[Federal Register Volume 62, Number 158 (Friday, August 15, 1997)]
[Rules and Regulations]
[Pages 43657-43674]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-21444]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Health Care Financing Administration

42 CFR Parts 412, 413, and 414

[BPD-763-F]
RIN 0938-AG20


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

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

ACTION: Final rule.

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SUMMARY: These final regulations specify the criteria HCFA uses to 
determine if a facility that furnishes dialysis services to Medicare 
patients with end-stage renal disease (ESRD) qualifies for a higher 
payment under an exception to its prospectively determined payment rate 
and the procedures HCFA uses to evaluate ESRD payment exception 
requests. These regulations also revise the way HCFA computes 
acquisition costs for organs that are transplanted into Medicare 
beneficiaries.

EFFECTIVE DATE: September 15, 1997.

FOR FURTHER INFORMATION CONTACT: Michael Powell, (410) 786-4557.

SUPPLEMENTARY INFORMATION:

I. Background

    Under sections 1881(b)(2) and (b)(7) of the Social Security Act 
(the Act), a facility that furnishes dialysis services to Medicare 
patients with ESRD is paid a prospectively determined rate for each 
dialysis treatment furnished. This rate is a composite that includes 
all costs associated with furnishing dialysis services except for the 
costs of physician services and certain laboratory tests and drugs that 
are billed separately. The composite rate may be adjusted periodically 
to reflect actual facility costs.
    When a facility's costs are higher than the prospectively 
determined rate, we may, under certain conditions, grant the facility 
an exception to its composite rate and set a higher prospective rate. 
The facility must show, on the basis of projected cost and utilization 
trends, that it will have an allowable cost per treatment higher than 
its prospective payment rate and that the excess costs are attributable 
to one or more specific circumstances. These conditions are specified 
in existing regulations at 42 CFR 413.170 and are discussed in greater 
detail in Chapter 27 of the Medicare Provider Reimbursement Manual 
(PRM) (HCFA Pub. 15-1).
    A facility may incur excess costs when it furnishes dialysis 
services to a patient population with a greater than average number of 
pediatric patients or patients with other medical conditions, such as 
those with heart disease or unstable medical conditions, who require 
special equipment, procedures, supplies, or staff trained in treating 
these patients. This is referred to as ``atypical'' service intensity 
(or patient mix). A facility may also incur increased costs when it is 
the only supplier of dialysis services in its geographical area and its 
patients are unable to obtain dialysis services elsewhere without 
considerable hardship (an isolated essential facility).
    Increased training costs may also be associated with a facility's 
self-dialysis training program. A facility may train patients to 
perform self-dialysis with little or no professional assistance in the 
facility or at home. It may also train other individuals to assist 
patients in performing self-dialysis or home dialysis. A facility that 
has training costs greater than its composite training rate may apply 
for an exception, but must prove that the costs are reasonable and 
allowable.
    Typically, a patient undergoes dialysis three times a week. A 
facility may furnish a substantial number of treatments to patients who 
dialyze less frequently than three times a week. As a result, the 
facility typically has higher per treatment costs because the 
treatments involve increased labor or supplies. When this occurs, a 
facility may apply for an exception to the composite rate.
    On several occasions, we have denied exception requests based on 
application of the criteria contained in the PRM, and the facilities 
have appealed the denials. Subsequently, some denials have been 
overturned by the Provider Reimbursement Review Board (PRRB) because 
the PRRB is not bound by the guidelines in the PRM. Therefore, we 
believe it is necessary to codify in regulations the specific 
requirements for determining exceptions.

II. Provisions of the Proposed Rule

    On August 26, 1994, we published in the Federal Register (59 FR 
44097) a proposed rule that specified the conditions (previously 
contained in the PRM) that a facility furnishing dialysis services to 
patients with ESRD must meet in order to qualify for a higher payment 
under an exception to the prospectively determined payment rate. The 
proposed rule also contained the criteria that we would use to evaluate 
whether the facility meets the conditions.
    We also proposed to revise 42 CFR Part 413, Subpart H, Payment for 
ESRD Services. Currently, all of the Medicare payment rules for covered 
outpatient maintenance dialysis treatments can be found in 
Sec. 413.170. We proposed to reorganize the content of Subpart H and 
divide existing Sec. 413.170 into several smaller sections so that 
readers can more easily locate specific topics. The table outlining 
this change is shown below.

------------------------------------------------------------------------
               New section                          Old section         
------------------------------------------------------------------------
413.170  Scope..........................  413.170(a)                    
413.172  Principles of prospective        413.170(b)                    
 payment.                                                               
413.174  Prospective rates for hospital-  413.170(c)                    
 based and independent ESRD facilities.                                 
413.176  Amount of payments.............  413.170(d)                    
413.178  Bad debts......................  413.170(e)                    
413.180  Procedures for requesting        413.170(f)                    
 exceptions to payment rates.                                           
413.182  Criteria for approval of         413.170(g)                    
 exception requests.                                                    
413.184  Payment exception: Atypical      413.170(g)(1)                 
 service intensity (patient mix).                                       
413.186  Payment exception: Isolated      413.170(g)(2)                 
 essential facility.                                                    

[[Page 43658]]

                                                                        
413.188  Payment exception:               413.170(g)(4)                 
 Extraordinary circumstances.                                           
413.190  Payment exception: Self-         413.170(g)(5)                 
 dialysis training costs.                                               
413.192  Payment exception: Frequency of  413.170(g)(6)                 
 dialysis.                                                              
413.194  Appeals........................  413.170(h)                    
413.196  Notification of changes in rate- 413.170(i)                    
 setting methodologies and payment rates.                               
413.198  Recordkeeping and cost           413.174                       
 reporting requirements for outpatient                                  
 maintenance dialysis.                                                  
413.200  Payment of independent organ     413.178                       
 procurement organizations and                                          
 histocompatibility laboratories.                                       
413.202  Organ procurement organization   413.179                       
 (OPO) cost for kidneys sent to foreign                                 
 countries or transplanted in patients                                  
 other than Medicare beneficiaries.                                     
------------------------------------------------------------------------

III. Analysis of and Responses to Public Comments

    In response to the August 26, 1994 proposed rule, we received nine 
timely items of correspondence. The specific comments and our responses 
are set forth below following each section describing the specific 
provisions of the proposed rule. The sections generally follow the 
order of the discussed topics in the proposed rule, with the exception 
of the section entitled Bad debts that appears last.

A. General

    Comment: One commenter suggested that we update the composite rate 
on a regularly scheduled basis, as is done for the hospital inpatient 
prospective payment system rates, home health agency rates, hospice 
rates, and resource-based relative value scale rates.
    Response: Under section 4201 of the Omnibus Budget Reconciliation 
Act of 1990 (OBRA '90), Public Law 101-508, from January 1, 1991, 
onward, Congress has set the composite rates for payment for ESRD 
services furnished to Medicare beneficiaries. Any change would require 
legislative action. Thus, we have no discretion in this regard.

B. Procedures for Requesting Exceptions to Payment Rates (Sec. 413.180)

    We proposed to redesignate the content of Sec. 413.170(f), 
Procedures for requesting exceptions to payment rates, as new 
Sec. 413.180. In Sec. 413.180(d), we proposed to specify that a 
facility requesting an exception to its payment rate must do so within 
180 days of:
    <bullet> The effective date of its new composite payment rate(s);
    <bullet> The effective date that HCFA opens the exceptions process; 
or
    <bullet> The date on which an extraordinary cost-increasing event, 
as described in proposed Secs. 413.182(c) and 413.188.
    In Sec. 413.180(f)(5), we proposed to require that the facility 
applying for an exception request compare its most recently completed 
cost report with those of prior years. Such comparisons may reveal 
significant changes that may indicate errors or problems with the cost 
or statistical data and, thus, the need for us to more intensively 
review the applicable area. Any changes to cost or statistical data 
(for example, number of treatments) must be explained and the 
explanation included with the documentation supporting the exception 
request.
    We also proposed in Sec. 413.180(f) and Sec. 413.182 to require 
that ESRD facilities provide documentation showing that their excessive 
costs are specifically or directly attributable to one or more of the 
exception criteria. As an example, for an atypical service intensity 
request, the facility should be able to document the excessive costs of 
furnishing care to patients with severe medical conditions. After 
submitting evidence that it treats these patients, the facility should 
submit records to show that a more experienced and better trained 
nursing staff is required to treat these patients and/or additional 
nursing staff time is needed. An example of the type of records that a 
provider should submit to document its higher nursing costs could 
consist of staffing schedules indicating staff and patients per shift. 
The facility could indicate (on the schedules) the patients with other 
medical conditions that were treated and the more experienced or 
additional staff needed to treat them. The monthly staffing schedules 
should represent 12 months and coincide with the actual cost reporting 
period of the cost report submitted with the exception request.
    In Sec. 413.180 (g) and (h), we proposed to codify in regulations 
the requirement under section 1881(b)(7) of the Act that specifies that 
unless we disapprove a composite rate exception request within 60 
working days after it is filed with an intermediary, the exception is 
deemed approved. We require that intermediaries review and process all 
exception requests within 15 working days, and we process the 
exceptions within 45 working days.
    Comment: One commenter suggested that we set three levels of 
documentation for exception requests in order to reduce the amount of 
work involved in both the preparation and review of an exception 
request. These three levels of documentation would include new 
requests, renewal of an existing request with significant changes, and 
renewal of an existing request with no significant changes, 
respectively. The first level (new requests) would incorporate the 
standard currently required for all exception requests. The second 
level (renewal of an existing request) would require sufficient 
documentation to justify any additional amounts over the amount 
previously granted by HCFA but would not require documentation for 
previously justified exceptions. The third level (renewal of an 
existing request with no significant changes) would require only the 
submission of basic data and a facility certification to demonstrate 
that the situation has not changed.
    Response: We do not agree with the commenter that the exceptions 
process should be established at three different levels. Given the 
limited timeframe allowed by the Act to approve or deny an exception 
(60 working days), we do not believe it would be feasible to sort 
through three levels of requests and address the specific issues 
associated with each level. Moreover, because of the volume of 
exceptions we receive during each exception window, we are unable to 
maintain exception documentation on past windows in-house, but must 
store these files at the Federal Records Center. Retrieving records 
could significantly lengthen the time we would need to review a 
request.
    However, we agree with the commenter that requiring facilities to 
file new exception requests each time a cycle is opened may be overly 
burdensome for those facilities where no significant changes have 
occurred from the previous exception cycle. Therefore, we are providing 
(at Sec. 413.180(e)) a mechanism for a facility to request retention of 
its current exception rate. This option is only available to those 
facilities that can demonstrate that the circumstances under which 
their current exception rates were granted still apply.
    Historically, these providers have been required to prepare new 
exception request submissions for each exception

