DEPARTMENT OF HEALTH AND HUMAN SERVICES Centers for Medicare & Medicaid Services 42 CFR Parts 405, 411, 413 and 414 [CMS-1614-P] RIN 0938-AS13 Medicare Program; End-Stage Renal Diseas e Prospective Payment System, Quality Incentive Program, and Durable Medical Equipm ent, Prosthetics, Orthotics, and Supplies AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS. ACTION: Proposed rule. SUMMARY: This rule proposes to update and make re visions to the End-Stage Renal Disease (ESRD) prospective payment system (PPS) for cal endar year (CY) 2015. This rule also proposes to set forth requirements for the ESRD quality incentive program (QIP), including payment years (PYs) 2017 and 2018. This rule also proposes to ma ke a technical correction to remove outdated terms and definitions. In addition, this rule proposes to set forth the methodology for adjusting Durable Medical Equipment, Prosthetics, Or thotics, and Supplies (DMEPOS) fee schedule payment amounts using information from the Me dicare DMEPOS Competitive Bidding Program (CBP); make alternative payment rules for DME and enteral nutriti on under the Medicare DMEPOS CBP; clarify the stat utory Medicare hearing aid co verage exclusion and specify devices not subject to the hearing aid exclusion; update the definition of minimal self-adjustment regarding what specialized training is needed by suppliers to provide custom fitting services if they are not certified orthotists ; clarify the Change of Ownership (CHOW) and provides for an exception to the current requirements; revise the appeal provisions for termination of a contract and notification to beneficiaries under the Medi care DMEPOS CBP, and add a technical changeCMS-1614-P 2

related to submitting bids for infusion drugs under the Medicare DMEPOS CBP. DATES : To be assured consideration, comments mu st be received at one of the addresses provided below, no later than 5 p.m. E.S.T. on [ INSERT DATE 60 DAYS AFTER DISPLAY
DATE .] ADDRESSES: In commenting, please refer to file code CMS-1614-P. Because of staff and resource limitations, we ca nnot accept comments by facsimile (FAX) transmission. You may submit comments in one of four ways (please choose only one of the ways listed): 1. Electronically. You may submit elec tronic comments on this regulation to http://www.regulations.gov . Follow the "Submit a comment" instructions. 2. By regular mail. You may mail written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1614-P, P.O. Box 8010, Baltimore, MD 21244-8010. Please allow sufficient time for mailed comments to be received before the close of the comment period. 3. By express or overnight mail. You may send written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1614-P,CMS-1614-P 3

Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850. 4. By hand or courier. Alternatively, y ou may deliver (by hand or courier) your written comments ONLY to the following addre sses prior to the close of the comment period: a. For delivery in Washington, DC-- Centers for Medicare & Medicaid Services, Department of Health and Human Services, Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 20201 (Because access to the interior of the Hube rt H. Humphrey Building is not readily available to persons without Federal government identification, commenters are encouraged to leave their comments in the CMS drop slots located in the main lobby of the building. A stampin clock is available for persons wishing to reta in a proof of filing by st amping in and retaining an extra copy of the comments being filed.) b. For delivery in Baltimore, MD-- Centers for Medicare & Medicaid Services, Department of Health and Human Services, 7500 Security Boulevard, Baltimore, MD 21244-1850. If you intend to deliver your comments to the Baltimore address, call telephone number (410) 786-9994 in advance to schedule your arrival with one of our staff members.CMS-1614-P 4

Comments erroneously mailed to the addres ses indicated as appr opriate for hand or courier delivery may be delayed and received after the comment period. For information on viewing public co mments, see the beginning of the "SUPPLEMENTARY INFORMATION" section. FOR FURTHER INFORMATION CONTACT: Stephanie Frilling, (410) 786-4507, for issues rela ted to the ESRD PPS, the ESRD PPS CY 2015 Base Rate and Payment for Frequent Hemodialysis. Michelle Cruse, (410) 786-7540, for issues re lated to the ESRD PPS and the Low Volume Payment Adjustment. Karen Reinhardt, (410) 786-0189, for issues re lated to the ESRD PPS and the Outlier Payment Policy. Wendy Tucker, (410) 786- 3004, for issues re lated to the ESRD PPS and Wage Index. Heidi Oumarou, (410) 786-7342, for issues relate d to the ESRD PPS Market Basket Update. Anita Segar, (410) 786-4614, for issu es related to the ESRD QIP. Christopher Molling (410) 786-6399 and Hafsa Vahor a (410) 786-7899 for issues related to the methodology for making national price adjustments based upon information gathered from the
DMEPOS CBP. Sandhya Gilkerson, (410) 786-4085, for issues relate d to the alternative payment methodologies under the CBP. Sandhya Gilkerson, (410) 786-4085 and Michelle Pe terman, 410-786-2581 for issues related to the clarification of the statutory Medicare hearing aid coverage exclusion. Michelle Peterman, (410) 786-2591 for issues re lated to the definition of minimal selfadjustment at 414.402.CMS-1614-P 5

Janae James (410) 786-0801 for issues related to CHOW and breach of contract appeals. SUPPLEMENTARY INFORMATION: Inspection of Public Comments: All comments r eceived before the close of the comment period are available for viewing by the public, includi ng any personally identif iable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following Web si te as soon as possible after they have been received: http://www.regulations.go v. Follow the search instructions on that Web site to view public comments. Comments received timely will also be av ailable for public inspection as they are received, generally beginning approximately 3 w eeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951. Electronic Access This Federal Register document is also available from the Federal Register online database through Federal Digital System (FDsys) , a service of the U.S. Government Printing Office. This database can be accessed via the internet at http://www.gpo.gov/fdsys/

. Addenda Are Only Available Through the Internet on the CMS Web Site In the past, a majority of the Addenda referred to throughout the preamble of our proposed and final rules were available in the Federal Register . However, the Addenda of the annual proposed and final rules wi ll no longer be available in the Federal Register . Instead, these Addenda to the annual propos ed and final rules will be avai lable only through the Internet on the CMS Web site. The Addenda to the End-Stage Renal Disease (ESRD) ProspectiveCMS-1614-P 6

Payment System (PPS) rules are available at: http://www.cms.gov/ESRD Payment/PAY/list.asp

. Readers who experience any problems accessing any of the Addenda to the proposed and final rules of the ESRD PPS that are posted on the CMS Web site identified above should contact Stephanie Frilling at 410-786-4507. Table of Contents To assist readers in referenc ing sections contained in this preamble, we are providing a Table of Contents. Some of the issues discussed in this preamble affect the payment policies, but do not require changes to the regulations in the Code of Federal Regulations (CFR). I. Executive Summary A. Purpose 1. End-Stage Renal Disease (ESRD) Prospective Payment System (PPS) 2. End-Stage Renal Disease (ESRD) Quality Incentive Program (QIP) 3. Durable Medical Equipment, Prosthet ics, Orthotics, and Supplies (DMEPOS) B. Summary of the Major Provisions 1. ESRD PPS 2. ESRD QIP
3. DMEPOS C. Summary of Costs and Benefits 1. Impacts of the Proposed ESRD PPS 2. Impacts for ESRD QIP 3. Impacts for DMEPOS II. Calendar Year (CY) 2015 End-Stage Renal Disease (ESRD) Prospective Payment System (PPS) A. Background on the End-Stage Renal Diseas e (ESRD) Prospective Payment System (PPS)CMS-1614-P 7

B. Routine Updates and Proposed Policy Changes to the CY 2015 ESRD PPS
1. ESRD PPS Base Rate a. Changes to the Drug Utilization Adjustment i. The Drug Utilization Adjustment Fi nalized in CY 2014 ESRD PPS Final Rule ii. PAMA Changes to the Drug Utilization Adjustment b. Payment Rate Update for CY 2015 c. CY 2015 ESRD PPS Wage Index Budget Neutrality Adjustment d. Labor-Related Share 2. ESRD Bundled Market Bask et and Labor-Related Share a. Background b. Rebasing and Revision the ESRD Bundled Market Basket i. Cost Category Weights ii. Proposed Price Proxies for the CY 2012 ESRDB Market Basket iii. Proposed Market Basket Estimate for the CY 2015 ESRDB PPS Update c. Proposed Productivity Adjustment d. Calculation of the Proposed ESRDB Market Basket Update, Adjusted for Multifactor Productivity for CY 2015 e. Labor-Related Share 3. The Proposed CY 2015 ESRD PPS Wage Indices a. Background b. Proposed Implementation of Ne w Labor Market Delineations c. Transition Period 4. Proposed Revisions to the Outlier PolicyCMS-1614-P 8

a. Proposed Changes to the Outlier Servic es MAP Amounts and Fixed Dollar Loss Amounts b. Outlier Policy Percentage C. Restatement of Policy Regarding Reporting and Payment for More than Three Dialysis Treatments per Week – 1. Reporting More than Three Dialysis Treatments per Week on Claims 2. Medical Necessity for More Th an Three Treatments per Week D. Delay of Payment for Oral-Only Drugs under the ESRD PPS E. ESRD Drug Categories Included in the ESRD PPS Base Rate F. Low-Volume Payment Adjustment (LVPA) 1 . Background 2. The United States Government Accountability Office Study on the LVPA a. The GAO’s Main Findings b. The GAO’s Recommendations 3. Clarification of the LVPA Policy a. Hospital-Based ESRD Facilities b. Cost Reporting Periods Used for Eligibility G. Continued Use of ICD-9-CM Codes and Corr ections to the ICD-10-CM Codes Eligible for the Comorbidity Payment Adjustment III. End-Stage Renal Disease (ESRD) Quality Incentive Program (QIP) A. Background B. Considerations in Updating and Expa nding Quality Measures under the ESRD QIP C. Websites for Measure Specifications D. Updating the NHSN Bloodstream In fection in Hemodialysis Outp atients Clinical Measure forCMS-1614-P 9

the PY 2016 ESRD QIP and Future Payment Years E. Oral-Only Drugs Measures in the ESRD QIP F. Proposed Requirements for the PY 2017 ESRD QIP 1. Proposed Revision to the Expa nded ICH CAHPS Reporting Measure 2. Proposed Measures for the PY 2017 ESRD QIP a. PY 2016 Measures Continuing in PY 2017 and Future Payment Years b. Proposal to Determine when a Measure is “To pped-Out” in the ESRD QIP, and Proposal to Remove a Topped-Out Measure from th e ESRD QIP, Beginning with PY 2017 c. New Measures Proposed for PY 2017 and Future Payment Years i. Proposed Standardized Readmissi on Ratio (SRR) Clinical Measure 3. Proposed Performance Period for the PY 2017 ESRD QIP 4. Proposed Performance Standards, Achievemen t Thresholds, and Benchmarks for the PY 2017 ESRD QIP a. Proposed Performance Standard s, Achievement Thresholds, and Benchmarks for the Clinical Measures in the PY 2017 ESRD QIP b. Estimated Performance Standards, Achievement Thresholds, and Benchmarks for the Clinical Measures Proposed for the PY 2017 ESRD QIP c. Proposed Performance Standards for the PY 2017 Reporting Measures 5. Proposal for Scoring the PY 2017 ESRD QIP Measures a. Scoring Facility Performance on Clin ical Measures Based on Achievement b. Scoring Facility Performance on Clin ical Measures Based on Improvement 6. Weighting the Total Performance Score 7. Proposed Minimum Data for Scoring Measures for the PY 2017 ESRD QIP and Proposal forCMS-1614-P 10

Changing Attestation Process for Patient Minimums 8. Proposed Payment Reductions for the PY 2017 ESRD QIP 9. Proposal for Data Validation 10. Proposal to Monitor Acce ss to Dialysis Facilities 11. Proposed Extraordinary Circumstances Exception G. Proposed Requirements for the PY 2018 ESRD QIP Beginning in PY 2018 1. Proposal to Modify the Mine ral Metabolism Reporting Measure 2. Proposed New Measures for the PY 2018 ESRD QIP and Future Payment Years a. Proposed Standardized Transfusio n Ratio (STrR) Clinical Measure b. Proposal to Adopt the Pediatric Peritoneal Di alysis Adequacy Clinic al Measure and Add the Proposed Measure to the Dialys is Adequacy Measure Topic c. Proposed ICH CAHP S Clinical Measure d. Proposed Screening for Clinical Depr ession and Follow-Up Reporting Measure e. Proposed Pain Assessment and Follow-Up Reporting Measure f. Proposed NHSN Healthcare Personnel Influenza Vaccination Reporting Measure 2. Proposed Performance Period for the PY 2018 ESRD QIP 3. Proposed Performance Standards, Achievemen t Thresholds, and Benchmarks for the PY 2018 ESRD QIP a. Proposed Performance Standard s, Achievement Thresholds, and Benchmarks for the Clinical Measures in the PY 2018 ESRD QIP b. Estimated Performance Standards, Achievement Thresholds, and Benchmarks for the Clinical Measures Proposed for the PY 2018 ESRD QIP c. Proposed Performance Standards for the PY 2018 Reporting MeasuresCMS-1614-P 11

4. Proposal for Scoring the PY 2018 ESRD QIP Measures a. Scoring Facility Performance on Clin ical Measures Based on Achievement b. Scoring Facility Performance on Clin ical Measures Based on Improvement c. Proposal for Scoring the ICH CAHPS Clinical Measure d. Proposals for Calculating Facility Performance on Reporting Measures 5. Proposed Minimum Data for Scoring Measures for the PY 2018 ESRD QIP 6. Proposal for Calculating the C linical Measure Domain Score 7. Proposal for Calculating the Reporting M easure Domain Score, the Reporting Measure Adjuster, and the TPS for the PY 2018 ESRD QIP 8. Example of the Proposed PY 2018 ESRD QIP Scoring Methodology H. Future Considerations for Stratifying ESRD QIP Measures for Dual-Eligible Beneficiaries IV. Technical Corrections for 42 Part 405 V. Methodology for Adjusting DMEPOS Payment Amounts using Information from Competitive Bidding Programs A. Background 1. Payment Basis for Certain DMEPOS 2. Fee Schedule Payment Methodologies 3. Regional Fee Schedule Payment Methodology for P&O 4. DMEPOS Competitive Bi dding Programs Payment Rules 5. Adjusting Payment Amounts using Information from the DMEPOS Competitive Bidding Program 6. Diversity of Costs 7. Advanced Notice of Proposed RulemakingCMS-1614-P 12

B. Proposed Provisions 1. Proposed Regional Adjustments Limited by National Parameters a. Regional Payment Adjustments 1. P&O Regional Fee Weights – CMS Region 1 (Bos ton) (Weighted by Total Paid Claims for Dates of Service from July 1, 1991, thru June 30, 1992) b. National Parameters c. Rural and Frontier State Adjustments d. Areas Outside the Co ntiguous United States 2. Methodology for Items and Services Included in Limited Number of Competitive Bidding Programs 3. Adjusted Payment Amounts for Accessories used with Different Types of Base Equipment 4. Adjustments to Single Payment Amount s that Result from Unbalanced Bidding 5. National Mail Order Program - Northern Mariana Islands 6. Updating Adjusted Payment Amounts 7. Summary of Proposed Methodologies VI. Proposed Payment Methodologies and Payment Rules for Durable Medical Equipment and Enteral Nutrition Furnishe d under the Competitive Bidding Program A. Background B. Proposed Provisions 1. Payment on a continuous rental basis for select items a. Enteral nutrition b. Oxygen and oxygen equipment c. Standard manual wheelchairsCMS-1614-P 13

d. Standard power wheelchairs e. CPAP and respirat ory assist devices f. Hospital beds g. Transition rules h. Beneficiary-owned equipment 2. Responsibility for repair of beneficiary- owned power wheelchairs furnished under CBPs 3. Phasing in the proposed payment rules in CBAs 4. Submitting bids for items paid on a continuous rental basis VII. Scope of Hearing Aid Coverage Exclusion A. Background
B. Current Issues C. Proposed Provisions VIII. Definition of Minimal Self-Adjustmen t of Orthotics Under Competitive Bidding A. Background
B. Current Issues C. Proposed Provisions IX. Revision to Change of Ownership Rules to Allow Contract Suppliers to Sell Specific Lines of Business A. Background B. Proposed Provisions X. Proposed Changes to the Appeals Process fo r Termination of Competitive Bidding Contract XI. Technical Change Related to Submitting Bids for Infusion Drugs under the DMEPOS Competitive Bidding Program XII. Accelerating Health Information ExchangeCMS-1614-P 14

XIII. Collection of Information Requirements XIV. Response to Comments XV. Economic Analyses A. Regulatory Impact Analysis 1. Introduction 2. Statement of Need 3. Overall Impact B. Detailed Economic Analysis 1. CY 2015 End-Stage Renal Disease Prospective Payment System a. Effects on ESRD Facilities b. Effects on Other Providers c. Effects on the Medicare Program d. Effects on Medicare Beneficiaries e. Alternatives Considered 2. End-Stage Renal Disease Quality Incentive Program 3. DMEPOS Provisions C. Accounting Statement XVI. Regulatory Flexibility Act Analysis XVII. Unfunded Mandates Reform Act Analysis XVIII. Federalism Analysis XIX. Congressional Review Act XX. Files Available to the Public via the Internet Regulations Text AcronymsCMS-1614-P 15

Because of the many terms to which we refer by acronym in this final rule, we are listing the acronyms used and their corresponding meanings in al phabetical order below: AHRQ Agency for Healthcare Research and Quality ANOVA Analysis of Variance ANPRM Advanced Notice of Proposed Rulemaking ARM Adjusted Ranking Metric ASP Average Sales Price ATRA The American Ta xpayer Relief Act of 2012 BEA Bureau of Economic Analysis BLS Bureau of Labor Statistics BMI Body Mass Index CBA Competitive Bidding Area CBP Competitive Bidding Program CBSA Core based statistical area CCN CMS Certification Number CDC Centers for Disease Control and Prevention CfC Conditions for Coverage CHOW Change of Ownership CKD Chronic Kidney Disease CPAP Continuous positive airway pressure CY Calendar Year DFC Dialysis Facility Compare DME Durable Medical EquipmentCMS-1614-P 16

DMEPOS Durable Medical Equipment, Pr osthetics, Orthotics, and Supplies ESA Erythropoiesis stimulating agent ESRD End-Stage Renal Disease ESRDB End-Stage Renal Disease bundled ESRD PPS End-Stage Renal Disease Prospective Payment System FDA Food and Drug Administration GEM General Equivalence Mappings HCP Healthcare Personnel HD Hemodialysis HAIs Healthcare-Ac quired Infections HCPCS Healthcare Common Procedure Coding System HCFA Health Care Financing Administration HLM Hierarchical Logistic Modeling HHS Department of Health and Human Services ICD International Classification of Diseases ICD-9-CM International Cla ssification of Disease, 9 th Revision, Clinical Modification ICD-10-CM International Cla ssification of Disease, 10 th Revision, Clinical Modification ICH CAHPS In-Center Hemodialysis Consumer Assessment of Healthcare Providers and Systems IGI IHS Global Insight IIC Inflation-indexed charge IOLs Intraocular LensesCMS-1614-P 17

IPPS Inpatient Prospective Payment System ICH CAHPS In-Center Hemodialysis Consumer Assessment of Healthcare Providers and Services IUR Inter-unit reliability MAC Medicare Administrative Contractor MAP Medicare Allowable Payment MFP Multifactor Productivity MIPPA Medicare Improvements for Patients and Providers Act of 2008 MLR Minimum Lifetime Requirement MSA Metropolitan statistical areas NAMES National Association of Medical Equipment Suppliers NHSN National Health Safety Network NQF National Quality Forum NQS National Quality Strategy OBRA Omnibus Budget Reconciliation Act OMB Office of Management and Budget P&O Prosthetics and orthotics PAMA Protecting Access to Medicare Act of 2014 PC Product category PD Peritoneal Dialysis PEN Parenteral and enteral nutrition PFS Physician Fee Schedule QIP Quality Incentive ProgramCMS-1614-P 18

RMA Reporting Measure Adjuster RSPA Regional single payment amounts RUL Reasonable useful lifetime SAF Standard Analysis File SHR Standardized Hospita lization Ratio Admissions SMR Standardized Mortality Ratio SPA Single payment amount STrR Standardized Transfusion Ratio TENS Transcutaneous elec trical nerve stimulation TEP Technical Expert Panel TPS Total Performance Score VBP Value Based Purchasing I. Executive Summary A. Purpose 1. End-Stage Renal Disease (ESRD) Prospective Payment System (PPS) On January 1, 2011, we implemented the ESRD PPS, a case-mix adjusted bundled prospective payment system for renal dialysis serv ices furnished by ESRD facilities. This rule proposes to update and make revisions to the End-Stage Renal Disease (ESRD) prospective payment system (PPS) for calendar year (CY) 2 015. Section 1881(b)(14) of the Social Security Act (the Act), as added by section 153(b) of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) (Public Law 110-275) , and section 1881(b)(14 )(F) of the Act, as added by section 153(b) of MIPPA and amended by section 3401(h) of the Affordable Care Act Public Law 111-148), established that beginn ing CY 2012, and each subsequent year, theCMS-1614-P 19

Secretary shall annually increase payment amounts by an ESRD market basket increase factor, reduced by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act. Section 632 of the American Taxpayer Re lief Act of 2012 (ATRA) (Pub. L No. 112-240) included several provisions that apply to the ESRD PPS. Section 632(a) of ATRA added section 1881(b)(14)(I) to the Act, which re quired the Secretary, by compari ng per patient utilization data from 2007 with such data from 2011, to reduce the single payment amount to reflect the Secretary’s utilization of ESRD-related drugs an d biologicals. We finaliz ed the amount of the drug utilization adjustment pursuan t to this section in the CY 2014 ESRD PPS final rule with a 3- to 4-year transition (78 FR 72161 through 721 70). Section 632(b) of ATRA prohibited the Secretary from paying for oral -only ESRD-related drugs and biologicals under the ESRD PPS before January 1, 2016. And finally, section 632(c) of ATRA requires the Secretary, by no later than January 1, 2016, to analyze the case mix payment adjustments under section 1881(b)(14)(D)(i) of the Act and make appropria te revisions to those adjustments. On April 1, 2014, the Congress enacted the Protecting Access to Medicare Act of 2014 (PAMA) (Pub. L. No. 113-93). PAMA section 217 in cludes several provisions that apply to the ESRD PPS. Specifically, secti ons 217(b)(1) and (2) of PAMA amend sections 1881(b)(14)(F) and (I) of the Act. We interpret the amendments to sections 1881(b)(14)(F) and (I) as replacing the drug utilization adjustment that was finali zed in the CY 2014 ESRD PPS final rule with specific provisions that dictate what the market basket update will be for CY 2015 (0.0 percent) and how it will be reduced in CYs 2016 throug h 2018. Section 217(a)(1) of PAMA amends section 632(b)(1) of ATRA, which now provides th at the Secretary may not pay for oral-only drugs and biologicals used for the treatment of ESRD under the ESRD PPS prior to January 1, 2024. Section 217(a)(2) further amends section 632(b)(1) of ATRA by adding a sentence thatCMS-1614-P 20

provides: “Notwithstanding sec tion 1881(b)(14)(A)(ii) of the Social Security Act (42 U.S.C. 1395rr(b)(14)(A)(ii)), implementation of the policy de scribed in the previous sentence shall be based on data from the most recent year availabl e.” Finally, PAMA section 217(c) provides that, as part of the CY 2016 ESRD PPS rulemaking, th e Sectary shall establish a process for (1) determining when a product is no longer an oral -only drug; and (2) incl uding new injectable and intravenous products into the ESRD PPS bundled payment. As discussed further below, section 212 of PAMA provides that the Secretary may not adopt ICD-10 prior to October 1, 2015. HHS has announced that it intends to issue an interim final rule that will require use of ICD-10 beginning October 1, 2015 and will require the continued use of ICD-9-CM through Septem ber 30, 2015. Therefore, the ESRD PPS will continue to use ICD-9 through September 30, 2 015 and will require use of ICD-10 beginning October 1, 2015 for purposes of the comorbidity payment adjustment. 2. End-Stage Renal Disease (ESRD) Quality Incentive Program (QIP) This rule also proposes to set forth requirements for the ESRD Quality Incentive Program (QIP), including for payment years (PYs) 2017 and 2018. The program is authorized under section 1881(h) of the Social Security Act (t he Act). The ESRD QIP is the most recent step in fostering improve d patient outcomes by establishing incentives for dialysis facilities to meet or exceed performance standards established by CMS. 3. Durable Medical Equipment, Prosthet ics, Orthotics, and Supplies (DMEPOS) This proposed rule proposes a methodology for making national price adjustments to payments for Durable Medical Equipment, Prosth etics, Orthotics, and Supplies (DMEPOS) paid under fee schedules based upon information gathered from the DMEPOS competitive bidding programs (CBPs) and proposes to phase in sp ecial payment rules in a limited number ofCMS-1614-P 21

competitive bidding areas (CBAs) under the CBP for certain, specified DME and enteral nutrition. This rule proposes to clarify the st atutory Medicare hearing aid coverage exclusion under section 1862(a)(7) of the Ac t and the regulation at 42 CFR §411.15(d) to further specify the scope of this exclus ion and to note certain devices excepte d from the hearing aid exclusion. In addition, this rule proposes to update the definition of minimal self-adjustment at §414.402 to note the specialized training that is needed by supp liers to provide custom fitting services if they are not certified orthotists. Finally, this rule proposes a revision to the Change of Ownership (CHOW) policy in the current re gulations to allow a product cat egory to be severed from a competitive bidding contract and transferred to a new contract when a contract supplier sells a distinct line of business to a qualified successor entity. B. Summary of the Major Provisions
1. ESRD PPS

• Update to the ESRD PPS base rate for CY 2015: For CY 2015, we are proposing an ESRD PPS base rate of $239.33. This am ount reflects a 0.0 per cent update to the payment rate as required by section 1881(b)(14)(F)(i) of th e Act, as amended by section 217(b)(2) of PAMA, and the a pplication of the proposed wa ge index budget-neutrality adjustment factor of 1.001306 to th e CY 2014 ESRD PPS base rate of $239.02.

• Rebasing and revision of the ESRD bundl ed (ESRDB) market basket: For CY 2015, we are proposing to rebase and revise the ESRDB market basket so the cost weights and price proxies would reflect the mix of goods and services that underlie ESRD bundled operating and capital costs for CY 2012. We not e that if PAMA had not been enacted the proposed 2012-based ESRDB market basket update less productivity for CY 2015 would have been 1.6 percent, or (2.0 percent less 0.4 percentage point).CMS-1614-P 22

• Update to the labor-related share: Becau se the cost distributions would change significantly as a result of th e proposed ESRDB market basket revision, the proposed laborrelated share would be 50.673 percent compared to the current labor-r elated share of 41.737 percent. The change to the labor-related share would have a significant impact on payments for certain ESRD facilities, specifically thos e ESRD facilities that have low wage index values. Therefore, for CY 2015 we are propos ing a 2-year transition, in which the CY 2015 payment would be based on a 50/50 blended la bor-related share that would apply to all ESRD facilities. ESRD facilities would receiv e 50 percent of their current labor-related share and 50 percent of their revised labor-related share. Specifically, we would apply a labor-related share of 46.205 ((41.737+50.673)/2 = 46.205). For CY 2016, the labor-related share would be based on 100 percent of the revised la bor-related share.

• Update to the wage index and wage index fl oor: We adjust wage indices on an annual basis using the most current hospital wage data to account for differing wage levels in areas in which ESRD facilities are located. In CY 2015, we are not proposing any changes to the application of the wage index budge t-neutrality adjustment factor and will continue to apply the budget-neutrality adjustment to the base rate for the ESRD PPS. We will continue our policy for the gradual phase-out of the wage index floor an d reduce the wage index floor values to 0.40, as finalized in the CY 2014 ESRD PPS final rule (78 FR 72173-72174).

• Update to the Core-Based Statistical Areas (CBSA): For CY 2015, we are proposing to implement the new CBSA delineations as descri bed in the February 28, 2013 OMB Bulletin No. 13-01, beginning with the CY 2015 ESRD PPS wage index. In a ddition, we are proposing to implement a 2-year transition, under which a 50/50 blended wage index would apply to all ESRD facilities for CY 2015. Sp ecifically, facilities would receive 50 percent of their CY 2015CMS-1614-P 23

wage index based on the CBSA delineations for CY 2014 and 50 percent of their CY 2015 wage index based on the proposed new CBSA delineations . In CY 2016, facilities’ wage index values would be based 100 percent on the new CBSA delineations.

• Update to the outlier policy: We are updating the outlier services fixed dollar loss amounts for adult and pediatric patients and Me dicare Allowable Payments (MAPs) for adult patients for CY 2015 using 2013 claims data. Base d on the use of more current data, the fixeddollar loss amount for pediatric beneficiaries would increase from $54.01 to $56.30 and the MAP amount would increase from $37.29 to $40.05, as compared to CY 2014 values. For adult beneficiaries, the fixed-dollar loss amount would decrease from $98.67 to $85.24 and the MAP amount would increase from $51.97 to $52.61. The 1 percent target for outlier payments was not achieved in CY 2013. We believe using CY 2013 claims data to update the outlier MAP and fixed dollar loss amounts for CY 2015 will increase payments for ESRD beneficiaries requiring higher resource utilization in accordance with a 1 percent outlier percentage.

• Clarification for the low-volume payment ad justment (LVPA): We are clarifying two policies regarding MAC verifica tion and proposing conforming cha nges to the LVPA regulation. The first clarification explains that MACs can consider supporting data from hospital-based ESRD facilities to verify the f acility’s total treatment count. The second clarification explains that MACs can add or prorate treatment counts from non-standard cost reporting periods (those that are not 12-month periods) where there is a change in ownership that does not result in a new Provider Transaction Access Number.

