA. For purposes of section 1102(b) of the Act, we 
define a small rural hospital as a hospital that is located outside of 
a metropolitan statistical area and has fewer than 100 beds. We do not 
believe this proposed rule has a significant impact on operations of a 
substantial number of small rural hospitals because most dialysis 
facilities are freestanding. While there are 188 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 189 rural 
hospital-based dialysis facilities will experience an estimated 1.7 
percent increase in payments. As a result, this rule will not have a 
significant impact on small rural hospitals. Therefore, the Secretary 
has determined that this proposed rule will not have a significant 
impact on the operations of a substantial number of small rural 
hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess

[[Page 50018]]

anticipated costs and benefits before issuing any rule whose mandates 
require spending in any 1 year $100 million in 1995 dollars, updated 
annually for inflation. In 2009, that threshold is approximately $133 
million. While dialysis facilities will be paid approximately $200 
million less, we do not believe that this proposed rule includes any 
mandates that would impose spending costs on State, local, or tribal 
governments in the aggregate, or by the private sector, of $133 
million.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. We do not believe this proposed rule will have a 
substantial direct effect on State or local governments, preempt State 
law, or otherwise have Federalism implications.
Payment for ESRD Bad Debt
    The proposed changes to the ESRD bad debt payment in this proposed 
rule are not changes to the existing ESRD bad debt payment methodology 
and, therefore, there is no impact on ESRD payments from implementing 
the Rule of Construction described in Section 153(a)(4) of MIPPA and 
described elsewhere in this proposed rule.

B. Anticipated Effects

1. Effects on ESRD facilities
    To understand the impact of the changes affecting payments to 
different categories of ESRD facilities, it is necessary to compare 
estimated payments in CY 2011 under the current basic case-mix adjusted 
composite payment system (current payments) to estimated payments in CY 
2011 under the proposed ESRD PPS, including payments to ESRD facilities 
paid a blended rate under the transition (new payments). To estimate 
the impact among various classes of ESRD facilities, it is imperative 
that the estimates of current payments and new payments contain similar 
inputs. Therefore, we simulated payments only for those ESRD facilities 
that we are able to calculate both current payments and new payments.
    ESRD providers were grouped into the categories based on 
characteristics provided in the Online Survey and Certification and 
Reporting (OSCAR) file and the most recent cost report data from the 
Healthcare Cost Report Information System (HCRIS). We also used the 
June 2008 update of CY 2007 National Claims History file as a basis for 
Medicare dialysis treatments and separately billable drugs and 
biologicals.
    Table 48 shows the impact of the proposed ESRD PPS compared to 
current payments to ESRD facilities under the basic case-mix composite 
payment system, including all separately billable items. Column A of 
impact Table 48 indicates the number of ESRD facilities for each impact 
category and column B indicates the number of dialysis treatments (in 
millions).

            Table 48--Impact of Proposed Changes in Payments to ESRD Facilities for CY 2011 ESRD PPS
             [Percent change in total payments to ESRD facilities (both program and beneficiaries)]
----------------------------------------------------------------------------------------------------------------
                                                                                                    2011 Impact
                                                                                    2011 Impact    assuming all
                                                     Number of       Number of       assuming       facilities
                  Facility type                     facilities      treatments      blended and     paid under
                                                                   (in millions)     100% PPS        100% PPS
                                                                                   payments \1\      payments
----------------------------------------------------------------------------------------------------------------
                                                               A               B               C               D
----------------------------------------------------------------------------------------------------------------
All Facilities..................................           4,921            36.5           -2.0%           -2.0%
Type:                                             ..............  ..............  ..............  ..............
    Freestanding................................           4,330            32.7           -2.5%           -2.6%
    Hospital based..............................             591             3.8            2.1%            3.7%
Ownership Type:                                   ..............  ..............  ..............  ..............
    Large dialysis organization.................           2,987            23.3           -3.1%           -3.7%
    Regional chain..............................             753             5.9           -1.3%           -0.3%
    Independent.................................             550             4.0            0.0%            1.3%
    Unknown.....................................             160             0.3           -1.2%            0.0%
Hospital based \2\..............................             471             3.0            2.4%            4.0%
Geographic Location:                              ..............  ..............  ..............  ..............
    Urban.......................................           3,794            30.3           -1.9%           -1.7%
    Rural.......................................           1,127             6.3           -2.5%           -3.4%
Census Region:                                    ..............  ..............  ..............  ..............
    East North Central..........................             778             5.8           -2.4%           -2.4%
    East South Central..........................             384             2.8           -3.0%           -4.4%
    Middle Atlantic.............................             577             4.6            0.1%            1.2%
    Mountain....................................             267             1.6           -0.6%            0.8%
    New England.................................             156             1.2           -1.3%            0.1%
    Pacific.....................................             556             4.5           -1.9%           -1.0%
    South Atlantic..............................           1,116             8.3           -2.5%           -3.3%
    West North Central..........................             374             2.0           -1.2%           -0.2%
    West South Central..........................             679             5.2           -3.1%           -3.8%
    Puerto Rico and Virgin Islands..............              34             0.4           -2.9%           -6.6%
State:                                            ..............  ..............  ..............  ..............
    Alaska......................................               4             0.0           -2.4%            0.3%
    Hawaii......................................              20             0.2           -2.3%           -0.2%
    Other.......................................           4,897            36.3           -2.0%           -2.0%
Facility Size:                                    ..............  ..............  ..............  ..............
    Less than 3,000 treatments \3\..............             489             0.9            5.1%            6.0%
    3,000 to 9,999 treatments...................           2,170            10.7           -2.5%           -3.1%
    10,000 or more treatments...................           2,206            24.8           -2.0%           -1.8%

[[Page 50019]]