[[Page 43659]]

cycle. Almost all pediatric hospitals furnishing dialysis services that 
apply for exceptions are granted them, and the same is true for many 
isolated essential facilities. To ease the repetitive filing burden 
(and cost) for these types of facilities, we are providing for the 
continuation of prior exception amounts for qualifying facilities. 
Also, this provision would eliminate uncertainties concerning future 
payment rates.
    We note that during an earlier exception cycle that opened March 1, 
1991 and closed August 27, 1991, we allowed renal facilities a similar 
option of continuing to receive the exception payment rates approved 
during the preceding exception cycle (December 1, 1989 to May 29, 
1990).
    For each exception cycle, servicing intermediaries will inform all 
facilities by letter, 30 days prior to the effective date of a new 
exception cycle, that they can request exception payment rates approved 
during the preceding exception cycle. The facilities must then file a 
request with their servicing intermediary during the 30 days prior to 
the opening of the next exception cycle. This request should consist of 
a letter to the facility's servicing intermediary requesting the 
continuation of its previously approved exception amount. While no 
specific documentation is required with this request, the facility 
should provide enough information to adequately demonstrate that the 
circumstances under which the previous exception was granted have not 
changed. For example, for all exception requests facilities should 
document that its cost per treatment is higher than its composite 
payment rate, or if a facility is an isolated essential facility, it 
should specify that no new facilities have been established nearby. 
This request must be filed with the intermediary before the beginning 
of the exception cycle. The document must be delivered during the 
intermediary's regular business hours. Delivery of the request must be 
accomplished through a method that documents the time and date of 
receipt. A postmark or other similar mark does not serve as 
documentation of the time and date of receipt.
    The intermediary will determine whether the renal facility still 
meets the exception criteria, that is, that the circumstances under 
which the exception was granted still exist. The intermediary will be 
required to make a determination on these requests within 10 working 
days and notify the provider and HCFA. If the intermediary determines 
that the renal facility meets the exception criteria, the approved 
exception amount would be equal to the previously approved rate, and 
payment at this approved rate would continue. In cases where an 
exception cycle is opened because a rate increase has been approved by 
Congress, a facility that chooses to retain its exception rate would do 
so in lieu of any update to its composite payment rate(s).
    If the facility does not continue to meet the exception criteria, 
the intermediary will notify the facility that, effective with the 
opening of the new exception cycle, the currently approved exception 
rate will expire and the current composite rate will go into effect. If 
this facility still believes it is entitled to an exception during this 
exception cycle, it can file a complete exception request during the 
remainder of the 180-day cycle.
    If a renal facility does not request retention of its previously 
approved exception rate but still wishes an exception, the facility 
would be required to submit a new request during the new exception 
cycle. However, the approval of an exception does not assure that the 
amount would be equal to or higher than the currently approved 
exception amount. Furthermore, if the facility fails to adequately 
justify its exception request in accordance with the regulations and 
program instructions, its exception request could be denied.
    Comment: One commenter suggested that we add an inflation factor to 
the approved rate in the second and third year during which an 
exception has been granted.
    Response: A facility requesting approval of an exception to its 
composite rate must request a higher payment rate based on its 
projected budget estimate(s). Therefore, an approved exception rate 
based on projected costs would already include the inflation factor. 
The projected budget estimate(s) should cover the period to which the 
exception rate is to apply.
    Comment: Several commenters suggested that we should establish 
regularly scheduled intervals or effective dates for the opening of the 
exceptions process to avoid placing an administrative burden on the 
provider, the intermediary, and HCFA.
    Response: Currently, the exceptions process is opened each time 
there is a legislative change in the composite payment rate. In 
addition, because of the lack of any updates to the composite rates in 
recent years, we have opened the exceptions process three times without 
issuing new rates, most recently from November 1, 1993 through April 
29, 1994. Only Congress has the authority to issue new rates. Deciding 
whether to issue new rates has been driven by several factors, such as: 
(a) A review of updated ESRD audited cost and statistical data; (b) an 
analysis of the general growth and mix of the ESRD population in renal 
dialysis facilities, and (c) Congressional concerns with payment rates. 
Therefore, if new prospective payment rates are not issued by Congress, 
we will continue to determine when to open the exceptions process.
    Comment: One commenter suggested that when we open the exceptions 
process all facilities should be eligible to apply for an exception, 
rather than the limited group of facilities specified in the proposed 
rule.
    Response: In the preamble of the proposed rule, we stated that we 
had opened the exceptions process in situations where there had not 
been a rate change, permitting facilities that had received partial 
approvals, new facilities, or facilities that had been previously 
denied exceptions the chance to file for an exception. We did not mean 
to imply that the exceptions process is only open to these facilities. 
Whenever we have opened the exceptions window, all facilities have been 
permitted to apply for an exception, regardless of previous 
circumstances. However, it is only when the exception window is open 
that a facility may seek an exception. Likewise, a facility wishing to 
retain its previously approved exception rate may only do so during the 
30-day period prior to the opening of an exception cycle. We have added 
a sentence to Sec. 413.180(b) to clarify this requirement.
    Comment: One commenter pointed out that Sec. 413.180(f)(5), which 
requires the facility to provide a comparative analysis of its costs in 
the most recent cost reporting period and prior years, does not specify 
the number of prior years' data required. The commenter believed that 
in order to avoid arbitrarily denying an exception request that did not 
contain enough comparative years, we should specify the number of years 
required.
    Response: We agree with the commenter and have included language in 
Sec. 413.180(f)(5) to state that the materials submitted to us must 
include a comparative analysis of the facility's costs in its most 
recently completed cost report with reported costs from (at least 2) 
prior years.
    Comment: One commenter recommended that the regulation should 
specify the intermediary's review responsibilities during the 15 
working days it has to make a recommendation to HCFA. Another commenter 
stated that the

[[Page 43660]]

intermediary's determinations regarding ``completeness'' invite 
subjective interpretations. Both commenters suggested the 
intermediary's 15 working day timeframe should be extended.
    Response: The specific review responsibilities for intermediaries 
are detailed in Chapter 27 of the PRM. These responsibilities include: 
(a) Reviewing for completeness and accuracy the exception request, the 
cost report, the facility's projected costs, and any other 
documentation submitted by the facility to support its exception; (b) 
maintaining a composite rate exception log; (c) developing the content 
of the letter used to return an exception request to the facility; and 
(d) determining whether the facility's costs are reasonable and 
allowable. The intermediary makes the determination with respect to 
``completeness,'' and, if the renal facility fails to submit the 
documentation required by Chapter 27 of the PRM, the exception request 
is returned to the facility. Rather than specify the intermediary's 
responsibilities in the regulation, we believe the PRM is the 
appropriate place to do so. Because of the statutory deadline (section 
1881(b)(7) of the Act) that an exception request is deemed approved 
unless we disapprove it within 60 working days, and the volume of 
exceptions received during an exceptions window, we believe the present 
timeframes (15 working days for the intermediary and 45 working days 
for HCFA) for processing exceptions should be maintained in order to 
ensure that all exceptions are processed timely.
    Comment: One commenter was concerned about the implications of 
proposed Sec. 413.180(l). The commenter stated that this section 
implies that the facility must submit an entirely new exception request 
if the first request (or any subsequent request) is denied. 
Furthermore, the commenter believed that facilities should be able to 
send all additional data or clarifications directly to HCFA. The 
commenter asserted that filing an entirely new request was unnecessary.
    Response: As explained above, the intermediary has 15 working days 
to review the exception request for completeness and accuracy, and, if 
the exception request is denied because the ESRD facility did not 
submit the required documentation, the intermediary returns the 
exception request with a letter. Presently, the instructions in the PRM 
require that the entire exception request be returned when an exception 
is denied, and a new request must be submitted with the missing 
documentation.
    We agree with the commenter that, in this situation, the submission 
of an entirely new exception request is not necessary. We have revised 
the instructions in the PRM to indicate that the denial letter from the 
intermediary to the ESRD facility will include a list of missing or 
inadequate documentation and the intermediary will request only the 
submission of the missing or corrected information. However, we do not 
agree with the suggestion that the ESRD facility should provide the 
additional information directly to HCFA. Because of the volume of 
exceptions received during an exception window, administratively it 
will be more efficient to have each servicing intermediary track the 
exceptions processed through its office and review the new information 
submitted by the ESRD facility. The intermediary will then forward the 
exceptions to us in accordance with Chapter 27 of the PRM.
    Comment: One commenter suggested that because of the significant 
data gathering and analysis required for an exception, it should be 
understandable that some data elements are missed or that additional 
support or clarification may be required by the intermediary. The 
commenter suggested that providers should be permitted to submit this 
additional documentation after the 180-day period without an immediate 
exception denial. Furthermore, rate increases should be approved 
retroactively to the date that all detailed information is received.
    Response: We disagree with the commenter. An ESRD facility that 
files its exception request promptly at the opening of a 180-day 
exception period and has its exception denied would have an additional 
opportunity to submit a new request before the exception period closes. 
If a facility chooses instead to file an exception request at or near 
the end of the 180-day exception period and it is not filed with all 
required documentation, we do not believe that it is unfair to deny the 
exception request. Facilities must accept the risk associated with 
filing their exception requests at the last minute. Since the composite 
rate system is a prospective payment system, we believe that it would 
be inconsistent to grant exceptions retroactively based on the 
subsequent receipt of information.

C. Criteria for Approval of Exception Requests (Sec. 413.182)

    We proposed to redesignate the contents of Sec. 413.170(g), 
Criteria for approval of exception requests, as Sec. 413.182. In this 
section, we listed the criteria that may be the basis of a rate 
exception. These criteria are: atypical service intensity (patient mix) 
(new Sec. 413.184); isolated essential facility (new Sec. 413.186); 
extraordinary circumstances (new Sec. 413.188); self-dialysis training 
costs (new Sec. 413.190); and frequency of dialysis (new Sec. 413.192).
    We received no comments on this listing. Comments on the criteria 
themselves are discussed in the appropriate sections below.