• Continued use of ICD-9-CM codes and corrections to the ICD-10-CM codes eligible for the comorbidity payment adjustmen t: Section 212 of PA MA provides that the Secretary may not adopt ICD-10 prior to October 1, 2015. HHS has announced that itCMS-1614-P 24

intends to issue an interim final rule that will require use of ICD-10 beginning October 1, 2015 and will require the continued use of ICD-9-CM through September 30, 2015. Therefore, the ESRD PPS will continue to use ICD-9 through September 30, 2015 and will require use of ICD-10 beginning October 1, 201 5 for purposes of the comorbidity payment adjustment. For CY 2015, we are correcting se veral typographical erro rs and omissions in the Tables that appeared in the CY 2014 ESRD PPS final rule. 2. ESRD QIP This rule proposes to implement requirement s for the ESRD QIP, including measure sets for PYs 2017 and 2018.

• PY 2017 Measure Set: For PY 2017, we are prop osing to remove one measure from the ESRD QIP, the Hemoglobin Greater than 12 g/dL clinical measure, on the grounds that it is “topped out”. We are also proposing to adopt the Standardized R eadmission Ratio (SRR) clinical measure, which ev aluates care coordination.

• PY 2018 Measure Set: For PY 2018, we are proposing to adopt two new clinical
measures—the Standardized Transfusion Ratio (STrR) and Pediatric Peritoneal Dialysis Adequacy—and three new reporting measures: (1) Pa in Assessment and Follow-Up; (2) Clinical Depression Screening and Follow-Up; and (3) Na tional Healthcare Safety Network (NHSN) Healthcare Personnel Influenza Va ccination. We are also proposi ng to transition the In-Center Hemodialysis Consumer Assessment of Healthcar e Providers and Systems (ICH CAHPS) survey reporting measure to a clinical measure.

• Revision to the ICH CAHPS Reporting Meas ure: Beginning with the PY 2017 program year, we are proposing to revi se the ICH CAHPS reporting meas ure to determine facility eligibility for the measure based on the numbe r of survey-eligible patients treated duringCMS-1614-P 25

the “eligibility period”, which we propose to define as the Calendar Year (CY) that immediately precedes the performance period. Su rvey-eligible patients are defined in the ICH CAHPS measure specifi cations available at http://www.cms.gov/Medicare/QualityInitiatives-Patient-Assessment-Instrument s/ESRDQIP/061_TechnicalSpecifications.html and https://ichcahps.org

.

• Revision to the NHSN Bloodstream Infection in Hemodialysis Outpatients Clinical Measure: Beginning with the PY 2016 program year, we are proposing to revise the NHSN Bloodstream Infection in Hemodialysis Outpatie nts clinical measure to calculate facility performance using the Adjusted Ranking Metric (ARM).

• Revision to the Mineral Metabolism Reporti ng Measure: Beginning with the PY 2018 program year, we are proposing to revise the Mineral Metabolism reporting measure to allow facilities to submit both serum phosphorus and plasma phosphorus measurements.

• Extraordinary Circumstances Exemption: Be ginning with the PY 2017 ESRD QIP, we are proposing to exempt dialysis facilities from all requirements of the ESRD QIP clinical and reporting measures during the months in which they are forced to close due to a natural disaster or other extraordinary circumstances.

• New Scoring Methodology for PY 2018: For PY 2018, we are proposing to use a new scoring methodology for the ESRD QIP. Th is proposed scoring methodology would assign facility Total Performance Scores (TPS) on the basis of two domains, the Clinical Measure Domain and the Reporting Measure Do main. Facility scores on clini cal measures in the Clinical Measure Domain would be divided into subdomai ns that align with Na tional Quality Strategy (NQS) domains and weighted according to the nu mber of measures in a subdomain, facility experience with the measure, and the measure’ s alignment with CMS priorities for qualityCMS-1614-P 26

improvement. These weighted scores would be summed to produce a facility’s Clinical Measure Domain score. Facility scor es on reporting measures in the Reporting Measure Domain would be summed and calculated to pr oduce a facility’s Reporting Meas ure Adjuster, which would be subtracted from the facility’s Clinical Measur e Domain score to produce a facility’s TPS.
3. DMEPOS

• The methodology for making national price ad justments based upon information gathered from the DMEPOS CBPs: As required by the MIPPA, this rule proposes methodologies for using information from the DMEPOS CB P to adjust the fee schedule amounts for DME in areas where CBPs are not implement ed. The rule proposes to use the same methodologies to adjust the fee schedule am ounts for enteral nutrition and off-the shelf (OTS) orthotics in areas where CBP s are not implemented.

• Phase in of special payment rules in a limite d number of CBAs under the CBP for certain, specified DME and enteral nutrition. This rule proposes to phase-in special payment rules for certain DME and enteral nutrition under the DMEPOS CBP in a limited number of CBAs.

• Medicare hearing aid coverage exclusion unde r section 1862(a)(7) of the Act: This rule proposes to modify the regulation at § 411.15 to address the scope of the statutory hearing aid exclusion and note the types of devices that are not subjec t to the hearing aid exclusion.

• Definition of minimal self-adjustment at §414.402: This rule pr oposes to update the regulation to indicate what specialized tr aining is needed to provide custom fitting services if suppliers ar e not certified orthotists.CMS-1614-P 27

• Change of Ownership Rules to Allow Contr act Suppliers to Sell Specific Lines of Business: This proposed rule proposes to establish an exception under the CHOW rules to allow CMS to sever a product category from a contract, incorporate the product category into a new contract, and transfer the new contract to a qualified new owner under certain specific circumstances.

• Termination of a Competitive Bidding Contr act: This rule proposes to clarify the effective date for terminations of competitive bidding contracts, which impacts the deadline for which contract s uppliers must notify its benefi ciaries of the termination. C. Summary of Costs and Benefits In section XII.B of this pr oposed rule, we set forth a deta iled analysis of the impacts that the proposed changes would have on affect ed entities and benefici aries. The impacts include the following: 1. Impacts of the Proposed ESRD PPS The impact chart in section XII.B.1.a of this proposed rule displays the estimated change in payments to ESRD facilities in CY 2015 comp ared to estimated payments in CY 2014. The overall impact of the CY 2015 changes is projected to be a 0.3 percent incr ease in payments. Hospital-based ESRD facilities have an estima ted 0.5 percent increase in payments compared with freestanding facilities with an estimated 0.3 percent increase. We estimate that the aggregate ESRD PPS e xpenditures would increase by approximately $30 million from CY 2014 to CY 2015. This reflect s a $0 million change from the payment rate update and a $30 million increase due to the updates to the outlier threshold amounts. As a result of the projected 0.3 percent overall payment increase, we estimate that there will be an increase in beneficiary co-insurance payments of 0.3 percent in CY 2015, which translates toCMS-1614-P 28

approximately $10 million. 2. Impacts for ESRD QIP The overall economic impact of the ESRD QIP is an esti mated $11.9 million in PY 2017 and $7.2 million in PY 2018. In PY 2017, we expect the total paym ent reductions to be approximately $11.9 million, an d the costs associated with the collection of information requirements for the validation of NHSN data feasibility study to be approximately $27 thousand for all ESRD facilities. In PY 2018, we expect the total payment re ductions to be approximately $7 million, and the costs associated with th e collection of information requirements for the NHSN Healthcare Personn el Influenza Vaccinatio n reporting measure to be approximately $248 thousand for all ESRD facilities. The ESRD QIP will continue to incentivize facilities to pr ovide high-quality care to beneficiaries. 3. Impacts for DMEPOS a. Proposed methodology for making national price adjustments to DMEPOS fee schedule amounts based upon information gathered from the DMEPOS competitive bidding programs The proposed regulation proposes to adjust Me dicare fee schedule amounts for items subject to DMEPOS CBP s beginning January 1, 2016, using informa tion from the DMEPOS CBPs to be applied to items in non-competitive bidding areas. It is estimated that these adjustments would save over $7 billion for the 5-y ear period beginning January 1, 2016, and ending December 30, 2020. The estimated savings are pr imarily derived from price reductions for items. It is expected that most of the ec onomic impact would result from reduced payment amounts. The ability of suppliers to furn ish items is not expected to be impacted.CMS-1614-P 29

b. Proposed phase in of special payment ru les under the competitive bidding program for certain DME and enteral nutrition We believe that the proposed special paymen t rules for certain DME and enteral nutrition under the DMEPOS CBPs would not have a signifi cant impact on benefici aries and suppliers. Contract suppliers are responsib le for furnishing items and services needed by the beneficiary, and the cost to suppliers for furnishing thes e items and services doe s not change based on whether or not the equipment and related items and services are paid for separately under a capped rental payment method. Because the supplie r’s bids would reflect the cost of furnishing items in accordance with the new payment rules, we expect the overall savings to generally be the same as they are under the current payment rules. Furthermore, the proposed special payment rules would be phased under a limited number of areas first to eval uate their impact on the program, beneficiaries, and suppliers, including costs, quality, and access. Expanded use of the special payment rules in other areas or for other items would be addre ssed in future rulemaking. c. Proposed clarification of the statutory Medica re hearing aid coverage exclusion stipulated at section 1862(a)(7) of the Act This proposed rule proposes to clarify the sc ope of the Medicare coverage exclusion for hearing aids and withdraw cove rage of bone anchored hearing aids. This proposal would not have a significant fiscal impact on the Medi care program, because the Medicare program expenditures for bone anchored hearing aids during the period CY2005 through CY 2013 are less than $9,000,000. This proposed rule, if finali zed, would provide further guidance about coverage of DME with regard to the statutory hearing aid ex clusion. The proposed rule, if finalized, would leave unchanged coverage of coch lear implants and brain stem implants, whichCMS-1614-P 30

are not considered hearing aids. d. Proposed update of the definition of minimal self-adjustment at 42 CFR §414.402 The proposed rule proposes to update the defi nition of minimal self -adjustment to make clear that minimal self-adjustment means an adju stment that the beneficiary, caretaker for the beneficiary, or supplier of the de vice can perform and does not require the services of a certified orthotist (that is, an individua l certified by either the American Board for Certification in Orthotics and Prosthetics, Inc., or the Board for Orthotist/Prostheti st Certification) or a physician as defined in section 1861(r) of the Act, a treatin g practitioner means a physi cian assistant, nurse practitioner, or clinical nurse specialist as defined in sec tion 1861(aa)(5) of the Act, an occupational therapist as define d in 42 CFR §484.4, or physical th erapist as defined in 42 CFR §484.4 in compliance with all applicable Fe deral and State licen sure and regulatory requirements. If finalized, this revised defi nition would impact suppliers furnishing custom fitted orthotics that do not have this expertise. These suppliers would be required to hire an individual with expertise. For example, accordin g to the Bureau of Labor Statistics Occupational Employment Statistics May 2013 the median pay for a certified orthotist is $30.27 an hour. The impact will vary according to the caseload of custom fitted orthotics provided by an individual supplier. e. Change of Ownership Rules to Allow Contract Suppliers to Sell Specif ic Lines of Business This rule proposes to clarify the CHOW rule s in order to limit disruption to the normal course of business for DME suppliers. This rule proposes to establish an exception under the current CHOW rules to allow CMS to sever a pr oduct category from a co ntract, incorporate the product category into a new contra ct, and transfer the new contra ct to a qualified new owner under certain specific circumstances. This propo sed clarification would impact businesses in aCMS-1614-P 31

positive way by allowing them to conduct everyday transactions with less disruption from our rules and regulations. II. Calendar Year (CY) 2015 End-Stage Rena l Disease (ESRD) Prospective Payment System (PPS) A. Background on the End-Stage Renal Disease (ESRD) Prospective Payment System (PPS) On August 12, 2010, we published in the Federal Register a final rule (75 FR 49030 through 49214) in which we implemented a case-mix adjusted bundled PPS for Medicare outpatient ESRD dialysis services beginni ng January 1, 2011, in accordance with section 1881(b)(14) of the Act, as added by section 153(b) of MIPPA. On November 10, 2011, we published in the Federal Register a final rule (76 FR 70228 thr ough 70316) in which we made a number of routine updates for CY 2012, implemen ted the second year of the transition to the ESRD PPS, made several policy changes and clar ifications, and made technical changes. On November 9, 2012, we published in the Federal Register a final rule (77 FR 67450 through 67531) in which we made a number of routine updates for CY 2013, implemented the third year of the transition to the ESRD PPS, and ma de several policy changes and reiterations. On December 2, 2013, we published in the Federal Register a final rule (78 FR 72156 through 72253) titled, Medicare Program; End-Stage Renal Disease Prospective Payment System, Quality Incentive Program, and Durable Medi cal Equipment, Prosthetics, Orthotics, and Supplies” (hereinafter referred to as the CY 2014 ESRD PPS final rule). In that final rule, for the ESRD PPS, we made a number of routine updates for CY 2014, im plemented the fourth and final year of the transition, implemented sections 632(a) and (b)(1) of ATRA, and made policy changes and clarifications. Specifically, in that rule, we fina lized the following:

• Update to the ESRD PPS base rate for CY 2015

. An ESRD PPS base rate of $239.02 perCMS-1614-P 32

treatment for renal dialysis services. Th is amount reflected the CY 2014 ESRD bundled (ESRDB) market basket update of 3.2 percent minus a multifactor productivity adjustment of 0.4 percent, that is, a 2.8 percen t increase. This amount also reflected the application of the wage index budget-ne utrality adjustment of 1.000454, the home dialysis training add-on budget neutrality ad justment factor of 0.999912, and the portion of the drug utilization adjustment th at was transitioned for CY 2014, or $8.16.

• Update to the wage index floor

. A 0.05 reduction to the CY 2014 and CY 2015 wage index floor values, which resulted in a wa ge index floor value of 0.45 for CY 2014 and a wage index floor value of 0.40 for CY 2015 under the ESRD PPS.

• Update to the outlier policy

. Using CY 2012 claims data to update the outlier Medicare Allowable Payments (MAPs) and fixed dollar loss amounts for CY 2014, which resulted in updated fixed dollar loss amounts for adult a nd pediatric patients and MAPs for adult patients. Specifically, for pedi atric beneficiaries, we finali zed a fixed-dollar loss amountof $54.01 and a MAP amount of $40.49. For adult beneficiaries, we finalized a fixeddollar loss amount of $98.67 and a MAP amount of $50.25.

• The application of ICD-10-CM diagnosis code s to the comorbidity payment adjustment. We discussed and provided a crosswalk from ICD-9-CM to ICD-10-CM for codes that are subject to the comorbidity payment adju stment. We finalized a policy under which all ICD-10-CM codes to which ICD-9-CM codes that are eligible for the comorbidity payment adjustment crosswalk are eligible for the comorbidity payment adjustment beginning on October 1, 2014 with two exceptio ns. As discussed further below, however, section 212 of the Protecting Access to Medicare Act of 2014 (PAMA) (Pub. L. No. 113- 93) provides that the Secretary may not adopt ICD-10 prior to Oct ober 1, 2015. HHS hasCMS-1614-P 33

announced that it intends to issue an interim final rule that will require use of ICD-10 beginning October 1, 2015 and will continue to require use of ICD-9-CM through September 30, 2015. Accordingly, we plan to co ntinue to require facilities to utilize ICD-9-CM codes to identify comorbiditie s eligible for the comorbidity payment adjustment through September 30, 2015, and th en to use ICD-10-CM codes beginning October 1, 2015.

• The self-dialysis and home dialysis training add-on adjustment

. An increase to the selfdialysis and home dialys is training add-on adjustment from $33.44 to $50.16.

• The delay in payment for oral-only ESRD-related drugs and biologicals until January 1, 2016. We also delayed payment for oral-o nly ESRD-related drugs under the ESRD PPS until January 1, 2016. As discussed further below, section 217(a)(1) of PAMA amended section 632(b)(1) of ATRA to provide that the Secretary may not include oral-only ESRD-related drugs for payment under the ESRD PPS prior to January 1, 2024. B. Routine Updates and Proposed Policy Changes to the CY 2015 ESRD PPS
1. ESRD PPS Base Rate In the CY 2011 ESRD PPS final rule ( 75 FR 49071 through 49083), we discussed the development of the ESRD PPS per treatment base rate that is codifi ed in the Medicare regulations at §413.220 and §413.230. The CY 2011 ES RD PPS final rule also provides a detailed discussion of the methodology used to calculate the ESRD PPS base rate and the computation of factors used to adjust the ESRD PPS base rate for projected outlier payments and budget-neutrality in accordance wi th sections 1881(b )(14)(D)(ii) and 1881(b )(14)(A)(ii) of the Act, respectively. Specifically, the ESRD PPS base rate was develope d from CY 2007 claims (that is, the lowest per patient utilization year as required by section 1881(b)(14)(A)(i i) of theCMS-1614-P 34

Act), updated to CY 2011, and represented the average per treatment Medicare Allowable Payment (MAP) for composite rate and separately billable services. In accordance with section 1881(b)(14)(D) of the Act and regulations at §41 3.230, the ESRD PPS base rate is adjusted for the patient-specific case-mix adjustments, applicab le facility adjustments, geographic differences in area wage levels using an area wage index, as well as applicable outlier payments or training payments. a. Changes to the Drug Utilization Adjustment i. The Drug Utilization Adjustment Finali zed in the CY 2014 ESRD PPS Final Rule Section 1881(b)(14)(I) of th e Act, as added by section 632 (a) of the American Taxpayer Relief Act of 2012 (ATRA), required that, for serv ices furnished on or after January 1, 2014, the Secretary shall make reductions to the single payment for renal di alysis services to reflect the Secretary’s estimate of the change in the ut ilization of ESRD-related drugs and biologicals (excluding oral-only ESRD-relate d drugs) by comparing per patie nt utilization data from 2007 with such data from 2012. Sec tion 1881(b)(14)(I) further required that in making the reductions, the Secretary take into account the most recentl y available data on Average Sales Prices (ASP) and changes in prices for drugs and biologicals reflected in the ES RD market basket percentage increase factor under section 1881(b)(14)(F). Co nsistent with these requirements, in CY 2014, we finalized a payment adjustment to the CY 2014 ESRD PPS base rate that reflected the change in utilization of ESRD-related drugs a nd biologicals from CY 2007 to CY 2012. Specifically, we finalized the drug utilizat ion adjustment amount of $29.93 per treatment, and finalized a policy to implement this amount over a 3- to 4-year tr ansition period. For CYs 2014 and 2015, we stated that we would implem ent the transition by offsetting the payment update by a portion of the reduction amount necessa ry to create an overall impact of a zeroCMS-1614-P 35

percent for facilities from the previous year’s payments. For example, in CY 2014 we finalized a per treatment drug utilization adjustment amount for the first transition year of $8.16 or 3.3 percent, which represented the CY 2014 ESRDB market basket update minus productivity and other impacts to create an overall impact of zero percent. For a complete discussion of the methodology for computing the drug adjustment please see the CY 2014 ES RD PPS final rule (78 FR 72161 through 72170). ii. PAMA Changes to the Drug Utilization Adjustment On April 1, 2014, Congress enacted PAMA. Section 217(b), titled Mitigation of the Application of Adjustment to ESRD Bundled Payment Rate to Account for Changes in the Utilization of Certain Drugs and Biologicals, amends section 1881(b)(14)(I) of the Act by inserting “and before January 1, 2015” after January 1, 2014. This amendment effectively eliminates the remaining years of the drug utili zation adjustment transition. In its place, the PAMA amendments to section 1881(b )(14)(F)(i) dictate what the ma rket basket increase factor will be for 2015 and how it will be reduced in 2016 through 2018. In particular, PAMA section 217(b)(2)(C) amended section 1881(b )(14)(F)(i) by adding subclause (III), which provides that “[n]otwithstanding subclauses (I) and (II), in order to accomplish the purposes of subparagraph (I) with respect to 2015, the increase factor de scribed in subclause (I) for 2015 shall be 0.0 percent.” We interpret subclause (III) to mean that the market basket increase factor less the productivity adjustment for 2015 is 0.0 percent. The PAMA amendments also provide for a payment reduction in lieu of th e drug utilization adjustment in 2016 through 2018. In particular, PAMA section 217(b)(2)(ii) further amends s ection 1881(b)(14)(i)(I) by adding at the end the following new sentence, “ In order to accomplish the purpose of subparagra ph (I) with respect to 2016, 2017, and 2018, after determining the increase f actor described in the preceding sentenceCMS-1614-P 36

for each of 2016, 2017, and 2018, the Secretary shall reduce such increase factor by 1.25 percentage points for each of 2016 and 2017 and by 1 percentage point for 2018.” We interpret this provision as requiring us to reduce the market basket increase factor for 2016 through 2018 by the percentages prescribed in the statute. b. Payment Rate Update for CY 2015 As discussed in section II.B .2 of this proposed rule, secti on 1881(b)(14)(F)(i) of the Act, as added by section 153(b) of MIPPA and amende d by section 3401(h) of the Affordable Care Act, provides that, beginning in 2012, the ESRD PPS payment amounts are required to be annually increased by the rate of increase in the ESRD ma rket basket, reduced by the productivity adjustment described in section 1886 (b)(3)(B)(xi)(II) of the Act. If PAMA had not stipulated a 0.0 percent paymen t update for CY 2015, we would have proposed a payment update of 1.6 percent, (a 2.0 percent ESRDB market basket update less a 0.4 percent productivity adjustment). In accordance with section 1881(b)( 14)(F)(i)(III) of the Act, as added by PAMA section 217(b)(2)(C), however, we propose a 0.0 percent update to the CY 2014 ESRD PPS base rate of $239.02 for CY 2015. c. CY 2015 ESRD PPS Wage Index Budget Neutrality Adjustment For CY 2015 we propose to apply the wage index budget-neutrality ad justment factor of 1.001306 to the unadjusted CY 2014 and CY 2015 ESRD PPS base rate (that is, $239.02), yielding a proposed CY 2015 ESRD PPS wage-index budget-neutrality adjusted base rate of $239.33 ($239.02 X 1.001306 = $239.33). d. Labor-Related Share As discussed in section II.2.e, as part of th e proposed ESRDB market basket rebasing and revision, we are proposing to update the labor- related share value from 41.737 percent to 50.673CMS-1614-P 37

percent. We note that some ESRD facilities are adversely affected by this proposal. For example, rural facilities and facilities located in CBSA areas with wage indexes below 1 will experience reduced payments due to an increase in the labor-related share, while other facilities located in CBSA area where wage indices are above 1 will experience increased payments. While we are proposing the new labor-related share under the ESRD PPS payment system computed at 50.673 percent, we propose to impl ement this value using a 2-year 50/50 blend transition. Therefore, for CY 2015 we propose to apply 50 percent of the value of the current labor-related share under the ESRD PPS (41.737) a nd 50 percent of the value of the new laborrelated share, (50.673), add the values together and divide by two, for a CY 2015 labor-related value of 46.205 ((41.737 + 50.673)/2 = 46.205). Be ginning in CY 2016 we propose to apply 100 percent of the proposed labor-r elated share value of 50.673 per cent. We propose to continue to apply a labor-related share value of 50.673 percent until such time in the future the ESRDB market basket is again rebased in computing a wage index-adjusted base rate for ESRD facilities. We believe that this approach is similar to the 50/50 blend transition proposed for the CY 2015 wage indexes and discussed in sec tion II.3.c of this rule and that a 2- year transition is necessary to allow ESRD facilities time to adjust to the new labor related-share value. We note that we considered implementing th e computed labor rela ted share value of 50.673 for CY 2015, but that would have increas ed the CY 2015 proposed wage index budget neutrality factor to 1.002081. Th is increase would ha ve resulted in a decrease in CY 2015 Medicare payments to rural f acilities of 1.3 percent, and an increase to urba n facilities 0.5 percent. When we apply the transition labor -related share value of 46.205, the disparity in impacts for rural and urban facilities is reduced to less than 1.0 percen t. Specifically, rural facilities would experience a decr ease in payments of 0.5 percen t and urban facilities wouldCMS-1614-P 38

experience an increase in payments of 0.4 per cent. . (For more information of the CY 2015 Impact of Proposed Changes in Payments to ES RD Facilities for CY 2015 ESRD proposed rule, see section XV of this rule). Therefore, we be lieve a 2-year transition strikes an appropriate balance between ensuring that ESRD PPS payments are as accurate and st able as possible while giving facilities time to adjust to th e new labor-related share factor. In summary, we propose a CY 2015 ESRD PPS base rate update of $239.33. This reflects a 0.0 percent payment upda te consistent with section 1881( b)(14)(F)(i)(III), as added by section 217(b)(2) of PAMA. This base rate reflects the CY 2015 proposed wage index budget neutrality factor of 1.001306, and a la bor-related share value of 46.205. 2. ESRD Bundled Market Bask et and Labor-Related Share a. Background In accordance with section 1881( b)(14)(F)(i) of the Act, beginning in 2012, the ESRD payment amounts are required to be annually incr eased by an ESRD market basket increase factor that is reduced by the pr oductivity adjustment insection 1886(b)(3)(B)(x i)(II) of the Act. The application of the productivity adjustment may result in the increase factor being less than 0.0 for a year and may result in payment rates for a year being less than th e payment rates for the preceding year. The statute also provides that th e market basket increase factor should reflect the changes over time in the prices of an appropriate mix of goods and services used to furnish renal dialysis services. In the CY 2011 ESRD PPS final rule (75 FR 49151 through 49162), we established an ESRD Bundled market basket using CY 2008 as the base year. This market basket was used to annually update the ESRD base rate payments for CY 2012, CY 2013, and CY 2014. In this CY 2015 ESRD PPS proposed rule, we are proposing to re vise and rebase the ESRDB market basketCMS-1614-P 39

to a base year of CY 2012. We note that PAMA dictates a market basket update for CY 2015 of 0.0 percent and a reduction to the market basket updates in CYs 2016 through 2018 (by 1.25 percentage points for each of 2016 and 2017 and by 1 percentage point for 2018). The term “market basket” refers to the mi x of goods and services needed to produce ESRD care, and is also commonly used to denote the input price index that includes both weights (mix of goods and services) and pr ice factors. The term “ESRDB ma rket basket” as used in this proposed rule refers to th e ESRDB input price index. The proposed CY 2012-based ESRDB market ba sket represents the costs of operating and capital-related costs. The percentage chan ge in the ESRDB market basket reflects the average change in the price of a fixed set of goods (both opera ting and capital) and services purchased by ESRD facilities in providing rena l dialysis services. For further background information, see the CY 2011 final rule with comment period (75 FR 49151 through 49162). For purposes of the ESRDB PPS, the ESRD B market basket is a fixed-weight (Laspeyres-type) price index. A Laspeyres-type index compares the cost of purchasing a specified mix of goods and services in a selected base period to the cost of purchasing that same group of goods and services at current prices. The effects on total expenditures resulting from changes in the quantity or mix of goods and services purchased s ubsequent or prior to the base period are, by design, not considered. We construct the market basket in three steps. The first step is to select a base period and estimate total base period expe nditure shares for mutually ex clusive and exhaustive spending categories. We use total costs for operating and capital expenses. These shares are called “cost” or “expenditure” weights. The second step is to match each expenditure cat egory to a price/wage variable, called a price proxy. We draw thes e price proxy variables fr om publicly availableCMS-1614-P 40

statistical series published on a cons istent schedule, preferably at least quarterly. The final step involves multiplying the price series for each sp ending category by the cost weight for that category. The sum of these products (that is, weights multiplied by proxy index levels) for all cost categories yields the composite index level of the market basket for a given quarter or year. Repeating the third step for other quarters and years produces a time series of market basket index levels, from which we can calculate rates of growth. The market basket represents a fixed-wei ght index because it answers the question of how much more or less it would cost, at a later time, to purch ase the same mix of goods and services that was purchased in the base period. We are proposing to use CY 2012 as the base year for the proposed rebased and revised ESRDB market basket cost weight s. The cost weights for this proposed ESRDB market basket are based on the cost report data for independent ESRD facilities. We refer to the market basket as a CY market basket because the base period for all price proxies and weights are set to CY 2012 = 100. Source data included CY 2012 Me dicare cost reports (Form CMS-265-11), supplemented with 2012 data from the U.S. Census Bureau’s Services Annual Survey (SAS). Medicare cost reports from hospital-based ESRD providers were not us ed to construct the proposed ESRDB market basket be cause data from independent ES RD facilities tend to better reflect the actual cost structure faced by the ES RD facility itself, and are not influenced by the allocation of overhead over the entire institu tion, as can be the cas e with hospital-based providers. This approach is consistent with our standard methodology us ed in the development of other market baskets. Consistent with our discussi on in the CY 2011 final rule with comment period (75 FR 49153), and as further discussed below, to impl ement section 1881(b)(14)(F)(i) of the Act weCMS-1614-P 41

propose to revise and rebase the market basket so the cost wei ghts and price proxies reflect the mix of goods and services that underlie ESRD bundled operating and capital costs for CY 2012. b. Rebasing and Revision of th e ESRD Bundled Market Basket The terms "rebasing" and "revising", while often used interchangeably, actually denote different activities. Rebasing mean s shifting the base year for the structure of costs of the input price index (for example, for this proposed rule, we propose to shift the base year cost structure from CY 2008 to CY 2012). Revising means ch anging data sources, co st categories, price proxies, and/or methodology used in developing th e input price index. We are proposing both to rebase and revise the ESRDB market basket to reflect CY 2012 total cost data. We selected CY 2012 as the new base year because 2012 is the most recent year for which relatively complete Medicare cost report (MCR) data are available. In developing the proposed market basket, we reviewed ESRD ex penditure data from ESRD MCRs (CMS Form 265-11) for CY 2012 for each freestanding ESRD facili ty that reported expenses and payments. The CY 2012 cost reports are those with cost reporting periods beginning on or after January 1, 2012 and before December 31, 2012. We propose to maintain our policy of using data from freestanding ESRD facilities because freestanding ESRD data reflect the actual cost structure faced by the ESRD facility itself. In contrast, expense data for a hospital-based ESRD reflect the allocation of overhead over the en tire institution. Due to this method of a llocation, the expenses of each hospital-based component may be skewed. We developed cost category weights for the proposed CY 2012-based ESRDB market basket in two stages. First, we derived base weights for nine major categories (Wages and Salaries, Employee Benefits, Medical Supplies, Lab Services, Housekeeping & Operations, Pharmaceuticals, Administrative and General, Ca pital-Related Building & Fixed Equipment, andCMS-1614-P 42

Capital-Related Machinery) from the ESRD M CRs. Second, we are proposing to divide the Administrative & General cost category into further detail using 2012 U.S. Census Bureau Services Annual Survey (SAS) Data for the i ndustry Kidney Dialysis Centers (NAICS 621492). We apply the 2012 distributions from the SAS data to the 2012 “Administr ative & General” cost weight to yield the more detailed 2012 cost weig hts. This is similar to the methodology we used to break the 2008-based Administra tive & General Costs into more detail for the ESRDB market basket as detailed in the CY 2011 ESRD fi nal rule (75 FR 49154 through 49159). The main difference is that in the 2008-based market basket we relied on data from the U.S. Census Bureau Business Expenses Survey (BES). The BES data was the predecessor to the SAS. The Census Bureau SAS data are published annually, with the most recent data available being 2012. For more information on the SAS data, see http://www.census.gov/services/sas/about_the_surveys.html. We are proposing to include a total of 20 detailed cost categories for the proposed CY 2012-based ESRDB market basket, which is four more cost categories than the CY 2008-based ESRDB market basket. In addi tion, we are proposing to furthe r decompose both the Wages and Salaries and Employee Benefits cost categories into four more detailed cost categories reflecting the occupational mix of full time equivalents (FTE s) at ESRD facilities. The four detailed occupational categories that will underlie both Wages and Salaries and Employee Benefits are: (1) Health-related workers; (2) Management wo rkers; (3) Administrative workers; and (4) Service workers. Having more detailed cost categories for these compensation costs enables them to be proxied more precisely. We are al so proposing to collapse the Professional Fees and All Other Services cost categories into single cate gories rather than splitting those categories into Labor-Related and Non-Labor-Related Services. We will continue to assume that 87 percent ofCMS-1614-P 43

Professional Fees are labor-related costs and will be included in the proposed labor-related share. In addition, we are proposing to revise our labels for All Other Materials to Medical Materials and Supplies, Laboratories to Lab Services, and All Other Labor-Related / Non Labor-Related to All Other Goods and Services. A more thorough di scussion of our proposals is provided below. i. Cost Category Weights Using Worksheets A and B from the CY 2012 Me dicare cost reports, we first computed cost shares for nine major expenditure categ ories: Wages and Salari es, Employee Benefits, Pharmaceuticals, Supplies, Lab Services, Admini strative and General (A&G), Housekeeping and Operations, Capital-Related Building & Equipment, and Capital-Related Ma chinery. Edits were applied to include only cost repo rts that had total costs greater than zero. In order to reduce potential distortions from outliers in the calculation of the cost weights for the major expenditure categories, cost values for each category less th an the 5th percentile or greater than the 95th percentile were excluded from the computations. The resulting data set included information from approximately 4,700 independent ESRD facilitie s’ cost reports from an available pool of 5,333 cost reports. Expenditures for the nine cost categories as a proporti on of total expenditures are shown in Table 1. Table 1 presents the proposed CY 2012-based ESRDB and CY 2008-based ESRDB market basket major cost weight s as derived directly from the MCR data. Following the table, we describe the sources of the major category weights and their subcategories in the proposedCMS-1614-P 44

CY 2012-based ESRDB market basket.