 
    Unknown.....................................              56             0.1           -1.4%           -1.4%
Percentage of Pediatric Patients:                 ..............  ..............  ..............  ..............
    Less than 2%................................           4,808            36.1           -2.0%           -2.0%
    Between 2% and 19%..........................              56             0.4            1.0%            2.3%
    Between 20% and 49%.........................              12             0.0           -1.9%           -4.9%
    More than 50%...............................              45             0.1           -3.6%          -11.7%
Prior Composite Rate Exception (IEF, Atypical):   ..............  ..............  ..............  ..............
    Yes4........................................              37             0.1            5.2%            4.6%
    No..........................................           4,884            36.4           -2.0%           -2.0%
----------------------------------------------------------------------------------------------------------------
\1\ Assumed that 1794 out of 4921 Facilities choose to be excluded from the transition based on comparison of
  payments under current system to payments under proposed ESRD PPS.
If payments under a 100% fully implemented ESRD PPS are higher than payments under current system, we assumed
  that the facility would elect to be excluded from the transition.
\2\ Includes hospital based facilities not reported to have large dialysis organization or regional chain
  ownership.
\3\ Of the 489 Facilities with less than 3,000 treatments, only 166 qualify for the low-volume adjustment. The
  low-volume adjustment is mandated by Congress.
The impact to these Low volume Facilites is a 16.6% increase in payments.
\4\ These facilities that choose to retain their exception rate (either IEF or atypical) rather than be paid
  under the current basic case-mix adjusted composite payment system.

    Section 1881(b)(14)(E)(ii) of the Act provides all ESRD facilities 
with the option to make a one-time election to be excluded from the 
transition from the current payment system to the ESRD PPS (see section 
VII.E of this proposed rule for details of this statutory provision). 
Electing to be excluded from the 4-year transition means that the ESRD 
facility receives payments for renal dialysis services provided on or 
after January 1, 2011, based on 100 percent of the payment rate under 
the proposed ESRD PPS, rather than a blended rate based in part on the 
payment rate under the current payment system and in part on the 
payment rate under the proposed ESRD PPS. In order to estimate which 
ESRD facilities would and would not elect to opt out of the transition 
and receive payment based on 100 percent of the payment amount under 
the ESRD PPS, we are proposing to estimate both the aggregate payments 
for each ESRD facility under the proposed ESRD PPS (based on 100 
percent of the payment amount under ESRD PPS) and payments in the first 
year of the transition (based on a blend of 25 percent of payments 
under the proposed ESRD PPS and 75 percent of payments under the 
current basic case-mix adjusted composite payment system). We then 
assume that facilities that would receive higher aggregate payments 
under the proposed ESRD PPS would elect to be paid based on 100 percent 
of the payment amount under the proposed ESRD PPS, and facilities that 
would receive higher aggregate payments under the first year of the 
transition (based on a blend of 25 percent of payments under the 
proposed ESRD PPS and 75 percent of payments under the current basic 
case-mix adjusted composite payment system) will elect to be paid under 
the transition. Based on these assumptions, we are estimating that 36 
percent of ESRD facilities would choose to be excluded from the 
transition and we estimate that 64 percent of ESRD facilities would 
choose to be paid the blended rate under the transition.
    Additionally, in accordance with section 1881(b)(14)(E)(iii) of the 
Act and as described in section VII.E of this proposed rule, we are 
proposing to apply a transition budget-neutrality adjustment factor to 
all payments. The purpose of this factor is to make the estimated total 
payments under the ESRD PPS equal the estimated total payments that 
would have been made if there had been no transition. We estimate this 
factor to be 0.970. Since the same factor would be applied to all 
payments, including the blended payment rates under the transition, the 
effect of the transition budget neutrality adjustment factor is the 
same for all impact categories.
    The overall effect of the proposed ESRD PPS, in the first year of 
the transition, is shown in column C. This effect is determined by 
comparing total estimated payments under the proposed ESRD PPS, which 
includes blended payments and payments that are computed using our 
assumption that 36 percent of ESRD facilities would elect to be paid 
100 percent ESRD PPS and 64 percent of ESRD facilities would elect to 
go through the transition. These payments have also been adjusted to 
reflect the proposed transition budget-neutrality adjustment factor. 
Total payments are then compared to payments that would have been made 
to facilities for renal dialysis services provided during CY 2011 under 
the basic case-mix adjusted composite payment system plus items and 
services separately billable under Title XVIII, including ESRD-related 
Part D drugs. In column C, the aggregate impact on all facilities is a 
2.0 percent reduction in payments, which reflects the statutory 98 
percent budget neutrality provision. Hospital-based ESRD providers of 
services show a 2.1 percent increase because as a group they receive 
higher payments under the proposed ESRD PPS than they would receive 
under the current system. We believe that the model used to create the 
proposed ESRD PPS adjustment factors more accurately predicts costs for 
this provider category. Facilities with less than 3,000 treatments show 
a 5.1 percent increase in payments under the proposed ESRD PPS because 
many of these facilities are eligible to receive the low-volume 
adjustment, which is a 20.2 percent adjustment per treatment. As with 
hospital-based ESRD providers of services, we believe that the model 
more

[[Page 50020]]