D. Payment Exception: Atypical Service Intensity (Patient Mix) 
(Sec. 413.184)

    In the proposed rule, we specified the documentation required of a 
facility requesting a rate exception based on patient mix.
    In Sec. 413.184(b)(1), we proposed to require that a facility 
submit a list of all outpatient dialysis patients (including all home 
patients) treated during the most recently completed fiscal or calendar 
year showing:
    <bullet> Patients who received transplants, including the date of 
the transplant;
    <bullet> Patients awaiting a transplant who are medically able, 
have given consent, and are on an active transplant list, as well as 
projected transplants;
    <bullet> Home patients;
    <bullet> In-facility patients, staff-assisted or self-dialysis;
    <bullet> Individual patient diagnoses;
    <bullet> Diabetic patients;
    <bullet> Patients isolated because of a contagious disease;
    <bullet> Age of patients;
    <bullet> Mortality rate, by age and diagnosis;
    <bullet> Number of patient transfers, reasons for transfers, and 
any related information; and
    <bullet> Total number of hospital admissions for the facility's 
ESRD patients, including reason and length of stay for each admission.
    When adjudicating exception requests to determine if a substantial 
proportion of the facility's outpatient maintenance dialysis treatments 
involves more intense dialysis services and special dialysis 
procedures, we will compare the above data submitted by providers to 
data contained in our Patient Profile Tables. The information in the 
Tables is developed annually and represents information on persons with 
ESRD covered by Medicare.
    In Sec. 413.184(b)(2)(i), we proposed to require that a facility 
submit the following documentation on costs of nursing personnel 
(registered nurses (RNs), licensed practical nurses (LPNs), technicians 
and aides) incurred during the most recently completed fiscal or 
calendar year cost report showing:
    <bullet> Amount of remuneration of each employee;
    <bullet> Number of personnel;

[[Page 43661]]

    <bullet> Amount of time spent in the dialysis unit; and
    <bullet> Staff-to-patient ratio based on total hours, with an 
analysis of productive and nonproductive hours.
    The facility must demonstrate that its nursing personnel costs have 
been allocated properly between each mode of care, and that the 
additional nursing hours per treatment are not the result of an excess 
number of employees in the outpatient maintenance renal dialysis 
department. Normally, we use staff-to-patient ratios to determine 
whether there is an excess number of employees assigned to a facility's 
dialysis department; however, we also may consider staffing schedules. 
Thus, an example of the type of records that a provider should submit 
to document its higher nursing costs could consist of staffing 
schedules, indicating staff and patients per shift. The facility could 
indicate on the schedules the patients with other medical conditions 
that were treated and the more experienced or additional staff needed 
to treat them.
    When adjudicating exception requests, we will utilize the above 
data to determine if the facility's patients received significantly 
more nursing hours per treatment than patients would receive in other 
facilities and whether the facility's higher per treatment costs were 
necessitated by the special needs of the patients.
    Proposed Sec. 413.184(b)(2)(ii) included the requirement that a 
facility submit documentation on supply costs incurred during the most 
recently completed fiscal or calendar year cost report showing--
    <bullet> By modality, a complete list of supplies used routinely in 
a dialysis treatment;
    <bullet> The make and model number and component cost of each 
dialyzer; and
    <bullet> That the supplies are prudently purchased (for example, 
the facility uses bulk purchase discounts when available).
    The facility must demonstrate that excess supply cost per treatment 
is caused by the special needs of the patients and is not the result of 
inefficiency.
    When adjudicating exception requests, we will utilize the above 
data to determine if the facility's patients received supplies that are 
medically necessary to meet their special medical needs.
    Comment: One commenter believed it is an unreasonable burden to 
require facilities to submit 12 months of staffing schedules, since 
these schedules are not normally kept as permanent files and a facility 
might not be able to anticipate the opening of an exception window. The 
commenter suggested that 3 to 6 months of staffing schedules would be 
more than reasonable to sufficiently document a facility's normal 
staffing ratios.
    Response: Staffing schedules were only mentioned in the proposed 
rule as an example of the type of records a provider could submit to 
document its higher nursing costs and/or to demonstrate that there is 
not an excessive number of employees assigned to a facility's dialysis 
department. These schedules are basic source documents representing 
services rendered, and we believe that renal dialysis facilities 
maintain these schedules. We continue to believe that it is not 
unreasonable for a facility to submit 12 months of staffing schedules 
in support of its higher nursing costs. Regardless of the nature of the 
supporting documentation submitted, the facility must ensure that the 
data adequately substantiate its higher labor costs for the entire cost 
reporting year.
    Comment: One commenter wanted the meaning of ``productive and 
nonproductive hours'' clarified. The commenter was confused as to where 
activities such as educational meetings, lunch breaks, paperwork, and 
charting fit into the documentation of staff costs.
    Response: The term ``productive hours'' means the amount of paid 
nursing staff time spent on direct (hands-on) patient care and any 
hours explicitly connected to patient care, such as charting. All other 
paid nursing staff time, such as training, education, management, 
holidays, vacations, sick time, and lunch breaks, is considered 
``nonproductive hours''.
    Comment: One commenter believed that serving an atypical patient 
population could result in cost increases in areas beyond staff and 
supplies. Specifically, patients with severe cardiac complications 
might require additional monitoring equipment, and patients with 
communicable respiratory diseases (such as tuberculosis) might require 
special ventilation systems. The commenter recommended that documented 
overhead costs should be included in the calculation of a higher 
exception rate.
    Response: We agree with the commenter and have in the past approved 
exception amounts for overhead costs related to (a) special equipment 
necessary for the care of patients with other medical conditions, and 
(b) isolation areas required for the care of hepatitis or other 
patients where the facility can show that isolation is necessary. For 
these costs to be considered under this set of exception criteria, 
documentation must be submitted demonstrating the basis of the higher 
costs and the incremental impact on per treatment costs. The 
documentation must also explain how these costs relate to the atypical 
patient mix exception criteria. We have added Sec. 413.184(b)(2)(iii) 
to state that the facility must submit documentation on overhead costs 
incurred during the most recently completed cost reporting year 
showing--
    <bullet> The basis of the higher overhead costs;
    <bullet> The impact on the specific cost components; and
    <bullet> The effect on per treatment costs.
    Comment: One commenter suggested that we should publish a complete, 
detailed list of supplies used in the typical dialysis treatment, 
including the cost of those supplies and the volume of each that is 
used per treatment. The commenter recommended that the listing should 
be in the same format as we require the facilities to use. The 
commenter also stated that we must publish the components of the 
composite rate in order to allow appropriate comparisons, including the 
costs, staffing ratios, and employee mix (that is, anything that we 
deem to be essential in order to make the comparison).
    Response: When evaluating the reasonableness of a facility's 
component costs shown in its exception request, we use national data 
and general program statistics. Chapter 27 of the PRM includes our 
median cost per treatment data as follows:

------------------------------------------------------------------------
                        Cost component                           Amount 
------------------------------------------------------------------------
Salaries......................................................    $40.00
Supplies......................................................     33.00
Overhead, excluding employee benefits.........................     47.00
Overhead, including employee benefits.........................     54.00
Employee benefits.............................................      7.00
Laboratory....................................................      3.00
------------------------------------------------------------------------

    We do not maintain detailed breakdowns of the above cost 
components. The cost components were derived from audited cost reports 
of hospital-based and independent renal dialysis facilities. Therefore, 
it would be difficult for us to publish an accurate list of these 
components to use as comparisons.
    Comment: One commenter stated that where a provider had 
demonstrated that higher nursing staff costs are necessary to care for 
the sicker patients being treated, we should also recognize the higher 
amount of administrative and general (A & G) costs that will be 
allocated through the step-down process on the hospital's cost report. 
The

[[Page 43662]]

commenter also stated that since Medicare cost reporting policy 
recognizes ``accumulated cost'' as a fair and accurate basis for 
allocating A & G costs for cost reporting purposes, we must consider 
these allocated A & G costs when adjudicating ESRD exception requests.
    Response: As stated in the proposed rule, the accounting protocol 
used for cost reporting is separate and distinct from identifying the 
actual A & G costs that are directly attributable to higher nursing 
staff costs. For a hospital-based facility, if the direct cost of 
nursing staff salaries in the dialysis department increased, the A & G 
allocated to that department would automatically increase. This is the 
result of the hospital cost reporting accounting protocol, which 
requires A & G costs to be allocated on the basis of the accumulated 
costs of the other departments. Since the total A & G costs represent 
costs allocated to the dialysis department, they do not accurately 
reflect the actual A & G costs incurred as a result of the additional 
nursing staff salary costs.
    In accordance with Sec. 413.180(f)(3), a facility must submit 
materials that show that the elements of excessive costs are 
specifically attributable to one or more of the conditions specified by 
the exception criteria set forth in Sec. 413.182. According to 
Sec. 413.182, HCFA may approve exceptions to an ESRD facility's 
prospective payment rate if the facility demonstrates with convincing 
objective evidence that its total per treatment costs are reasonable 
and allowable under the relevant cost reimbursement principles of Part 
413 and its per treatment costs, in excess of its payment rate, are 
directly attributable to any of the exception criteria.
    Our regulations do not require that the same principles of cost 
allocations and cost apportionment be used to determine which costs, in 
excess of the payment rate, are directly attributable to the exception 
criteria. Moreover, a provider that is granted an exception is not 
automatically entitled to the same payment it would have received under 
cost reimbursement. The excess costs must be directly attributable to 
the exception criteria.