TABLE 1: PROPOSED CY 2012-BASED ESRDB MARKET BASKET MAJOR COST WEIGHTS

Cost Category Proposed CY 2012- based ESRDB Market Basket CY 2008-based ESRDB Market Basket Wages and Salaries 31.839% 26.338% Employee Benefits 6.570% 5.163% Pharmaceuticals 16.510% 26.358% Supplies 10.097% 9.726% Lab Services 1.532% 0.356% Housekeeping & Operations 3.785% 3.604% Administrative & General (residual) 17.419% 17.594% Capital-related Building & Fixed Equipment 8.378% 7.910% Capital-related Machinery 3.870% 2.951% Note: Totals may not sum to 100.000% due to rounding Some costs are reported on the Medicare cost report but are not included in the ESRD bundled payment. For example, we removed the expenses related to vaccine costs from total expenditures since these are excluded from th e ESRD bundled payment, but reported on the Medicare cost report. We are proposing to expand the expenditure cat egories developed from the Medicare cost reports to allow for more detailed expenditure decomposition. To expand these cost categories, SAS data were used because the Medicare cost reports do not collect detailed information on the items of interest. Those categories include: benefits for all employees, professional fees, telephone, utilities, and all other goods and services. We ch ose to separately break out these categories to more accurately refl ect ESRD facility cost s. We describe below how the initiallyCMS-1614-P 45

computed categories and weights from the cost reports were modified to yield the final 2012 ESRDB market basket expenditure categories an d weights presented in this proposed rule. Wages and Salaries The weight for wages and salaries for dire ct patient care for 2012 was initially derived from Worksheet B of the Medicare cost report. However, because the cost center for direct patient care salaries does not in clude all other wage and salary costs for non-health workers and physicians, it was necessary to derive a methodology to include all salaries, not just direct patient care salaries, in order to calculate the appropr iate market basket co st weight. This was accomplished in the following steps. 1) From the trial balance of the cost report (W orksheet A), we computed the ratio of salaries to total costs in each of the following cost centers: housekeeping and operations, employee benefits for direct patient ca re, Administrative & General, Supplies, Laboratories, and Pharmaceuticals. 2) We then multiplied the ratios computed in st ep 1 by the total costs for each corresponding cost center from Worksheet B. This provided us with an estimate of salaries other than direct-patient care for each cost center. 3) The estimated salaries for each of the cost centers on Worksheet B estimated in step 2 were subsequently summed and added to the dir ect patient care salary figure (resulting in a new total salaries figure). 4) The estimated non-direct patient care salaries (see step 2) were then subtracted from their respective cost categories to avoid double-counting their va lues in the total costs. As a result of this process, we moved from an estimated Wages and Salaries cost weight of 23.242 percent (as estimated using only direct patient care salaries as a percent of total costs)CMS-1614-P 46

to a weight of 31.839 percent (captu ring both direct patient care sala ries and all other salary costs and, again, dividing that by total costs found on the Me dicare cost report), as seen in Table 2. The final adjustment made to this category is to include contract labor costs. These costs appear on the Medicare cost re port; however, they are embedded in the Administrative and General category and cannot be disentangled using the Medicare cost reports alone. To move the appropriate expenses from the A&G category to Wages and Salari es, we used data from the 2012 SAS, which reported 2.3 of total expenses were sp ent on contract labor costs. We allocated 80 percent of that figure to Wages a nd Salaries. At the same time, we subtracted that same amount from A&G, where the contract labor expenses would be reported on th e cost report. The 80 percent figure that was used was determined by taking salaries as a percentage of total compensation (excluding contract labor) from th e 2012 MCR data. The resulting cost weight for Wages and Salaries increas es to 33.650 percent. TABLE 2: ESRD WAGES & SALARIES SHARE DETERMINATION
Components Cost Share 08 MCR Salaries Direct Patient Care (DPC) 22.297% 08 MCR Additional Salaries We ight (other than DPC) 4.041% 08 Wage & Salary Weight normalized after adding separately billable services into the bundle -1.373% 08 Contract Labor (wages) (80% of BES CL share) 1.790% 08 Final Wage & Salary Weight 26.755% 12 MCR Salaries Direct Patient Care (DPC) 23.242% 12 MCR Additional Salaries We ight (other than DPC) 8.597% 12 Contract Labor (80% of SAS CL share) 1.811% 12 Final Wage & Salary Weight 33.650%

Benefits The Benefits weight was derived from the MCR data for employee benefits for direct patient care and supplemented with data from the 2012 SAS to account for non-direct patientCMS-1614-P 47

care benefits. The cost report only reflects hea lth-related benefit costs associated with direct patient care; that is, it does not reflect retirement benefits. In order to incl ude the benefits related to non-direct patient care, we estimated this marg inal increase from the SAS Benefits weight. Unlike the MCR, data the SAS benefits share in cludes expenses related to the retirement and pension benefits. In order to be consistent with the cost report defini tions we do not want to include the costs associated with retirement and pension benefits in the cost share weights. These costs are relatively small compared to the costs for the health related benefits, accounting for only 2.7 percent of the total benefits costs as reported on the SAS. Our method produced a Benefits (both direct patient ca re and non-direct patient care) weight that was 1.824 percentage points larger (8.394 vs. 6.570) than th e Benefits weight for direct pa tient care calculated directly from the cost reports. To avoid double-counting and to ensure all of the market basket weights still totaled 100 per cent, we removed this additional 1.824 perc entage point for Benefits from the residual category. The final adjustment made to this category is to include contract labor costs. Once again, these costs appear on the Medicare cost re port; however, they are embedded in the Administrative and General catego ry and cannot be disentangled us ing the Medicare cost report alone. We applied 20 percent of total contract la bor costs, as estimated using the SAS, to the Benefits cost weight calculated from the cost reports. The resulting cost weight for Benefits increases to 8.847 percent. The Table 3 compares the 2008-based Benefits co st share derivation as detailed in the CY 2011 ESRD final rule (75 FR 49155-49156) to the proposed 2012-based Benefits cost share derivation as explained above.CMS-1614-P 48

TABLE 3: ESRD BENEFIT SHARE DETERMINATION Components Cost Share 08 MCR Benefits 5.163% 08 BES Additional Benefits Weight (Health only) 1.143% 08 Contract Labor (20% of BES benefits share) 0.448% 08 Final Benefit Weight 6.754% 12 MCR Benefits 6.570% 12 SAS Additional Benefits Weight (Health only) 1.824% 12 Contract Labor (20% of SAS benefits share) 0.453% 12 Final Benefit Weight 8.847%

Utilities We developed a weight for Utility expenses using the 2012 SAS data, as utilities are not separately identified on the Medi care cost report. The SAS da ta reports the percentage of expenses for ‘purchased fuels (except motor fuels )’, ‘purchased electricity’, and ‘water, sewer, refuse, and other utilitie s.’ We applied these ratios to the administrative and ge neral cost share (net of contract labor and additi onal benefits). The resulting Elect ricity, Fuel (Natural Gas), and Water and Sewerage weights in the proposed 2012 ESRDB market basket are 0.973, 0.101, and 0.765 percent, respectively; together these categori es yield a combined U tilities cost weight of 1.838 percent. Pharmaceuticals The proposed ESRDB market basket incl udes expenditures for all drugs, including formerly separately billable drugs and ESRD-re lated drugs that were covered under Medicare Part D before the ESRD PPS was implemented. We were able to calculate an expenditure weight for pharmaceuticals directly from the fo llowing cost centers on Worksheet B: columns 11 ‘Drugs Included in Composite Rate’; 12 ‘ESAs’ ; 13 ‘ESRD-Related Drugs; and drug expenses reported on line 5 column 10, ‘Non-ESRD related drugs.’ The Non-ESRD related drugs wouldCMS-1614-P 49

include drugs and biologicals, administered duri ng dialysis for non-ESRD related conditions as well as oral-only drugs. Since th ese are costs to the facility fo r providing ESRD treatment to the patient we propose to include them in the drug cost share weight. Vaccine expenditures, which are mandated as separately reimbursable, were excluded when calculating this cost weight. Section 1842(o)(1)(A)(iv) of the Act requires that influenza, pneumococcal, and hepatitis B vaccines described in subparagraph (A) or (B) of section 1861(s)(10) of the Act be paid based on 95 percent of average wholesale price (AWP) of the drug. Since these drugs are excluded from other prospective payment systems, we exclude them from the proposed ESRDB market basket, as well. Finally, to avoid double-counting, the wei ght for the Pharmaceuticals category was reduced to exclude the estimated share of non-direct patient care salaries and benefits associated with the applicable drug cost centers referenced above. This resulted in a proposed ESRDB market basket weight for Pharmaceuticals of 16.510 percent. ESA expenditures accounted for 12.383 percentage points of the Pharmaceuticals we ight, and all other drugs accounted for the remaining 4.127 percentage points (.438 percent for Drugs Included in Composite Rate, 3.534 percent for ESRD-Related Drugs, and 0.155 pe rcent for Non-ESRD related drugs). The 9-percentage point decrease in th e pharmaceutical share between 2008 and 2012 (25.052 percent to 16.510 percent) is due largely to the drop in drug utilization. The drug percentage of the base rate us ed in 2011 was about 31 percent; however, the analysis conducted for the drug utilization adjustment showed that the drug portion of the base rate in 2014 would have fallen to only be 22 percent of the base rate had it been fully implem ented. The cost report data corroborate the drop in drug costs for facilities over the same time frame. SuppliesCMS-1614-P 50

We calculated the weight for Supplies incl uded in the bundled ra te using the costs reported in the Supplies cost cente r (column 7 on Worksheet B) of the Medicare cost report. This total was divided by total expenses to de rive a weight for the Supplies component in the ESRDB market basket. Finall y, to avoid double-counting, the we ight for the Supplies category was reduced to exclude the estimated share of non-direct patient care salaries and benefits associated with this cost center. The resu lting proposed 2012-based ESRDB market basket weight for Supplies is 10.097 percent. Lab Services We calculated the weight for Lab Services in cluded in the bundled rate using the costs reported in the Laboratory cost cent er (column 8 on Worksheet B) of the Medicare cost report. This total was divided by total expenses to deri ve a weight for the Lab component in the ESRDB market basket. Finally, to avoid double-counting, the weight for the Lab services category was reduced to exclude the estimated share of non-direct patient care salaries and benefits associated with this cost center. The resulting proposed 2012-based ESRDB market basket weight for Lab Services is 1.532 percent. The cost weight for lab services is subs tantially lower than the 2008 ESRDB market basket lab weight of 5.497 percent. This is due to the change in the method used to determine lab costs. In 2008, we relied on MCR data for th e cost share weight; however, the majority of lab services were performed by labs outside of the dialysis facility a nd those costs were not reported on the MCR. Therefore, in the 2008 ESRD B market basket we inflated the expenses reported for labs in ESRD facilities to reflect the use from other provider types. This adjustment factor was estimated based on the lab payment to dialysis facilities relative to the lab fee payment to other providers. For the rebased ESRDB market ba sket, the 2012 cost report dataCMS-1614-P 51

represents the expenses under th e bundled payment system, and all of the expenses related to lab fees (whether in house or contracted through an outside lab) are repo rted in the MCR data. Housekeeping & Operations We calculated the weight for Housekeeping a nd Operations included in the bundled rate using the costs reported on worksh eet A, column 8, lines 3 & 4 of the Medicare Cost Report. This total was divided by total expenses to deri ve a weight for the Housekeeping and Operations component in the ESRDB market basket. Finall y, to avoid double-counting, the weight for the Housekeeping & Operations category was reduced to exclude the estimated share of non-direct patient care salaries and benef its associated with this cost center. The resulting proposed 2012- based ESRDB market basket weight for H ousekeeping and Operations is 3.785 percent. Administrative and General (A&G) We computed the proportion of total A&G expe nditures using the A&G cost center data from Worksheet B (column 9) of the Medicare co st reports. As described above, we exclude contract labor from this cost category and apporti on these costs to the sala ry and benefits cost weights. Similar to other expenditure categor y adjustments, we then reduced the computed weight to exclude salaries and benefits associ ated with the A&G cost center and the additional benefits for non-direct patient ca re. The resulting A&G cost we ight is 13.331 percent. This A&G cost weight is then fully apportioned to derive detailed cost we ights for Utilities, Telephone, Professional Fees, and All Other Goods and Services. Professional Fees A separate weight for Professional Fees was developed using the 2012 SAS data. Professional fees include fees associated with the following: purchased professional & technical services (such as accounting, bookkeeping, lega l, management, consulting, and otherCMS-1614-P 52

professional services fees) and purchased adve rtising & promotional services. To estimate professional fees, we first calculated the ratio of SAS professional fees to SAS expenses that match the A&G expenses from the cost reports. We then applied this ratio to the A&G total cost weight to estimate the proportion of ESRD facility professional fees. The resulting weight for the proposed 2012-based ESRDB market basket is 0.617 percent. An estimated 87 percent of the expenses are considered labor-rel ated and subsequently included in the proposed labor-related share, which is described in more detail below. Telephone Because telephone service expenses are not se parately identified on the Medicare cost report, we developed a Telephone Services weig ht using the 2012 SAS expenses. We estimated a ratio of telephone services expenses to total administrative and general expenses from SAS. We applied this ratio to the total A&G cost we ight from the cost reports to estimate the proportion of ESRD facility telephone expenses . The resulting proposed 2012-based ESRDB market basket cost weight for Te lephone Services is 0.468 percent. All Other Goods and Services A separate weight for All Other Goods a nd Services was developed using the 2012 SAS data. All other Goods and Services include expenses for purchased software, professional liability insurance, data pro cessing and other purchased computer services, and all other operating expenses not otherwise captured. We estimated a ratio of All Other Goods and Services expenses to Total Administrative and Ge neral expenses from SAS. We then applied this ratio to the total A&G cost weight from the cost reports to estimate the cost weight for ESRD facility All Ot her Goods and Services. The re sulting proposed 2012-based ESRDB market basket cost weight for All Othe r Goods and Services is 10.407 percent.CMS-1614-P 53

Capital We developed a market basket weight fo r the Capital category using data from Worksheet B of the Medicare cost reports. Capita l-related costs include depreciation and lease expense for buildings, fixtures, movable equipmen t, property taxes, insurance, the costs of capital improvements, and maintenance expense fo r buildings, fixtures, and machinery. Because housekeeping as well as operation & maintenance costs are included in the Worksheet B cost center for Capital-Related costs (Worksheet B, column 2), we excluded the costs for these two categories and developed a separate expenditu re category for housekeeping & operations, as detailed above. Similar to the methodology used for other market basket cost categories with a salaries component, we computed a share for non-direct patient care salaries and benefits associated with the Capital-related Machinery cost center. We used Worksheet B to develop two capital-related cost categories, one for Buildings and Equipment (based on worksheet B column 2 less housekeeping & operations), and one for M achinery (based on worksheet B column 4). We reasoned this delineation was particularly importa nt given the critical ro le played by dialysis machines. Likewise, because price changes as sociated with Buildings and Equipment could move differently than those associated with Mach inery, we felt that separate price proxies would be more appropriate. The resulting proposed 2012-based ESRDB market basket weights for Capital-related Buildings and Equipment a nd Capital-related Machinery are 8.378 and 3.870 percent, respectively. Table 4 lists all of the cost categories a nd cost weights in the proposed CY 2012 ESRDB market basket compared to the cost categorie s and cost weights in the CY 2008 ESRDB market basket.CMS-1614-P 54

TABLE 4: COMPARISON OF THE PR OPOSED CY 2012-BASED ESRDB MARKET BASKET COST CATEGORIES & WEI GHTS AND THE CY 2008-BASED ESRDB MARKET BASKET COST CAT AGORIES & WEIGHTS.

2008 Cost Category 2008 Cost Weight Proposed 2012 Cost

Weight Proposed 2012 Cost Category Total 100.000% 100.000% Total Compensation 33.509% 42.497% Compensation Wages and Salaries 26.755% 33.650% Wages and Salaries Employee Benefits 6.754% 8.847% Employee Benefits Utilities 1.264% 1.839% Utilities Electricity 0.621% 0.973% Electricity Natural Gas 0.127% 0.101% Natural Gas Water and Sewerage 0.516% 0.765% Water and Sewerage
All Other Mate rials 39.765% 28.139% Medical Materials and Supplies Pharmaceuticals 25.052% 16.510% Pharmaceuticals Supplies 9.216% 10.097% Supplies Lab Services 5.497% 1.532% Lab Services
All Other Services 15.929% 15.277% All Other Goods and Services Telephone 0.597% 0.468% Telephone Service Housekeeping and Operations 2.029% 3.785% Housekeeping and Operations Labor-Related Services 2.768%

Prof. Fees: Labor-related 1.549% 0.617% Professional Fees (Laborrelated and NonLabor-related services) All Other Labor-related 1.219% NonLabor-Related Services 10.535% 10.407% All Other Goods and ServicesProf. Fees: Nonlaborrelated 0.224%All Other Nonlaborrelated 10.311% Capital Costs 9.533% 12.248% Capital Costs Capital Related-Building and Equipment 7.459% 8.378% Capital Related-Building and Equipment Capital Related-Machinery 2.074% 3.870% Capital Related-Machinery Note: Totals may not sum to 100.000 percent due to roundingCMS-1614-P 55

ii. Proposed Price Proxies for the CY 2012 ESRDB Market Basket After developing the cost weights for the proposed CY 2012-based ESRDB market basket, we selected the most a ppropriate wage and price proxies currently available to represent the rate of price change for each expenditure category. We base the price proxies on Bureau of Labor Statistics (BLS) data a nd group them into one of the following BLS categories:

• Employment Cost Indexes. Employment Co st Indexes (ECIs) measure the rate of change in employment wage rates and employer costs for employee benefits per hour worked. These indexes are fixed-weight indexes and stri ctly measure the change in wage rates and employee benefits per hour. ECIs are superior to Average Hourly Earnings (AHE) as price proxies for input price indexes because they are no t affected by shifts in occupation or industry mix, and because they measure pure price chan ge and are available by both occupational group and by industry. The industry ECIs are based on the North American Classification System (NAICS) and the occupational ECIs are based on the Standard Occupational Classification System (SOC).

• Producer Price Indexes. Producer Price I ndexes (PPIs) measure price changes for goods sold in other than retail markets. PPIs ar e used when the purchases of goods or services are made at the wholesale level.

• Consumer Price Indexes. Consumer Pri ce Indexes (CPIs) measure change in the prices of final goods and services bought by consum ers. CPIs are only used when the purchases are similar to those of retail consumers rather than purchases at the wholesale level, or if no appropriate PPIs were available. We evaluated the price proxies using the criteria of reliability, timeliness, availability, and relevance:CMS-1614-P 56

• Reliability. Reliability indicates that the index is based on valid statistical methods and has low sampling variability. Widely accepted stat istical methods ensure that the data were collected and aggregated in a way that can be replicated. Low sa mpling variability is desirable because it indicates that the sample reflects the t ypical members of the population. (Sampling variability is variation that occurs by chance because only a sample was surveyed rather than the entire population.)

• Timeliness. Timeliness implies that the proxy is published regularly, preferably at least once a quarter. The market baskets are updated quart erly, and therefore, it is important for the underlying price proxies to be up-to-date, refl ecting the most recent data available. We believe that using proxies that are published regularly (at leas t quarterly, whenever possible) helps to ensure that we are us ing the most recent data availabl e to update the market basket. We strive to use publications that are disseminate d frequently, because we believe that this is an optimal way to stay abreast of th e most current data available.

• Availability. Availability mean s that the proxy is publicly ava ilable. We prefer that our proxies are publicly available because this will he lp ensure that our market basket updates are as transparent to the public as possible. In addition, this enables the public to be able to obtain the price proxy data on a regular basis.

• Relevance. Relevance means that the proxy is applicable and repres entative of the cost category weight to which it is applied. The CPIs , PPIs, and ECIs that we have selected to propose in this regulation meet th ese criteria. Therefore, we belie ve that they continue to be the best measure of price changes for the cost categories to which they would be applied. Table 7 lists all price proxies for the pr oposed revised and rebased ESRDB market basket. Below is a detailed explanation of the price proxies used for each cost category weight.CMS-1614-P 57

Wages and Salaries We will continue using an ECI blend for wa ges and salaries in the proposed 2012-based ESRDB market basket. Howeve r, we are proposing to expand the number of occupation categories and associated ECIs from two to four based on FTE data from ESRD Medicare Cost Reports and the availability of ECIs from BLS. We calculated weights for the Wages and Salaries sub-categories using 2012 FTE data and associated 2012 Average Mean Wage data from the Bureau of Labor Statistics’ Occupational Employment Statistics. Wages and Salaries—Health Related We are proposing to continue using the EC I for Wages & Salaries for Hospitals (All Civilian) (BLS series code #CIU1026220000000I). Of the two health-related ECIs that we considered (“Hospitals” and “Health Care and So cial Assistance”), the wa ge distribution within the Hospital NAICS sector (622) is more closely related to the wage distribution of ESRD facilities than it is to the wage distribution of the Health Care and So cial Assistance NAICS sector (62). The Wages and Salaries—Health Related s ubcategory weight within the Wages and Salaries cost category is 80percent. The ESRD Medicare Cost Report FTE categories used to define the Wages and Salaries—Health Related subcategory include “Physicians,” “Registered Nurses,” “Licensed Practical Nurses,” “Nurse s’ Aides,” “Technicians,” and “Dieticians.” The current 2008-based ESRD Market Basket uses the ECI for Wages & Salaries for Hospitals (All Civilian) for 50 pe rcent of Wages and Salaries. Wages and Salaries—Management We propose using the ECI for Wages & Sa laries for Management, Business, and Financial (Private Industry) (BLS series code #CIU2020000110000I). We feel this ECI is theCMS-1614-P 58

most appropriate price proxy to measure the pri ce growth of management functions at ESRD facilities. Furthermore, we regul arly use this ECI-wages for management, business, and financial in our other market baskets, such as the MEI. The Wages and Salaries—Management subc ategory weight within the Wages and Salaries cost category is 8 percent. The ESRD Medicare Cost Report FTE category used to define the Wages and Salaries—Management subcategory is “Management.” Wages and Salaries—Administrative We propose using the ECI for Wages & Salaries for Office and Admi nistrative Support (Private Industry) (BLS series code #C IU2020000220000I). We feel this ECI is the most appropriate price proxy to measure the price growth of administrative suppor t at ESRD facilities. Furthermore, we regularly use this ECI for admi nistrative wages in our other market baskets, such as the MEI. The Wages and Salaries—Administrative s ubcategory weight within the Wages and Salaries cost category is 7 percent. The ESRD Medicare Cost Report FTE category used to define the Wages and Salaries—Administr ative subcategory is “Administrative.” Wages and Salaries—Services We propose using the ECI for Wages & Sala ries for Service Occupations (Private Industry) (BLS series code #CIU2020000300000I). We feel this ECI is the most appropriate price proxy to measure the price growth of a ll other non-health related, non-management, and non-administrative service support at ESRD facilities. Furthermore, we regularly use this ECI for all other service wages in our other market baskets, such as the MEI.CMS-1614-P 59

The Wages and Salaries—Services subcategor y weight within the Wages and Salaries cost category is 6 percent. Th e ESRD Medicare Cost Report FTE categories used to define the Wages and Salaries—Services subcategor y are “Social Workers” and “Other.” Table 5 lists the four ECI series and the corresponding weights us ed to construct the proposed ECI blend for wages and salaries. We feel this new ECI blend is the most appropriate price proxy to measure the growth of wage s and salaries faced by ESRD facilities. TABLE 5: ECI BLEND FOR WAGES AND SALARIES IN THE PROPOSED 2012 BASED ESRDB MARKET BASKET Cost Category ECI Series Weight (%) Wages and Salaries— Health Related ECI—Wages & Salaries—Hospital (All Civilian) 80% Wages and Salaries— Management ECI—Wages & Salaries—Management, Business, and Financial (Private Industry) 7% Wages and Salaries— Administrative ECI—Wages & Salaries—Office and Administrative Support (Private Industry) 7% Wages and Salaries— Services ECI—Wages & Salaries—Service Occupations (Private Industry) 6%

The current 2008-based ESRDB mark et basket uses a 50 percent / 50 percent blend of the “ECI—Wages & Salaries—Hospital (All Civi lian)” and the “ECI—Wages and Salaries— Healthcare and Social Assistance” for the wages and salaries ECI blend. Benefits We will continue using an ECI blend for Benefits in the proposed 2012-based ESRDB market basket; however, we are proposing to expand the number of occupation categories and associated ECIs from two to four based on th e components of the proposed Wage and Salaries ECI blend. Benefits—Health RelatedCMS-1614-P 60

We are proposing to continue using the ECI for Benefits for Hospitals (All Civilian) to measure price growth of this s ubcategory. The ECI for Benefits fo r Hospitals is calculated using the ECI for Total Compensation for Hospitals (BLS series code # CIU1016220000000I) and the relative importance of wages and salaries within total compensati on. We believe this constructed ECI series is technically appropria te for the reason stated above in the wages and salaries price proxy section. Benefits—Management We propose using the ECI for Benefits for Management, Business, and Financial (Private Industry) to measure price growth of this s ubcategory. The ECI for Benefits for Management, Business, and Financial is calculated using th e ECI for Total Compensation for Management, Business, and Financial (BLS series code # CIU2010000110000I) and the rela tive importance of wages and salaries within total compensation. We believe this constructed ECI series is technically appropriate for the r eason stated above in the wages and salaries price proxy section. Benefits—Administrative We propose using the ECI for Benefits for Office and Administrati ve Support (Private Industry) to measure price growth of this s ubcategory. The ECI for Benefits for Office and Administrative Support is calculated using th e ECI for Total Compensation for Office and Administrative Support (BLS series code # CIU2010000220000I) and the rela tive importance of wages and salaries within total compensation. We believe this constructed ECI series is technically appropriate for the r eason stated above in the wages and salaries price proxy section. Benefits—Services We propose using the ECI for Benefits for Se rvice Occupations (Pri vate Industry) to measure price growth of this subcategory. The ECI for Benefits for Service Occupations isCMS-1614-P 61

calculated using the ECI for Total Compensation for Service Occupations (BLS series code # CIU2030000300000I) and the relative importance of wages and salaries within total compensation. We believe this constructed ECI se ries is technically a ppropriate for the reason stated above in the wages and sa laries price proxy section. We feel the new benefits ECI blend is the most appropriate price proxy to measure the growth of prices faced by ES RD facilities. Table 6 lists the four ECI series and the corresponding weights used to construct the proposed benefits ECI blend. TABLE 6: BENEFITS ECI BLEND IN THE PROPOSED 2012-BASED ESRDB MARKET BASKET Cost Category ECI Series Weight (%) Benefits—Health Related ECI—Benef its—Hospital (All Civilian) 80% Benefits—Management ECI—Benefits—Management, Business, and Financial (Private Industry) 7% Benefits—Administrative ECI—Benefits—Office and Administrative Support (Private Industry) 7% Benefits—Services ECI—Bene fits—Service Occupations (Private Industry) 6%