accurately predicts costs for this category. Facilities that chose to 
retain a composite rate exception in the current system show a 5.2 
percent increase in payments under the proposed ESRD PPS. This may be 
explained by the fact that the current basic case-mix adjusted 
composite payment system does not completely account for their higher 
costs and that the proposed ESRD PPS more accurately accounts for the 
higher costs of these facilities as a group. The largest decrease in 
payments under the proposed ESRD PPS is for facilities with more than 
50 percent pediatric patients which will experience a 3.6 percent 
decrease. We believe this decrease may be a result of the current 
system overpaying for pediatric patients, rather than the proposed ESRD 
PPS underpaying this group of facilities. As described in more detail 
in section IX of this proposed rule, the current system provides a 1.62 
increase factor for pediatric patients. This factor was developed using 
cost per treatment for pediatric facilities that had applied for and 
received an exception under the current system. The current 1.62 
adjustment factor was intended as a temporary adjustment and we stated 
our intention to refine this adjustment (69 FR 66327). We believe that 
the proposed pediatric patient adjustments under the proposed ESRD PPS 
provide a more accurate estimate of costs for these pediatric patients 
and therefore this provider category because they are now empirically 
driven and tied to the proposed ESRD PPS base rate. While this provider 
category will experience a decrease in payments under the proposed ESRD 
PPS as compared to the current system, we believe the transition to the 
ESRD PPS will provide a more gradual decrease.
    Column D shows the effect if all ESRD facilities were paid 100 
percent of the proposed ESRD PPS. In this column, we are showing a 
hypothetical effect, as the statute provides for a 4-year transition to 
a fully implemented ESRD PPS. We show this column as a comparison to 
column C, in order to show how each impact category would have been 
effected if the ESRD PPS had been fully implemented in 2011. In column 
D, the overall effect for all facilities in aggregate is a 2.0 percent 
reduction, which reflects the statutory 98 percent budget neutrality 
provision. As with column C, we see the same categories of ESRD 
facilities most impacted by the proposed ESRD PPS. However, in column D 
the changes are generally more pronounced as those providers do not 
have the mitigating effect of the transition. Since column D shows the 
hypothetical effect if all ESRD facilities were to be paid 100 percent 
of the ESRD PPS in the first year of the transition, we do not need to 
apply the transition budget neutrality factor to column D. We believe 
that the comparison of columns C and D shows that the statutory option 
to transition does provide a more gradual affect for provider 
categories that receive lower payments under the proposed ESRD PPS, as 
well as the effect of the transition budget neutrality factor. 
Generally, providers that do well under the proposed ESRD PPS show 
larger increases in column D compared to column C because column D does 
not reflect the transition budget neutrality adjustment. However, many 
provider categories include a combination of providers that are 
estimated to receive higher payments under the proposed ESRD PPS and 
providers that are estimated to receive lower payments under the 
proposed ESRD PPS. We believe the comparison of columns C and D also 
shows that our proposal to apply the transition budget neutrality 
factor to all payments does not penalize any one group, but rather it 
evenly distributes the effect of this transition budget neutrality 
factor among all provider types.
2. Effects on Other Providers
    Under the proposed expanded bundle in the proposed ESRD PPS, other 
provider types such as laboratories, DME suppliers, and pharmacies 
would have to seek payment from ESRD facilities rather than Medicare. 
This is because under the proposed ESRD PPS, Medicare is paying ESRD 
facilities one combined payment for services that may have been 
separately paid by Medicare in the past. As discussed in more detail in 
section X.B of this proposed rule, the other provider types noted above 
may continue to provide certain ESRD-related services, however, 
beginning January 1, 2011, they may no longer bill Medicare directly 
and instead must seek payment from ESRD facilities.
3. Effects on the Medicare and Medicaid Programs
    We estimate that Medicare spending (total Medicare program 
payments) for ESRD facilities over the next five years would be as 
follows:

                      Table 49--Estimated Payments
------------------------------------------------------------------------
                                                             Estimated
                      Calendar year                       payments ($ in
                                                             billions)
------------------------------------------------------------------------
2011....................................................             7.9
2012....................................................             8.2
2013....................................................             8.5
2014....................................................             8.9
2015....................................................             9.2
------------------------------------------------------------------------

    These estimates are based on current estimates of annual increases 
in the ESRDB market basket (discussed in detail in section XII of this 
proposed rule) of 2.6 percent for CY 2012 and CY 2013, and 2.7 for CY 
2014 and CY 2015. In addition, we estimate that there will be an 
increase in fee-for-service Medicare beneficiary enrollment of 1.8 
percent in CY 2011, 2.4 percent in CY 2012, 2.5 percent in CY 2013, 2.4 
percent in CY 2014 and 2.3 percent in CY 2015.
    Consistent with the requirement for 98 percent budget neutrality in 
the initial year of implementation, we intend for estimated aggregate 
payments under the proposed ESRD PPS to equal 98 percent of the 
estimated aggregate payments that would have been made if the proposed 
ESRD PPS were not implemented. Our methodology for estimating payment 
for purposes of the budget neutrality calculation uses the best 
available data.
4. Effects on Medicare Beneficiaries
    Medicare beneficiaries are responsible for 20 percent coinsurance 
on Part B renal dialysis services. The overall effect for all ESRD 
facilities in aggregate is a 2 percent reduction in payments, which 
reflects the statutory 98 percent budget neutrality provision. Since 
Medicare beneficiaries are responsible for 20 percent coinsurance on 
Part B renal dialysis services, this overall 2 percent reduction 
translates to a 2 percent reduction to beneficiary coinsurance.

C. Alternatives Considered

    In developing this proposed rule, we considered a number of 
alternatives. We considered other adjustments, including race, 
modality, and site of service. We considered alternative adjustments to 
explain variation in cost and resource usage among patients and ESRD 
facilities. For example, we considered alternatives in the outlier 
policy, such as outlier percentages of 1.5, 2, 2.5, to 3 percent, 
rather than the proposed 1 percentage policy. We also considered a 
monthly payment, but instead proposed a per treatment payment.
    We have discretion on some of the adjustments we are proposing, 
however this has no impact on the aggregate amount of spending in the 
first year of

[[Page 50021]]

the ESRD PPS (CY 2011). The statute requires a low-volume adjustment of 
at least 10 percent and an outlier policy. However, the statute did 
provide the Secretary with discretion in defining low-volume facilities 
and establishing an outlier policy. These issues are discussed in 
sections VIII.C and X.A, respectively. The sections referenced also 
discuss our rationale for the policy decisions we made.

D. Accounting Statement and Table

    Whenever a rule is considered a significant rule under Executive 
Order 12866, we are required to develop an Accounting Statement showing 
the classification of the expenditures associated with the provisions 
of this proposed rule.
    Table 50, below provides our best estimate of the decrease in CY 
2011 Medicare payments under the ESRD PPS as a result of the changes 
presented in this proposed rule based on the best available data. The 
expenditures are classified as a transfer to the Federal Government of 
$160 million dollars (or as a savings to the Medicare Program) and as a 
transfer to beneficiaries of $40 million.