E. Payment Exception: Isolated Essential Facility (Sec. 413.186)

    We proposed to include the requirements of existing 
Sec. 413.170(g)(2) as new Sec. 413.186, and add documentation 
requirements for facilities that apply for a payment rate exception 
based on being an isolated essential facility.
1. Isolated Facility
    To be considered isolated, a facility must document that it is 
located outside an established Metropolitan Statistical Area (MSA) and 
provides dialysis to a permanent patient population as opposed to a 
transient patient population.
2. Essential Facility
    To be considered essential, the facility must document that a 
substantial number of its patients cannot obtain dialysis services 
elsewhere without substantial additional hardship and the additional 
hardship the patients will incur, generally, will be in travel time and 
cost.
3. Cost Per Treatment
    The facility must document that its cost per treatment is 
reasonable and explain how the facility's cost per treatment in excess 
of its composite rate relates to the isolated essential facility 
criteria. For example, if a facility incurs higher supply costs, it 
must identify the additional costs incurred on a per treatment basis 
and then relate that additional cost per treatment to the exception 
criteria.
4. Additional Information
    The facility must also furnish, in a format that concisely explains 
the facility's cost and patient data to support its request, the 
following information:
    <bullet> A list of current and requested payment rates for each 
modality.
    <bullet> An explanation of how the facility's costs in excess of 
its composite rate payment are attributable to the isolated essential 
facility criteria.
    <bullet> An explanation of any unusual geographic conditions in the 
area surrounding the facility.
    <bullet> A copy of the latest filed cost report and a budget 
estimate for the next 12 months on cost report forms.
    <bullet> An explanation of unusual costs reported on the facility's 
actual or budgeted cost reports and any significant changes in budgeted 
costs and data compared to actual costs and data reported on the latest 
filed cost report.
    <bullet> The name, location of, and distance to the nearest ESRD 
facility.
    <bullet> A list of patients, treatment modality, commuting 
distance, and commuting time to the current and next to nearest ESRD 
facility.
    <bullet> The historical and projected patient-to-staff ratios and 
number of machines used for maintenance dialysis treatments.
    <bullet> A computation of the facility's treatment capacity, 
computed by dividing the maintenance treatments actually furnished by 
the total maintenance treatments that could have been furnished (in 
other words, total stations multiplied by the number of hours of 
operation divided by the average length of dialysis) for the year.
    <bullet> The geographic boundaries and population size of the 
facility's service area.
    Comment: One commenter sought an explanation of the basis for the 
existing volume of treatment criterion (redesignated 
Sec. 413.186(b)(3)). The commenter also recommended the establishment 
of a guideline for the necessary size of a facility's permanent patient 
population and a guideline related to a facility's minimum utilization 
rate.
    Response: Facilities applying for an isolated essential facility 
exception are required to submit information with respect to the volume 
of treatments in order to permit comparisons with similar facilities 
and to determine a facility's treatment capacity. We will review the 
issue of developing guidelines for permanent patient population size 
and minimum utilization rates to determine whether it is appropriate to 
establish national guidelines.
    Comment: One commenter requested that we clarify the language in 
Sec. 413.186(b)(4) pertaining to usage of the facility ``by area 
residents other than the applying facility's patients.''
    Response: We have revised Sec. 413.186(b)(4) to specify that in 
determining whether a facility qualifies for an exception based on its 
being an isolated essential facility, we will consider the extent to 
which dialysis facilities (other than the applying facility's patients) 
are used by area residents.
    Comment: One commenter suggested that a facility could be located 
in an MSA but still be the only supplier of dialysis in its 
geographical area. The commenter recommended that Sec. 413.186(c)(1) be 
revised to prevent an otherwise ``isolated'' and ``essential'' facility 
from being automatically denied because it is located in an MSA.
    Response: We agree with the commenter that it is possible that an 
``isolated'' facility might be located in an MSA but still qualify for 
an exception based on all other criteria specified in this section. We 
are aware of several unique situations in this country where only one 
dialysis facility is located in a particular area that is considered an 
MSA. In these situations, given the characteristics associated with 
most MSAs, we look more closely at whether these facilities are truly

[[Page 43663]]

isolated (for example, increased availability of mass transportation, 
better road conditions, and stronger commuting patterns).
    Further, we are aware that sole community hospitals (SCHs) and 
isolated essential facilities are defined utilizing different criteria. 
SCHs and isolated essential facilities render distinct care, with SCHs 
responsible for normal inpatient hospital stays, and isolated essential 
facilities responsible for routine outpatient maintenance dialysis that 
can be provided by a hospital-based or independent dialysis facility. 
Also, SCHs are defined under 42 CFR Part 412--Prospective Payment 
Systems for Inpatient Hospital Services, and isolated essential 
facilities are defined under 42 CFR Part 413, subpart H--Payment for 
End-Stage Renal Disease Services. However, in one criterion, location 
in an MSA, the definitions are similar. Within this definition, an SCH 
located in an MSA is automatically disqualified from being designated 
as an SCH. Because of the differences between isolated essential 
facilities and SCHs and the fact that several isolated essential 
facilities are unique (as explained above) we are changing the 
definition for isolated essential facilities located in an MSA.
    Therefore, we are revising Sec. 413.186(c)(1) to state that to be 
considered isolated, we would generally require the facility to 
document that it is located outside an established MSA.

F. Payment Exception: Extraordinary Circumstances (Sec. 413.188)

    We proposed to redesignate existing Sec. 413.170(g)(4) as 
Sec. 413.188.
    We received no comments on this proposed change.

G. Payment Exception: Self-Dialysis Training Costs (Sec. 413.190)

    We proposed to repeat the content of existing Sec. 413.170(g)(5) in 
new Sec. 413.190(a) and to specify the documentation that we would 
require of a facility requesting a rate exception under this provision. 
We proposed to require that a facility justify its exception request by 
separately identifying those elements contributing to its costs in 
excess of the composite training rate. In adjudicating these exception 
requests, we would consider the facility's total costs, cost finding, 
and apportionment, including its allocation methodology, to determine 
if costs are properly reported by treatment modality. Exception 
requests for a higher training rate will be granted only with respect 
to those cost components relating to training such as technical staff, 
medical supplies, and the special costs of education (manuals and 
education materials). Overhead and other indirect costs do not 
generally form a basis for granting an exception for purposes of self-
dialysis training costs.
    Under Sec. 413.190(e), we proposed that the facility must provide 
the following information to support its exception request:
    <bullet> A copy of the facility's training program.
    <bullet> Computation of the facility's cost per treatment for 
maintenance and training sessions, including an explanation of the cost 
difference between the two modalities.
    <bullet> Class size and patients' training schedules.
    <bullet> Number of training sessions required, by treatment 
modality, to train patients.
    <bullet> Number of patients trained for the current year and the 
prior 2 years on a monthly basis.
    <bullet> Projection for the next 12 months of future training 
candidates.
    <bullet> Number and qualifications of staff at training sessions.
    Proposed Sec. 413.190(f) provided that an ESRD facility may bill 
Medicare for a dialysis training session only when a patient receives a 
dialysis treatment (which normally is three times a week). If an ESRD 
facility elects to train all its patients using a particular modality 
more often than during each dialysis treatment and, as a result, the 
number of actual training sessions exceeds the billable limit, the 
facility may request a composite rate adjustment limited to the lesser 
of the facility's projected training cost per treatment or calculate 
the cost per treatment using the minimum and maximum training sessions 
discussed below.
    An ESRD facility may bill a maximum of 25 training sessions per 
patient for hemodialysis training and 15 training sessions for 
continuous cycling peritoneal dialysis (CCPD) and continuous ambulatory 
peritoneal dialysis (CAPD) training. To ensure adequate patient 
training, we presume a minimum number of training sessions per patient 
in calculating exception rates, 15 for hemodialysis and 5 for CAPD and 
CCPD, where the renal facility's actual experience is less than the 
minimum number of training sessions.
    To justify an accelerated training exception request, the proposed 
rule required that an ESRD facility document that all training sessions 
provided under a particular modality are to be provided during the 
shorter but more condensed period. The facility must submit with the 
exception request a list of patients, by modality, trained during the 
most recent cost report period. The list must include each 
beneficiary's name, age, and training status (completed, not completed, 
being retrained, or in the process of being trained). The total 
treatments from the patient list must agree with the total treatments 
reported on the cost report filed with the request. We proposed to deny 
any exception request that a facility submits without the above 
documentation.
    For purposes of clarification, we have revised Sec. 413.190(f)(2) 
to state that a facility may request an exception if the facility 
elects to train its patients using a particular treatment modality more 
often than during each dialysis treatment and, as a result, the number 
of its billable training dialysis sessions is less than its actual 
training sessions.
    Comment: One commenter objected to the current criterion under 
which a facility must train at least five patients per year in order to 
qualify for a self-dialysis training exception. The commenter believed 
that establishing a minimum number of patients trained may serve as a 
disincentive for facilities to start a new home training program and 
may conflict with the requirement of section 1881(b)(7) of the Act and 
proposed Sec. 413.174(a)(3) states that our payment policies provide 
incentives for increasing the use of home dialysis.
    Response: This criterion was not addressed in the proposed rule. 
However, we do use a minimum number of three patients per modality as a 
qualifying criterion for a self-dialysis training exception. To 
determine if a facility qualifies, we use each facility's average 
number of patients trained for the 2 previous years (if 2 years are 
available). We believe each facility must have a minimum number of 
patients to ensure that it is operating an ongoing cost-effective 
training program. Based on our experience and review of this subject we 
determined the number to be three.
    Comment: One commenter suggested that the overhead and physical 
plant cost components represent real, necessary, and unavoidable 
facility costs and should be included in the calculation of training 
exception rates.
    Response: In the proposed rule at Sec. 413.190(d), we stated that 
the higher training costs do not generally include overhead and other 
indirect costs. However, we agree with the commenter that it is 
appropriate to include overhead and physical plant costs for exception 
request purposes. Therefore, we have revised this section to state that 
``the exception requests for higher training rates are limited to those 
cost components relating to training such as

[[Page 43664]]

technical staff, medical supplies, and the special costs of education 
(manuals and education materials). These requests may include overhead 
and other indirect costs to the extent that these costs are directly 
attributable to the additional training costs.''
    Comment: One commenter stated that under proposed 
Sec. 413.190(f)(1), accelerated training exceptions evidently are based 
on training sessions for hemodialysis training, since hemodialysis is 
normally furnished three times a week. The commenter believed the 
regulations should also provide for exceptions for accelerated training 
associated with CAPD or CCPD, which are typically daily treatment 
modalities.
    Response: The proposed rule may not have been clear with respect to 
exceptions related to CAPD and CCPD training. Although CAPD and CCPD 
are daily treatment modalities, ESRD facilities are paid for training 
sessions based on the equivalent of three hemodialysis treatments a 
week for each week that CAPD and CCPD treatments are provided. 
Accordingly, we are revising Sec. 413.190(f)(1) to specify the basis 
for payment of training sessions for CAPD and CCPD patients. Thus, 
exceptions for accelerated training are considered for each modality 
(including CAPD and CCPD) based on the number of actual training 
sessions in excess of billable training sessions (three per week).
    Comment: One commenter objected to our proposed requirement that 
every training session for a particular modality be provided during the 
shorter, but more condensed, training period.
    Response: We have revised proposed Sec. 413.190(f)(5) to change the 
requirement that ``all'' training sessions be provided on an 
accelerated basis and are instead requiring that an ESRD facility must 
show that ``a significant number of training sessions for a particular 
modality are provided during a shorter, but more condensed, period.'' 
Based on our experience and review of this subject we determined that 
80 percent represents a significant number of training sessions.