The current 2008-based ESRDB mark et basket uses a 50 percent / 50 percent blend of the “ECI—Benefits—Hospital (All Civilian)” a nd the “ECI—Benefits—Healthcare and Social Assistance” for the be nefits ECI blend. Electricity We propose to continue using the PPI for Co mmercial Electric Power (BLS series code #WPU0542) to measure the price growth of this cost category. This is the same proxy used in the current 2008-based ESRDB market basket. Natural GasCMS-1614-P 62

We propose to continue using the PPI for Commercial Natural Gas (BLS series code #WPU0552) to measure the price growth of this co st category. This is the same proxy used in the current 2008-based ESRDB market basket. Water and Sewerage We propose to continue using the CPI for Wa ter and Sewerage Main tenance (BLS series code #CUUR0000SEHG01) to measure the price growth of this cost category. This is the same proxy used in the current 2008- based ESRDB market basket. Pharmaceuticals We propose to change the price proxy used for the pharmaceuticals cost category. A recent Health and Human Services Office of th e Inspector General (OIG ) report titled “Update: Medicare Payment for End Stage Renal Dis ease Drugs” recommended that CMS consider updating the ESRD payment bundle using a factor th at takes into account drug acquisition costs. CMS had responded to this recommendation by stati ng that we would consid er these findings in the continual evaluation of the ESRD market bask et, particularly during the next rebasing and revising of the market basket index. 1 Drug acquisition cost data is ne ither publicly available nor th e methods used to determine it transparent, and, therefore, wouldn’t meet our price proxy criteria of relevance, reliability, transparency, and public availabil ity. However, after considering several viable options that do meet the criteria we are proposing to use the PPI : Vitamin, Nutrient, and Hematinic Preparations (BLS series code #WPU063807). Th is index includes drugs that ar e most similar to ESAs and other drugs used in the ESRD setting, such as ir on supplements. The definition of a hematinic is

1 http://oig.hhs.gov/oei/reports/oei-03-12-00550.aspCMS-1614-P 63

a medicine that increases the hemoglobin content of the blood, and these t ypes of drugs are used to treat iron-deficiency anemia esse ntial for normal erythropoiesis. We believe the PPI: Vitamin, Nutrient, and Hematinic Preparations to be the most technically appropriate index available to measure the pri ce growth of the pharmaceuticals cost category in the proposed 2012-ba sed ESRDB market basket. The current 2008-based ESRDB market basket uses the PPI: Pharmaceuticals for Human Use. Supplies We propose using the PPI for Surgical and Medical Instruments (BLS series code #WPU1562) since it excludes orthop edic, prosthetic, ophthalmic, and dental type medical equipment and devices, which are not likely to be used extensively in the ESRD setting. The types of equipment under Surgical and Medical In struments, particularly blood transfusion and IV equipment, seem most similar to the medical equipment and supplies that would be used in the ESRD setting. The current 2008 -based ESRDB market basket uses the PPI for Medical, Surgical, and Personal Aid Devices. Lab Services We propose to continue using the PPI for Medical Laboratories (BLS series code #PCU621511621511) to measure the price growth of this cost category. This is the same proxy used in the current 2008-bas ed ESRDB market basket. Telephone Service We propose to continue using the CPI for Telephone Services (BLS series code #CUUR0000SEED) to measure the price growth of this cost category. This is the same proxy used in the current 2008-bas ed ESRDB market basket. Housekeeping and OperationsCMS-1614-P 64

We propose to continue using the PPI for Cleaning and Building Maintenance Services (BLS series code #WPU49) to m easure the price growth of this cost category. This is the same proxy used in the current 2008- based ESRDB market basket. Professional Fees We propose to continue using the ECI (Com pensation) for Professional and Related Occupations (Private Indust ry) (BLS series code # CI U2010000120000I) to measure the price growth of this cost category. This is the same proxy used in the current 2008-based ESRDB market basket. All Other Goods and Services We propose using the PPI for Finished Goods less Foods and Energy (BLS series code #WPUFD4131) as the price proxy for the All Other Goods and Services cost category. This PPI series is used in most of CMS’ other market baskets to measure the expenses for the residual category of all other goods and serv ices. It is more consistent w ith the purchase of items at a wholesale rather than a consumer level. The current 2008-based ESRDB market basket (specifically, the “All Other Non Labor-Related Se rvices” cost category) uses the CPI-U, All Items less Foods and Energy. Capital-Related Building and Equipment We propose using the PPI for Lessors of N onresidential Buildings (BLS series code #PCU531120531120) as it represents th e types of fixed capital expenses most likely faced by ESRD facilities. We also use this proxy in the MEI as the fixed cap ital proxy for physicians. We believe the PPI for Lessors of Nonresidential Buildings is more approp riate as fixed capital expenses in both the ESRD and physician office sett ing should be more congruent with trends inCMS-1614-P 65

business office space costs rather than residentia l costs. The current 2008-based ESRDB market basket uses the CPI for Owners’ Equivalent Rent of Residences. Capital Related Machinery We propose to continue using the PPI for Electrical Machinery and Equipment (BLS series code #WPU117) to measure the price growth of this cost category. This is the same proxy used in the current 2008-based ESRDB market basket. Table 7 shows all the proposed price proxies for the proposed CY 2012-based ESRDB Market Basket. TABLE 7: PROPORSED PRICE PROXIE S for the CY 2012-BASED ESRDB MARKET BASKET Cost Category Price Proxy Cost Weight Compensation 42.497% Wages and Salaries 33.650% Health-related Wages ECI—Wages & Salaries—Hospital (Civilian) 26.920% Management Wage s ECI—Wages & Salaries—Management, Business, and Financial (Private) 2.356% Administrative Wages ECI—Wages & Salaries—Office and Administrative Support (Private) 2.356% Service Wages ECI—Wages & Salaries—Service Occupations (Private) 2.019% Employee Benefits 8.847% Health-related Bene fits ECI—Benefits—Hospital (Civilian) 7.078% Management Be nefits ECI—Benefits—Management, Business, and Financial (Private) 0.619% Administrative Benefits ECI—Benefits—Office and Administrative Support (Private) 0.619% Service Benefits ECI—Benefits—Service Occupations (Private) 0.531% Utilities 1.839% Electricity PPI—Commercial Electric Power 0.973% Natural Gas PPI—Commercial Natural Gas 0.101% Water and Sewerage CP I—Water and Sewerage Maintenance 0.765% Medical Materials and Supplies 28.139%CMS-1614-P 66

Cost Category Price Proxy Cost Weight Pharmaceuticals PPI—V itamin, Nutrient, and Hematinic Preparations 16.510% Supplies PPI—Surgical and Medical Instruments 10.097% Lab Services PPI—Medical Laboratories 1.532% All Other Goods and Services 15.277% Telephone Service CPI—Telephone Services 0.468% Housekeeping and Operations PPI— Cleaning and Building Maintenance Services 3.785% Professional Fees EC I— Compensation—Professional and Related Occupations (Private) 0.617% All Other Goods and Services PPI—Finished Goods less Foods and Energy 10.407% Capital Costs 12.248% Capital Related Building and Equipment PPI—Lessors of Nonresidential Buildings 8.378% Capital Related Machinery PPI—Electrical Machinery and Equipment 3.870% Total 100.000% Note: Totals may not sum to 100.000% due to rounding iii. Proposed Market Basket Estimate for the CY 2015 ESRDB PPS Update As discussed previously in this proposed rule, beginning with the CY 2015 ESRD PPS update, we are proposing to adopt the CY 2012-based ESRDB market basket as the appropriate market basket of goods and services for the ESRD PPS. Based on the IHS Global Insight, Inc. (IGI) first quarter 2014 forecast with history through the fourth quarter of 2013, the most r ecent estimate of the proposed CY 2012-based ESRDB market basket for CY 2015 is 2.0 percent. IGI is a nationally recognized economic and financial forecasting firm that contracts with CMS to forecast the components of the CMS market baskets. Based on IGI’s first quarter 2014 forecast with history through the fourth quarter of 2013, the estimate of the current CY 2008-based ESRDB market basket for CY 2015 is 2.7 percent.CMS-1614-P 67

Table 8 compares the proposed CY 2012-base d ESRDB market basket and the CY 2008- based ESRDB market basket percent changes. For the historical peri od between CY 2011 and CY 2013, the average difference between the two mark et baskets is -1.8 percentage points. This is primarily the result of the lower pharmaceutical cost share combined with the proposed revised price proxy for the pharmaceutical cost category. For the CY 2014 and CY 2015 forecasts, the difference in the market basket forecasts are ma inly driven by the same factors as in the historical period; however, it is important to note that the diffe rences between the two market baskets are projected to be smaller as the gr owth in the price proxy for the pharmaceutical category are projected to grow at more similar growth rates in the pr ojected period than the growth rates in the recent historical period. TABLE 8: PROPOSED CY 2012-BASE D ESRDB MARKET BASKET and CY 2008 BASED ESRDB MARKET BASKET, PERCENT CHANGES: 2011-2015

Calendar Year (CY) Proposed Rebased CY 2012-based ESRDB Market Basket CY 2008-based ESRDB Market Basket Historical data:

CY 2011 1.2 2.8 CY 2012 1.4 3.4 CY 2013 1.1 3.0 Average CY 2011-2013 1.3 3.1 Forecast:

CY 2014 1.8 2.3 CY 2015 2.0 2.7 Source: IHS Global Insight, Inc. 1s t quarter 2014 forecast with historical data through 4th quarter 2013 c. Proposed Productivity Adjustment Under section 1881(b)(1 4)(F)(i) of the Act, as am ended by section 3401(h) of the Affordable Care Act, for CY 2012 and each s ubsequent year, the ESRD market basket percentage increase factor shall be reduced by the productivity ad justment described in section 1886(b)(3)(B)(xi)(II) of the Act. The statute defines the prod uctivity adjustment as equal to theCMS-1614-P 68

10-year moving average of changes in a nnual economy-wide private nonfarm business multifactor productivity (MFP) (as projected by the Secretary for the 10- year period ending with the applicable fiscal year, year, cost repor ting period, or other a nnual period) (the ‘‘MFP adjustment’’). The Bureau of Labor Statistics (BLS) is the agency that publishes the official measure of private nonfarm business MFP. Please see http://www.bls.gov/mfp to obtain the BLS historical published MFP data. We note that the proposed and final methodology for calculating and applying the MFP adjustment to the ESRD payment update is similar to the methodology used in other payment systems, as required by section 3401 of the Affordable Care Act. The projection of MFP is currently produ ced by IGI. The details regarding the methodology for forecasting MFP and how it is applied to the market basket were finalized in the CY 2012 ESRD PPS final rule (76 FR 70232 th rough 70234). Using this method and the IGI forecast for the first quarter of 2014 of the 10- year moving average of MFP, the CY 2015 MFP factor we would have proposed is 0.4 percent. As discussed further below, however, section 1881(b)(F)(i)(III) of the Act, as added by section 217(b)(2) of PA MA, requires the Secretary to implement a 0.0 percent paymen t update in CY 2015. d. Calculation of the Proposed ESRDB Market Basket Update, Adjusted for Multifactor Productivity for CY 2015 Under section 1881(b)(14)(F) of the Act, beginning in CY 2012, ESRD PPS payment amounts shall be annually increased by an ESRD market basket percentage increase factor reduced by the productivity adjustment. For CY 2015, section 1881(b)(14)(F )(i)(III) of the Act, as added by section 217(b)(2) of PAMA, require s the Secretary to implement a 0.0 percent ESRDB market basket increase to the ESRD PPS base rate. In addition, we interpret the reference to “[n]otwithstandi ng subclause (III)” that was added to amended sectionCMS-1614-P 69

1881(b)(14)(F)(i)(III) as precluding the application of th e multi-factor productivity (MFP) adjustment in 2015. As a result of these provisi ons, the proposed CY 2015 ESRD market basket increase is 0.0 percent. We note that if PA MA had not been enacted the proposed 2012-based ESRDB market basket update less productivity fo r CY 2015 would have been 1.6 percent, or 2.0 percent less 0.4 pe rcentage point. e. Labor-Related Share We define the labor-related share (LRS) as t hose expenses that are labor-intensive and vary with, or are influenced by, the local labor market. The la bor-related share of a market basket is determined by identifying the national average proportion of op erating costs that are related to, influenced by, or vary with the local labor market. Th e labor-related sh are is typically the sum of Wages and Salaries, Benefits, Prof essional Fees, Labor-related Services, and a portion of the Capital share from a given market basket. We propose to use the proposed 2012-based ESRD B market basket costs to determine the proposed labor-related share for ES RD facilities of 50.673 percent, as shown in Table 9 below. These figures represent the sum of Wages and Sa laries, Benefits, Housekeeping and Operations, 87 percent of the weight for Professional Fees (d etails discussed below), and 46 percent of the weight for Capital-related Buildi ng and Equipment expenses (details discussed below). We note that this is a similar methodology used to co mpute the labor-related share used from CY 2011 through CY 2014.CMS-1614-P 70

TABLE 9: PROPOSED CY 2015 LABO R-RELATED SHARE and CY 2014 ESRDB LABOR-RELATED SHARE

Cost Category Proposed CY 2015 ESRDB Labor-Related Share (Percent) CY 2014 ESRDB LaborRelated Share (Percent) Wages 33.650 26.755 Benefits 8.847 6.754 Housekeeping and operations 3.785 2.029 Professional fees (labor-related) 0.537 2.768 Capital labor-related 3.854 3.431 Total 50.673 41.737

The labor-related share for Professional Fees (87 percent) reflects the proportion of ESRD facilities’ professional fees expenses that we believe vary with local labor market. We conducted a survey of ESRD fac ilities in 2008 to better understa nd the proportion of contracted professional services that ESRD facilities typically purchase outside of their local labor market. These purchased professional services includ e functions such as accounting and auditing, management consulting, engineering, and legal services. Based on the survey results, we determined that, on average, 87 percent of profe ssional services are purchased from local firms and 13 percent are purchased from businesses located outside of the ESRD facility’s local labor market. Thus, we are proposing to include 87 percen t of the cost weight fo r Professional Fees in the labor-related share, the same per centage as used in prior years. The labor-related share for cap ital-related expenses (46 pe rcent of ESRD facilities’ adjusted Capital-related Build ing and Equipment expenses) re flects the proportion of ESRD facilities’ capital-related expenses that we believ e varies with local labor market wages. Capitalrelated expenses are affected in some proportion by variations in local labor market costs (such as construction worker wages) that are reflected in the price of the capital asset. However, manyCMS-1614-P 71

other inputs that determine capital costs are not related to local labor market costs, such as interest rates. The 46-percent fi gure is based on regressions run for the inpatient hospital capital PPS in 1991 (56 FR 43375). We use a similar met hodology to calculate cap ital-related expenses for the labor-related shares for rehabilitation facilities (70 FR 30233), psychiatric facilities, longterm care facilities, and skilled nursing facilities (66 FR 39585). 3. The Proposed CY 2015 ESRD PPS Wage Indices a. Background Section 1881(b)(14)(D)(iv)(II) of the Act pr ovides that the ESRD PPS may include a geographic wage index payment adjustment, su ch as the index refe rred to in section 1881(b)(12)(D) of the Act. In the CY 2011 ESRD PPS final rule (75 FR 49117), we finalized for the ESRD PPS the use of the Office of Management and Budget’s (OMB) CoreBased Statistical Areas (CBSAs)-based geographi c area designations described in OMB bulletin 03-04, issued June 6, 2003 as the basis for revising the urban and rural areas and their corresponding wage index values. This bulletin, as well as subsequent bu lletins, is available online at http://www.whitehouse.gov/omb/bulletins_index2003-2005

. We also finalized that we would use the urba n and rural definitions used for the Medicare IPPS but without regard to geographic reclassi fication authorized unde r section 1886(d)(8) and (d)(10) of the Act. In the CY 2012 ESRD PPS final rule (76 FR 70239), we finalized that, under the ESRD PPS, we will conti nue to utilize the ESRD PP S wage index methodology, first established under the basic case-mi x adjusted composite rate pa yment system, for updating the wage index values using the OM B’s CBSA-based geographic area de signations to define urban and rural areas. b. Proposed Implementation of Ne w Labor Market DelineationsCMS-1614-P 72

OMB publishes bulletins regarding CBSA change s, including changes to CBSA numbers and titles. In accordance with our establishe d methodology, we have historically adopted via rulemaking CBSA changes that are published in th e latest OMB bulletin. On February 28, 2013, OMB issued OMB Bulletin No. 13-01, which esta blished revised delineations for Metropolitan Statistical Areas, Micropolitan Statistical Areas , and Combined Statisti cal Areas, and provided guidance on the use of the delineations of these stat istical areas. A copy of this bulletin may be obtained at http://www.whitehouse.gov/sites/default/ files/omb/bulletin s/2013/b-13-01.pdf. According to OMB, “[t]his bulle tin provides the delineations of all Metropolitan Statistical Areas, Metropolitan Divisions, Micropolitan Statis tical Areas, Combined Statistical Areas, and New England City and Town Areas in the United States and Puerto Rico based on the standards published on June 28, 2010, in the Federal Register (75 FR 37246-37252) and Census Bureau data.” In this CY 2015 ESRD PPS proposed ru le, when referencing the new OMB geographic boundaries of statistical areas, we are using the term “delinea tions” rather than the term “definitions” that we have used in the past, consistent with OMB’s use of the terms (75 FR 37249). Because the bulletin was not issued until February 28, 2013, with supporting data not available until later, and because the changes made by the bulletin and their ramifications needed to be extensively reviewed and verified, we were unable to undertake such a lengthy process before publication of the FY 2014 IPPS/LTCH PPS proposed rule and, thus, did not implement changes to the hospital wage index for FY 2014 based on these new CBSA delineations. Likewise, for the same reasons, the CY 2014 ESRD PPS wage index (based upon the prefloor, pre-reclassified hospital wa ge data, which is unadjusted for occupational mix) also did not reflect the new CBSA delinea tions. In the FY 2015 IPPS/LTCH PPS proposed rule, we proposed to implement the new CBSA delineations as described in the February 28, 2013 OMBCMS-1614-P 73

Bulletin No. 13-01, beginning with the FY 2015 IPPS wage index (79 FR 28054 through 28055). Similarly, in this CY 2015 ESRD PPS proposed rule, we are proposing to implement the new CBSA delineations as desc ribed in the February 28, 2013 OMB Bulletin No. 13-01, beginning with the CY 2015 ESRD PPS wage inde x. We believe that the most current CBSA delineations accurately reflect the local economies a nd wage levels of the areas where facilities are located, and we believe that it is important for the ESRD PPS to use the latest CBSA delineations available in order to maintain an up -to-date payment system that accurately reflects the reality of populations shifts and labor market conditions. We have reviewed our findings and impacts relating to the new CBSA delineations using th e most recent data avai lable at the time of this proposed rule, and have concluded that th ere is no compelling reason to further delay the implementation of the CBSA delineations as set forth in OMB Bulletin 13-01. In order to implement these changes for the ESRD PPS, it is necessary to identify the new labor market area delineation for each county and facility in the country. For example, if we adopt the new CBSA delineations, there would be new CBSAs, urban counties that would become rural, rural counties that would become urban, and existing CBSAs that would be split apart. Because the wage index of urban areas is typically higher than that of rural areas, ESRD facilities currently locate d in rural counties that would beco me urban if we adopt the new CBSA delineations would generally experience an increa se in their wage index values. We have identified 105 counties and 113 fac ilities that would move from rura l to urban status if we adopt the new CBSA delineations beginning in CY 2015. Table 10: (CY 2015 Proposed Rural to Urban CBSA Crosswalk) shows the CBSA delinea tions for CY 2014 and the rural wage index values proposed for CY 2015 based on those de lineations, compared to the proposed CBSA delineations for CY 2015 and the proposed urba n wage index values for CY 2015 based on theCMS-1614-P 74

new delineations, and the percentage change in these values for t hose counties that would change from rural to urban if we adopt the new CBSA delineations. If we adopt the new OMB delineations illustrated in Table 10 below, appr oximately 100 facilities would experience an increase in their wa ge index values. TABLE 10: CY 2015 PROPOSED RUR AL to URBAN CBSA CROSSWALK

ESRD PPS CY 2014 CBSA Delineations Proposed ESRD PPS CY 2015 CBSA Delineations

County Name State CBSA Urban / Rural Wage Index Value CBSA Urban / Rural Wage Index Value Change In Value BALDWIN AL 01 RURAL 0.6981 19300 URBAN 0.7279 4.27% PICKENS AL 01 RURAL 0.6981 46220 URBAN 0.8288 18.72% COCHISE AZ 03 RURAL 0.9159 43420 URBAN 0.8970 -2.06% LITTLE RIVER AR 04 RURAL 0.7265 45500 URBAN 0.7390 1.72% WINDHAM CT 07 RURAL 1.1292 49340 URBAN 1.1536 2.16% SUSSEX DE 08 RURAL 1.0248 41540 URBAN 0.9296 -9.29% CITRUS FL 10 RURAL 0.8010 26140 URBAN 0.7653 -4.46% GULF FL 10 RURAL 0.8010 37460 URBAN 0.7861 -1.86% HIGHLANDS FL 10 RURAL 0.8010 42700 URBAN 0.8011 0.01% SUMTER FL 10 RURAL 0.8010 45540 URBAN 0.8125 1.44% WALTON FL 10 RURAL 0.8010 18880 URBAN 0.8260 3.12% LINCOLN GA 11 RURAL 0.7425 12260 URBAN 0.9213 24.08% MORGAN GA 11 RURAL 0.7425 12060 URBAN 0.9358 26.03% PEACH GA 11 RURAL 0.7425 47580 URBAN 0.7570 1.95% PULASKI GA 11 RURAL 0.7425 47580 URBAN 0.7570 1.95% KALAWAO HI 12 RURAL 0.9953 27980 URBAN 0.9510 -4.45% MAUI HI 12 RURAL 0.9953 27980 URBAN 0.9510 -4.45% BUTTE ID 13 RURAL 0.7425 26820 URBAN 0.8966 20.75% DE WITT IL 14 RURAL 0.8363 14010 URBAN 0.8935 6.84% JACKSON IL 14 RURAL 0.8363 16060 URBAN 0.8354 -0.11% WILLIAMSON IL 14 RURAL 0.8363 16060 URBAN 0.8354 -0.11% SCOTT IN 15 RURAL 0.8454 31140 URBAN 0.8319 -1.60% UNION IN 15 RURAL 0.8454 17140 URBAN 0.8942 5.77% PLYMOUTH IA 16 RURAL 0.8483 43580 URBAN 0.8948 5.48% KINGMAN KS 17 RURAL 0.7838 48620 URBAN 0.8503 8.48%CMS-1614-P 75

ESRD PPS CY 2014 CBSA Delineations Proposed ESRD PPS CY 2015 CBSA Delineations

County Name State CBSA Urban / Rural Wage Index Value CBSA Urban / Rural Wage Index Value Change In Value ALLEN KY 18 RURAL 0.7770 14540 URBAN 0.8403 8.15% BUTLER KY 18 RURAL 0.7770 14540 URBAN 0.8403 8.15% ACADIA LA 19 RURAL 0.7608 29180 URBAN 0.7896 3.79% IBERIA LA 19 RURAL 0.7608 29180 URBAN 0.7896 3.79% ST. JAMES LA 19 RURAL 0.7608 35380 URBAN 0.8778 15.38% TANGIPAHOA LA 19 RURAL 0.7608 25220 URBAN 0.9487 24.70% VERMILION LA 19 RURAL 0.7608 29180 URBAN 0.7896 3.79% WEBSTER LA 19 RURAL 0.7608 43340 URBAN 0.8347 9.71% ST. MARYS MD 21 RURAL 0.8586 15680 URBAN 0.8625 0.45% WORCESTER MD 21 RURAL 0.8586 41540 URBAN 0.9296 8.27% MIDLAND MI 23 RURAL 0.8232 33220 URBAN 0.7964 -3.26% MONTCALM MI 23 RURAL 0.8232 24340 URBAN 0.8832 7.29% FILLMORE MN 24 RURAL 0.9057 40340 URBAN 1.1384 25.69% LE SUEUR MN 24 RURAL 0.9057 33460 URBAN 1.1162 23.24% MILLE LACS MN 24 RURAL 0.9057 33460 URBAN 1.1162 23.24% SIBLEY MN 24 RURAL 0.9057 33460 URBAN 1.1162 23.24% BENTON MS 25 RURAL 0.7603 32820 URBAN 0.9069 19.28% YAZOO MS 25 RURAL 0.7603 27140 URBAN 0.7932 4.33% GOLDEN VALLEY MT 27 RURAL 0.9055 13740 URBAN 0.8718 -3.72% HALL NE 28 RURAL 0.8957 24260 URBAN 0.9253 3.30% HAMILTON NE 28 RURAL 0.8957 24260 URBAN 0.9253 3.30% HOWARD NE 28 RURAL 0.8957 24260 URBAN 0.9253 3.30% MERRICK NE 28 RURAL 0.8957 24260 URBAN 0.9253 3.30% JEFFERSON NY 33 RURAL 0.8226 48060 URBAN 0.8417 2.32% YATES NY 33 RURAL 0.8226 40380 URBAN 0.8783 6.77% CRAVEN NC 34 RURAL 0.7963 35100 URBAN 0.8547 7.33% DAVIDSON NC 34 RURAL 0.7963 49180 URBAN 0.8660 8.75% GATES NC 34 RURAL 0.7963 47260 URBAN 0.9156 14.98% IREDELL NC 34 RURAL 0.7963 16740 URBAN 0.9123 14.57% JONES NC 34 RURAL 0.7963 35100 URBAN 0.8547 7.33% LINCOLN NC 34 RURAL 0.7963 16740 URBAN 0.9123 14.57% PAMLICO NC 34 RURAL 0.7963 35100 URBAN 0.8547 7.33% ROWAN NC 34 RURAL 0.7963 16740 URBAN 0.9123 14.57% OLIVER ND 35 RURAL 0.7125 13900 URBAN 0.7251 1.77%CMS-1614-P 76

ESRD PPS CY 2014 CBSA Delineations Proposed ESRD PPS CY 2015 CBSA Delineations

County Name State CBSA Urban / Rural Wage Index Value CBSA Urban / Rural Wage Index Value Change In Value SIOUX ND 35 RURAL 0.7125 13900 URBAN 0.7251 1.77% HOCKING OH 36 RURAL 0.8315 18140 URBAN 0.9499 14.24% PERRY OH 36 RURAL 0.8315 18140 URBAN 0.9499 14.24% COTTON OK 37 RURAL 0.7824 30020 URBAN 0.7948 1.58% JOSEPHINE OR 38 RURAL 1.0120 24420 URBAN 1.0123 0.03% LINN OR 38 RURAL 1.0120 10540 URBAN 1.0919 7.90% ADAMS PA 39 RURAL 0.8730 23900 URBAN 1.0142 16.17% COLUMBIA PA 39 RURAL 0.8730 14100 URBAN 0.9382 7.47% FRANKLIN PA 39 RURAL 0.8730 16540 URBAN 1.0997 25.97% MONROE PA 39 RURAL 0.8730 20700 URBAN 0.9406 7.74% MONTOUR PA 39 RURAL 0.8730 14100 URBAN 0.9382 7.47% UTUADO PR 40 RURAL 0.4000 10380 URBAN 0.4000 0.00% BEAUFORT SC 42 RURAL 0.8381 25940 URBAN 0.8807 5.08% CHESTER SC 42 RURAL 0.8381 16740 URBAN 0.9123 8.85% JASPER SC 42 RURAL 0.8381 25940 URBAN 0.8807 5.08% LANCASTER SC 42 RURAL 0.8381 16740 URBAN 0.9123 8.85% UNION SC 42 RURAL 0.8381 43900 URBAN 0.8275 -1.26% CUSTER SD 43 RURAL 0.8343 39660 URBAN 0.9075 8.77% CAMPBELL TN 44 RURAL 0.7387 28940 URBAN 0.7039 -4.71% CROCKETT TN 44 RURAL 0.7387 27180 URBAN 0.7775 5.25% MAURY TN 44 RURAL 0.7387 34980 URBAN 0.9053 22.55% MORGAN TN 44 RURAL 0.7387 28940 URBAN 0.7039 -4.71% ROANE TN 44 RURAL 0.7387 28940 URBAN 0.7039 -4.71% FALLS TX 45 RURAL 0.7917 47380 URBAN 0.8202 3.60% HOOD TX 45 RURAL 0.7917 23104 URBAN 0.9412 18.88% HUDSPETH TX 45 RURAL 0.7917 21340 URBAN 0.8356 5.55% LYNN TX 45 RURAL 0.7917 31180 URBAN 0.8870 12.04% MARTIN TX 45 RURAL 0.7917 33260 URBAN 0.8973 13.34% NEWTON TX 45 RURAL 0.7917 13140 URBAN 0.8541 7.88% OLDHAM TX 45 RURAL 0.7917 11100 URBAN 0.8308 4.94% SOMERVELL TX 45 RURAL 0.7917 23104 URBAN 0.9412 18.88% BOX ELDER UT 46 RURAL 0.8877 36260 URBAN 0.9259 4.30% AUGUSTA VA 49 RURAL 0.7694 44420 URBAN 0.8357 8.62% BUCKINGHAM VA 49 RURAL 0.7694 16820 URBAN 0.9087 18.11%CMS-1614-P 77