                                Table 50
------------------------------------------------------------------------
                 Category                         Primary estimate
------------------------------------------------------------------------
Transfers:
  Annualized monetized transfers: ``on      -$200 million.
   budget''.
  From whom to whom?                        Federal Government &
                                             Beneficiaries to ESRD
                                             Facilities.
------------------------------------------------------------------------
Note: The -$200 million from the Federal Government and Beneficiaries to
  ESRD Providers is distributed as -$160 million from the Federal
  Government to the ESRD Provider, and -$40 million from the
  Beneficiaries to the ESRD Provider.

E. Conclusion

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

List of Subjects

42 CFR Part 410

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

42 CFR Part 413

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

42 CFR Part 414

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

    For the reasons set forth in the preamble, the Center for Medicare 
& Medicaid Services proposes to amend 42 CFR Chapter IV as set forth 
below:

PART 410--SUPPLEMENTARY MEDICAL INSURANCE (SMI) BENEFITS

Subpart B--Medical and Other Health Services

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

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

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


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

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

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

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

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

Subpart F--Specific Categories of Costs

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


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

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

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

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


Sec.  413.170  Scope.

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


Sec.  413.171  Definitions.

    For purposes of this subpart, the following definitions apply:
    Base rate. The average payment amount per-treatment, standardized 
to remove the effects of case-mix and area wage levels and further 
reduced for budget neutrality and the outlier percentage. The base rate 
is the amount to which the patient-specific case-mix

[[Page 50022]]

adjustments and any ESRD facility adjustments described in Sec.  
413.230, if applicable, are applied.
    Composite Rate Services. Items and services used in the provision 
of outpatient maintenance dialysis for the treatment of ESRD and 
included in the composite rate established under section 1881(b)(7) and 
section 1881(b)(12) of the Act, the basic case-mix adjusted composite 
payment system.
    ESRD facility. An ESRD facility is an independent facility or a 
hospital-based provider of services (as described in Sec.  413.174(b) 
and (c) of this chapter) including facilities that have a self-care 
dialysis unit that furnishes only self-dialysis services as defined in 
Sec.  494.10 of this chapter and meets the supervision requirements 
described in part 494 of this chapter, and that furnishes institutional 
dialysis services and supplies under Sec.  410.50 of this chapter.
    New ESRD facility. A new ESRD facility is an ESRD facility (as 
defined above), that is certified for Medicare participation on or 
after January 1, 2011.
    Renal dialysis services. Effective January 1, 2011, the following 
items and services are considered ``renal dialysis services,'' and paid 
under the ESRD prospective payment system under section 1881(b)(14) of 
the Act:
    (1) Items and services included in the composite rate for renal 
dialysis services as of December 31, 2010;
    (2) Erythropoiesis stimulating agents and any oral form of such 
agents that are furnished to individuals for the treatment of ESRD;
    (3) Other drugs and biologicals that are furnished to individuals 
for the treatment of ESRD and for which payment was (prior to January 
1, 2011) made separately under Title XVIII of the Act (including drugs 
and biologicals with only an oral form), and any oral equivalent form 
of such drug and biological;
    (4) Diagnostic laboratory tests and other items and services not 
described in paragraph (1) of this definition that are furnished to 
individuals for the treatment of ESRD.
    Separately Billable Items and Services. Items and services used in 
the provision of outpatient maintenance dialysis for the treatment of 
individuals with ESRD that were, prior to January 1, 2011, separately 
payable under Title XVIII of the Act and not included in the payment 
systems established under section 1881(b)(7) and section 1881(b)(12) of 
the Act.
    7. Section 413.172 is amended by revising paragraph (a), paragraph 
(b) introductory text, and paragraph (b)(1) to read as follows:


Sec.  413.172  Principles of prospective payment.

    (a) Payment for renal dialysis services as defined in Sec.  413.171 
and home dialysis services as defined in Sec.  413.217 of this chapter 
are based on payment rates set prospectively by CMS.
    (b) All approved ESRD facilities must accept the prospective 
payment rates established by CMS as payment in full for covered renal 
dialysis services as defined in Sec.  413.171 or home dialysis 
services. Approved ESRD facility means--
    (1) Any independent ESRD facility or hospital-based provider of 
services (as defined in Sec.  413.174(b) and Sec.  413.174(c) of this 
part) that has been approved by CMS to participate in Medicare as an 
ESRD supplier; or
* * * * *
    8. Section 413.174 is amended as follows:
    a. By revising paragraph (a).
    b. By revising paragraphs (f) introductory text, (f)(3), and 
(f)(4).
    c. By adding a new paragraph (f)(5).
    The revisions and additions read as follows:


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

    (a) Establishment of rates. CMS establishes prospective payment 
rates for ESRD facilities using a methodology that--
    (1) Differentiates between hospital-based providers of services and 
independent ESRD facilities for items and services furnished prior to 
January 1, 2009, under section 1881(b)(7) and section 1881(b)(12) of 
the Act;
    (2) Does not differentiate between hospital-based providers of 
services and independent ESRD facilities for items and services 
furnished on or after January 1, 2009; and
    (3) Requires the labor share be based on the labor share otherwise 
applied to independent ESRD facilities when applying the geographic 
index to hospital-based ESRD providers of services, on or after January 
1, 2009.
* * * * *
    (f) Additional payment for separately billable drugs and 
biologicals. Prior to January 1, 2011, CMS makes additional payment 
directly to an ESRD facility for certain ESRD-related drugs and 
biologicals furnished to ESRD patients. Effective January 1, 2011, as 
specified in section 1881(b)(14) of the Act, payment to an ESRD 
facility for certain ESRD-related drugs and biologicals furnished to 
ESRD patients on or after January 1, 2011 is incorporated within the 
prospective payment system rates established by CMS in Sec.  413.230 
and separate payment will no longer be provided.
* * * * *
    (3) For drugs furnished prior to January 1, 2006, payment is made 
to hospital-based ESRD providers of services on a reasonable cost 
basis. Effective January 1, 2006, and prior to January 1, 2011, payment 
for drugs furnished by a hospital-based ESRD provider of service is 
based on the methodology specified in Sec.  414.904 of this chapter.
    (4) For drugs furnished prior to January 1, 2006, payment is made 
to independent ESRD facilities based on the methodology specified in 
Sec.  405.517 of this chapter. Effective January 1, 2006, and prior to 
January 1, 2011, payment for drugs and biologicals furnished by 
independent ESRD facilities is based on the methodology specified in 
Sec.  414.904 of this chapter.
    (5) Effective January 1, 2011, payment for drugs and biologicals 
furnished by ESRD facilities as defined in Sec.  413.171(c) is included 
in the ESRD prospective payment system rate established in Sec.  
413.230.
    9. Section 413.176 is revised to read as follows:


Sec.  413.176  Amount of payments.

    For items and services, for which payment is made under section 
1881(b)(7), section 1881(b)(12), and section 1881(b)(14)of the Act:
    (a) If the beneficiary has incurred the full deductible applicable 
under Part B of Medicare before the dialysis treatment, Medicare pays 
the ESRD facility 80 percent of its prospective rate.
    (b) If the beneficiary has not incurred the full deductible 
applicable under Part B of Medicare before the dialysis treatment, CMS 
subtracts the amount applicable to the deductible from the ESRD 
facility's prospective rate and pays the facility 80 percent of the 
remainder, if any.
    10. Section 413.178 is amended by revising paragraph (d) to read as 
follows:


Sec.  413.178  Bad debts.

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

[[Page 50023]]

or a fee schedule, including but not limited to drugs, laboratory 
tests, and supplies are not reimbursable under the program.
    11. Section 413.180 is amended by adding a new paragraph (l) to 
read as follows.


Sec.  413.180  Procedures for requesting exceptions to payment rates.

* * * * *
    (l) Periods of exceptions. (1) Prior to December 31, 2000, an ESRD 
facility may receive an exception to its prospective payment rate for 
isolated essential facilities, self dialysis training costs, atypical 
service intensity (patient mix) and pediatric facilities.
    (2) Effective December 31, 2000, an ESRD facility not subject to 
paragraph (l)(3), is no longer granted any new exceptions to the 
prospective payment rate as defined in Sec.  413.180(l).
    (3) Effective April 1, 2004 through September 27, 2004, and on an 
annual basis, an ESRD facility with at least 50 percent pediatric 
patient mix as specified in Sec.  413.184 of this part, that did not 
have an exception rate in effect as of October 1, 2002, may apply for 
an exception to its prospective payment rate.
    (4) For ESRD facilities that are paid a blended rate for renal 
dialysis services provided during the transition described in Sec.  
413.235(a) of this part, any existing exceptions for isolated essential 
facilities, self dialysis training costs, atypical service intensity 
(patient mix) and pediatric facilities is used as the payment amount in 
place of the composite rate, for exceptions in effect prior to January 
1, 2011 and will be terminated for ESRD services furnished on or after 
January 1, 2014.
    (5) For ESRD facilities that, in accordance with Sec.  413.235(b) 
of this part, elect to be paid for renal dialysis services provided 
during the transition based on 100 percent of the payment amount 
determined under Sec.  413.220 any existing exceptions for isolated 
essential facilities, self dialysis training costs, atypical service 
intensity (patient mix) and pediatric facilities are terminated for 
ESRD services furnished on or after January 1, 2011.
    12. Section 413.195 is added to read as follows:


Sec.  413.195  Limitation on review.

    Administrative or judicial review under section 1869 of the Act, 
section 1878 of the Act, or otherwise is prohibited of the 
determination of payment amounts under section 1881(b)(14)(A) of the 
Act, the establishment of an appropriate unit of payment under section 
1881(b)(14)(C) of the Act, the identification of renal dialysis 
services included in the bundled payment, the adjustments under section 
1881(b)(14)(D) of the Act, the application of the phase-in under 
section 1881(b)(14)(E) of the Act, and the establishment of the market 
basket percentage increase factors under section 1881(b)(14)(F) of the 
Act.
    13. Section 413.196 is amended by adding new paragraphs (c) and (d) 
to read as follows:


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

* * * * *
    (c) Effective for items and services furnished on or after January 
1, 2011, CMS adjusts the composite rate portion of the basic case-mix 
adjusted composite payment system described in Sec.  413.220 by the 
ESRD bundled market basket percentage increase factor minus 1.0 
percentage point.
    (d) Effective for items and services furnished on or after January 
1, 2012, CMS updates on an annual basis the following:
    (1) The per-treatment base rate and the composite rate portion of 
the basic case-mix adjusted composite payment system described in Sec.  
413.220 by the ESRD bundled market basket percentage increase factor 
minus 1.0 percentage point.
    (2) The wage index using the most current hospital wage data.
    (3) The fixed dollar loss amount as defined in Sec.  413.237 of 
this part to ensure that outlier payments continue to be 1.0 percent of 
total payments to ESRD facilities.
    14. Section 413.210 is added to read as follows:


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

    Items and services furnished on or after January 1, 2011, under 
section 1881(b)(14)(A) of the Act and as identified in Sec.  413.217 of 
this part, are paid under the ESRD prospective payment system described 
in Sec.  413.215 through Sec.  413.235 of this part.
    (a) Qualifications for payment. To qualify for payment, ESRD 
facilities must meet the conditions for coverage in part 494 of this 
chapter.
    (b) Payment for items and services. CMS will not pay any entity or 
supplier other than the ESRD facility for covered items and services 
furnished to a Medicare beneficiary. The ESRD facility must furnish all 
covered items and services defined in Sec.  413.217 of this part either 
directly or under arrangements.
    15. Section 413.215 is added to subpart H to read as follows:


Sec.  413.215  Basis of payment.