H. Payment Exception: Frequency of Dialysis (Sec. 413.192)

    We proposed to redesignate Sec. 413.170(g)(6) as Sec. 413.192 and 
add several new requirements as discussed below.
    Existing Sec. 412.170(g)(6) specifies that, to qualify for an 
exception to the prospective payment rate based on frequency of 
dialysis, the facility must have a substantial portion of outpatient 
maintenance dialysis treatments furnished to patients who dialyze less 
frequently than three times per week. A facility that furnishes a 
substantial portion of outpatient maintenance dialysis services to 
patients who dialyze less frequently than three times per week 
typically has higher costs per treatment because the treatments that 
are furnished to these patients last longer and involve higher labor 
and supply costs. For a facility to qualify as having a substantial 
portion of outpatient maintenance dialysis treatments furnished to 
patients who dialyze less frequently than three times per week, a 
facility must be able to document that it has a decrease in treatments 
in excess of 15 percent and cost increases due to frequency.
    To document that it furnishes a substantial number of dialysis 
treatments at a frequency of less than three times per week, we 
proposed that a facility must submit a list of patients who received 
outpatient dialysis treatments for the latest historical cost report 
that is being filed with the request. The list must indicate--
    <bullet> Whether the patients are permanent, transient (vacationing 
patients or frequently relocating patients), or temporary;
    <bullet> The medically prescribed frequency of dialysis; and
    <bullet> The number of dialysis treatments that each patient 
received on a weekly and yearly basis and an explanation of any 
discrepancy between that calculation and the number of treatments 
reported on the facility's cost report.
    We also proposed that the facility must submit a list of patients 
used to project treatments. The list must indicate--
    <bullet> Whether the patients are permanent, transient, or 
temporary;
    <bullet> The medically prescribed frequency of dialysis; and
    <bullet> The number of dialysis treatments that each patient is 
projected to receive on a weekly and yearly basis, an explanation of 
any discrepancy between that calculation and the number of treatments 
reported on the facility's projected cost report, and an explanation 
for any change between prior, actual, and projected data.
    In order for us to determine if the facility meets the 15 percent 
requirement discussed above, the following information must be 
submitted:
    <bullet> A schedule showing the number of treatments to be 
furnished twice a week and the number of treatments that would have 
been furnished if each beneficiary were dialyzed three times a week, 
including a computation of the facility's projected cost per treatment 
using projected treatments based on the twice a week calculation and 
the three times a week calculation.
    <bullet> A schedule showing the computation of the percentage 
decrease in the number of treatments, which must be at least 15 percent 
to be deemed substantial for approval of an exception.
    We received no comments on these proposed provision.

I. Appeals (Sec. 413.194)

    We proposed to redesignate existing Sec. 413.170(h) as 
Sec. 413.194. In addition, we proposed to specify that exhaustion of 
administrative remedies is a prerequisite for judicial review.
    We did not receive any comments on these proposed changes.

J. Notification of Changes in Rate-Setting Methodologies and Payment 
Rates (Sec. 413.196)

    We proposed to redesignate existing Sec. 413.170(i) as Sec. 413.196 
with only coding and editorial changes.
    We did not receive any comments on these proposed changes.

K. Recordkeeping and Cost Reporting Requirements for Outpatient 
Maintenance Dialysis (Sec. 413.198)

    We proposed to redesignate existing Sec. 413.174 as Sec. 413.198.
    We did not receive any comments on this proposed change.

L. Organ Acquisition Costs (Sec. 412.113)

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

[[Page 43665]]

kidney acquisition costs, which more accurately accounts for Medicare's 
portion of such costs, including organ wastage. The formula for payment 
for kidney acquisition is specified in existing Sec. 413.179. We also 
proposed to revise the heading in paragraph (d) of this section by 
replacing the terms ``heart, kidney, liver, and lung'' with ``organ'' 
and revising the cross-reference to indicate that ``organs are defined 
in Sec. 486.302.''
    In the August 26, 1994 proposed rule, we made the following 
specific proposals:
1. Payment to Independent Organ Procurement Organizations (OPOs) and 
Histocompatibility Laboratories
    We proposed to redesignate existing Sec. 413.178 as Sec. 413.200. 
In proposed Sec. 413.200(b), we revised the definition of 
``freestanding'' to provide that an OPO or a histocompatibility 
laboratory is freestanding unless it--
    <bullet> Is subject to the control of the hospital with regard to 
the hiring, firing, training, and paying of employees; and
    <bullet> Is considered as a department of the hospital for 
insurance purposes (including malpractice insurance, general liability 
insurance, worker's compensation insurance, and employee retirement 
insurance).
    We also proposed to remove from the definition of ``freestanding'' 
the requirement that hospital-based OPOs service a single transplant 
center. Section 4009(g) of the Omnibus Budget Reconciliation Act of 
1987 (Public Law 100-203) required that OPOs be designated by Medicare 
to include no more than one OPO per service area. As the certification 
process limited only one OPO to an area and some of the OPOs were 
hospital-based, limiting the OPO's responsibility to a single 
transplant center became impractical. An OPO (whether independent or 
hospital-based) is required to service all transplant centers in its 
area. Accordingly, a hospital-based OPO may not necessarily service a 
single transplant center.
    We received no comments on this proposed revision.
2. OPO or Transplant Center Costs for Kidneys Sent to Foreign Countries 
or Transplanted in Patients Other Than Medicare Beneficiaries
    We proposed to redesignate existing Sec. 413.179 as Sec. 413.202 
with the changes discussed below.
    We proposed to expand the applicability of redesignated 
Sec. 413.202 to include hearts, livers, and lungs by making it apply to 
``organs'' instead of ``kidneys.'' We believed that this revision would 
result in a more reasonable determination of Medicare heart, liver, and 
lung acquisition costs because the formula for determining kidney 
acquisition costs more fairly accounts for Medicare's portion of such 
costs, including organ wastage. We cross referred Sec. 412.113 to 
Sec. 413.202 to ensure proper cost determination.
    Comment: Several commenters asserted that substituting the term 
``organs'' for ``kidneys'' in redesignated Sec. 413.202 inappropriately 
imposed the revised methodology for determining Medicare's share of 
heart, liver, and lung acquisition costs on OPOs. They argued that OPOs 
do not have the data necessary to allocate organs between Medicare and 
non-Medicare patients.
    Response: We agree with the commenters that substituting the term 
``organs'' for ``kidneys'' would impose the revised methodology for 
determining Medicare's share of heart, liver, and lung acquisition 
costs on OPOs. Our intention in the proposed notice was to revise the 
methodology for Medicare transplant centers, but the proposed revision 
of redesignated Sec. 413.202 inadvertently applied to OPOs as well. 
Therefore, we have returned to the original language in redesignated 
Sec. 413.202 by resubstituting ``kidneys'' for ``organs'' and removing 
any reference to transplant centers; however, this section is now only 
applicable to OPOs. To account for all organs acquired by all 
transplant centers, we have added Sec. 413.203. In addition, we have 
specified that the term ``organs'' is defined in Sec. 486.302.
    Comment: Several commenters suggested that the payment method that 
we proposed to apply to heart, liver, and lung acquisition costs is not 
always accurate. The number of Medicare beneficiaries awaiting kidneys 
and receiving ancillary pretransplant services could be greater or less 
than the percentage of Medicare beneficiaries ultimately receiving 
transplants. The commenters suggested revising Supplemental Worksheet 
D-6 (HCFA Form 2552), so that the kidney acquisition ancillary charges 
can be segregated into two columns, one for Medicare beneficiary 
services and another for the non-Medicare patients, thereby assuring 
that the appropriate ancillary service costs for each payer group could 
be accurately identified. The other direct kidney acquisition costs 
such as the kidney itself, transportation costs, etc., flowing through 
the step-down process could be determined based on the ratio of usable 
kidneys transplanted into Medicare and non-Medicare patients. The 
commenters believed that this approach would ensure that we would not 
be in violation of the requirement under section 1861(v)(1)(A) of the 
Act that the costs of services be borne by the appropriate payer.
    Response: We will consider the suggested ancillary cost report 
revisions during our next review of Supplemental Worksheet D-6.

M. Payment for Erythropoietin/Epoietin (EPO) (Sec. 413.174(f))

    Erythropoietin (EPO) is an anti-anemia drug given to dialysis 
patients with a specified level of anemia. Payments to ESRD facilities 
for EPO are based on increments of 1,000 unit doses, rounded to the 
nearest 100 units. Section 13566 of the Omnibus Budget Reconciliation 
Act of 1993 (Public Law 103-66) amended section 1881(b)(11)(B)(ii) of 
the Act to reduce the maximum payment for EPO from $11 to $10 per 1,000 
units. HCFA may adjust this amount, as appropriate, within stated 
limits. Existing Sec. 413.170(c)(6)(iii)(B) provides for annual 
publication of a Federal Register notice indicating whether an update 
in the EPO payment amount is appropriate and requesting public comment. 
We proposed to revise Sec. 413.174(f) to add the statutory reference 
and to state that we would only publish a Federal Register notice 
proposing a revision to the EPO payment amount when we determine that 
an adjustment to the payment amount is necessary. We would no longer 
publish an annual notice.
    Comment: One commenter supported our proposal to eliminate the 
requirement to publish an annual notice regarding EPO payment when 
there is no payment change. However, the commenter objected to the 
provision under proposed Sec. 413.174(f)(3)(iii) that limited any EPO 
payment increases to the percentage increase in the implicit price 
deflator for the gross national product. The commenter believed that 
this provision is unfair to ESRD providers because the providers cannot 
control the cost of EPO. The commenter noted that other drugs given to 
dialysis patients are reimbursed based on acquisition costs or 
wholesale prices, or both.
    Response: Proposed Sec. 413.174(f)(3)(iii) is merely a 
redesignation of existing Sec. 413.170(c)(6)(iii)(c). This provision is 
mandated by section 1881(b)(11)(B)(ii)(II) of the Act, which gives the 
Secretary authority to adjust the EPO payment rate (beginning in 1995), 
but limits the amount of any payment increase. Since this requirement 
is statutorily mandated, we do not have the authority to eliminate

[[Page 43666]]

this provision. However, in assessing the need for an adjustment to the 
EPO payment rate, we would consider the actual costs incurred by ESRD 
facilities for EPO. If we determined that the payment limit set by 
statute is inadequate to ensure access to EPO by Medicare 
beneficiaries, we would seek a legislative change.

N. Bad Debts (Sec. 413.178)

    In the proposed rule, we proposed to redesignate existing 
Sec. 413.178 as Sec. 413.200 and move the requirements of existing 
Sec. 413.170(e) to new Sec. 413.178. New Sec. 413.178 will cover the 
proceedings for payment and reimbursement of bad debts.
    Comment: One commenter suggested that the language in proposed 
Sec. 413.178, implies that ESRD facilities can be reimbursed for all 
Medicare bad debts incurred for all covered services provided. The 
commenter contended that past policy had allowed reimbursement for 
Medicare bad debts incurred in the provision of ``composite rate'' 
dialysis services only. Therefore, the commenter recommended that the 
wording be modified to clarify that only bad debts related to composite 
rate services are subject to reimbursement.
    Response: We have not made any changes to our existing bad debt 
policy. Medicare bad debts for ESRD services (that is, services covered 
under the composite rate) will continue to be determined by calculating 
a facility's unrecovered reasonable costs, which represent the 
difference between a facility's total Medicare revenues (including 
beneficiaries' payments) and Medicare total reasonable costs. Payment 
for allowable bad debts is limited to the lesser of the unrecovered 
reasonable costs or the total of Medicare uncollectible deductibles and 
coinsurance. An example can be found in chapter 27 of the PRM. We 
reimburse each facility its allowable Medicare bad debts in a single 
lump sum payment after the facility's cost reporting period ends. As 
the commenter suggested, we have revised Sec. 413.178(c) to clarify, 
consistent with our longstanding policy, that reimbursement for bad 
debts is available only for covered services under the composite rate.