ESRD PPS CY 2014 CBSA Delineations Proposed ESRD PPS CY 2015 CBSA Delineations

County Name State CBSA Urban / Rural Wage Index Value CBSA Urban / Rural Wage Index Value Change In Value CULPEPER VA 49 RURAL 0.7694 47894 URBAN 1.0418 35.40% FLOYD VA 49 RURAL 0.7694 13980 URBAN 0.8504 10.53% RAPPAHANNOCK VA 49 RURAL 0.7694 47894 URBAN 1.0418 35.40% STAUNTON CITY VA 49 RURAL 0.7694 44420 URBAN 0.8357 8.62% WAYNESBORO CITY VA 49 RU RAL 0.7694 44420 URBAN 0.8357 8.62% COLUMBIA WA 50 RURAL 1.0932 47460 URBAN 1.0974 0.38% PEND OREILLE WA 50 RURA L 1.0932 44060 URBAN 1.1467 4.89% STEVENS WA 50 RURAL 1.0932 44060 URBAN 1.1467 4.89% WALLA WALLA WA 50 RURAL 1.0932 47460 URBAN 1.0974 0.38% FAYETTE WV 51 RURAL 0.7391 13220 URBAN 0.8037 8.74% RALEIGH WV 51 RURAL 0.7391 13220 URBAN 0.8037 8.74% GREEN WI 52 RURAL 0.9074 31540 URBAN 1.1190 23.32% The wage index values of rural areas are ty pically lower than that of urban areas. Therefore, ESRD faciliti es located in a county that is curr ently designated as urban under the ESRD PPS wage index that would become rura l if we adopt the new CBSA delineations may experience a decrease in their wage index values . We have identified 39 counties and 29 ESRD facilities that would move from urban to rura l status if we adopt the new CBSA delineations beginning in CY 2015. Table 11: (CY 2015 Proposed Urban to Rural CBSA Crosswalk) shows the CBSA delineations for CY 2014 and the prop osed urban wage index values for CY 2015 based on those delineations, compared with the proposed CBSA delineations and wage index values for CY 2015 based on those delineations, and the percentage change in these values for those counties that would change from urban to rural if we adopt the new CBSA delineations. If we adopted the new CBSA delineations illustrated in Table 11 below, approximately 30 facilities would experience a decrease in their wage index values.CMS-1614-P 78

TABLE 11: CY 2015 PROPOSED URB AN to RURAL CBSA CROSSWALK

ESRD PPS CY 2014 CBSA Delineations Proposed ESRD PPS CY 2015 CBSA Delineations

County Name State CBSA Urban / Rural Wage Index Value CBSA Urban / Rural Wage Index Value Change in Value GREENE AL 46220 URBAN 0.8336 01 RURAL 0.6930 -16.9% FRANKLIN AR 22900 URBAN 0.7593 04 RURAL 0.7265 -4.3% POWER ID 38540 URBAN 0.9707 13 RURAL 0.7425 -23.5% FRANKLIN IN 17140 URBAN 0.8942 15 RURAL 0.8454 -5.5% GIBSON IN 21780 URBAN 0.8524 15 RURAL 0.8454 -0.8% GREENE IN 14020 URBAN 0.9096 15 RURAL 0.8454 -7.1% TIPTON IN 29020 URBAN 0.9023 15 RURAL 0.8454 -6.3% FRANKLIN KS 28140 URBAN 0.9454 17 RURAL 0.7811 -17.4% GEARY KS 31740 URBAN 0.7225 17 RURAL 0.7811 8.1% NELSON KY 31140 URBAN 0.8313 18 RURAL 0.7774 -6.5% WEBSTER KY 21780 URBAN 0.8524 18 RURAL 0.7774 -8.8% FRANKLIN MA 44140 URBAN 1.0309 22 RURAL 1.1596 12.5% IONIA MI 24340 URBAN 0.8998 23 RURAL 0.8313 -7.6% NEWAYGO MI 24340 URBAN 0.8998 23 RURAL 0.8313 -7.6% GEORGE MS 37700 URBAN 0.7423 25 RURAL 0.7584 2.2% STONE MS 25060 URBAN 0.8209 25 RURAL 0.7584 -7.6% CRAWFORD MO 41180 URBAN 0.9457 26 RURAL 0.7827 -17.2% HOWARD MO 17860 URBAN 0.8349 26 RURAL 0.7827 -6.3% WASHINGTON MO 41180 URBAN 0.9457 26 RURAL 0.7827 -17.2% ANSON NC 16740 URBAN 0.9283 34 RURAL 0.7880 -15.1% GREENE NC 24780 URBAN 0.9405 34 RURAL 0.7880 -16.2% ERIE OH 41780 URBAN 0.7792 36 RURAL 0.8338 7.0% OTTAWA OH 45780 URBAN 0.9152 36 RURAL 0.8338 -8.9% PREBLE OH 19380 URBAN 0.8918 36 RURAL 0.8338 -6.5% WASHINGTON OH 37620 URBAN 0.8167 36 RURAL 0.8338 2.1% STEWART TN 17300 URBAN 0.7554 44 RURAL 0.7297 -3.4% CALHOUN TX 47020 URBAN 0.8504 45 RURAL 0.7909 -7.0% DELTA TX 19124 URBAN 0.9751 45 RURAL 0.7909 -18.9% SAN JACINTO TX 26420 URBAN 0.9881 45 RURAL 0.7909 -20.0% SUMMIT UT 41620 URBAN 0.9548 46 RURAL 0.8993 -5.8% CUMBERLAND VA 40060 URBAN 0.9556 49 RURAL 0.7573 -20.8% DANVILLE CITY VA 19260 URBAN 0.7985 49 RURAL 0.7573 -5.2%CMS-1614-P 79

ESRD PPS CY 2014 CBSA Delineations Proposed ESRD PPS CY 2015 CBSA Delineations KING AND QUEEN VA 40060 URBA N 0.9556 49 RURAL 0.7573 -20.8% LOUISA VA 40060 URBAN 0.9556 49 RURAL 0.7573 -20.8% PITTSYLVANIA VA 19260 URBAN 0.7985 49 RURAL 0.7573 -5.2% SURRY VA 47260 URBAN 0.9156 49 RURAL 0.7573 -17.3% MORGAN WV 25180 URBAN 0.9113 51 RURAL 0.7249 -20.5% PLEASANTS WV 37620 URBAN 0.8167 51 RURAL 0.7249 -11.2%

We note that facilities in some urban CBSAs could experience a change in their wage index values even though they remain urban because an urban CBSA’s boundaries and/or the counties included in that CBSA could cha nge. Table 12 (CY 2015 Proposed Urban to a Different Urban CBSA Crosswal k) shows the CBSA delineations for CY 2014 and urban wage index values for CY 2015 based on those deli neations, compared with the proposed CBSA delineations and urban wage index values fo r CY 2015 based on those delineations, and the percentage change in these values for countie s that would remain urban even though the CBSA boundaries and/or counties included in that CBSA would change.CMS-1614-P 80

TABLE 12: CY 2015 PROPOSED URB AN to a DIFFERENT URBAN CBSA CROSSWALK

ESRD PPS CY 2014 CBSA Delineations Proposed ESRD PPS CY 2015 CBSA Delineations

County Name State CBSA Urban / Rural Wage Index Value CBSA Urban / Rural Wage Index Value Change In Value MARIN CA 41884 URBAN 1.7049 42034 URBAN 1.7317 1.6% FLAGLER FL 37380 URBAN 0.8494 19660 URBAN 0.8407 -1.0% DE KALB IL 16974 URBAN 1.0368 20994 URBAN 1.0347 -0.2% KANE IL 16974 URBAN 1.0368 20994 URBAN 1.0347 -0.2% MADISON IN 11300 URBAN 1.0115 26900 URBAN 1.0170 0.5% MEADE KY 31140 URBAN 0.8313 21060 URBAN 0.7650 -8.0% ESSEX MA 37764 URBAN 1.0808 15764 URBAN 1.1196 3.6% OTTAWA MI 26100 URBAN 0.8167 24340 URBAN 0.8832 8.1% JACKSON MS 37700 URBAN 0.7423 25060 URBAN 0.7927 6.8% BERGEN NJ 35644 URBAN 1.3136 35614 URBAN 1.2887 -1.9% HUDSON NJ 35644 URBAN 1.3136 35614 URBAN 1.2887 -1.9% MIDDLESEX NJ 20764 URBAN 1.1085 35614 URBAN 1.2887 16.3% MONMOUTH NJ 20764 URBAN 1.1085 35614 URBAN 1.2887 16.3% OCEAN NJ 20764 URBAN 1.1085 35614 URBAN 1.2887 16.3% PASSAIC NJ 35644 URBAN 1.3136 35614 URBAN 1.2887 -1.9% SOMERSET NJ 20764 URBAN 1.1085 35084 URBAN 1.1520 3.9% BRONX NY 35644 URBAN 1.3136 35614 URBAN 1.2887 -1.9% DUTCHESS NY 39100 URBAN 1.1576 20524 URBAN 1.1387 -1.6% KINGS NY 35644 URBAN 1.3136 35614 URBAN 1.2887 -1.9% NEW YORK NY 35644 URBAN 1.3136 35614 URBAN 1.2887 -1.9% ORANGE NY 39100 URBAN 1.1576 35614 URBAN 1.2887 11.3% PUTNAM NY 35644 URBAN 1. 3136 20524 URBAN 1.1387 -13.3% QUEENS NY 35644 URBAN 1.3136 35614 URBAN 1.2887 -1.9% RICHMOND NY 35644 URBAN 1.3136 35614 URBAN 1.2887 -1.9% ROCKLAND NY 35644 URBAN 1.3136 35614 URBAN 1.2887 -1.9% WESTCHESTER NY 35644 URBAN 1.3136 35614 URBAN 1.2887 -1.9% BRUNSWICK NC 48900 URBAN 0.8899 34820 URBAN 0.8641 -2.9% BUCKS PA 37964 URBAN 1.0934 33874 URBAN 1.0236 -6.4% CHESTER PA 37964 URBAN 1.0934 33874 URBAN 1.0236 -6.4% MONTGOMERY PA 37964 URBAN 1.0934 33874 URBAN 1.0236 -6.4%CMS-1614-P 81

ESRD PPS CY 2014 CBSA Delineations Proposed ESRD PPS CY 2015 CBSA Delineations

County Name State CBSA Urban / Rural Wage Index Value CBSA Urban / Rural Wage Index Value Change In Value ARECIBO PR 41980 URBAN 0.4471 11640 URBAN 0.4229 -5.4% CAMUY PR 41980 URBAN 0.4471 11640 URBAN 0.4229 -5.4% CEIBA PR 21940 URBAN 0.4000 41980 URBAN 0.4460 11.5% FAJARDO PR 21940 URBAN 0.4000 41980 URBAN 0.4460 11.5% GUANICA PR 49500 URBAN 0.4000 38660 URBAN 0.4169 4.2% GUAYANILLA PR 49500 URBA N 0.4000 38660 URBAN 0.4169 4.2% HATILLO PR 41980 URBAN 0.4471 11640 URBAN 0.4229 -5.4% LUQUILLO PR 21940 URBAN 0.4000 41980 URBAN 0.4460 11.5% PENUELAS PR 49500 URBAN 0.4000 38660 URBAN 0.4169 4.2% QUEBRADILLAS PR 41980 URBAN 0.4471 11640 URBAN 0.4229 -5.4% YAUCO PR 49500 URBAN 0.4000 38660 URBAN 0.4169 4.2% ANDERSON SC 11340 URBAN 0.8775 24860 URBAN 0.9025 2.8% GRAINGER TN 34100 URBAN 0.7002 28940 URBAN 0.7039 0.5% LINCOLN WV 16620 URBAN 0.8017 26580 URBAN 0.8773 9.4% PUTNAM WV 16620 URBAN 0.8017 26580 URBAN 0.8773 9.4%

Likewise, ESRD facilities cu rrently located in a rural ar ea may remain rural under the new CBSA delineations but experience a change in their rural wage index value due to implementation of the new CBSA delineations. Table 13 (CY 2015 Proposed Changes to the Statewide Rural Wage Index Crosswalk) shows the CBSA numbers for CY 2014 and the proposed rural statewide wage index values fo r CY 2015, compared with the proposed statewide rural wage index values for CY 2015, and the percentage change in these values.CMS-1614-P 82

TABLE 13: CY 2015 PROPOSED CHANGES to the STATEWIDE RURAL WAGE INDEX CROSSWALK

ESRD PPS

CY 2014

CBSA Delineations Proposed ESRD PPS

CY 2015

CBSA Delineations

State CBSA Urban /Rural Wage IndexValue CBSA Urban /Rural Wage Index Value Change In Value AL 01 RURAL 0.6981 01 RURAL 0.6930 -0.73% AZ 03 RURAL 0.9159 03 RURAL 0.9253 1.03% CT 07 RURAL 1.1292 07 RURAL 1.1337 0.40% FL 10 RURAL 0.8010 10 RURAL 0.8394 4.79% GA 11 RURAL 0.7425 11 RURAL 0.7439 0.19% HI 12 RURAL 0.9953 12 RURAL 1.0276 3.25% IL 14 RURAL 0.8363 14 RURAL 0.8365 0.02% KS 17 RURAL 0.7838 17 RURAL 0.7811 -0.34% KY 18 RURAL 0.7770 18 RURAL 0.7774 0.05% LA 19 RURAL 0.7608 19 RURAL 0.7135 -6.22% MD 21 RURAL 0.8586 21 RURAL 0.8778 2.24% MA 22 RURAL 1.3971 22 RURAL 1.1596 -17.00% MI 23 RURAL 0.8232 23 RURAL 0.8313 0.98% MS 25 RURAL 0.7603 25 RURAL 0.7584 -0.25% NE 28 RURAL 0.8957 28 RURAL 0.8909 -0.54% NY 33 RURAL 0.8226 33 RURAL 0.8208 -0.22% NC 34 RURAL 0.7963 34 RURAL 0.7880 -1.04% OH 36 RURAL 0.8315 36 RURAL 0.8338 0.28% OR 38 RURAL 1.0120 38 RURAL 0.9985 -1.33% PA 39 RURAL 0.8730 39 RURAL 0.8079 -7.46% SC 42 RURAL 0.8381 42 RURAL 0.8357 -0.29% TN 44 RURAL 0.7387 44 RURAL 0.7297 -1.22% TX 45 RURAL 0.7917 45 RURAL 0.7909 -0.10% UT 46 RURAL 0.8877 46 RURAL 0.8993 1.31% VA 49 RURAL 0.7694 49 RURAL 0.7573 -1.57% WA 50 RURAL 1.0932 50 RURAL 1.0917 -0.14% WV 51 RURAL 0.7391 51 RURAL 0.7249 -1.92% WI 52 RURAL 0.9074 52 RURAL 0.9120 0.51%CMS-1614-P 83

While we believe that the new CBSA delineations would result in wage index values that are more representative of the actual costs of labo r in a given area, we al so recognize that use of the new CBSA delineations would result in reduced pa yments to some facilities. In particular, approximately 30 facilities w ould experience reduced payments if we adopt the new CBSA delineations. At the same time, use of the ne w CBSA delineations woul d result in increased payments for approximately 100 facilities, while the majority of facilities would experience no change in payments due to the implementation of the new CBSA delineations. We are proposing to implement the new CBSA delineations using a 2-year transition with a 50/50 blended wage index value for all facilities in CY 2015 and 100% of the wage index based on the new CBSA delineations in CY 2016. c. Transition Period We considered having no transition peri od and fully implementing the proposed new CBSA delineations beginning in CY 2015, which woul d mean that all faci lities would have payments based on the new delineations starti ng on January 1, 2015. However, because more facilities would have increased rather than decreased paym ents beginning in CY 2015, and because the overall amount of ESRD payments would increase slightly due to the new CBSA delineations, the wage index budget neutrality fact or would be higher. This higher factor would reduce the ESRD PPS per treatment base rate for all facilities paid under the ESRD PPS, despite the fact that the majority of ESRD facilities are unaffected by the new CBSA delineations. Thus, we believe that it would be appropriate to provide for a transition period to mitigate any resulting short-term instability of a lower ESRD PPS base rate as well as any negative impacts to facilities that experience reduced payments. In addition, we note that for CY 2015, section 1881(b)(14)(F)(i)(III), as added by section 217 of PAMA, requires a 0.0 payment update (forCMS-1614-P 84

further discussion on this update pl ease see section II.B.1.a .ii of this rule), and thus, there is no possibility of offsetting any reduc tion, even a slight re duction, to the ESRD PPS base rate in CY
2015. Therefore, we are proposing a two-year trans ition blended wage index for all facilities. Facilities would receive 50 pe rcent of their CY 2015 wage index value based on the CBSA delineations for CY 2014 and 50 percent of their CY 2015 wage index value based on the proposed new CBSA delineations. This results in an aver age of the two values. We propose that facilities’ CY 2016 wage index values w ould be based 100 percent on the new CBSA delineations. We believe a two-year transition strikes an appropriate balance between ensuring that ESRD PPS payments are as accurate and stab le as possible while giving facilities time to adjust to the new CBSA delineations. In the CY 2011 ESRD PPS final rule (75 FR 49117), we finalized a policy to use the labor-related share of 41.737 percent for the ESRD PPS. For the CY 2015 ESRD PPS, we propose to use a labor-related share of 50.673 percent, which we propose to transition over a 2- year period with the la bor-related share in CY 2015 based 50 percent on the old labor-related share and 50 percent on the new labor-related sh are, and the labor-related share in CY 2016 based 100 percent on the new labor-related share. For a complete discussion of the proposed changes in the CY 2015 ESRD PPS market basket and labor-related share, as well as the transition of the labor-related share; please see sections II.B.2.e and XII.B.1.a of this proposed rule. 4. Proposed Revisions to the Outlier Policy Section 1881(b)(14)(D)(ii) of the Act requires that th e ESRD PPS include a payment adjustment for high cost outliers due to unusual variations in th e type or amount of medicallyCMS-1614-P 85

necessary care, including variabil ity in the amount of erythropoies is stimulating agents (ESAs) necessary for anemia management. Our regulat ions at 42 CFR 413.237(a)(1) provide that ESRD outlier services are the following items and serv ices that are included in the ESRD PPS bundle: (i) ESRD-related drugs and biologicals that were or would have been, prior to January 1, 2011, separately billable under Medicare Part B; (ii) ESRD-related laborat ory tests that were or would have been, prior to January 1, 2011, separately billable under Medi care Part B; (iii) medical/surgical supplies, includi ng syringes, used to administer ESRD-related drugs, that were or would have been, prior to January 1, 2011, separa tely billable under Medica re Part B; and (iv) renal dialysis service drugs th at were or would have been, prior to January 1, 2011, covered under Medicare Part D, excluding ESRD-related oral-only drugs. In the CY 2011 ESRD PPS final rule (75 FR 49142), we stated that for purposes of determining whether an ESRD fac ility would be eligible for an outlier payment, it would be necessary for the facility to identify the actual ESRD outlier services furnished to the patient by line item on the monthly claim. The ESRD-related drugs, laboratory tests, and medical/surgical supplies that we would recognize as outlier services were specifie d in Attachment 3 of Change Request 7064, Transmittal 2033 issued August 20, 2010, rescinded and replaced by Transmittal 2094, dated November 17, 2010. With respect to the outlier policy, Transmittal 2094 identified additional drugs and laboratory tests that may be eligible for ESRD outlier payment. Transmittal 2094 was rescinded and replaced by Transmitta l 2134, dated January 14, 2011, which was issued to correct the subject on th e Transmittal page and made no other changes. In the CY 2012 ESRD PPS final rule (76 FR 70246), we eliminated the issuance of a specific list of eligible outlier service drugs whic h were or would have been separately billable under Medicare Part B prior to January 1, 2011. Ho wever, we use separate guidance to continueCMS-1614-P 86

to identify renal dialysis service drugs which were or would have been covered under Part D for outlier eligibility purposes in orde r to provide unit prices for calcul ating imputed outlier services. We also can identify, through our monitoring effo rts, items and services that are incorrectly being identified as eligible outlier services in the claims data. Information about these items and services and any updates to the list of renal dial ysis items and services that qualify as outlier services are made through administra tive issuances, if necessary. Our regulations at 42 CFR 413.237 specify th e methodology used to calculate outlier payments. An ESRD facility is eligible for an outlier payment if its act ual or imputed Medicare Allowable Payment (MAP) amount per treatment for ESRD outlier services exceeds a threshold. The MAP amount represents the average incurred am ount per treatment for services that were or would have been considered separately billable services prior to January 1, 2011. The threshold is equal to the ESRD facility ’s predicted ESRD outlier serv ices MAP amount per treatment (which is case-mix adjusted) plus the fixed dollar loss amount. In accordance with §413.237(c) of the regulations, facilities are paid 80 pe rcent of the per treatment amount by which the imputed MAP amount for outlier services (that is, the actual incurred amount) exceeds this threshold. ESRD facilities are eligible to re ceive outlier payments fo r treating both adult and pediatric dialysis patients. In the CY 2011 ESRD PPS final rule, usi ng 2007 data, we established the outlier percentage at 1.0 percent of total payments (75 FR 49142 through 49143). We also established the fixed dollar loss amounts that are added to th e predicted outlier serv ices MAP amounts. The outlier services MAP amounts and fixed dollar loss amounts are diffe rent for adult and pediatric patients due to differences in th e utilization of separately bi llable services among adult and pediatric patients (75 FR 49140).CMS-1614-P 87

As we explained in the CY 2011 ESRD PPS final rule (75 FR 49138 and 49139), the predicted outlier services MAP amounts for a pa tient are determined by multiplying the adjusted average outlier services MAP amount by the product of the patient-specific case-mix adjusters applicable using the outlier services payment mu ltipliers developed from the regression analysis to compute the payment adjustments. For CY 2014, the outlier services MAP amounts and fixed dollar loss amounts were based on 2012 data (78FR 72180). Therefore, the outlier thresholds for CY 2014 were based on utilizati on of ESRD-related items and se rvices furnished under the ESRD PPS. Because of the utili zation of epoetin and other outli er services has continued to decline under the ESRD PPS, we lowered the MAP amounts and fixed dollar loss amounts for CYs 2013 and 2014 to allow for an increase in pa yments for ESRD beneficiaries requiring higher resources. a. Proposed Changes to the Outlier Servic es MAP Amounts and Fixed Dollar Loss Amounts For CY 2015, we are not proposing any change s to the methodology used to compute the MAP or fixed dollar loss amounts. Rather, in this proposed rule, we are updating the outlier services MAP amounts and fixed dollar loss amounts to reflect the utilization of outlier services reported on the 2013 claims using the December 2013 cl aims file. The impact of this update is shown in Table 14, which compares the outlier services MAP amounts and fixed dollar loss amounts used for the outlier policy in CY 2014 with the updated estimates for this proposed rule. The estimates for the proposed outlier CY 2015 ou tlier policy, which are included in Column II of Table 14, were inflation-adjusted to reflect projected 2015 prices fo r outlier services.CMS-1614-P 88

TABLE 14: OUTLIERPOLICY: IMPACT of USING UPDATED DATA to DEFINE the OUTLIER POLICY
Column I Final outlier policy for CY 2014 (based on 2012 data

price inflated to 2014)* Column II Proposed outlier policy for CY 2015 (based on 2013 data price inflated to 2015)* Age < 18 A ge >= 18 A ge < 18 Age >= 18 Average outlier services MAP amount per treatment 1 $37.29 $51.97 $40.05 $52.61 Adjustments

Standardization for outlier services 2 1.1079 0.9866 1.1182 0.9899 MIPPA reduction 0.98 0.98 0.98 0.98

Adjusted average outlier services MAP amount 3 $40.49 $50.25 $43.89 $51.04

Fixed dollar loss amount that is added to the predicted MAP to determine the outlier threshold 4 $54.01 $98.67 $56.30 $85.24

Patient months qualifying for outlier payment 6.7% 5.3% 6.2% 6.3%

* The outlier services MAP amounts and fixed dollar loss amounts were inflation adjusted to reflect updated prices for outlier services (that is, 2014 pr ices in Column I and projected 2015 prices in Column II). 1 Excludes patients for whom not all data were available to calculate projected payments. The outlier services MAP amounts are based on 2013 data. T he medically unbelievable edits of 400,000 units for EPO and 1,200 mcg for Aranesp that ar e in place under the ESA claims monitoring policy were applied. 2 Applied to the average outlier MAP per treatment. Standardization for outlier services is based on existing case mix adjusters for adult and pediatric patient groups. 3 This is the amount to which the separately billable (SB) payment multipliers are applied to calculate the predicted outlier serv ices MAP for each patient. 4 The fixed dollar loss amounts were calculated usi ng 2013 data to yield tota l outlier payments that represent 1% of total projec ted payments for the ESRD PPS. As seen in Table 14, the estimated fixed dollar loss amount that determines the CY 2015 outlier threshold amount for adults (Column II) is lower than that used for the CY 2014 outlier policy (Column I). The threshold is lower in spite of the fact that the average outlier services MAP per treatment has increased. Between 2012 and 2013, the variation in outlier services across patients declined among adults. The net resu lt is an increase in the percentage of patientmonths qualifying for outlier payment (6.3 per cent based on 2013 data versus 5.3 percent based on 2012 data) but a decrease in the average outlier payment per case. The estimated fixed dollarCMS-1614-P 89

loss amount that determines the CY 2015 outlier threshold amount for pediatric patients (Column II) is higher than that used for th e CY 2014 outlier po licy (Column I). For pediatric patients, there was an incr ease in the overall aver age outlier service MAP amount between 2012 ($37.29 per treatment as shown in Column I) and 2013 ($40.05 per treatment, as shown in Column II). In addi tion, there was a continuing tendency in 2013 for a relatively small percentage of pediatric patients to account for a disproportionate share of the total outlier service MAP amounts. The one per cent target for outlier payments is therefore expected to be achieved based on a smaller percentage of pediat ric outlier cases using 2013 data compared to 2012 data (6.2 percent of pediatric pa tient months are expected to qualify for outlier payments rather than 6.7 percent). These patter ns led to the estimated fixed dollar loss amount for pediatric patients being higher for the outli er policy for CY 2015 compared to the outlier policy for CY 2014. Generally, there is a relativ ely higher likelihood for pediatric patients that the outlier threshold may be adjusted to reflect changes in the distribution of outlier service MAP amounts. This is due to the much smaller overall number of pediatric patients compared to adult patients, and therefore to the fact that the outlier threshold for pe diatric patients is calculated based on data for a much smaller number of pedi atric patients compared to adult patients. We propose to update the fixed dollar loss am ounts that are added to the predicted MAP amounts per treatment to determine the outlier thresholds for CY 2015 from $98.67 to $85.24 for adult patients and from $54.01 to $56.30 for pediatri c patients compared with CY 2014 amounts. We estimate that the percentage of patient months qualifying for outlier payments under the current policy will be 6.3 percent and 6.2 percent for adult and pediatric patients, respectively, based on the 2013 data. The pediatric outlier MAP and fixed dollar loss amounts continue to be lower for pediatric patients than adults due to the continued lower use of outlier servicesCMS-1614-P 90

(primarily reflecting lower use of ep oetin and other injectable drugs). b. Outlier Policy Percentage 42 CFR 413.220(b)(4) stipulates th at the per treatment base ra te is reduced by 1 percent to account for the proportion of the estimated total payments under the ESRD PPS that are outlier payments. Based on the 2013 claims, ou tlier payments represented approximately 0.5 percent of total payments, again fa lling short of the 1 pe rcent target due to fu rther declines in the use of outlier services. Use of 2013 data to recalibrate the thresholds, which reflect lower utilization of EPO and other ou tlier services and reduced vari ation in outlie r services among adults, is expected to result in aggregate outlier payments close to the 1 percent target in CY 2015. We believe the proposed update to the ou tlier MAP and fixed dollar loss amounts for CY 2015 will increase payments for ESRD beneficiarie s requiring higher resource utilization and come closer to meeting our 1 percent outlier policy. We note that recalibration of the fixed dolla r loss amounts in this proposed rule for CY 2015 outlier payments results in no change in paym ents to ESRD facilities for beneficiaries with renal dialysis items and services that are not eligible for outlier payments, but increases payments to providers for beneficiaries with renal dialysis items and services that are eligible for outlier payments. Therefore, beneficiary co-ins urance obligations would also increase for renal dialysis services eligible for outlier payments. C. Restatement of Policy Regarding Reporting and Payment for More than Three Dialysis Treatments per Week 1. Reporting More than Three Dialysis Treatments per Week on Claims Since the composite payment system was implemented in the 1980s, CMS has reimbursed ESRD facilities based upon three hemodialysis treatme nts per week and allowed forCMS-1614-P 91

the payment of additional weekly dialysis treatmen ts with medical justification. When a dialysis modality regimen requires more than three weekly dialysis treatments, such as with short, frequent hemodialysis (HD) and peritoneal dialysis (PD) modali ties, we apply payment edits to ensure that Medicare payment on the monthly claim is consiste nt with the three times-weekly dialysis treatment payment limit, which translat es to payment for 13 treatments for a 30-day month and 14 treatments for a 31-day month. Under section 1881(b)(14)(C) of the Act, the ESRD PPS may provide for payment on the basis of renal dialysis services furnished during a week, or month, or such other appropriate unit of payment as the Secretary specifies. In the CY 2011 ESRD PPS final rule (75 FR 49064), CMS finalized the per treatment ba sis of payment in which ESRD facilities are paid for up to three treatments per week, unless th ere is medical justification for more than three treatments per week. We codified the per-treatment un it of payment under the ESRD PPS at 42 CFR 413.215(a). Also in the CY 2011 ESRD PPS final rule (75 FR 49078), we explained how we converted patient weeks to HD-equi valent sessions for PD patients. Specifically, we noted that one week of PD was considered equivalent to three HD treatments. For example, a patient on PD for 21 days would have (21/7) x 3 or 9 HD- equivalent sessions. Our policy is that ESRD facilities treating patients on PD or home HD will be paid for up to three HD-equivalent sessions for each week of dialysis, unless there is me dical justification for furnishing additional

treatments. Increasingly, some ESRD facilities have begun to offer dialysis modalities where the standard treatment regimen is more than three treatments per week. Also, we have observed a payment variance among Medicare Administrative C ontractors (MACs) in processing claims for dialysis treatments for modalities that require mo re frequent dialysis, resulting in payment ofCMS-1614-P 92

more than 14 treatments per month without me dical justification. Lastly, CMS has received several requests for clarificati on regarding Medicare payment a nd billing policies for dialysis treatments for modalities requiring more than thr ee treatments per week that are furnished infacility or in the patient’s home. Specifi cally, ESRD facilities, renal physician groups, and MACs have requested billing guidan ce regarding whether all of the dialysis treatments furnished to the patient during the billing month should be reported on the claim form, even though the Medicare benefit only provides for payment of three dialysis treatments per week. For these reasons, we are reiterating our polic y with respect to payment for more than three dialysis treatments per week. We note that we are not changing our policy for reporting extra non-medically necessary dialysis sessions. ES RD facility claims should continue to include all dialysis treatments furnished during the m onth on claims, but payment is limited to three dialysis treatments per week through the paymen t edits of 13 treatments for a 30-day month or 14 treatments for a 31-day month. For example, an ESRD facility that furnishes dialysis services to patients who dialyze using modalities requiring shorter, more frequent dialysis (for example, a dialysis regimen of 4, 5, 6 or 7 days a week in-facility or at home), should report all of the patient’s dialysis treatments on the monthl y claim. However, payment for these services will reflect existing claims processing system edits, and the monthly Medicare payment would mirror the Medicare ESRD benefit of th ree dialysis treatments per week. 2. Medical Necessity for More Th an Three Treatments per Week Under the ESRD benefit, we have always r ecognized that some pa tient conditions benefit from more than three dialysis sessions per week and as such, the Medicare policy for medically necessary additional dialysis treatments was de veloped. Under this policy, the MACs determine whether additional treatments furnished during a month are medically necessary. WhileCMS-1614-P 93