    (a) Except as otherwise provided under Sec.  413.235 of this part, 
effective January 1, 2011, ESRD facilities receive a predetermined per 
treatment payment amount for items and services, specified under 
section 1881(b)(14) of the Act and as defined in Sec.  413.217 of this 
part, furnished to Medicare Part B fee-for-service beneficiaries.
    (b) The per-treatment payment amount is the product of the per 
treatment base rate described in Sec.  413.220 plus the applicable 
adjustments described in Sec.  413.231 through Sec.  413.237 of this 
part.
    (c) In addition to the per-treatment payment amount, as described 
in Sec.  413.215(a) of this part, the ESRD facility may receive payment 
for bad debts of Medicare beneficiaries as specified in Sec.  413.178 
of this part.
    16. Section 413.217 is added to subpart H to read as follows:


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

    The following items and services are included in the ESRD 
prospective payment system effective January 1, 2011:
    (a) Renal dialysis services as defined in Sec.  413.171; and
    (b) Home dialysis services, support, and equipment as identified in 
Sec.  410.52 of this chapter.
    17. Section 413.220 is added to subpart H to read as follows:


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

    (a) Data sources. The methodology for determining the per treatment 
base rate under the ESRD prospective payment system utilized:
    (1) Medicare data available to estimate the average cost and 
payments for items and services.
    (2) ESRD facility cost report data capturing the average cost per 
treatment.
    (3) The lowest per patient utilization calendar year as identified 
from Medicare claims for calendar years 2007, 2008, or 2009.
    (4) Wage index values used to adjust for geographic wage levels 
described in Sec.  413.231 of this part.
    (5) An adjustment factor to account for the most recent estimate of 
increases in the prices of an appropriate market basket of goods and 
services provided by ESRD facilities.
    (b) Determining the per treatment base rate for calendar year 2011. 
The ESRD prospective payment system combines payments for the composite 
rate items and services as defined in

[[Page 50024]]

Sec.  413.171 of this part and the items and services that, prior to 
January 1, 2011, were separately billable items and services, as 
defined in Sec.  413.171 of this part, into a single per treatment base 
rate developed from 2007 claims data. The steps to calculating the per-
treatment base rate for 2011 are as follows:
    (1) Average payments in CY 2007, 2008 or 2009. CMS computes the 
average Medicare allowable payment for composite rate items and 
services and separately billable items and services furnished in CY 
2007, 2008 or 2009 to yield a per treatment base rate for 2007, 2008 or 
2009 and selects the year with the lowest per patient utilization.
    (2) Update of per treatment base rate to 2011. CMS updates the per-
treatment base rate under the ESRD prospective payment system in order 
to reflect estimated per treatment costs in 2011.
    (3) Standardization. CMS applies a reduction factor to the per 
treatment base rate to reflect estimated increases resulting from the 
facility-level and patient-level adjustments applicable to the case as 
described in Sec.  413.231 through Sec.  413.237 of this part.
    (4) Outlier percentage. CMS reduces the per treatment base rate by 
1 percent to account for the proportion of the estimated total payments 
under the ESRD Prospective Payment System that are outlier payments as 
described in Sec.  413.237 of this part.
    (5) Budget neutrality. CMS adjusts the per treatment base rate so 
that the aggregate payments in 2011 are estimated to be 98 percent of 
the amount that would have been made under title XVIII of the Social 
Security Act if the ESRD prospective payment system described in Sec.  
413.210 through Sec.  413.239 of this part were not implemented.
    (6) First Four Years of the ESRD Prospective Payment System. During 
the first four years of ESRD prospective payment system (January 1, 
2011 to December 31, 2014), CMS adjusts the per-treatment base rate in 
accordance with Sec.  413.239(d).
    18. Section 413.230 is added to subpart H to read as follows:


Sec.  413.230  Determining the per treatment payment amount.

    The per-treatment payment amount is the product of the per 
treatment base rate established in Sec.  413.220, the facility-level 
and patient-level adjustments described in Sec.  413.231, Sec.  413.232 
and Sec.  413.235 of this part, and any outlier payment under Sec.  
413.237.
    19. Section 413.231 is added to subpart H to read as follows:


Sec.  413.231  Adjustment for wages.

    (a) CMS adjusts the labor portion of the base rate to account for 
geographic differences in the area wage levels using an appropriate 
wage index (established by CMS) which reflects the relative level of 
hospital wages and wage-related costs in the geographic area in which 
the ESRD facility is located.
    (b) The application of the wage index is made on the basis of the 
location of the ESRD facility in an urban or rural area as defined in 
this paragraph (b).
    (1) Urban area means a Metropolitan Statistical Area or a 
Metropolitan division (in the case where a Metropolitan Statistical 
Area is divided into Metropolitan Divisions), as defined by OMB.
    (2) Rural area means any area outside an urban area.
    20. Section 413.232 is added to subpart H to read as follows:


Sec.  413.232  Low-volume adjustment.

    (a) CMS adjusts the base rate for low-volume ESRD facilities, as 
defined in paragraph (b) of this section.
    (b) Definition of low-volume facility. A low-volume facility is an 
ESRD facility that:
    (1) Furnished less than 3,000 treatments in each of the 3 years 
preceding the payment year; and
    (2) Has not opened, closed, or had a change in ownership in the 3 
years preceding the payment year.
    (c) For the purpose of determining the number of treatments under 
paragraph (b)(1) of this section, the number of treatments considered 
furnished by the ESRD facility shall be equal to the aggregate number 
of treatments furnished by the ESRD facility and the number of 
treatments furnished by other ESRD facilities that are both:
    (1) Under common ownership with, and
    (2) 25 miles or less from the ESRD facility in question.
    (d) The determination under paragraph (c) of this section does not 
apply to an ESRD facility that was in existence and certified for 
Medicare participation prior January 1, 2011.
    (e) Common ownership means the same individual, individuals, 
entity, or entities, directly, or indirectly, own 5 percent or more of 
each ESRD facility.
    (f) To receive the low-volume adjustment, an ESRD facility must 
provide an attestation statement to the fiscal intermediary/MAC that 
the facility has met all the criteria as established in paragraphs (a), 
(b), (c), and (d) of this section.
    21. Section 413.235 is added to subpart H to read as follows:


Sec.  413.235  Patient-level adjustments.