IV. Provisions of Final Regulations

    As discussed above, we have considered the public comments received 
on the August 26, 1994 proposed rule and we are adopting that rule as 
final with the following modifications:
    <bullet> In Sec. 413.178(c), we state that a facility must request 
payment for uncollectible deductible and coinsurance amounts owed by 
beneficiaries by submitting an itemized list of all specific 
uncollectable amounts related to covered services under the composite 
rate.
    <bullet> We have added a sentence to Sec. 413.180(b) to clarify the 
requirement that a facility wishing to retain its previously approved 
exception rate may only do so during the 30-day period prior to the 
opening of an exception cycle.
    <bullet> We have added Sec. 413.180(e) to state that a facility may 
elect to retain its previously approved exception rate in lieu of any 
composite rate increase or any other exception amount if--
    (1) The conditions under which the exception was granted have not 
changed;
    (2) The facility files a request to retain the rate with its fiscal 
intermediary during the 30-day period before the opening of an 
exception cycle; and
    (3) The request is approved by the fiscal intermediary.
    <bullet> We specify in Sec. 413.180(f)(5) that the facility must 
compare its most recently completed cost report with cost reports from 
``(at least 2)'' prior years.
    <bullet> We have added new Sec. 413.184(b)(2)(iii), stating that 
the facility must submit documentation on overhead costs incurred 
during the most recently completed fiscal or calendar year cost report 
showing the basis of the higher overhead costs, the impact on the 
specific cost components, and the effect on per treatment costs.
    <bullet> We have revised Sec. 413.186(b)(4) to clarify that in 
determining whether a facility qualifies for an exception based on its 
being an isolated essential facility, we consider other dialysis 
facility usage by area residents (other than the applying facility's 
patients).
    <bullet> We have revised Sec. 413.186(c)(1) to state that to be 
considered isolated, ``generally'' a facility is located outside an 
established MSA and provides dialysis to a permanent patient 
population.
    <bullet> In Sec. 413.190(d), we have specified that an exception 
request for a higher training rate may include overhead and other 
indirect costs to the extent that these costs are directly attributable 
to the additional training costs.
    <bullet> In Sec. 413.190(f)(1), we have added language to state 
that although CCPD and CAPD are daily treatment modalities, ESRD 
facilities are paid the equivalent of three hemodialysis training 
treatments for each week that CAPD and CCPD training treatments are 
provided.
    <bullet> We have revised Sec. 413.190(f)(2) to state that a 
facility may request an exception if the facility elects to train its 
patients using a particular treatment modality more often than during 
each dialysis treatment and, as a result, the number of its billable 
training dialysis sessions is less than its actual training sessions.
    <bullet> We have revised Sec. 413.190(f)(5) to state that, to 
justify an accelerated training exception request, an ESRD facility 
must document that a ``significant number of'' training sessions, 
rather than ``all'' sessions for a particular modality are provided 
during a shorter but more condensed period.
    <bullet> In redesignated Sec. 413.198, we have revised the cross-
references.
    <bullet> We have made several changes related to organ acquisition 
costs.
    + In Sec. 412.113(d), we revised the paragraph heading, and 
replaced the terms ``heart, kidney, liver, and lung'' with ``organ''. 
We also revised the cross-reference to indicate that ``organs are 
defined in Sec. 485.12''.
    + In Sec. 413.202, we revised the section title and made other 
technical changes.
    + We added a new Sec. 413.203 that specifies the transplant 
centers' costs for organs sent to foreign countries or transplanted in 
patients other than Medicare beneficiaries.
    <bullet> We also have made minor technical changes to the 
regulation text for readability and ease of use.

V. Impact Statement

    HCFA has examined the impacts of this final rule as required by 
Executive Order 12866 and the Regulatory Flexibility Act (Public Law 
96-354). Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, when regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects; distributive impacts; and equity. The Regulatory Flexibility 
Act requires agencies to analyze options for regulatory relief for 
small businesses. For purposes of the RFA, States and individuals are 
not considered small entities. We do consider all hospitals and ESRD 
facilities as small entities.
    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. Such 
an analysis must conform to the provisions of section 604 of the RFA. 
For purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 50 beds.

[[Page 43667]]

A. Payment Exception Requests

    The purpose of this portion of this final rule is generally to 
codify in regulations existing policy concerning an ESRD facility's 
request for an exception to its prospectively determined payment rate. 
This policy is contained in chapter 27 of the PRM. This final rule 
affects all ESRD facilities, including hospital-based and freestanding, 
that file a request for an ESRD exception.
    Our records indicate that as of December 31, 1994, there were 2,526 
renal dialysis facilities, all of which were eligible to file exception 
requests. Of these, 377 or 15 percent of the facilities filed exception 
requests during our most recent exception cycle, November 1, 1993 to 
April 29, 1994. Of these requests, 293 facilities were granted 
exceptions (mostly partially granted), and 84 were denied.
    Currently, a facility whose request is granted only partially or is 
denied an exception may appeal this determination to the PRRB. The PRRB 
is bound by the statute and regulations but not by program 
instructions; thus, it may come to a different conclusion than if it 
followed program instructions. Codifying in regulations details now 
found in the PRM instructions will bind the PRRB to more specific bases 
for adjudicating an appeal of a partially denied or denied exception 
request.

B. Organ Acquisition Costs

    In 1994, there were 72 hospitals certified to perform heart 
transplants, and 40 hospitals certified to perform liver transplants. 
These hospitals constitute less than 2 percent of all Medicare-
participating hospitals. In 1994, there were 381 heart transplants and 
283 liver transplants performed on Medicare beneficiaries. Although the 
number of Medicare transplants represents 10 percent of the total 
number of heart and liver transplants, a preliminary review of cost 
report data indicates the average Medicare acquisition cost per heart 
and liver is higher than the average non-Medicare acquisition cost. We 
believe that the current method of cost reimbursement contains the 
potential for transplant centers to include some non-Medicare costs in 
the Medicare costs.
    This final rule extends the formula used to compute kidney 
acquisition costs to other organs, including hearts, livers, and lungs. 
Acquisition costs will be based on the ratio of the number of usable 
organs transplanted into Medicare beneficiaries to the total overall 
number of usable organs. This ratio will not affect our obligation to 
pay allowable organ acquisition costs, but will prevent Medicare from 
bearing costs associated with non-Medicare procedures. Based on the 
number of Medicare organ transplants, we anticipate annual Medicare 
program savings associated with this provision of less than $5 million. 
Facilities that have been correctly reporting non-Medicare acquisition 
costs will not be affected by this rule. Facilities that have not will 
find their Medicare payments reduced to better reflect Medicare's share 
of allowable acquisition costs.
    We are not preparing analyses for either the RFA or section 1102(b) 
of the Act because we have determined and certify that this final rule 
will not have a significant economic impact on a substantial number of 
small entities or a significant impact on the operations of a 
substantial number of small rural hospitals.
    In accordance with the provisions of Executive Order 12866, this 
final rule was not reviewed by the Office of Management and Budget.

VI. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, agencies are required to 
provide 60-day notice in the Federal Register and solicit public 
comments 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> Whether the information collection is necessary and useful 
to carry out the proper functions of the agency;
    <bullet> The accuracy of the agency's estimate of the information 
collection burden;
    <bullet> The quality, utility, and clarity of the information to be 
collected; and
    <bullet> Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    The information collection requirements (42 CFR 413.178, 413.180, 
413.182, 413.184, 413.186, 413.188, 413.190, 413.192, and 413.194) 
associated with requiring ESRD facilities to provide documentation for 
payment exception requests are currently approved by OMB under 0938-
0296, HCFA-9044, that expires on May 31, 1998.

List of Subjects

42 CFR Part 412

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

42 CFR Part 413

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

42 CFR Part 414

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

    42 CFR Chapter IV is amended as set forth below:
    A. Part 412 is amended as follows:

PART 412--PROSPECTIVE PAYMENT SYSTEMS FOR INPATIENT HOSPITAL 
SERVICES

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

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

Subpart H--Payments to Hospitals Under the Prospective Payment Systems

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


Sec. 412.113  Other payments.

* * * * *
    (d) Organ acquisition. Payment for organ acquisition costs incurred 
by hospitals with approved transplantation centers is made on a 
reasonable cost basis. The term ``Organs'' is defined in Sec. 486.302 
of this chapter.
    B. Part 413 is amended as follows:

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

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

    Authority: Secs. 1102, 1861(v)(1)(a), and 1871 of the Social 
Security Act as amended (42 U.S.C. 1302, 1395x(v)(1)(A), and 
1395hh).

    2. Subpart H is revised to read as follows:

[[Page 43668]]

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

Sec.
413.170  Scope.
413.172  Principles of prospective payment.
413.174  Prospective rates for hospital-based and independent ESRD 
facilities.
413.176  Amount of payments.
413.178  Bad debts.
413.180  Procedures for requesting exceptions to payment rates.
413.182  Criteria for approval of exception requests.
413.184  Payment exception: Atypical service intensity (patient 
mix).
413.186  Payment exception: Isolated essential facility.
413.188  Payment exception: Extraordinary circumstances.
413.190  Payment exception: Self-dialysis training costs.
413.192  Payment exception: Frequency of dialysis.
413.194  Appeals.
413.196  Notification of changes in rate-setting methodologies and 
payment rates.
413.198  Recordkeeping and cost reporting requirements for 
outpatient maintenance dialysis.
413.200  Payment of independent organ procurement organizations and 
histocompatibility laboratories.
413.202  Organ procurement organization (OPO) cost for kidneys sent 
to foreign countries or transplanted in patients other than Medicare 
beneficiaries.
413.203  Transplant center costs for organs sent to foreign 
countries or transplanted in patients other than Medicare 
beneficiaries.


Sec. 413.170  Scope.

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


Sec. 413.172  Principles of prospective payment.

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


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

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

[[Page 43669]]

directly to the ESRD facility. The facility must accept the allowance 
determined by HCFA as payment in full. Payment for these drugs is made 
as follows:
    (1) Hospital-based facilities. HCFA makes payments in accordance 
with the cost reimbursement rules set forth in this part.
    (2) Independent facilities. HCFA makes payment in accordance with 
the methodology set forth in Sec. 405.517 of this chapter for paying 
for drugs that are not paid on a cost or prospective payment basis.