Medicare does not define speci fic patient conditions that meet the requirements of medical necessity, we do furnish instructi ons to MACs to consider appr opriate patient conditions that would result in a patient’s medical need for addi tional dialysis treatments (for example, excess fluid of five or more pounds). When such patient conditions are in dicated with the claim requesting payment, we instruct MACs to consid er medical justificati on and the appropriateness of payment for the additional sessions. In section 50.A of the Me dicare Benefit Policy Manual (Pub. 100-02), we explained our policy regarding payment for hemodialysis-equiva lent PD and payment for more than three dialysis treatments per week under the ESRD PPS. We restated that ESRD facilities are paid for a maximum of 13 treatments during a 30 day mo nth and 14 treatments during a 31-day month unless there is medical justification for additi onal treatments. The onl y time facilities should seek payment for additional dialysis sessions, including payment for shorter, more frequent modalities, is when the patient has a medical need for additional dialysis and the facility has furnished supporting medical justif ication for the extra treatments . Modality choice does not constitute medical justification. D. Delay of Payment for Oral-Only Drugs under the ESRD PPS As we discussed in the CY 2014 ESRD PPS final rule (78 FR 72185 through 72186), section 1881(b)(14)(A)(i) of the Act, as added by section 153( b) of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA), requires the Secretary to implement a payment system under which a single payment is made to a pr ovider of services or a renal dialysis facility for “renal dialysis services” in lieu of any other payment. Section 1881(b)(14)(B) of the Act defines renal dialysis services, and subclause (iii) of that section states that these services include “other drugs and biologicals that are furnished to individuals fo r the treatment of ESRD and forCMS-1614-P 94

which payment was (before the appl ication of this paragr aph) made separately under this title, and any oral equivalent form of such drug or biological[.]” We interpreted this provision as including not only injectable drugs and biologicals used for the treatment of ESRD (oth er than ESAs, which are include d under clause (ii) of section 1881(b)(14)(B)), but also all non-inj ectable oral drugs used for th e treatment of ESRD furnished under title XVIII of the Act. We also concluded that, to the extent ESRD-related oral-only drugs do not fall within clause (iii) of the statutory definition of rena l dialysis services, such drugs would fall under clause (iv), and constitute other items and services used for the treatment of ESRD that are not described in clause (i) of se ction 1881(b)(14)(B). As such, CMS finalized and promulgated the payment policies for oral-only drugs used for the treatment of ESRD in the CY 2011 ESRD PPS final rule (75 FR 49038 through 49053) , and we defined “renal dialysis services” at 42 CFR 413.171(3) as including, among other things “o ther drugs and biologicals that are furnished to individuals for the treatmen t of ESRD and for which payment was (prior to January 1, 2011) made separately under Title XV III of the Act (including drugs and biologicals with only an oral form).” Although ESRD-related oral-only drugs are includ ed in the definition of renal dialysis services, in the CY 2011 ESRD P PS final rule (75 FR 49044), we al so finalized a policy to delay payment for these drugs under the PPS until Januar y 1, 2014. We stated that there were certain advantages to delaying the implementation of pa yment for oral-only drugs, including allowing ESRD facilities additional time to make operational changes and l ogistical arrangements in order to furnish oral-only ESRD-related drugs and biol ogicals to their patients. Accordingly, 42 CFR 413.174(f)(6) provides that payment to an ESRD facility for rena l dialysis service drugs and biologicals with only an oral form is incorporated into the PPS payment rates effective January 1,CMS-1614-P 95

2014. On January 3, 2013, the Congress enacted ATRA. Section 632(b) of ATRA states that the Secretary “may not implement the policy under section 413.176(f)(6) of title 42, Code of Federal Regulations (relating to oral-only ESRD-related drugs in the ESRD prospective payment system), prior to January 1, 2016.” Accordingly, in the CY 2014 ESRD PPS final rule (78 FR 72185 through 72186), we delayed payment for ES RD-related oral-only drugs under the ESRD PPS until January 1, 2016, instead of on January 1, 2014, which is the original date we finalized for payment of ESRD-related oral-only drugs under the ESRD PPS. We implemented this delay by revising the effective date for providing pa yment for oral-only ESRD-related drugs under the ESRD PPS at 42 CFR 413.174(f)(6) from January 1, 2014 to January 1, 2016. In addition, we also changed the date when oral-only drugs woul d be eligible outlier services under the outlier policy described in 42 CFR 413.237(a)(1)(iv) from January 1, 2014 to January 1, 2016. On April 1, 2014, PAMA was enacted. Sec tion 217(a)(1) of PAMA amended section 632(b)(1) of ATRA, which now pr ovides that the Secretary “may not implement the policy under section 413.174(f)(6) of title 42, Co de of Federal Regulations (rela ting to oral-only ESRD drugs in the ESRD prospective payment system), prio r to January 1, 2024.” Accordingly, payment for ESRD-related oral-only drugs will not be made under the ESRD PPS prior to January 1, 2024 instead of on January 1, 2016, which is the date we finalized for payment of ESRD-related oralonly drugs under the ESRD PPS in the CY 2014 ESRD PPS final rule (78 FR 72186). We propose to implement this delay by m odifying the effective date for providing payment for oral-only ESRD-related drugs a nd biologicals under the ESRD PPS at 42 CFR 413.174(f)(6) from January 1, 2016 to January 1, 2024. We also propose to change the date in 42 CFR 413.237(a)(1)(iv) regarding outlier paymen ts for oral-only ESRD-related drugs madeCMS-1614-P 96

under the ESRD PPS from January 1, 2016 to January 1, 2024. We continue to believe that oralonly drugs used for the treatment of ESRD are an essential part of the ESRD PPS payment bundle and should be paid for under the ESRD PPS as soon as possible, or beginning January 1,
2024. In addition to the delay of payment for oral-only ESRD-related drugs, section 217(a)(2) of PAMA further amends secti on 632(b)(1) of ATRA by adding a new sentence that provides, “[n]otwithstanding section 1881( b)(14)(A)(ii) of the Social Security Act (42 U.S.C. 1395rr(b)(14)(A)(ii)), implementation of the policy de scribed in the previous sentence shall be based on data from the most recent year available. ” We interpret this provision to mean that we are not to use per patient util ization data from 2007, 2008, or 2009 (whichever has the lowest per patient utilization) as we were required for the original ESRD PPS in implementing payment for oral-only ESRD drugs under the ESRD PPS. We will make proposals consistent with section 632(b)(1) of ATRA, as amended by section 217 (a)(2) of PAMA, in future rulemaking. Section 217(c) of PAMA requires the S ecretary, as part of the CY 2016 ESRD PPS rulemaking, to establish a process for “(1) dete rmining when a product is no longer an oral-only drug; and (2) including new injectable and intr avenous products into the bundled payment under such system.” Consistent with this statutory requirement, we plan to propose a drug designation process in our CY 2016 rulemaking cycle and we are seeking industry and stakeholder comments on the components and elements of such a proc ess for our consideration next year. E. ESRD Drug Categories Includ ed in the ESRD PPS Base Rate In the CY 2011 ESRD PPS final rule (75 FR 49050), we finalized Table 4, (Renal Dialysis Service ESRD Drug Categories Included in the Final ESRD PPS Base Rate), and have included Table 15 below for the purpose of this di scussion. In that rule, we noted that theCMS-1614-P 97

categories of drugs and biologicals used for access management, anemia management, antiinfectives, bone and mineral metabolism and cellu lar management would always be considered ESRD-related drugs when furnished to an ESRD patient, and that payment for such drugs would be included in the ESRD PPS payment bundle. As such, beginning January 1, 2011, Medicare no longer makes a separate payment when a drug or biological (except for oral-only ESRD– related drugs for which we are proposing to de lay payment under the ESRD PPS until January 1, 2024) identified in the categorie s listed in the following table is furnished to a Medicare ESRD beneficiary. TABLE 15: RENAL DIALYSIS SERVICE ESRD DRUG CATEGORIES INCLUDED in the FINAL ESRD PPS BASE RATE Drug Category Rationale for Inclusion Access Management Drugs used to ensu re access by removing clots from grafts, reverse anticoagulation if too much medication is given, and provide anesthetic fo r access placement. Anemia Management Drugs used to stimulat e red blood cell producti on and/or treat or prevent anemia. This category includes ESAs as well as iron. Anti-infectives Vancomycin and daptomycin used to treat access site infections. Bone and Mineral Metabolism Drugs used to prev ent/treat bone disease secondary to dialysis. This category includes phosphate binders and calcimimetics. Cellular Management Drugs used for deficien cies of naturally occurring substances needed for cellular management. This category includes levocarnitine.

In the CY 2011 ESRD PPS final rule (75 FR49050), we noted that we included the antiinfective drugs of vancomycin and daptomycin b ecause these drugs were routinely furnished for the ESRD-related conditions of acce ss site infections and peritonitis. However, in the CY 2012 ESRD PPS final rule (76 FR 70242 through 70243), we responded to public comments that noted that vancomycin is a common anti-infective drug appropriate for treating in fections that are bothCMS-1614-P 98

ESRD- and non-ESRD-related by modifying our polic y to eliminate the payment restriction for vancomycin when it is furnished for non-ESRD re lated conditions. In addition, we finalized the use of CMS payment modifier AY (Item or serv ice furnished to an End Stage Renal Disease (ESRD) patient that is not for the treatment of ESRD) and instructed facilities to append the modifier to the claim reporting vancomycin to indicate that the drug was furnished for reasons other than ESRD. The presence of the AY modi fier on the claim allows the MAC to make a separate payment for the drug when it is furnished by the facility to a Medicare beneficiary for reasons other than ESRD. In the CY 2013 ESRD PPS final rule (77 FR 67461), we further amended this policy to allow ESRD facilities to bill separately for daptomycin when it is furnished to ESRD beneficiaries for reasons other th an ESRD. Once again, we instruct ed facilities to append claims reporting daptomycin furnished for reasons othe r than ESRD with the AY modifier so that MACs would be able to make a separate payment. Because we have removed the payment limitation for both vancomycin and daptomycin, and because we believe that anti-infectives ar e a drug category that may be furnished for both ESRD- and non-ESRD-related reasons, we have updated the list of drug categories that are always considered ESRD-related under the ESRD PPS by removing the drug category for antiinfectives. We have included Table 16 (Renal Dialysis Service ESRD Drug Categories Included in the ESRD PPS Base Rate and Not Separately Payable) below to appr opriately recognize the drug categories that are always considered ESRD -related and we confirm that the revised table reflects policy changes made in the CY 2012 and CY 2013 ESRD PPS rulemaking cycles and does not constitute new policy. Over the past few years, we have receiv ed payment and billing inquiries requestingCMS-1614-P 99

clarification for the payment for drugs represented by one of the dr ug categories included in the ESRD PPS, but not furnished for the treatment of ESRD. Therefore, we clarify that any drug included in the drug categories of access management, anemia management, bone and mineral metabolism and cellular management is not separa tely paid by Medicare regardless of why the drug is being furnished. In addi tion, the facility may not furnis h a prescription for such drugs with the expectation that a Medicare Part D pa yment would be made, as the payment for the drug is included in the ESRD PPS payment bundle. TABLE 16: RENAL DIALYSIS SERVICE ESRD DRUG CATEGORIES INCLUDED in the ESRD PPS BASE RATE and NOT SEPARATELY PAYABLE Drug Category Rationale for Inclusion Access Management Drugs used to ensu re access by removing clots from grafts, reverse anticoagulation if too much medication is given, and provide anesthetic fo r access placement. Anemia Management Drugs used to stimulat e red blood cell producti on and/or treat or prevent anemia. This category includes ESAs as well as iron. Bone and Mineral Metabolism Drugs used to prev ent/treat bone disease secondary to dialysis. This category includes phosphate binders and calcimimetics. Cellular Management Drugs used for deficien cies of naturally occurring substances needed for cellular management. This category includes levocarnitine.

The drug categories that may be separately paid by Medicare when furnished for nonESRD patient conditions are included in Table 5 (ESRD Drug Categories Included in the ESRD PPS Base Rate But May be Used for Dialysis and non-Dialysis Purposes) (75 FR 49051). This table is included below for the pur pose of this discussion. When any drug identified in the drug categories listed in Table 17 (a ntiemetic, anti-infectives, antipru ritic, anxiolytic, excess fluid management, fluid and electrolyte management or pain management), is furnished for the treatment of ESRD, payment for the drug is incl uded in the ESRD PPS payment and may not beCMS-1614-P 100

paid separately. If a drug represented by a dr ug category in Table 17 is furnished for reasons other than ESRD, a separate Medicare payment is permitted when the AY modifier is indicated on the claim line reporting th e drug for payment. TABLE 17: ESRD DRUG CATEGORIES INCLUDED in the ESRD BASE RATE but MAY be USED for DIALYSIS and NON-DIALYSIS PURPOSES Antiemetic Used to prevent or treat naus ea and vomiting secondary to dialysis. Excludes antiemetics used in conj unction with chemotherapy as these are covered under a se parate benefit category. Anti-infectives Used to treat infections. May include antibacterial and antifungal drugs. Antipruritic Drugs in this classification ha ve multiple clinical indications and are included for their action to treat itching secondary to dialysis. Anxiolytic Drugs in this classification ha ve multiple actions but are included for the treatment of restless leg s yndrome secondary to dialysis. Excess Fluid Management Drug/fluids used to trea t fluid excess/overload. Fluid and Electrolyte Management Including Volume Expanders Intravenous drugs/fluids used to tr eat fluid and electrolyte needs.

Pain Management Drugs used to treat graf t site pain and to treat pain medication overdose. F. Low-Volume Payment Adjustment 1. Background Section 1881(b)(14)(D)( iii) of the Act requires a payment adjustment that “reflects the extent to which costs incurred by low-volume facilities (as defined by the Secretary) in furnishing renal dialysis services exceed the costs incurred by othe r facilities in furnishing such services, and for payment for re nal dialysis services furnishe d on or after January 1, 2011, and before January 1, 2014, such payment adjustment sh all not be less than 10 percent.” As a result of this provision and the regres sion analysis conducted for the ESRD PPS, effective January 1, 2011, the ESRD PPS provides a facility-level paym ent adjustment of 18.9 percent to ESRD facilities that meet the definition of a low-volume facility.CMS-1614-P 101

Under 42 CFR 413.232(b), a low-volume facility is an ESRD facility that: (1) Furnished less than 4,000 treatments in each of the 3 cost re porting years (based on as-filed or final settled 12-consecutive month cost reports, whichever is most recent) preceding the payment year; and (2) Has not opened, closed, or received a new provi der number due to a change in ownership in the 3 cost reporting years (based on as-filed or final settled 12 -consecutive month cost reports, whichever is most recent) preceding the pa yment year. Under §413.232(c), for purposes of determining the number of treatments furnished by the ESRD facility, the number of treatments equals the aggregate number of treatments furnished by other ES RD facilities that are both under common ownership and 25 road miles or less fr om the ESRD facility in question. This geographic proximity criterion is onl y applicable to ESRD facilities that were Medicare certified on or after January 1, 2011. For purposes of determining eligibility fo r the low-volume payment adjustment (LVPA), “treatments” means total hemodialysis (HD) equivalent treatments (Medicare and nonMedicare). For peritoneal dialys is (PD) patients, one week of PD is considered equivalent to 3 HD treatments. In the CY 2012 ESRD PPS final ru le (76 FR 70236), we clarified that we base eligibility on the three years preceding the paym ent year and those years are based on cost reporting periods. We further clarif ied that the ESRD facility’s cost reports for the cost reporting periods ending in the three years preceding the payment year must report costs for 12- consecutive months. In order to receive the LVPA under the ES RD PPS, an ESRD facility must submit a written attestation statement to its Medicare Ad ministrative Contractor (MAC) that it qualifies as a low-volume ESRD facility and that it meets all of the requirements specified at 42 CFR §413.232. In the CY 2012 ESRD PPS final rule (76 FR 70236), we finalized a yearly NovemberCMS-1614-P 102

1 deadline for attestation submi ssion and we revised the regulati on at §413.232(f) to reflect this date. We noted that this timeframe provides 60 days for a MAC to verify that an ESRD facility meets the LVPA eligibility criteria. Further information regarding th e administration of the LVPA is provided in CMS Pub. 100-02, Medicare Benefit Policy Manual, chapter 11, section
60.B.1. 2. The United States Government A ccountability Office Study on the LVPA The Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) required the United States Government Accountability Office (the GAO) to study the LVPA. The GAO examined (1) the extent to which the LVPA ta rgeted low-volume, high-cost facilities that appeared necessary for ensuring access to care ; and (2) CMS’s implem entation of the LVPA, including the extent to which CMS paid the 2011 LVPA to facilities eligible to receive the adjustment. To do this work, the GAO reviewed Medi care claims, facilities’ annual cost reports, and data on dialysis facil ities’ locations to identify and compare facilities that were eligible for the LVPA with those that received the ad justment. The GAO published a report 13-287 on March 1, 2013, entitled, “End-Stage Renal Di sease: CMS Should Improve Design and Strengthen Monitoring of Low-Volume Adjustment”. The report found multiple discrepancies in the identification of low-volume facilities which are summarized below. a. The GAO’s Main Findings The GAO found that many of the facilities eligib le for the LVPA were located near other facilities, indicating that they might not have been necessary for ensuri ng access to care. They also identified certain facilities with relatively low volume that were not eligible for the LVPA but had above-average costs and appeared to be necessary for ensuring access to care. Lastly, they stated the design of the LVPA provides faciliti es with an adverse ince ntive to restrict theirCMS-1614-P 103

service provision to avoid r eaching the 4,000 treatment threshold. The GAO calculated that Medicare overpaid an estimated $5.3 million for the LV PA to dialysis facilities that did not meet the eligibility requirements established by CMS. They indicated in their report that the guidance that CMS issued for implementation of the regul atory requirements was sometimes unclear and not always available when needed, and the mi sunderstanding of LVPA eligibility likely was exacerbated because CMS conducted limited mon itoring of the Medicare contractors’ administration of LVPA payments. b. The GAO’s Recommendations In the conclusion of their study, the GAO provided Congress with the following recommendations: 1) To more effectively target facilities necessary for ensuring access to care, the Administrator of CMS should consider restric ting the LVPA to low-volume facilities that are isolated; 2) To reduce the incentiv e for facilities to restrict their service pr ovision to avoid reaching the LVPA treatment threshold, the Admi nistrator of CMS should consider revisions such as changing the LVPA to a tiered adjustment; 3) To ensure that future LVPA payments are made only to eligible facilities and to rectif y past overpayments, the Administrator of CMS should take the following four actions: requir e Medicare contractors to promptly recoup 2011 LVPA payments that were made in error; inves tigate any errors that contributed to eligible facilities not consistently rece iving the 2011 LVPA and ensure th at such errors are corrected; take steps to ensure that CMS regulations a nd guidance regarding the LVPA are clear, timely, and effectively disseminated to bo th dialysis facilities and Medi care contractors; and improve the timeliness and efficacy of CMS’s monitoring regard ing the extent to which Medicare contractors are determining LVPA eligibility correctly and promptly redetermining eligibility when all necessary data become available.CMS-1614-P 104

In response to the GAO’s recommendations, we concurred with the need to ensure that the LVPA is targeted effectively at low-volume hi gh-cost facilities in areas where beneficiaries may lack other dialysis care opti ons. We also agreed to take action to ensure appropriate payment is made in the following ways: 1) evaluating our policy gui dance and contractor instructions to ensure appropr iate application of the LVPA; 2) using multiple methods of communication to MACs and ESRD facilities to deliver clear and timely guidance; and 3) improving our monitoring of MACs and consideri ng measures that provide specific expectations. 3. Clarification of the LVPA Policy For CY 2015, we are not proposing to make ch anges to the eligibility criteria for the adjustment or to the magnitude of the adjustment value. In accordance with section 632(c) of ATRA, for CY 2016 we will assess and address ot her necessary LVPA policy changes when we use updated data and reevaluate all of the patient - and facility-level adjustments together in a regression analysis similar to th e analysis that is discussed in the CY 2011 ESRD PPS final rule (75 FR 49083 ). At this time, we are not proposing to change the criteria in such a way that the number of low-volume facilities would deviate substantially from the number of facilities originally modeled to receive the adjustment in th e first year of implementation. This is because of the interaction of the LVPA with other payment adju stments under the ESRD PPS. As discussed in the CY 2011 ESRD PPS final rule (75 FR 49081), we standardized the ESRD PPS base rate to account for the payment variables an d it would not be appropriate to make changes to one variable in the regression when it could potentially affect the other adjustments or the standardization factor. However, there are two clarifications under the LVPA policy (discussed below) that we can address in this year’s rulemaking that we believe are responsive to stakeholder’s concerns and GAO’s concern that the LVPA should e ffectively target low-volume,CMS-1614-P 105

high cost-facilities. a. Hospital-Based ESRD Facilities As stated above, for purposes of determin ing eligibility for the LVPA, “treatments” means total hemodialysis (HD) equivalent tr eatments (Medicare and non-Medicare) and for peritoneal dialysis (PD) patients, one week of PD is considered equivalent to 3 HD treatments. Once a MAC receives an attestation from an ESRD facility, it reviews the ESRD facility’s cost reports to verify that the fac ility meets the low-volume criteri a specified at 42 CFR §413.232(b). Specifically, the ESRD facility co st report is used to verify th e total treatment count that an ESRD facility furnishes in its fiscal year, which includes Medicar e and non-Medicare treatments. For independent ESRD facilities, this inform ation is provided on Worksheet C of the Form CMS-265-11 form (previously Form CMS-265-94) a nd for hospital-based ES RD facilities, this information is on Worksheet I-4 of the Form CMS-2552-10. After the LVPA was implemented, we be gan hearing concerns from multiple stakeholders, including members of Congress and rural hospital-based ESRD facilities, about the MACs’ LVPA eligibility determinations. The stakeholders indicated that because hospitalbased ESRD facilities are financially integrated w ith a hospital, their costs and treatment data are aggregated in the I-series of the hospital’s cost re port. This means that if there is more than one ESRD facility that is affiliated with a hospital, the cost and treatment da ta for all facilities are aggregated on Worksheet I-4, typi cally causing the facilities’ tr eatment counts to exceed the 4,000-treatment criterion. We have learned that some MACs accepte d treatment counts from hospital-based ESRD facilities other than those provided on the hospita l’s cost report and, as a result, certain hospitalbased ESRD facilities received th e LVPA. Other MACs solely used the aggregated treatmentCMS-1614-P 106

counts from the hospital’s cost report to verify LVPA eligibility, which resulted in denials for many hospital-based facilities that would have qu alified for the adjustment if the MACs had considered other supporting documentation. We agree with stakeholders that limiting th e MAC review to the hos pital cost reports for verification of LVPA eligibility for hospital-based ESRD facilitie s places these facilities at a disadvantage and does not comport with the intent of our policy. We believe it can be necessary for MACs to use other supporting data to veri fy the treatment counts for individual hospitalbased facilities that would meet the eligibility criteria for the LV PA if their treatment counts had not been aggregated with one or more other faci lities on their hospitals’ cost reports. Because LVPA eligibility is based on cost report informa tion and the individual hospital-based facility treatment counts is the source of the aggregated treatment counts reported in the cost report, however, we continue to believe th at cost report data is an in tegral part of the process of verifying whether a hospital- based facility meets the LVPA eligibility criteria. For these reasons, we are clarifying that MA Cs may consider other supporting data, such as a hospital-based facility’s to tal treatment count, along with th e facility’s cost reports and attestation, to verify it meets the low-volume e ligibility criteria provided at 42 CFR §413.232(b). The attestation should continue to be configured around the parent hospital’s cost reports, that is, it should be for the same fiscal periods. The MAC can consider other supporting data in addition to the total treatments reported in each of the 12-consecutive month cost reports, such as the individual facility’s tota l treatment counts, rather than the hos pital’s cost report alone, to verify the number of treatments that were furnished by th e individual hospital-ba sed facility that is seeking the adjustment. Consistent with this pol icy clarification, hospital- based ESRD facilities’ eligibility for the LVPA should be determined at an individual facility level and their totalCMS-1614-P 107

treatment counts should not be aggregated with othe r ESRD facilities that are affiliated with the hospital unless the affiliated facilities are commonly owned and within 25 miles. MACs have discretion as to the format of the attestation a nd any supporting data, however, the facility must provi de the total number of Medicare and non-Medicare treatments for the three cost reporting years preceding th e payment year for all of the hospital-based facilities for which treatment counts appear on the hospital’s cost report. This will allow MACs to determine which treatments on the cost report were furnished by the individual hospital-based facility that is seeking the LVPA and which tr eatments were furnished by other affiliated facilities. Finally, we propose to amend the re gulation text by adding a new paragraph (h)(1) to §413.232 to reflect this clarificat ion of current policy under whic h MACs can verify hospitalbased ESRD facilities’ eligibility for the LVPA using supporting data in a ddition to hospital cost reports. We are soliciting comment on the pr oposed changes at §413.232(h)(1). b. Cost Reporting Periods Used for Eligibility In the CY 2012 ESRD PPS final rule (76 FR 70236), we clarified that for purposes of eligibility under 42 CFR §413.232(b), we base e ligibility on the three years preceding the payment year and those years are based on cost re porting periods. We furt her clarified that the ESRD facility’s cost reports for the cost report ing periods ending in the three years preceding the payment year must report costs for 12 consecutive months. After the LVPA was implemented, we began hearing concerns from the industry that there is a conflict within our policy. Currently, our policy allows an ESRD facility to remain eligible for the LVPA when they have a change of ownership (CHOW) that does not result in a new Provider Transaction Access Number (PT AN). However, our re gulations at 42 CFR §413.232(b) suggest that MACs must verify tr eatment counts using cost reports for 12-CMS-1614-P 108

consecutive month cost periods even though CHOWs often result in costs reports that are nonstandard, that is, longer or shorter than 12 mont hs. In particular, the previous owner’s final cost report may not coincide with the ESRD facility’s cost repor t fiscal year end under its new ownership, resulting in two costs reports that are not 12-consecutive mont h cost reports. For example, where a CHOW occurs in the middle of the cost reporting period and the new owner wishes to retain the establishe d cost report fiscal year end, th e previous owner submits a final cost report covering their period of ownership and the new owner submits a cost report covering the remainder of the cost reporting period. Altern atively, a new owner could also choose not to retain the previous owner’s established cost re porting fiscal year end, in which case the CHOW could result in a cost reports that exceed tw elve months when combined. Further details regarding the policies for filing cost reports during a CHOW are available in the Provider Reimbursement Manual – Part 1, chap ter 15, “Change of Ownership.” We agree with the industry that there is a conflict in the policie s governing LVPA that may prevent an otherwise qualified ESRD facili ty from receiving the adjustment. We have always intended that if an ESRD facility has a CHOW where the new owner accepts the previous owner’s assets and liabilities by re taining the facility’s PTAN, they should continue to be eligible for the LVPA. However, some MACs used a strict reading of the regulatory language and denied these providers the LVPA. Other MACs a dded short cost reports together or prorated treatment counts for cost reporting peri ods spanning greater than 12 months. In order to ensure consiste nt verification of LVPA elig ibility, we are restating our intention that when there is a CHOW that does not result ina new PTAN but creates two nonstandard cost reporting periods (t hat is, periods that are shorte r or longer than 12 months) the MAC is either to add the two non-standard cost reporting periods together where combined theyCMS-1614-P 109

would equal 12 consecutive months or prorate the data when th ey would exceed 12 consecutive months to determine the total treatments furnished for a full cost reporting period as if there had not been a CHOW. For example, prior to a CHOW, Facility A had a cost reporting period that spanned January 1 through December 31. F acility A had a CHOW mid-year that did not result in a new PTAN but caused a break in the co st reporting period. Consistent with the clarification of our policy, the MAC would add Facility A’s cost report that spanne d January 1 through May 31 to its cost report that spanned June 1 through Decem ber 31 to verify the total treatment count. The other situation that could occur is when a CHOW results in a change of the original fiscal period. For example, pr ior to a CHOW, Facility B had a cost reporting period that spanned January 1 through December 31 and, based on its cost reports for 2012 and 2013, it met the LVPA eligibility criteria. The n, Facility B had a CHOW in th e beginning of 2014 that did not result in a new PTAN, but changed its cost repor ting period to that of its new owner, October 1, 2014 through September 30, 2015. This scenario woul d create a short and a long cost report that would not total 12 months that the MAC would need to review for verification. That is, Facility B would have a cost report that spanned Janua ry 1, 2014 through July 31, 2014 (7 months) and a cost report that spanned August 1, 2014 through September 30, 2015 (14 months). In this situation, the MAC should combine the two non-standard cost reporting periods that in combination may exceed 12-consecutive months and prorat e the data to equal a full 12- consecutive month period. Fina lly, we propose to amend the re gulation text by adding a new paragraph (h)(2) to §413.232 to clarify the veri fication process for ESRD facilities that experience a CHOW with no change in the PTAN. We are soliciting comments on the proposed changes at §413.232(h)(2).CMS-1614-P 110