    Adjustments to the per-treatment base rate may be made to account 
for variation in case-mix. These adjustments reflect patient 
characteristics that result in higher costs for ESRD facilities.
    (a) CMS adjusts the per treatment base rate for adults to account 
for patient age, patient sex (female), body surface area, low body mass 
index, onset of dialysis (new patient), and co-morbidities, as 
specified by CMS.
    (b) CMS adjusts the per treatment base rate for pediatric patients 
in accordance with section 1881(b)(14)(D)(iv)(I) of the Act, to account 
for patient age, treatment modality, and the presence of co-
morbidities.
    22. Section 413.237 is added to subpart H to read as follows:


Sec.  413.237  Outliers.

    (a) The following definitions apply to this section.
    (1) ESRD outlier services are separately billable items and 
services as defined in Sec.  413.171 of this part and renal dialysis 
service drugs proposed for inclusion in the ESRD prospective payment 
system that currently are covered under Medicare Part D.
    (2) Adult predicted ESRD outlier services Medicare allowable 
payment (MAP) amount means the predicted per-treatment case-mix 
adjusted amount for ESRD outlier services furnished to an adult 
beneficiary by an ESRD facility as defined in Sec.  413.171.
    (3) Pediatric predicted ESRD outlier services Medicare allowable 
payment (MAP) amount means the predicted per-treatment case-mix 
adjusted amount for ESRD outlier services furnished to a pediatric 
beneficiary by an ESRD facility as defined in Sec.  413.171.
    (4) Adult fixed dollar loss amount is the amount by which an ESRD 
facility's imputed per-treatment MAP amount for furnishing ESRD outlier 
services to an adult beneficiary must exceed the adult predicted ESRD 
outlier services MAP amount to be eligible for an outlier payment.
    (5) Pediatric fixed dollar loss amount: The amount by which an ESRD 
facility's imputed per-treatment MAP amount for furnishing ESRD outlier 
services to a pediatric beneficiary must exceed the pediatric predicted 
ESRD outlier services MAP amount to be eligible for an outlier payment.
    (6) Outlier Percentage: This term has the meaning set forth in 
Sec.  413.220(c)(4).
    (b) Eligibility for outlier payments:
    (1) Adult beneficiaries. An ESRD facility will receive an outlier 
payment for a treatment furnished to an adult beneficiary if the ESRD 
facility's per-

[[Page 50025]]

treatment imputed MAP amount for ESRD outlier services exceeds the 
adult predicted ESRD outlier services MAP amount plus the adult fixed 
dollar loss amount. To calculate the ESRD facility's per-treatment 
imputed MAP amount for an adult beneficiary, CMS divides the ESRD 
facility's monthly imputed MAP amount of providing ESRD outlier 
services to the adult beneficiary by the number of dialysis treatments 
furnished to the adult beneficiary in the relevant month. A beneficiary 
is considered an adult beneficiary if the beneficiary is 18 years old 
or older.
    (2) Pediatric beneficiaries. An ESRD facility will receive an 
outlier payment for a treatment furnished to a pediatric beneficiary if 
the ESRD facility's per-treatment imputed MAP amount for ESRD outlier 
services exceeds the pediatric predicted ESRD outlier services MAP 
amount plus the pediatric fixed dollar loss amount. To calculate the 
ESRD facility's per-treatment imputed MAP amount for a pediatric 
beneficiary, CMS divides the ESRD facility's monthly imputed MAP amount 
of providing ESRD outlier services to the pediatric beneficiary by the 
number of dialysis treatments furnished to the pediatric beneficiary in 
the relevant month. A beneficiary is considered a pediatric beneficiary 
if the beneficiary is under 18 years old.
    (c) Outlier payment amount: CMS pays 80 percent of the difference 
between:
    (1) The ESRD facility's per-treatment imputed MAP amount for the 
ESRD outlier services, and
    (2) The adult or pediatric predicted ESRD outlier services MAP 
amount plus the adult or pediatric fixed-dollar loss amount, as 
applicable.
    23. Section 413.239 is added to subpart H to read as follows:


Sec.  413.239  Transition period.