Sec. 413.176  Amount of payments.

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


Sec. 413.178  Bad debts.

    (a) HCFA will reimburse each facility its allowable Medicare bad 
debts, as defined in Sec. 413.80(b), up to the facility's costs, as 
determined under Medicare principles, in a single lump sum payment at 
the end of the facility's cost reporting period.
    (b) A facility must attempt to collect deductible and coinsurance 
amounts owed by beneficiaries before requesting reimbursement from HCFA 
for uncollectible amounts. Section 413.80 specifies the collection 
efforts facilities must make.
    (c) A facility must request payment for uncollectible deductible 
and coinsurance amounts owed by beneficiaries by submitting an itemized 
list that specifically enumerates all uncollectable amounts related to 
covered services under the composite rate.


Sec. 413.180  Procedures for requesting exceptions to payment rates.

    (a) Outpatient maintenance dialysis payments. All payments for 
outpatient maintenance dialysis furnished at or by facilities are made 
on the basis of prospective payment rates.
    (b) Criteria for requesting an exception. If a facility projects on 
the basis of prior year costs and utilization trends that it will have 
an allowable cost per treatment higher than its prospective rate set 
under Sec. 413.174, and if these excess costs are attributable to one 
or more of the factors in Sec. 413.182, the facility may request, in 
accordance with paragraph (d) of this section, that HCFA approve an 
exception to that rate and set a higher prospective payment rate. 
However, a facility may only request an exception or seek to retain its 
previously approved exception rate when authorized under the conditions 
specified in paragraphs (d) and (e) of this section.
    (c) Application of deductible and coinsurance. The higher payment 
rate is subject to the application of deductible and coinsurance in 
accordance with Sec. 413.176.
    (d) Payment rate exception request. A facility must request an 
exception to its payment rate within 180 days of--
    (1) The effective date of its new composite payment rate(s);
    (2) The effective date that HCFA opens the exceptions process; or
    (3) The date on which an extraordinary cost-increasing event 
occurs, as specified (or provided for) in Secs. 413.182(c) and 413.188.
    (e) Criteria for retaining a previously approved exception rate. A 
facility may elect to retain its previously approved exception rate in 
lieu of any composite rate increase or any other exception amount if--
    (1) The conditions under which the exception was granted have not 
changed;
    (2) The facility files a request to retain the rate with its fiscal 
intermediary during the 30-day period before the opening of an 
exception cycle; and
    (3) The request is approved by the fiscal intermediary.
    (f) Documentation for a payment rate exception request. If the 
facility is requesting an exception to its payment rate, it must submit 
to HCFA its most recently completed cost report as required under 
Sec. 413.198 and whatever statistics, data, and budgetary projections 
as determined by HCFA to be needed to adjudicate each type of 
exception. HCFA may audit any cost report or other information 
submitted. The materials submitted to HCFA must--
    (1) Separately identify elements of cost contributing to costs per 
treatment in excess of the facility's payment rate;
    (2) Show that the facility's costs, including those costs that are 
not directly attributable to the exception criteria, are allowable and 
reasonable under the reasonable cost principles set forth in this part;
    (3) Show that the elements of excessive cost are specifically 
attributable to one or more conditions specified in Sec. 413.182;
    (4) Specify the amount of additional payment per treatment the 
facility believes is required for it to recover its justifiable excess 
costs; and
    (5) Specify that the facility has compared its most recently 
completed cost report with cost reports from (at least 2) prior years. 
The facility must explain any material statistical data or cost 
changes, or both, and include an explanation with the documentation 
supporting the exception request.
    (g) Completion of requirements and criteria. The facility must 
demonstrate to HCFA's satisfaction that the requirements of this 
section and the criteria in Sec. 413.182 are fully met. The burden of 
proof is on the facility to show that one or more of the criteria are 
met and that the excessive costs are justifiable under the reasonable 
cost principles set forth in this part.
    (h) Approval of an exception request. An exception request is 
deemed approved unless it is disapproved within 60 working days after 
it is filed with its intermediary.
    (i) Determination of an exception request. In determining the 
facility's payment rate under the exception process, HCFA excludes all 
costs that are not reasonable or allowable under the reasonable cost 
principles set forth in this part.
    (j) Period of approval: Payment exception request. Except for 
exceptions approved under Secs. 413.180(e), 413.180(k), 413.182(c), and 
413.188, a prospective exception payment rate approved by HCFA applies 
for the period from the date the complete exception request was filed 
with its intermediary until the earlier of the--
    (1) Date the circumstances justifying the exception rate no longer 
exist; or
    (2) End of the period during which the announced rate was to apply.
    (k) Period of approval: Payment exception request under 
Secs. 413.182(c) and 413.188. A prospective exception payment rate 
approved by HCFA under Secs. 413.182(c) and 413.188 applies from the 
date of the extraordinary event until the end of the period during 
which the prospective announced rate was to apply, unless HCFA 
determines that another date is more appropriate. If HCFA does not 
extend the exception period and the facility believes that it continues 
to require an exception to its rate, the facility must reapply in 
accordance with the procedures in this section.
    (l) Denial of an exception request. HCFA denies exception requests 
submitted without the documentation specified in Sec. 413.182 and the 
applicable regulations cited there.

[[Page 43670]]

    (m) Criteria for refiling a denied exception request. A facility 
that has been denied an exception request during the 180 days may file 
another exception request if all required documentation is filed with 
the intermediary by the 180th day.


Sec. 413.182  Criteria for approval of exception requests.

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


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

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


Sec. 413.186  Payment exception: Isolated essential facility.

    (a) Qualifications. To qualify for an exception to the prospective 
payment rate based on being an isolated essential facility--
    (1) The facility must be the only supplier of dialysis in its 
geographical area;
    (2) The facility's patients must be unable to obtain dialysis 
services elsewhere without substantial additional hardship; and
    (3) The facility's excess costs must be justifiable.
    (b) Criteria for determining qualifications. In determining whether 
a facility qualifies for an exception based on its being an isolated 
essential facility, HCFA considers--
    (1) Local, permanent residential population density;
    (2) Typical local commuting distances from medical services;
    (3) Volume of treatments; and
    (4) The extent that other dialysis facilities are used by area 
residents (other than the applying facility's patients).
    (c) Documentation. (1) Isolated. Generally, to be considered 
isolated, the facility must document that it is located outside an 
established Metropolitan Statistical Area and provides dialysis to a 
permanent patient population, as opposed to a transient patient 
population.
    (2) Essential. To be considered essential, the facility must 
document--
    (i) That a substantial number of its patients cannot obtain 
dialysis services elsewhere without additional hardship; and
    (ii) The additional hardship the patients will incur in travel time 
and cost.
    (3) Cost per treatment. The facility must--
    (i) Document that its cost per treatment is reasonable; and
    (ii) Explain how the facility's cost per treatment in excess of its 
composite rate relates to the isolated essential facility criteria 
specified in paragraph (b) of this section.
    (4) Additional information. The facility must also furnish the 
following information in a format that concisely explains the 
facility's cost and patient data to support its request:
    (i) A list of current and requested payment rates for each 
modality.
    (ii) An explanation of how the facility's costs in excess of its 
composite rate payment are attributable to its being an isolated 
essential facility.

[[Page 43671]]

    (iii) An explanation of any unusual geographic conditions in the 
area surrounding the facility.
    (iv) A copy of the latest filed cost report and a budget estimate 
for the next 12 months prepared on cost report forms.
    (v) An explanation of unusual costs reported on the facility's 
actual or budgeted cost reports and any significant changes in budgeted 
costs and data compared to actual costs and data reported on the latest 
filed cost report.
    (vi) The name, location of, and distance to the nearest renal 
dialysis facility.
    (vii) A list of patients by modality showing commuting distance and 
time to the current and the next nearest renal dialysis facility.
    (viii) The historical and projected patient-to-staff ratios and 
number of machines used for maintenance dialysis treatments.
    (ix) A computation showing the facility's treatment capacity, 
arrived at by taking the total stations multiplied by the number of 
hours of operation for the year divided by the average length of a 
dialysis treatment.
    (x) The geographic boundaries and population size of the facility's 
service area.


Sec. 413.188  Payment exception: Extraordinary circumstances.

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


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

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


Sec. 413.192  Payment exception: Frequency of dialysis.

    (a) Qualification. To qualify for an exception to the prospective 
payment rate based on frequency of dialysis, the facility must 
establish that it has a substantial portion of outpatient maintenance 
dialysis treatments furnished to patients who dialyze less frequently 
than three times per week.
    (b) Definition. For purposes of this section, ``substantial'' means 
the number of treatments furnished by the facility is at least 15 
percent lower than the number would be if all patients dialyzed three 
times a week.
    (c) Limitation for per treatment payment rates. Per treatment 
payment rates granted under this exception may not exceed the amount 
that produces weekly payments per patient equal to three times the 
facility's prospective composite rate, exclusive of any exception 
amounts.
    (d) Documentation. To document that an ESRD facility furnishes a 
substantial number of dialysis treatments at a frequency less than 
three times per week per patient, the facility must submit the 
following information:
    (1) A list of patients receiving outpatient dialysis treatments for 
the

[[Page 43672]]

cost report that is filed with the request. The list must indicate--
    (i) Whether the patients are permanent, transient, or temporary;
    (ii) The medically prescribed frequency of dialysis; and
    (iii) The number of dialysis treatments that each patient received 
on a weekly and yearly basis and an explanation of any discrepancy 
between that calculation and the number of treatments reported on the 
facility's cost report.
    (2) A list of patients used to project treatments. The list must 
indicate--
    (i) Whether the patients are permanent, transient, or temporary;
    (ii) The medically prescribed frequency of dialysis;
    (iii) The number of dialysis treatments that each patient is 
projected to receive on a weekly and yearly basis, an explanation of 
any discrepancy between that calculation and the number of treatments 
reported on the facility's projected cost report, and an explanation 
for any change among prior, actual, and projected data.
    (3) A schedule showing the number of treatments to be furnished 
twice a week and the number of treatments that would have been 
furnished if each patient were dialyzed three times a week.
    (4) A computation of the facility's projected costs per treatment 
using the--
    (i) Projected number of treatments furnished twice a week; and
    (ii) Number of treatments if patients dialyze three times a week.
    (5) A schedule showing the computation of the percentage decrease 
in the number of treatments.


Sec. 413.194  Appeals.

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


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

    (a) HCFA or the facility's intermediary notifies each facility of 
changes in its payment rate. This notice includes changes in individual 
facility payment rates resulting from corrections or revisions of 
particular geographic labor cost adjustment factors.
    (b) Changes in payment rates resulting from incorporation of 
updated cost data or general revisions of geographic labor cost 
adjustment factors are announced by notice published in the Federal 
Register without opportunity for prior comment. Revisions of the rate-
setting methodology are published in the Federal Register in accordance 
with the Department's established rulemaking procedures.