Section 413.232(f) requires ESRD facilities to submit LVPA attestations by November 1 of each year. However, the changes we are prop osing to the LVPA regula tion text would not be finalized in enough time to give the ESRD fac ilities the opportunity to learn about the policy clarifications and provide an attestation to th eir MAC by November 1, 2 014. For these reasons, we are proposing to amend §413.232(f) to extend the deadline for CY 2015 LVPA attestations until December 31, 2014. This timeframe woul d allow ESRD facilitie s to reassess their eligibility and apply for the LV PA for CY 2015. It would also give MACs an opportunity to verify any new attestations and reassess LVPA eligibility verifications made since 2011. We will issue guidance with additional detail regardi ng this policy clarification, which will include details about the process ESRD f acilities should follow to seek the LVPA for past years. G. Continued Use of ICD-9-CM Codes and Corr ections to the ICD-10-CM Codes Eligible for the Comorbidity Payment Adjustment Section 1881(b)(14)(D)(i) of the Act requires that the ESRD PPS include a payment adjustment based upon case mix that may take into account, among other things, patient comorbidities. Comorbidities ar e specific patient conditions that coexist with the patient’s principal diagnosis that necessitates dialysis. The comorbidity payment adjustments recognize the increased costs associated with comorbidit ies and provide additional payment for certain conditions that occur concurrently with the need for dialysis. Fo r a detailed discussion of our approach to developing the comorbidity paymen t adjustment, see the CY 2011 ESRD PPS final rule (75 FR 49094 through 49108). In the CY 2011 ESRD PPS final rule, we fina lized six comorbidity categories that are eligible for a comorbidity payment adjustment, each with associated International Classification of Diseases, 9 th Revision, Clinical Modification (ICD -9-CM) diagnosis codes (75 FR 49100).CMS-1614-P 111

These categories include three acute, short-term diagnostic categories (pericar ditis, bacterial pneumonia, and gastrointestinal tract bleeding with hemorrhage) and three chronic diagnostic categories (hereditary hemolytic sickle cell an emia, myelodysplastic sy ndrome, and monoclonal gammopathy). The comorbidity ca tegories eligible for an adjustment and their associated ICD9-CM codes were published in the Appendix of th e CY 2011 ESRD PPS final rule as Table E: ICD-9-CM-Codes Recognized for the Comorbid ity Payment Adjustment (75 FR 49211). In the CY 2012 ESRD PPS final rule (76 FR 70252), we clarified that the ICD-9-CM codes eligible for the comorbidity payment ad justment are subject to the annual ICD-9-CM coding updates that occur in the hospital IPPS final rule and are effective October 1 st every year. We explained that any updates to the ICD-9-CM codes that affect the categories of comorbidities and the diagnoses within the comorbidity categorie s that are eligible for a comorbidity payment adjustment would be communicated to ESRD fa cilities through sub-re gulatory guidance. Together with the rest of the healthcare industry, CMS was scheduled to implement the
10 th revision of the ICD coding scheme – ICD- 10 – on October 1, 2014. Hence, in the CY 2014 ESRD PPS (78 FR 72175 through 72179), we finaliz ed a policy that ICD-10-CM codes will be eligible for a comorbidity payment adjustment wh ere they crosswalk from ICD-9-CM codes that are eligible for a comorbidity paymen t adjustment with two exceptions. On April 1, 2014, PAMA was enacted. S ection 212 of PAMA, titled “Delay in Transition from ICD-9 to ICD-10 Code Sets,” pr ovides that “[t]he Secr etary of Health and Human Services may not, prior to October 1, 2015, adopt ICD-10 code sets as the standard for code sets under section 1173(c) of the Social Security Act (4 2 U.S.C. 1320d-2(c)) and section 162.1002 of title 45, Code of Federal Regulations .” On May 1, 2014, the Secretary announced that HHS expects to issue an interim final rule that will require use of ICD-10 beginning OctoberCMS-1614-P 112

1, 2015 and continue to require use of ICD-9-CM through September 30, 2015. This announcement is available on the CMS Web site at http://cms.gov/Medicare/Coding/ICD10/index.html. Before the passage of PAMA, our policy required facilities to utilize IC D-10-CM codes to identify comorbidities eligible for the comorbidity payment adjustment beginning October 1, 2014. However, in light of section 212 of PAMA and the Secretary’s announcement of th e new compliance date for ICD-10, we are proposing to require use of ICD-10-CM to iden tify comorbidities beginning on October 1, 2015. Until that time, we will continue to require use of the ICD-9-CM codes to identify comorbidities eligible for the comorbidity payment adjustment. The ICD-9-CM codes that are eligible for the comorbidity payment adjustment are lis ted in the crosswalk tables below. Because facilities will begin using ICD-10 durin g the calendar year to which this rule applies, we are correctin g several typographical e rrors and omissions in th e Tables that appeared in the CY 2015 ESRD PPS final rule. First, we are correcting one ICD-9-CM diagnosis code that was incorrectly identified due to a typographical error in Table 1- ONE ICD-9-CM CODE
CROSSWALKS TO ONE ICD-10-CM CODE (78 FR 72176). In Table 2- ONE ICD-9-CM
CODE CROSSWALKS TO MULTIPLE ICD- 10-CM CODES (78 FR 72177), we are correcting two ICD-10-CM codes because of ty pographical errors and proposing two additional ICD-10-CM codes that were inadvertently omitted from the crosswalk. Lastly, in Table 3 -
MULTIPLE ICD-9-CM CODES CROSSWALK TO ONE ICD-10- CM CODE (78 FR 72178), we are proposing to include 9 additional ICD- 10-CM crosswalk codes for eligibility for the comorbidity payment adjustment. These codes were omitted in error from the CY 2014 ESRD PPS final rule, and we have furnished an updated Ta ble 20 below reflecting the additional codes. We note that the ICD-10-CM codes that facili ties will be required to use to identifyCMS-1614-P 113

eligible comorbidities when ICD-10 becomes th e required medical data code set on October 1, 2015 are those that were finalized in the CY 2014 ESRD PPS final rule at 78 FR 72175 to 78 FR 72179 with the corrections and proposed additions included below. Table 18– ONE ICD-9-CM CODE CROSSWALKS TO ONE ICD-10-CM CODE (78 FR 72175 through 78 FR 72176) Table 18 lists all the instances in which one ICD-9-CM code cro sswalks to one ICD-10- CM code. We finalized a policy in last year’s rule that all identified ICD-10-CM codes would receive a comorbidity adjustment with th e exception of K52.81 Eosi nophilic gastritis or gastroenteritis. We have since discovered that under the secti on titled Myelodysplastic Syndrome, ICD-9-CM code 238.7 Essential thromboc ythemia was inaccurately identified. The table below has been amended to accurately identify ICD-9-CM diagnostic code 238.71 Essential thrombocythemia.CMS-1614-P 114

TABLE 18: ONE ICD-9-CM CODE CROSSWALKS TO ONE ICD-10-CM CODE

Gastrointestinal Bleeding ICD-9 Descriptor IC D-10 Descriptor 530.21 Ulcer of esophagus with bleeding K22.11 Ulcer of esophagus with bleeding 535.71 Eosinophilic gastriti s, with hemorrhage K52.81 Eosinophi lic gastritis or gastroenteritis 537.83 Angiodysplasia of stomach and duoden um with hemorrhage K31.811 Angiodysplasia of stomach and duodenum with bleeding 569.85 Angiodysplasia of intestine with hemorrhage K55.21 Angiodysplasia of colon with hemorrhage

Bacterial Pneumonia ICD-9 Descriptor IC D-10 Descriptor 003.22 Salmonella pneumonia A 02.22 Salmonella pneumonia 482.0 Pneumonia due to Klebsiel la pneumonia J15.0 Pneumonia du e to Klebsiella pneumoniae 482.1 Pneumonia due to Pseudomonas J15.1 Pneumonia du e to Pseudomonas 482.2 Pneumonia due to Hemophilus in fluenzae [H. influenzae] J14 Pneum onia due to Hemophilus influenzae 482.32 Pneumonia due to Streptoc occus, group B J15.3 Pneumonia due to streptococcus, group B 482.40 Pneumonia due to Staphylococcus, unspecified J15.20 Pneumonia due to staphylococcus, unspecified 482.41 Methicillin susceptible pneumonia due to Staphylococcus aureus J15.211 Pneumonia due to Methicillin susceptible Staphylococcus aureus 482.42 Methicillin resistan t pneumonia due to Staphylococcus aureus J15.212 Pneumonia due to Methicillin resistant Staphylococc us aureus 482.49 Other Staphylococcus pneumonia J15. 29 Pneumonia due to other staphylococcus 482.82 Pneumonia due to escherichia coli [E. coli] J15.5 Pneumonia due to Escherichia coli 482.83 Pneumonia due to other gram-negative bacteria J15. 6 Pneumonia due to other aerobic Gram-negative bacteria 482.84 Pneumonia due to Legionnaires' disease A48. 1 Legionnaires' disease 507.0 Pneumonitis due to inhalation of food or vomitus J69.0 Pneumonitis due to inha lation of food and vomit 507.8 Pneumonitis due to other solids an d liquids J69.8 Pneumonitis due to i nhalation of other solids and liquids 510.0 Empyema with fistula J8 6.0 Pyothorax with fistula 510.9 Empyema without mention of fist ula J86.9 Pyothorax without fistula
Pericarditis ICD-9 Descriptor IC D-10 Descriptor 420.91 Acute idiopathic pericarditis I30.0 Acute nonspecific idiopa thic peri carditis Hereditary Hemolytic and Sickle Cell Anemia ICD-9 Descriptor IC D-10 Descriptor 282.0 Hereditary spherocytosis D58.0 Hereditary spherocytosis 282.1 Hereditary elliptocytosis D58.1 Hereditary elliptocytosis 282.41 Sickle-cell thalassemia without crisis D57.40 Sickle-cell thalassemia without crisis 282.43 Alpha thalassemia D56.0 Alpha thalassemia 282.44 Beta thalassemia D56.1 Beta thalassemia 282.45 Delta-beta thalassemia D56.2 Delta-beta thalassemia 282.46 Thalassemia minor D56.3 Thalassemia minor 282.47 Hemoglobin E-beta thalassemia D56.5 Hemoglobin E-beta thalassemia 282.49 Other thalassemia D56.8 Other thalassemias 282.61 Hb-SS disease without crisis D57.1 Sickle-cell disease without crisis 282.63 Sickle-cell/Hb-C disease without crisis D57.20 Sickle-cell/Hb-C disease without crisis 282.68 Other sickle-cell disease wi thout crisis D57.80 Other sickle -cell disorders without crisis Myelodysplastic Syndrome ICD-9 Descriptor IC D-10 Descriptor 238.71 Essential thrombocythemia D47.3 E ssential (hemorrhagic) thrombocythemia 238.73 High grade myelodysplastic sy ndrome lesions D46.22 Re fractory anemia with excess of blasts 2 238.74 Myelodysplastic syndrome with 5q deletion D46.C Myel odysplastic syndrome with isolated del(5q) chromosomal abnormality 238.76 Myelofibrosis with myeloid metaplasia D47.1 Chronic myeloproliferative diseaseCMS-1614-P 115

Table 19– ONE ICD-9-CM CODE CROSSWALKS TO MULTIPLE ICD-10-CM CODES (78 FR 72177 through 78 FR 72178) Table 19 lists all of the instances in which one ICD-9-CM code crosswalks to multiple ICD-10-CM codes. We finalized a policy in last year’s rule that all identified ICD-10-CM codes would receive a comorbidity adjustment with the exception of D89.2 Hypergammaglobulinemia, unspecified. Under the section titled Gast rointestinal Bleeding, ICD-9-CM code 562 Diverticulosis of small intestine with hemorrhag e was inaccurately identified, as the complete code number is 562.02. The table below has been amended to accurately identify ICD-9-CM diagnostic code 562.02 Diverticulosis of small intestine with hemorrhage. Also under the section titled Gastrointest inal Bleeding, ICD-9-CM diagnostic code 562.13 Diverticulitis of colon with hemorrhage di d not include a complete crosswalk to ICD-10- CM diagnostic codes. Therefore, we propos e to include ICD-10-CM diagnostic codes K57.81 Diverticulitis of intestine, part unspecified, with perforation and ab scess with bleeding and K57.93 Diverticulitis of intestine, part unspecified, without perfor ation or abscess with bleeding, in addition to the ICD-10-CM diagnostic codes K57.21, K57.33, K57.41, and K57.53, as eligible for the comorbidity payment adjustment when the use of ICD-10-CM is required, on October 1,
2015. Under the section titled Peri carditis, ICD-10-CM code 130.1 Infective pericarditis was inaccurately identified. The table below has be en amended to accurately identify the ICD-10- CM diagnostic code I30.1 Infective pericarditis as eligible for a comorbidity payment adjustment when the use of ICD-10-CM is required, on October 1, 2015.CMS-1614-P 116

TABLE 19: ONE ICD-9-CM CODE CROSSWALKS TO MULTIPLE ICD-10-CM CODES

Gastrointestinal Bleeding ICD-9 Descriptor ICD-10 Descriptor 562.02 Diverticulosis of small intestine with hemorrhage K57.11 Diverticulosis of small intestine without perforation or absces s with bleeding K57.51 Diverticulosis of both small and large intestine without perforation or abscess with bleeding 562.03 Diverticulitis of small intestine with hemorrhage K57.01 Diverticulitis of small intestin e with perforation and abscess with bleeding K57.13 Diverticulitis of small intes tine without perforation or abscess with bleeding K57.41 Diverticulitis of both small a nd large intestine with perforation and abscess with bleeding K57.53 Diverticulitis of both sm all and large intestine without perforation or abscess with bleeding 562.12 Diverticulosis of colon with hemo rrhage K57.31 Diverticulosis of large intestine without perforation or abscess with bleeding K57.91 Diverticulosis of intes tine, part unspecified, without perforation or abscess with bleeding K57.51 Diverticulosis of both small and large intestine without perforation or abscess with bleeding 562.13 Diverticulitis of colon with hemo rrhage K57.21 Diverticulitis of large in testine with perforation and abscess with bleeding K57.33 Diverticulitis of large intes tine without perforation or abscess with bleeding K57.41 Diverticulitis of both small a nd large intestine with perforation and abscess with bleeding K57.53 Diverticulitis of both sm all and large intestine without perforation or abscess with bleeding K57.81 Diverticulitis of intestine, part unspecified, with perforation and abscess with bleeding K57.93 Diverticulitis of intestine, part unspecified, without perforation or abscess with bleeding Bacterial Pneumonia ICD-9 Descriptor ICD-10 Descriptor 513.0 Abscess of lung J85.0 Gangrene and necrosis of lung J85.1 Abscess of lung with pneumonia J85.2 Abscess of lung without pneumonia Pericarditis ICD-9 Descriptor ICD-10 Descriptor 420.0 Acute pericarditis in diseases classified elsewhere A18.84 Tuberculosis of heart

I32 Pericarditis in diseases classified elsewhere M32.12 Pericarditis in systemic lupus erythematosus 420.90 Acute pericarditis, unspecifi ed I30.1 Infective pericarditis I30.9 Acute pericarditis, unspecified 420.99 Other acute pericarditis I30.8 Other forms of acute pericarditis I30.9 Acute pericarditis, unspecified Hereditary Hemolytic and sickle cell anemiaCMS-1614-P 117

ICD-9 Descriptor ICD-10 Descriptor 282.2 Anemias due to disorders of glutathione metabolism D55. 0 Anemia due to glucose-6-phos phate dehydrogenase [G6PD] deficiency D55.1 Anemia due to other diso rders of glutathione metabolism 282.3 Other hemolytic anemias due to en zyme deficiency D55.2 Anemia due to disorders of glycolytic enzymes D55.3 Anemia due to disorders of nucleotide metabolism D55.8 Other anemias due to enzyme disorders D55.9 Anemia due to enzyme disorder, unspecified 282.42 Sickle-cell thalassemia with crisis D57.411 Sickle-cell thalassemia w ith acute chest syndrome D57.412 Sickle-cell thalassemia with splenic sequestration D57.419 Sickle-cell thalassemia with crisis, unspecified 282.62 Hb-SS disease with crisis D57.00 Hb-SS disease with crisis, unspecified D57.01 Hb-SS disease with acute chest syndrome D57.02 Hb-SS disease with splenic sequestration 282.64 Sickle-cell/Hb-C disease with crisis D57.211 Sickle-cell/Hb-C disease with acute chest syndrome D57.212 Sickle-cell/Hb-C diseas e with splenic sequestration D57.219 Sickle-cell/Hb-C diseas e with crisis, unspecified 282.69 Other sickle-cell disease with crisis D57.811 Other sickle-cell disorders with acute chest syndrome D57.812 Other sickle-cell disord ers with splenic sequestration D57.819 Other sickle-cell disorders with crisis, unspecified Monoclonal Gammopathy ICD-9 Descriptor ICD-10 Descriptor 273.1 Monoclonal paraproteinemi a D47.2 Monoclonal gammopathy D89.2 Hypergammaglobulinemia, unspecified Myelodysplastic Syndrome ICD-9 Descriptor ICD-10 Descriptor 238.72 Low grade myelodysplastic syndrome lesions D46.0 Re fractory anemia without ring sideroblasts, so stated D46.1 Refractory anemia with ring sideroblasts D46.20 Refractory anemia with excess of blasts, unspecified D46.21 Refractory anemia with excess of blasts 1 D46.4 Refractory anemia, unspecified D46.A Refractory cytopenia with multilineage dysplasia D46.B Refractory cytopenia with multilineage dysplasia and ring sideroblasts 238.75 Myelodysplastic syndrome, unspecified D46.9 Myelodysplastic syndrome, unspecified D46.Z Other myelodysplastic syndromes

Table 20– MULTIPLE ICD-9-CM CODES CROSSWALK TO ON E ICD-10-CM CODE (78 FR 72178)Table 20 displays the crosswalk where multiple ICD-9-CM codes crosswalk to one ICD10-CM code. We finalized a policy in last year’s rule that all of the ICD-10-CM codes listed in Table 3 would be eligible for the comorbidity payment adjustment. Under the section titled Gastrointestinal Bleeding, nine ICD-10-CM c odes (K25.0 Acute gastric ulcer with hemorrhage, K25.2 Acute gastric ulcer with both hemorrhage a nd perforation, K25.4 Chronic or unspecifiedCMS-1614-P 118

gastric ulcer with hemorrhage, K25.6 Chronic or unspecified gastric ulcer with both hemorrhage and perforation, K26.0 Acute duodenal ulcer with hemorrhage, K26.2 Acute duodenal ulcer with both hemorrhage and perforation, K26.4 Chroni c or unspecified duodenal ulcer with hemorrhage, K26.6 Chronic or unspecified duodenal ulcer with both hemorrhage and perforation, and K27.0 Acute peptic ulcer, si te unspecified, with hemorrhage) and the corresponding ICD-9-CM codes were inadverten tly omitted from the crosswalk. We propose that these ICD-10-CM diagnostic code s -- K25.0, K25.2 K25.4, K25.6, K26.0, K26.2, K26.4, K26.6, K27.0 -- will be eligible for the comorbidity payment adjustment beginning October 1, 2015. We also propose that the corresponding ICD-9-CM codes will be eligible for the comorbidity adjustment through September 30, 2015. TABLE 20: MULTIPLE ICD-9-CM CODES CROSSWALK TO ONE ICD-10-CM CODE

Gastrointestinal Bleeding ICD-9 Descriptor ICD-10 Descriptor 531.00 Acute gastric ulcer with hemorrhage, without mention of obstruction K25.0 Acute gastric ul cer with hemorrhage 531.01 Acute gastric ulcer with hemorrhage, with obstruction 531.20 Acute gastric ulcer with hemo rrhage and perfor ation, without mention of obstruction K25.2 Acute gastric ulcer with both hemorrhage and perforation 531.21 Acute gastric ulcer with he morrhage and perforation, with obstruction 531.40 Chronic or unspecified gastri c ulcer with hemorrhage, without mention of obstruction K25.4 Chronic or unspecified gastric ulcer with hemorrhage 531.41 Chronic or unspecified gastric ulcer with hemorrhage, with obstruction 531.60 Chronic or unspecified gastric ulcer with hemorrhage and perforation, without mention of obstruction K25.6 Chronic or unspecified gastri c ulcer with both hemorrhage and perforation 531.61 Chronic or unspecified gastric ulcer with hemorrhage and perforation, with obstruction 532.00 Acute duodenal ulcer with hemorrhage, without mention of obstruction K26.0 Acute duodenal ulcer with hemorrhage 532.01 Acute duodenal ulcer with hemorrhage, with obstruction

532.20 Acute duodenal ulcer with hemorrhage and perforation, without mention of obstruction K26.2 Acute duodenal ulcer with both hemorrhage and perforation

532.21 Acute duodenal ulcer with he morrhage and perforation, with obstruction 532.40 Chronic or unspecified duodenal ulcer with hemorrhage, without mention of obstruction K26.4 Chronic or unspecified duodenal ulcer with hemorrhageCMS-1614-P 119

Gastrointestinal Bleeding ICD-9 Descriptor ICD-10 Descriptor 532.41 Chronic or unspecified duodenal ulcer with hemorrhage, with obstruction 532.60 Chronic or unspecified duodenal ulcer with hemorrhage and perforation, without mention of obstruction K26.6 Chronic or unspecified duode nal ulcer with both hemorrhage and perforation 532.61 Chronic or unspecified duodenal ulcer with hemorrhage and perforation, with obstruction 533.00 Acute peptic ulcer of unsp ecified site with hemorrhage, without mention of obstruction K27.0 Acute peptic ulcer, site unspecified, with hemorrhage 533.01 Acute peptic ulcer of unspeci fied site with hemorrhage, with obstruction 533.20 Acute peptic ulcer of unsp ecified site with hemorrhage and perforation, without mention of obstruction K27.2 Acute peptic ulcer, site unsp ecified, with both hemorrhage and perforation 533.21 Acute peptic ulcer of unsp ecified site with hemorrhage and perforation, with obstruction 533.40 Chronic or unspecified peptic ulcer of unspecified site with hemorrhage, without mention of obstruction K27.4 Chronic or unspecified pep tic ulcer, site unspecified, with hemorrhage 533.41 Chronic or unspecified peptic ulcer of unspecified site with hemorrhage, with obstruction 533.60 Chronic or unspecified peptic ulcer of unspecified site with hemorrhage and perforation, without mention of obstruction K27.6 Chronic or unspecified peptic ulcer, site unspecified, with both hemorrhage and perforation
533.61 Chronic or unspecified peptic ulcer of unspecified site with hemorrhage and perforation, with obstruction 534.00 Acute gastrojejunal ulcer with hemorrhage, without mention of obstruction K28.0 Acute gastrojejunal ulcer with hemorrhage 534.01 Acute gastrojejunal ulcer, w ith hemorrhage, with obstruction 534.20 Acute gastrojejunal ulcer wi th hemorrhage and perforation, without mention of obstruction K28.2 Acute gastrojejunal ul cer with both hemorrhage and perforation 534.21 Acute gastrojejunal ulcer wi th hemorrhage and perforation, with obstruction 534.40 Chronic or unspecified gastrojejunal ulcer with hemorrhage, without mention of obstruction K28.4 Chronic or unspecified gastrojejunal ulcer with hemorrhage 534.41 Chronic or unspecified gastrojejunal ulcer, with hemorrhage, with obstruction 534.60 Chronic or unspecified gastrojejunal ulcer with hemorrhage and perforation, without mention of obstruction K28.6 Chronic or unspecified gastrojejunal ulcer with both hemorrhage and perforation 534.61 Chronic or unspecified gastrojejunal ulcer with hemorrhage and perforation, with obstruction Bacterial Pneumonia ICD-9 Descriptor ICD-10 Descriptor 482.30 Pneumonia due to Streptococcus, unspecifi ed J15.4 Pneumonia due to other streptococci 482.31 Pneumonia due to Streptococcus, group A 482.39 Pneumonia due to other Streptococcus 482.81 Pneumonia due to anaerobes J15.8 Pneumonia due to other specified bacteria 482.89 Pneumonia due to other specified bacteriaCMS-1614-P 120

III. End-Stage Renal Disease (ESRD) Quality Incentive Program (QIP) A. Background For more than 30 years, monitoring the quality of care provided by dialysis facilities to patients with end-stage renal dise ase (ESRD) has been an important component of the Medicare ESRD payment system. The ESRD Quality Incentive Program (QIP) is the most recent step in fostering improved patient outcomes by establishing incentives for dialysis facilities to meet or exceed performance standards established by CMS. The ESRD QIP is authorized by section 1881(h) of the Social Security Act (the Act), wh ich was added by section 153(c) of the Medicare Improvements for Patients and Providers Act (MIPPA). Specifically, section 1881(h) requires the S ecretary to establish an ESRD QIP by (i) selecting measures; (ii) establ ishing the performance standards that apply to the individual measures; (iii) specifying a performance period with respect to a year; (iv) developing a methodology for assessing the total performance of each facility based on the performance standards with respect to the measures for a pe rformance period; and (v) applying an appropriate payment reduction to facilities that do not meet or exceed the established Total Performance Score (TPS). This proposed rule discusses each of these elements and our proposals for their application to the ESRD QIP, including for PYs 2017 and 2018. B. Considerations in Updating and Expa nding Quality Measures under the ESRD QIP Throughout the past decade, Medicare has been transitioning from a program that pays for healthcare based on particular services furn ished to a beneficiary to a program that bases payments to providers and suppliers on the quality of services they furnish. By paying for the quality of care rather than simply the quantity of care, and by focusing on better care and lower costs through improvement, prevention and popul ation health, expanded healthcare coverage,CMS-1614-P 121

and enterprise excellence, we are strengthening the healthcare system while also advancing the National Strategy for Quality Improvement in Hea lth Care (that is, the National Quality Strategy (NQS)). We are also working to update a set of domains and specific quality measures for our VBP programs, and to link the aims of the NQS w ith our payment policies on a national scale. We are working in partnership with benefici aries, providers, advocacy groups, the National Quality Forum (NQF), the Measures Application Partnership, operating divisions within the Department of Health and Human Services ( HHS), and other stakehol ders to develop new measures where gaps exist, refine measures where necessary, and remove measures when appropriate. We are also collabora ting with stakeholders to ensure that the ESRD QIP serves the needs of our beneficiaries and also advances the goals of the NQS to impr ove the overall quality of care, improve the health of the U.S. popula tion, and reduce the cost of quality healthcare. 2 We believe that the development of an ESRD QIP that is succe ssful in supporting the delivery of high-quality healthcare serv ices in dialysis facilities is paramount. We seek to adopt measures for the ESRD QIP that promote better, safer, and more coordinated care. Our measure development and selection activitie s for the ESRD QIP take into account national pr iorities such as those established by the HHS Strategic Plan ( http://www.hhs.gov/strategicplan/priorities.html ), the NQS ( http://www.ahrq.gov/workingfor quality/nqs/nqs 2013annlrpt.htm) , and the HHS National Action Plan to Prevent Healthcare A ssociated Infections (HAIs) ( http://www.hhs.gov/ash/in itiatives/h ai/esrd.html ). To the extent feasible and practicable, we have sought to adopt measures that have been endorsed by a na tional consensus organization; recommended by multi-stakeholder organizations; and developed with the input of providers,

2 2013 Annual Progress Report to Congress: National Strategy for Quality Improvement in Health Care, http://www.ahrq.gov/workingforqu ality/nqs/nqs2013annlrpt.htm

.CMS-1614-P 122

beneficiaries, health advocacy organizations, and other stakeholders. C. Websites for Measure Specifications In an effort to ensure that facilities and th e general public are able to continue accessing the specifications for th e measures that are being proposed for and have been adopted in the ESRD QIP, we are now posting these measure specifications on a CMS Web site, instead of posting them on www.dialysisreports.org as we have in the past. Measure specifications from previous years, as well as those proposed for the PY 2017 and PY 2018 programs, can be found

at: http://www.cms.gov/Medicare/Quali ty-Initiatives-Patient-AssessmentInstruments/ESRDQIP/061_Tec hnicalSpecifications.html