    (a) Duration of transition period and composition of the blended 
transition payment. ESRD facilities not electing under paragraph (b) of 
this section to be paid based on the payment amount determined under 
Sec.  413.230 of this part will be paid a per-treatment payment amount 
for renal dialysis services (as defined in Sec.  413.171 of this part) 
and home dialysis, provided during the transition as follows--
    (1) For services provided on and after January 1, 2011 through 
December 31, 2011, a blended rate equal to the sum of:
    (i) 75 percent of the payment amount determined under the ESRD 
payment methodology in effect prior to January 1, 2011 in accordance 
with section 1881(b)(12) of the Act and items and services separately 
paid under Part B; and
    (ii) 25 percent of the payment amount determined in accordance with 
section 1881(b)(14) of the Act;
    (2) For services provided on and after January 1, 2012 through 
December 31, 2012, a blended rate equal to the sum of:
    (i) 50 percent of the payment amount determined under the ESRD 
payment methodology in effect prior to January 1, 2011 in accordance 
with section 1881(b)(12) of the Act and items and services separately 
paid under Part B; and
    (ii) 50 percent of the payment rate determined in accordance with 
section 1881(b)(14) of the Act;
    (3) For services provided on and after January 1, 2013 through 
December 31, 2013, a blended rate equal to the sum of:
    (i) 25 percent of the payment amount determined under the ESRD 
payment methodology in effect prior to January 1, 2011 in accordance 
with section 1881(b) (12) of the Act and items and services separately 
paid under Part B; and
    (ii) 75 percent of the payment amount determined in accordance with 
section 1881(b)(14) of the Act;
    (4) For services provided on and after January 1, 2014, 100 percent 
of the payment amount determined in accordance with section 1881(b)(14) 
of the Act.
    (b) One-time election. Except as provided in paragraph (b)(2) of 
this section, ESRD facilities may make a one-time election to be paid 
for items and services provided during the transition based on 100 
percent of the payment amount determined under Sec.  413.215 of this 
part, rather than based on the payment amount determined under 
paragraph (a) of this section.
    (1) Except as provided in paragraph (b)(3) of this section, the 
election must be received by each ESRD facility's Medicare 
administrative contractor (MAC) by November 1, 2010, regardless of any 
postmarks or anticipated delivery dates. Requests received, postmarked, 
or delivered by other means after November 1, 2010 will not be 
accepted. Once the election is made, it may not be rescinded.
    (2) If the ESRD facility fails to submit an election, or the ESRD 
facility's election is not received by CMS by November 1, 2010, 
payments to the ESRD facility for items and services provided during 
the transition will be based on the payment amounts determined under 
paragraph (a) of this section.
    (3) ESRD facilities that become certified for Medicare 
participation and begin to provide renal dialysis services, as defined 
in Sec.  413.171 of this part, between November 1, 2010 and December 
31, 2010, must notify their designated contractor (MAC) of their 
election choice at the time of enrollment.
    (c) Treatment of new ESRD facilities. For renal dialysis services 
as defined in Sec.  413.171, provided during the transition, new ESRD 
facilities as defined in Sec.  413.171, are paid based on the per-
treatment payment amount determined under Sec.  413.215 of this part.
    (d) Transition budget-neutrality adjustment. During the first 3 
years of the transition (January 1, 2011 through December 31, 2013), 
CMS adjusts all payments, including payments under this section, under 
the ESRD prospective payment system so that the estimated total amount 
of payment equals the estimated total amount of payments that would 
otherwise occur without such a transition.
    24. Section 413.241 is added to subpart H to read as follows:


Sec.  413.241  Pharmacy arrangements.

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

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

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

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

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

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


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

    (a) * * *
    (2) Exception for equipment and supplies furnished prior to January 
1, 2011. * * *
* * * * *

[[Page 50026]]

    (b) * * *
    (2) Exception for home support services furnished prior to January 
1, 2011. * * *
* * * * *
    (c) Payment limits for support services, equipment and supplies, 
and notification of changes to the payment limits apply prior to 
January 1, 2011 as follows:
* * * * *
    27. Section 414.335 is amended by revising paragraph (a) to read as 
follows:


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

    (a) Prior to January 1, 2011, payment for EPO used at home by a 
home dialysis patient is made only to either a Medicare approved ESRD 
facility or a supplier of home dialysis equipment and supplies. 
Effective January 1, 2011, payment for EPO used at home by a home 
dialysis patient is made only to a Medicare approved ESRD facility.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: May 28, 2009.
Charlene Frizzera,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: July 23, 2009.
Kathleen Sebelius,
Secretary.

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

BILLING CODE 4120-01-P

[[Page 50027]]

[GRAPHIC] [TIFF OMITTED] TP29SE09.010


[[Page 50028]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.011


[[Page 50029]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.012


[[Page 50030]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.013


[[Page 50031]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.014


[[Page 50032]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.015


[[Page 50033]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.016


[[Page 50034]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.017


[[Page 50035]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.018


[[Page 50036]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.019


[[Page 50037]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.020


[[Page 50038]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.021


[[Page 50039]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.022


[[Page 50040]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.023


[[Page 50041]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.024


[[Page 50042]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.025


[[Page 50043]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.026


[[Page 50044]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.027


[[Page 50045]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.028


[[Page 50046]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.029


[[Page 50047]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.030


[[Page 50048]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.031


[[Page 50049]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.032


[[Page 50050]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.033


[[Page 50051]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.034


[[Page 50052]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.035


[[Page 50053]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.036


[[Page 50054]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.037


[[Page 50055]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.038


[[Page 50056]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.039


[[Page 50057]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.040


[[Page 50058]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.041


[[Page 50059]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.042


[[Page 50060]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.043


[[Page 50061]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.044


[[Page 50062]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.045


[[Page 50063]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.046


[[Page 50064]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.047


[[Page 50065]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.048


[[Page 50066]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.049


[[Page 50067]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.050


[[Page 50068]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.051


[[Page 50069]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.052


[[Page 50070]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.053


[[Page 50071]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.054


[[Page 50072]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.055


[[Page 50073]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.056


[[Page 50074]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.057


[[Page 50075]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.058


[[Page 50076]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.059


[[Page 50077]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.060


[[Page 50078]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.061


[[Page 50079]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.062


[[Page 50080]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.063


[[Page 50081]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.064


[[Page 50082]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.065


[[Page 50083]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.066


[[Page 50084]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.067


[[Page 50085]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.068


[[Page 50086]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.069


[[Page 50087]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.070


[[Page 50088]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.071


[[Page 50089]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.072


[[Page 50090]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.073


[[Page 50091]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.074


[[Page 50092]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.075


[[Page 50093]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.076


[[Page 50094]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.077


[[Page 50095]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.078


[[Page 50096]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.079


[[Page 50097]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.080


[[Page 50098]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.081


[[Page 50099]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.082


[[Page 50100]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.083


[[Page 50101]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.084


[[Page 50102]]


[GRAPHIC] [TIFF OMITTED] TP29SE09.085

[FR Doc. E9-22486 Filed 9-15-09; 4:15 pm]
BILLING CODE 4120-01-C


</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>