Sec. 413.198  Recordkeeping and cost reporting requirements for 
outpatient maintenance dialysis.

    (a) Purpose and Scope. This section implements section 
1881(b)(2)(B)(i) of the Act by specifying recordkeeping and cost 
reporting requirements for ESRD facilities approved under subpart U of 
part 405 of this chapter. The records and reports will enable HCFA to 
determine the costs incurred in furnishing outpatient maintenance 
dialysis as defined in Sec. 413.170(a).
    (b) Recordkeeping and reporting requirements. (1) Each facility 
must keep adequate records and submit the appropriate HCFA-approved 
cost report in accordance with Secs. 413.20 and 413.24, which provide 
rules on financial data and reports, and adequate cost data and cost 
finding, respectively.
    (2) The cost reimbursement principles set forth in this part 
(beginning with Sec. 413.134, Depreciation, and excluding the 
principles listed in paragraph (b)(4) of this section), apply in the 
determination and reporting of the allowable cost incurred in 
furnishing outpatient maintenance dialysis treatments to patients 
dialyzing in the facility, or incurred by the facility in furnishing 
home dialysis service, supplies, and equipment.
    (3) Allowable cost is the reasonable cost related to dialysis 
treatments. Reasonable cost includes all necessary and proper expenses 
incurred by the facility in furnishing the dialysis treatments, such as 
administrative costs, maintenance costs, and premium payments for 
employee health and pension plans. It includes both direct and indirect 
costs and normal standby costs. Reasonable cost does not include costs 
that--
    (i) Are not related to patient care for outpatient maintenance 
dialysis;
    (ii) Are for services or items specifically not reimbursable under 
the program;
    (iii) Flow from the provision of luxury items or servicess (items 
or services substantially in excess of or more expensive than those 
generally considered necessary for the provision of needed health 
services); or
    (iv) Are found to be substantially out of line with other 
institutions in the same area that are similar in size, scope of 
services, utilization, and other relevant factors.
    (4) The following principles of this part do not apply in 
determining adjustments to allowable costs as reported by ESRD 
facilities:
    (i) Section 413.157, Return on equity capital of proprietary 
providers;
    (ii) Section 413.200, Reimbursement of OPAs and histocompatibility 
laboratories;
    (iii) Section 413.9, Cost related to patient care (except for the 
principles stated in paragraph (b)(3) of this section); and
    (iv) Sections 413.64, Payments to providers, and Secs. 413.13, 
413.30, 413.35, 413.40, 413.74, and Secs. 415.55

[[Page 43673]]

through 415.70, Sec. 415.162, and Sec. 415.164 of this chapter, 
Principles of reimbursement for services by hospital-based physicians.


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

    (a) Principle. Covered services furnished after September 30, 1978 
by organ procurement organizations (OPOs) and histocompatibility 
laboratories in connection with kidney acquisition and transplantation 
will be reimbursed under the principles for determining reasonable cost 
contained in this part. Services furnished by freestanding OPOs and 
histocompatibility laboratories, that have an agreement with the 
Secretary in accordance with paragraph (c) of this section, will be 
reimbursed by making an interim payment to the transplant hospitals 
using these services and by making a retroactive adjustment, directly 
with the OPO or laboratory, based upon a cost report filed by the OPO 
or laboratory. (The reasonable costs of services furnished by hospital 
based OPOs or laboratories will be reimbursed in accordance with the 
principles contained in Secs. 413.60 and 413.64.)
    (b) Definitions. For purposes of this section:
    Freestanding refers to an OPO or a histocompatibility laboratory 
that is not--
    (1) Subject to the control of the hospital with respect to the 
hiring, firing, training, and paying of employees; and
    (2) Considered as a department of the hospital for insurance 
purposes (including malpractice insurance, general liability insurance, 
worker's compensation insurance, and employee retirement insurance).
    Histocompatibility laboratory means a laboratory meeting the 
standards and providing the services for kidneys or other organs set 
forth in Sec. 413.2171(d) of this chapter.
    OPO means an organization defined in Sec. 486.302 of this chapter.
    (c) Agreements with independent OPOs and laboratories. (1) Any 
freestanding OPO or histocompatibility laboratory that wishes to have 
the cost of its pretransplant services reimbursed under the Medicare 
program must file an agreement with HCFA under which the OPO or 
laboratory agrees--
    (i) To file a cost report in accordance with Sec. 413.24(f) within 
three months after the end of each fiscal year;
    (ii) To permit HCFA to designate an intermediary to determine the 
interim reimbursement rate payable to the transplant hospitals for 
services provided by the OPO or laboratory and to make a determination 
of reasonable cost based upon the cost report filed by the OPO or 
laboratory;
    (iii) To provide such budget or cost projection information as may 
be required to establish an initial interim reimbursement rate;
    (iv) To pay to HCFA amounts that have been paid by HCFA to 
transplant hospitals and that are determined to be in excess of the 
reasonable cost of the services provided by the OPO or laboratory; and
    (v) Not to charge any individual for items or services for which 
that individual is entitled to have payment made under section 1861 of 
the Act.
    (2) The initial cost report due from an OPO or laboratory is for 
its first fiscal year during any portion of which it had an agreement 
with the Secretary under paragraphs (c) (1) and (2) of this section. 
The initial cost report covers only the period covered by the 
agreement.
    (d) Interim reimbursement. (1) Hospitals eligible to receive 
Medicare reimbursement for renal transplantation will be paid for the 
pretransplantation services of a freestanding OPO or histocompatibility 
laboratory that has an agreement with the Secretary under paragraph (c) 
of this section, on the basis of an interim rate established by an 
intermediary for that OPO or laboratory.
    (2) The interim rate will be based on the average cost per service 
incurred by an OPO or laboratory, during its previous fiscal year, 
associated with procuring a kidney for transplantation. This interim 
rate may be adjusted if necessary for anticipated cost changes. If 
there is not adequate cost data to determine the initial interim rate, 
it will be determined according to the OPO's or laboratory's estimate 
of its projected costs for the fiscal year.
    (3) Payments made on the basis of the interim rate will be 
reconciled directly with the OPO or laboratory after the close of its 
fiscal year, in accordance with paragraph (e) of this section.
    (4) Information on the interim rate for all freestanding OPOs and 
histocompatibility laboratories shall be disseminated to all transplant 
hospitals and intermediaries.
    (e) Retroactive adjustment. (1) Cost reports. Information provided 
in cost reports by freestanding OPOs and histocompatibility 
laboratories must meet the requirements for cost data and cost finding 
specified in paragraphs (a) through (e) of Sec. 413.24. These cost 
reports must provide a complete accounting of the cost incurred by the 
agency or laboratory in providing covered services, the total number of 
Medicare beneficiaries who received those services, and any other data 
necessary to enable the intermediary to make a determination of the 
reasonable cost of covered services provided to Medicare beneficiaries.
    (2) Audit and adjustment. A cost report submitted by a freestanding 
OPO or histocompatibility laboratory will be reviewed by the 
intermediary and a new interim reimbursement rate for the succeeding 
fiscal year will be established based upon this review. A retroactive 
adjustment in the amount paid under the interim rate will be made in 
accordance with Sec. 413.64(f). If the determination of reasonable cost 
reveals an overpayment or underpayment resulting from the interim 
reimbursement rate paid to transplant hospitals, a lump sum adjustment 
will be made directly between that intermediary and the OPO or 
laboratory.
    (f) For services furnished on or after April 1, 1988, no payment 
may be made for services furnished by an OPO that does not meet the 
requirements of part 485, subpart D of this chapter.
    (g) Appeals. Any OPO or histocompatibility laboratory that 
disagrees with an intermediary's cost determination under this section 
is entitled to an intermediary hearing, in accordance with the 
procedures contained in Secs. 405.1811 through 405.1833, if the amount 
in controversy is $1,000 or more.


Sec. 413.202  Organ procurement organization (OPO) cost for kidneys 
sent to foreign countries or transplanted in patients other than 
Medicare beneficiaries.

    An OPO's total costs for all kidneys is reduced by the costs 
associated with procuring kidneys sent to foreign transplant centers or 
transplanted in patients other than Medicare beneficiaries. OPOs, as 
defined in Sec. 435.302 of this chapter, must separate costs for 
procuring kidneys that are sent to foreign transplant centers and 
kidneys transplanted in patients other than Medicare beneficiaries from 
Medicare allowable costs prior to final settlement by the Medicare 
fiscal intermediaries. Medicare costs are based on the ratio of the 
number of usable kidneys transplanted into Medicare beneficiaries to 
the total number of usable kidneys applied to reasonable costs. Certain 
long-standing arrangements that existed before March 3, 1988 (for 
example, an OPO that procures kidneys at a military transplant hospital 
for transplant at that hospital), will be deemed to be Medicare kidneys 
for cost reporting statistical purposes. The OPO must submit a request 
to the

[[Page 43674]]

fiscal intermediary for review and approval of these arrangements.


Sec. 413.203  Transplant center costs for organs sent to foreign 
countries or transplanted in patients other than Medicare 
beneficiaries.

    (a) A transplant center's total costs for all organs is reduced by 
the costs associated with procuring organs sent to foreign transplant 
centers or transplanted in patients other than Medicare beneficiaries. 
Organs are defined in Sec. 486.302 (only covered organs will be paid 
for on a reasonable cost basis).
    (b) Transplant center hospitals must separate costs for procuring 
organs that are sent to foreign transplant centers and organs 
transplanted in patients other than Medicare beneficiaries from 
Medicare allowable costs prior to final cost settlement by the Medicare 
fiscal intermediaries.
    (c) Medicare costs are based on the ratio of the number of usable 
organs transplanted into Medicare beneficiaries to the total number of 
usable organs applied to reasonable costs.
    C. Part 414 is amended as follows:

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

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

    Authority: Secs. 1102, 1871, and 1881(b)(1) of the Social 
Security Act (42 U.S.C. 1302, 1395hh, and 1395rr(b)(1)).

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


Sec. 414.313  [Amended]

    2. In Sec. 414.313(a), the reference ``in Sec. 413.170 of this 
chapter'' is revised to read ``in part 413, subpart H of this 
subchapter''.


Sec. 414.314  [Amended]

    3. In Sec. 414.314(a)(5), the reference ``(Sec. 413.170)'' is 
revised to read ``(part 413, subpart H of this subchapter)''.

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

    Dated: June 7, 1997.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
[FR Doc. 97-21444 Filed 8-14-97; 8:45 am]
BILLING CODE 4120-01-P