. D. Updating the NHSN Bloodstream In fection in Hemodialysis Outp atients Clinical Measure for the PY 2016 ESRD QIP and Future Payment Years The NHSN Bloodstream Infection in Hemodialysis Outpatients clinical measure (that is, NHSN Bloodstream Infection clinical measure) that we adopted beginning with the PY 2016 ESRD QIP is based on NQF #1460. At the time we adopted it, the measure included a risk adjustment for patients’ vascular access type bu t did not include any reliability adjustments to account for differences in the amount of exposur e or opportunity for healthcare associated infections (HAIs) among patient s. On April 4, 2014, in response to a measure update proposal submitted by CDC, NQF endorsed a reliability adjustment for volume of exposure and unmeasured variation across facil ities to NQF #1460. This reliabil ity adjustment is called the Reliability-Adjusted Standardized Infection Rati o or Adjusted Ranking Metric (ARM). As a result of this change to the NQF-endorsed meas ure specifications, a f acility’s performance on NQF #1460 will be adjusted towards the mean (that is, facilities with lo w exposure volume will be adjusted more than faciliti es with high exposure volume, a nd the performance rate will beCMS-1614-P 123

adjusted up or down depending on the facility esti mate and mean) to account for the differences in the reliability of the infection estimates ba sed on the number of patient-months at a facility and any unmeasured variation acro ss facilities. Becau se the adjustment is based on the volume of exposure, facility scores will be adjusted more if there are fewer patient-months in the denominator, and facility scores will be adjust ed less if there are many patient-months in the denominator. We propose to adopt the same reliability adju stment for purposes of calculating facility performance on the NHSN Bloodstream Infection c linical measure, begi nning with the PY 2016 ESRD QIP. We believe that the inclusion of this reliability adjustment, in addition to the risk factor adjustment, will enable us to better di fferentiate among facility performance on this measure, because it accounts not only for the variat ion in patient risk by vascular access type, but also for variation in the number of patients a f acility treats in a given month. The ARM will be incorporated into the existing risk-adjustment methodology, which will also continue to include a risk adjustment for patient vascular access ty pe. Further information about the reliability adjustment, and the NHSN Bloodstream Infecti on measure specifications can be found at http://www.cdc.gov/nhsn/PDFs/dialysis/NHSN-ARM.pdf , http://www.cdc.gov/nhsn/dialysis /dialysis-event.html, and http://www.cms.gov/Medicare/Quality -Initiatives-Patient-AssessmentInstruments/ESRDQIP/061_Tec hnicalSpecifications.html

. E. Oral-Only Drugs Measures in the ESRD QIP Section 217(d) of the Protecting Access to Medicare Act of 2014 (Pub. L. 113-93), enacted on April 1, 2014, amends section 1881(h)(2) of the Act to require the Secretary, for PY 2016 and subsequent years, to adopt measures (o utcome-based, to the extent feasible) in theCMS-1614-P 124

ESRD QIP that are specific to the conditions treated with oral- only drugs. We believe that the Hypercalcemia clinical measure adopted be ginning with the PY 2016 program (78 FR 72200 through 72203) meets this new statutory requireme nt because hypercalcemia is a condition that is treated with oral-only drugs. The Hypercalcemia clinical me asure is not an outcome-based measure, and we have considered the possibili ty of adopting outcomes-based measures that pertain to conditions treated with oral-only drugs. However, we have determined that it is not feasible to propose to adopt an outcome-based m easure on this topic at this time because we are not aware of any outcome measures developed on this topic. F. Proposed Requirements for the PY 2017 ESRD QIP 1. Proposed Revision to the Expa nded ICH CAHPS Reporting Measure For the ICH CAHPS reporting measure, we ar e proposing one change to the reporting requirements finalized in the CY 2014 ESRD P PS Final Rule for PY 2017. In the CY 2014 ESRD PPS final rule, we finalized that facilities woul d be eligible to receive a score on the measure if they treated 30 or mo re survey-eligible patients du ring the performance period (78 FR 72220 through 72221). Subsequently, we were made aware that facilities may not know whether they will have enough survey-eligible patients during the performance period to be eligible for the ICH CAHPS measure when they are making decisions about whether or not they will contract with a vendor to administer the survey. We agree that it would be preferable if facilities knew at the beginning of the performance period if they will be eligible to receive a score on the ICH CAHPS measure, because this would allow facilities to make informed decisions about whether they should contract with a vendor to ad minister the survey. For this reason, we propose that beginning with the PY 2017 program, facilities will be eligible to receive a score on the ICH CAHPS measure if they treat 30 or more survey-eligible pa tients during the “eligibility period,”CMS-1614-P 125

which we define as the CY before the performance period. However, even if a facility is eligible to receive a score on the measure because it ha s treated at least 30 survey-eligible patients according to the ICH CAHPS Survey measure specifi cations during the calenda r year prior to the performance period, we are propos ing that the facility will still not receive a score for performance during the performa nce period if it cannot collect 30 survey completes during the performance period. We believe that facilities sh ould be able to determin e quickly the number of survey-eligible patients that they treated duri ng the eligibility period, and that reaching this determination should not impact faci lities’ ability to cont ract with a vender in time to meet the semiannual survey administration requirements. Technical specifications for the ICH CAHPS reporting measure can be found at: http://www.cms.gov/Medicare/Qu ality-Initiatives-PatientAssessment-Instruments/ESRDQI P/061_TechnicalSpecifications.html

. We seek comments on this proposal. 2. Proposed Measures for the PY 2017 ESRD QIP a. PY 2016 Measures Continuing in PY 2017 and Future Payment Years We previously finalized 11 measures in th e CY 2014 ESRD PPS Final Rule for the PY 2016 ESRD QIP, and these measures are summarized in Table 21 below. In accordance with our policy to continue using measures unless we pr opose to remove or replace them (77 FR 67477), we will continue to use 10 of these 11 measures in the PY 2017 ESRD QIP. As we discuss in more detail below, we are proposing to remove one measure, Hemoglobin Greater than 12 g/dL, beginning with the PY 2017 meas ure set (see Table 22 below).CMS-1614-P 126

TABLE 21: PY 2016 ESRD QIP Measures Being Continued in PY 2017 NQF # Measure Title and Description
0249 Hemodialysis Adequacy: Minimum delivered hemodialysis dose Percent of hemodialysis patient-months with spKt/V greater than or equal to 1.2. 0318 Peritoneal Dialysis Adequacy: Delivered dose above minimum Percent of peritoneal dialysis pat ient-months with spKt/V greater than or equal to 1.7 (dialytic + residual) during the four month study period. 1423 Pediatric Hemodialysis Adequacy: Minimum spKt/V Percent of pediatric in-center hemodialysis patient-mo nths with spKt/V greater than or equal to 1.2.

0257 Vascular Access Type: AV Fistula Percentage of patient-mont hs on hemodialysis during the last hem odialysis treatment of the month using an autogenous AV fistula with two needles.
0256 Vascular Access Type: Catheter > 90 days Percentage of patient-months for pat ients on hemodialysis during the last hemodialysis treatment of month with a catheter continuously for 90 days or longer prior to the last hemodialysis session. N/A 1 National Healthcare Safety Network (NHSN) Bloodstream Infection in Hemodialysis Patients Number of hemodialysis outpatients with positive blood cultures per 100 hemodialysis patient-months. 2
1454 Hypercalcemia Proportion of patient-months with 3-month rolling av erage of total uncorrected serum calcium greater than 10.2 mg/dL.
N/A 3 In-Center Hemodialysis Consumer Assessment of Healthcare Providers and Systems (ICH CAHPS) Survey Administration Facility administers, using a third-party CMS-approv ed vendor, the ICH CAHPS survey in accordance with survey specifications and submits survey results to CMS. N/A 4 Mineral Metabolism Reporting Number of months for which facility reports serum phosphorus for each Medicare patient. N/A Anemia Management Reporting Number of months for which facility reports ESA dosage (as applicable) and hemoglobin/hematocrit for each Medicare patient. 1 We note that this measure is based on a current NQF-endorsed bloodstream in fection measure (NQF#1460). 2 We are proposing a new method of calcul ating performance on this m easure using the ARM methodology. If we decide to finalize this proposal based on public comments, the NHSN Bloodstream Infection clin ical measure descript ion will be updated to read: “ARM of Bloodstream Infection will be calculated am ong inpatients receiving he modialysis at outpa tient hemodialysis centers.” 3 We note that a related measure utilizing the results of this survey has been NQF-endorsed (#0258). We are proposing to adopt NQF #0258 in the PY 2018 program. 4 We note that this m easure is based upon a current NQF-endorse d serum phosphorus measure (NQF #0255).CMS-1614-P 127

TABLE 22: Measure Proposed for Removal Beginning with the PY 2017 ESRD QIP

NQF# Measure Title N/A Anemia Management: Hgb >12 Percentage of Medicare patients with a me an hemoglobin value greater than 12 g/dL. b. Proposal to Determine when a Measure is “To pped-Out” in the ESRD QIP, and Proposal to Remove a Topped-Out Measure from th e ESRD QIP, Beginning with PY 2017 In the CY 2013 ESRD PPS final rule (77 FR 67475), we finalized a list of seven criteria we would consider when making determinations about whether to remove or replace a measure: “(1) measure performance among the majority of ESRD facilities is so high and unvarying that meaningful distinctions in improvements or performance can no longer be made; (2) performance or improvement on a measure does not result in better or the intended patient outcomes; (3) a measure no longer aligns with curre nt clinical guidelines or practice; (4) a more broadly applicable (across settings, populations , or conditions) measure for the topic becomes available; (5) a measure that is more proximal in time to desired patient outcomes for the particular topic becomes available; (6) a measure that is more strongly as sociated with desired patient outcomes for the particular topic becomes available; or (7) coll ection or public reporting of a measure leads to negativ e unintended consequences.” In the CY 2014 ESRD PPS final rule (78 FR 72192), we stated that we were in the process of evaluating all of the ESRD QIP measur es against the criteria. Subsequent to the publication of the CY 2014 ESRD PPS final rule , we completed our evaluation and determined that none of the measures finalized in the PY 2016 ESRD QIP met criter ia 2 through 7, as listed above. With respect to the fi rst criterion, we are pr oposing to more specifically define when performance on a clinical measure is so high and unvarying that the m easure no longer reflects meaningful distinctions in improve ments or performance. The stat istical definitions that we are proposing to adopt will align our methodology with that used by the Hospital VBP program toCMS-1614-P 128

determine when a measure is topped out (76 FR 26496 through 26497). Under this methodology, a clinical measure is c onsidered to be topped out if national measure data show (1) statistically indistinguishable performance levels at the 75th and 90th percentiles; and (2) a truncated coefficient of variation (CV) of less than or equal to 0.1. To determine whether a clinical measure is topped out, we initially focused on the top distribution of facility performance on each measur e and noted if their 75th and 90th percentiles were statistically indistinguishab le. Then, to ensure that we properly accounted for the entire distribution of scores, we analyz ed the truncated coefficient of variation (CV) for each of the clinical measures. The CV is a common statistic that expresses th e standard deviation as a percentage of the sample mean in a way that is independent of the units of observation. Applied to this analysis, a large CV would indicate a broad distribution of individual facility scores, with large and presumably meaningful differences between hosp itals in relative performance. A small CV would indicate that the distribut ion of individual facility scores is clustered tightly around the mean value, suggesting that it is not useful to draw distinctions betw een individual facility performance scores. We used a modified vers ion of the CV, namely a truncated CV, for each clinical measure, in which the 5 percent of facilities with the lowest scores, and the 5 percent of facilities with the highest scores were first truncat ed (set aside) before ca lculating the CV. This was done to avoid undue effects of the highest an d lowest outlier facilities; if included, they would tend to greatly widen the dispersion of th e distribution and make the clinical measure appear to be more reliable or discerning. For ex ample, a clinical measure for which most facility scores are tightly clustered around the mean valu e (a small CV) might actually reflect a more robust dispersion if there were al so a number of faci lities with extreme outlier values, whichCMS-1614-P 129

would greatly increase the percei ved variance in the measure. A ccordingly, the truncated CV of less than or equal to 0.10 was a dded as a criterion for determining whether a clinical measure is topped out. We seek comments on this proposal. We evaluated each of the clinical measures finalized in the PY 2016 ESRD QIP against these proposed statistical conditions. The full anal ysis is available at: http://www.cms.gov/Medicare/Quality -Initiatives-Patient-AssessmentInstruments/ESRDQIP/061_Tec hnicalSpecifications.html . The results of that analysis appear below in Table 23.CMS-1614-P 130

TABLE 23: PY 2016 Clinical Measures usin g CROWNWeb and Medicare Claims Data from January 2013 – December 2013 Measure N 75 th percentile 90 th percentile Std. Error StatisticallyIndistinguishable Truncated CV TCV < 0.10 Adult HD Kt/V 5665 96.1 97.4 0.13 No 0.04 Yes Adult PD Kt/V 1176 92.9 94.8 0.55 No 0.15 No Pediatric HD Kt/V 10 94.5 97.1 2.71 Yes 0.08 Yes Hgb > 12 5521 0.0 0.0 0.02 Yes < 0.01 Yes Fistula Use 5561 72.3 77.0 0.16 No 0.14 No Catheter Use 5586 5.9 2.8 0.10 No < 0.01 Yes Hypercalcemia 5685 0.3 0.0 0.04 No < 0.01 Yes

As the information presented in Table 23 s uggests, the Hemoglobin Greater than 12 g/dL measure meets the proposed criter ia for determining when a clini cal measure is topped-out in the ESRD QIP. Accordingly, we propose to remove the Hemoglobin Greater than 12 g/dL measure from the ESRD QIP, beginning with the PY 2017 program. We recognize that the Pediatric Hemodialysis Adequacy measure also meets th e conditions for being a topped-out clinical measure in the ESRD QIP. However, we are not proposing to remove the Pediatric Hemodialysis Adequacy measure from the ES RD QIP because we have determined that removing the measure will not be useful for dialysis facilities. There are currently very few measures available that focus on the care furnishe d to pediatric patients with ESRD, and we are reticent to remove a measure that addresses th e unique needs of this population. In addition, although only 10 facilities were eligible to receive a score on the Pediatric Hemodialysis Adequacy measure (based on CY 2013 data), we believe that the publicly reported performance of these facilities can influence the standard of care furnishe d by other facilities that treat pediatric patients, even if a facility does not trea t a sufficient number of pediatric patients to be eligible to be scored on the measure.CMS-1614-P 131

For these reasons, we believe that the drawbacks of re moving a topped out clinical measure could be outweighed by th e other benefits to retaining the measure. Accordingly, we propose that even if we determine that a clinical measure is topped out according to the statistical criteria we apply, we will not re move or replace it if we determin e that its continued inclusion in the ESRD QIP measure set will continue to set a high standard of care for dialysis facilities. We seek comments on these proposals. c. New Measures Proposed for PY 2017 and Future Payment Years As the program evolves, we believe it is impor tant to continue to evaluate and expand the measures selected for the ESRD QIP. Ther efore, for the PY 2017 ESRD QIP and future payment years, we are proposing to adopt one new clinical measur e that addresses care coordination (see Table 24). TABLE 24: New Measure Proposed for the PY 2017 ESRD QIP

NQF# Measure Title N/A 1 Standardized Readmission Ratio, a clinical measure Risk-adjusted standardized hospital readmissions ratio 1 We note that this measure is currently under re view at NQF. i. Proposed Standardized Readmissi on Ratio (SRR) Clinical Measure Background At the end of 2011, 615,899 patients were be ing dialyzed, 115,643 of whom were new (incident) patients with ESRD. 3 The SRR measure assesses the rate of unplanned readmissions of ESRD patients to an acute ca re hospital within 30 da ys of an index discharge from an acute care hospital, thereby identifying potentially poor or incomplete qua lity of care in the dialysis facility. In addition, the SRR re flects an aspect of ESRD care that is especially resourceintensive. In 2011, the total amount paid by Me dicare for the ESRD program was approximately

3 United States Renal Data System, USRDS 2013 Annual Data Report: Atlas of Chronic Kidney Disease and EndStage Renal Disease in the United States, National Institutes of Health, National Institute of Diabetes and Digestive and Kidney Diseases, Bethesda, MD, 2013.CMS-1614-P 132

$34.3 billion, a 5.4 percent increase from 2010. 2 In particular, Medicare paid more than $10.5 billion for costs associated w ith hospitalized ESRD patients in 2011. In 2011, ESRD dialysis patients were admitted to the hospital twice on aver age, and spent an average of 12 total days in the hospital over the year, accounting for approxima tely 38 percent of Medicare expenditures for patients with ESRD. 2 Furthermore, a substantial percen tage (30 percent) of ESRD patients discharged from the hospital have an unplanned readmission within 30 days. 2 In the non-ESRD population, clinical studies have demonstrated that improved care coordination and discharge planning may reduce readmission rates. The literatu re also reports a wide range of estimates of the percentage of readmissions that may be preventable. One lite rature review of more than 30 studies found the median proportion of readmissi ons that may be preventable was 27%, with a range of 5% to 79%. 4 Preventability varied widely acro ss diagnoses. Readmissions were more likely to be preventable in patients with more severe conditions. Therefore, a systematic measure on unplanned readmissions is essential fo r controlling escalating medical costs; it can identify where readmission rates are unusually high, and help facilities to provide cost-effective healthcare. Overview of Measure The SRR is a one-year risk-standardized measure of a facility’s 30-day, all-cause rate of unplanned hospital readmissions among Medicare-cove red ESRD dialysis patients. The number of expected readmissions is determined by a risk -adjustment model that accounts for the hospital where the index discharge took pl ace, certain patient characteris tics (including age, sex, and comorbidities), and the national median expected pe rformance for all dialysis facilities, given the same patient case mix.
4 van Walraven C, Bennett C, Jennings A, Austin PC, Forster AJ. Proportion of hospital readmissions deemed avoidable: a systematic review. CMAJ. 2011;183(7):E391–E402.CMS-1614-P 133

We are proposing to adopt the SRR meas ure currently under review by NQF (NQF #2496). Section 1881(h)(2)(B)(i) of the Act requir es that, unless the exception set forth in section 1881(h)(2)(B)(ii) of the Act applies, the measures specified for the ESRD QIP under section 1881(h)(2)(A)(iv ) of the Act must have been endorse d by the entity with a contract under section 1890(a) of the Act (that entity currently is NQF). Under the exception set forth in section 1881(h)(2)(B)(ii) of the Act, in the case of a specified area or medical topic determined appropriate by the Secretary for which a feasible and practical measure has not been endorsed by the entity with a contract under section 1890(a) of the Act, the Secretary may specify a measure that is not so endorsed, so long as due consider ation is given to measures that have been endorsed or adopted by a consensus orga nization identified by the Secretary. We have given due consideration to endorse d measures, as well as those adopted by a consensus organization, and we are proposi ng this measure under the authority of 1881(h)(2)(B)(ii) of the Act. Although the NQF has endorsed an all-cause hospital readmission measure (NQF #1789), we do not believe it is feasib le to adopt this measure in the ESRD QIP because NQF #1789 is specified for use in hospitals , not dialysis facilitie s. In addition, NQF #1789 is intended to evaluate readmissions across all patient types, whereas the proposed SRR measure is specified for the unique population of ESRD dialysis patients, which have a different risk profile than the general population cap tured in NQF #1789. Because the proposed SRR measure has been developed specifically for the di alysis-facility setting, and because the measure has the potential to improve clinical practice a nd decrease healthcare co sts, we believe it is appropriate to adopt the SRR in the ESRD QIP at this time. We have analyzed the measure’s reliability, the results of which are provided below and in greater detail in the SRR Meas ure Methodology report, available at:CMS-1614-P 134

http://www.cms.gov/Medicare/Quality -Initiatives-Patient-AssessmentInstruments/ESRDQIP/061_Tec hnicalSpecifications.html . The Inter-Unit Reliability (IUR) was calculated for the proposed SRR using data from 2012 and a “bootstrap” approach, which uses a resampling scheme to estimate the within-facility variation that cannot be directly estimated by the analysis of variance (ANOVA). The SRRs that we calculated for purposes of this analysis were for dialysis facilities that had at least 11 patients who had been discharged from a hospital during 2012. A small IUR (near 0) reveals that most of the vari ation of the measures between facilities is driven by “random noise,” indi cating the measure would not be a reliable characterization of the differences among facilities, whereas a large IUR (near 1) indicates that most of the variation between fac ilities is due to the real differe nces between facilities. The IUR for the proposed SRR measure was found to be 0.49, indicating that about one-half of the variation in the SRR can be attributed to between -facility differences, and about half to withinfacility variation. This value of IUR indicate s that an average-size facility would achieve a moderate degree of reliability for this measure. This level of reliability is consistent with the reliability of other outcome measures in CMS quality-reporting and VBP programs, such as the 30-day Risk-Standardized All-Ca use Acute Myocardial Infarcti on, Heart Failure, and Pneumonia Readmission and Mortality measures used in the Hospital IQR and VBP Programs. We therefore believe that facili ties can be reliably scored on the proposed SRR measure. We convened a technical expert panel (TEP ) in May 2012 for the purpose of evaluating this measure, but the TEP did not reach a final consensus and d eclined to support the measure. Some members of the TEP were c oncerned that we did not risk-adjust for the nephrologist treating the patients, because actions taken by nephro logists can impact readmission rates. After reviewing the TEP’s arguments, we determined that the suggested risk adjustmentCMS-1614-P 135

for nephrologist care would constitute a reversal of CMS policy not to ri sk adjust for factors related to care for which the provider is responsi ble. We do not think th at it is appropriate to risk-adjust the measure for the ne phrologist because the nephrologi st is part of the facility’s multi-disciplinary team, and medical directors, as employees of the dialysis facilities, are responsible for ensuring that appropriate care is provided by a multi-disciplinary team. The Measures Application Partnershi p reviewed this measure in February 2013 and supported the direction of the measure, advising CMS that th e measure would require additional development prior to implementation. Subsequently, we releas ed draft specifications for the measure to the public for a 30-day comment period and, based on comments received, finalized measure specifications in September 2013. We also, on a voluntary basis, provided individual dialysis facilities with a facility-specific report that cal culated their SRR measure results and compared those results to SRR measure resu lts at the state and national leve l, as well as discharge-level data upon request. Facilities also had an opportu nity to submit questions to CMS regarding the measure and their reports. We therefore believ e that the proposed SRR measure risk-adjusts appropriately for patient condition and comorbidities at the start of care for which the facility is not responsible. We also believe that the meas ure is ready for adoption because, as explained above, it achieves a moderate degree of reliability. Data Sources The data we will use to ca lculate the proposed SRR measure come from various CMSmaintained data sources for ESRD patients including the CROWNWeb database, the CMS Annual Facility Survey (Form CMS-2744), Medicar e claims, the CMS Medical Evidence Form (Form CMS-2728), transplant data from the Or gan Procurement and Transplant Network (OPTN), the Death Notification Form (Form CM S-2746), the Nursing Home Minimum Dataset,CMS-1614-P 136

and the Social Security Death Master File. These data sour ces include all Medicare-covered patients with ESRD. Information on hospitalizations is obtained from Medicare Inpatient Claims Standard Analysis Files (SAFs) and past-year comorbidity is obtained from Medicare Claims SAFs (inpatient, outpatient, physician/supplier, ho me health, hospice, and skilled nursing facility claims). Outcome The outcome for this measure is 30-day al l-cause, unplanned readmission defined as a hospital readmission for any cause beginning within 30 days of the discharge date of an index discharge, with the exclusi on of planned readmissions. Th is 30-day readmission period is consistent with other publicly reported read mission measures endorse d by NQF and currently implemented in the Hospital Inpatient Qual ity Reporting Program and Hospital Readmission Reduction Program, and reflects an industry standard. Cohort All discharges of Medicare ESRD dialysis patients from an acute care hospital in a calendar year are considered eligible for this m easure, with the exception of the exclusions listed in the next section. Inclusion and Exclusion Criteria The proposed SRR measure excludes from the measure cohort hospitalizations: 1) where the patient died during the index hospitalization; 2) where the patie nt dies within 30 days of the index discharge with no readmission; 3) where the patient is discharged against medical advice; 4) where the patient was admitted with a primar y diagnosis of certain conditions related to cancers, mental health conditions , or rehabilitation procedures (because these patients possess radically different risk profiles, and therefore cannot reasonably be compared to other patientsCMS-1614-P 137

discharged from hospitals); 5) where the pa tient is discharged from a PPS-exempt cancer hospital (because these hospitals care for a unique population of patients that cannot reasonably be compared to the patients admitted to other ho spitals); 6) where the patient is transferred to another acute care hospital; and 7) where the patie nt has already been discharged 12 times during the same calendar year (to respond to concerns raised by the TEP that patients who are hospitalized this frequently dur ing a calendar year could unduly sk ew the measure rates for small facilities). Risk Adjustment The measure adjusts for differences across fac ilities with regard to their patient case mix. Consistent with NQF guidelines, the model does not adjust for socioeconomic status or race, because risk adjusting for these characteri stics would hold facilitie s with a large proportion of patients who are minorities an d/or who have low socioeconomic status to a different standard of care than other facilities. One goal of this measure is to illuminate quality differences that such risk adjustment would obscure. As with the Hospital-Wide Readmission measure employed by the Hospital Readmissions Reducti on program, the SRR employs a hierarchical logistic regression model to estimate the expect ed number of readmissions to an acute care hospital, taking into account the pe rformance of all dialysis facili ties, the discharging hospital, and the facility’s patient case-mix. Although the SRR risk-adjustment model is ge nerally aligned with the Hospital-Wide Readmission measure risk-adjustment methodology, we are proposing to modify it to account for comorbidities and patient characteristics releva nt to the ESRD population. The proposed SRR measure includes the following patient characteristic s as risk adjustors, which are obtained from the following data sources:CMS-1614-P 138

Risk Adjustor Data Source Sex CMS Form 2728 Age REMIS database Years on ESRD CMS Form 2728 Diabetes as cause of ESRD CMS Form 2728 BMI at incidence of ESRD CMS Form 2728 Days hospitalized during index admission Pa rt A Medicare Inpatient Claims SAFs 23 past-year comorbidities (e.g., cardiorespiratory fail ure/shock; drug and alcohol disorders) Medicare Claims SAFs: Part A Inpatient, home health, hospice, and skilled nursing facility; and Part B Outpatient Discharged with any of 11 high-risk conditions (for example, cystic fibrosis, and hepatitis) Part A Medicare Inpa tient Claims SAFs

More details on the risk-adjustment calculations , and the rationale for selecting these risk adjustors and not others, can be found at: http://www.cms.gov/Medicar e/Quality-InitiativesPatient-Assessment-Instruments/ESR DQIP/061_TechnicalSpecifications.html . We are proposing to risk adjust the proposed SRR meas ure based on sex, because we have determined that patients’ sex affects the measure in ways th at are beyond the control of dialysis facilities. We reached this determination by examining the e ffects of the risk adjusters, both independently and in combination, on rates of unplanned r eadmissions. This analysis yielded two conclusions. First, the analysis indicated that females are generally more likely than males to experience an unplanned readmission, even when accounting for the other risk adjustors. Second, the disparate effects of ge nder were substantially impacted by the effects of age: females aged 15 to 45 were much more likely to expe rience an unplanned readmission than males of the same age, but this disparity was significan tly reduced for men and women younger than 15 and older than 45. Based on these two conclusions, we believe that women in the 15-45 age range face a greater risk of experiencing an unplanned readmission, as compared to men of the same age with similar risk profiles. This does not a ppear to be a consequence of facility performance, however, because the disparity is not generally applicable to women, but only to a limited ageCMS-1614-P 139

group. We therefore believe it is es sential to risk-adjust for sex to ensure that facilities with larger numbers of women aged 15 to 45 are not inappropriately disadvantaged, because not riskadjusting for sex would potentially incentivize fa cilities to deny access to these individuals. As indicated in the table above, the meas ure is risk-adjusted, in part, based on 23 comorbidities that develop in the year prior to the index hospita lization, as well as 11 high-risk conditions that are present at the time of the index discharge. Thes e data are taken from Medicare claims submitted by hospitals, dialysis f acilities, and other type s of long-term and postacute care facilities. We believe that this proposed approach to risk-adjusting the SRR measure is consistent with NQF guidelines for measure developers. NQF evaluates measures on the basis of four criteria: importance, scientific acceptability, feas ibility, and usability. The validity and reliability of a measure’s risk-adjustment calculations fall under the “scientific a cceptability” criterion, and Measure Evaluation Criterion 2b4 specifies NQF’s preferred approach for risk-adjusting

outcome measures ( http://www.qualityforum.org/docs/measur e_evaluation_criteria.aspx#scientific ). This criterion states that patient comorbidities should only be included in risk-adjustment calculations if they are 1) present at the start of care and 2) not indica tive of disparities or deficiencies in the quality of care provided. As indicated in the “Inclu sion and Exclusion Criteri a” subsection above, as well as the measure specifications that are curr ently under review at NQF, the start of care is defined as the index hospitaliza tion. Accordingly, we believe that NQF Measure Evaluation Criterion 2b4 supports risk ad justing the proposed SRR measure on the basis of patient comorbidity data collected in the year prio r to the index hospitalization, because these comorbidities are likely present at the start of care (that is, the date(s) that the patient spends inCMS-1614-P 140

the hospital during the index hospi talization). For these reasons, we believe that the riskadjustment methodology for the proposed SRR meas ure is consistent with NQF guidelines for measure developers and is appropriate for this measure. Full documentation of the SRR risk-adj ustment methodology is available at: http://www.cms.gov/Medicare/Quality -Initiatives-Patient-AssessmentInstruments/ESRDQIP/061_Tec hnicalSpecifications.html

. Calculating the SRR Measure The SRR measure is calculated as the ra tio of the number of observed unplanned readmissions to the number of expected unplanne d readmissions. Facilities that have more unplanned readmissions than would be expected fo r an average facility with a similar case-mix would have a ratio greater than one. Faciliti es having fewer unplanned readmissions than would be expected for an average facili ty with a similar case mix would ha ve a ratio less than one. This ratio calculation is consistent with that em ployed by one NQF-endorsed outcome measure for ESRD, the Standardized Hospita lization Ratio (NQF #1463). Hospitalizations are counted as events in th e numerator if they m eet the definition of unplanned readmission

— which is that they (a) occurred wi thin 30 days of the index discharge and (b) are not preceded by a “planned” readmissi on that also occurred within 30 days of the index discharge. Planned readmissions are defi ned as readmissions that do not bear on the quality of care furnished by the di alysis facility, that occur as a part of ongoing appropriate care of patients, or that involve el ective care. Building on the algo rithm developed for the HospitalWide Readmission measure (NQF #1789), the propos ed planned readmission list incorporates minor changes appropriate to the ESRD population as suggested by technical experts. The full planned readmission list and algorithm are available at: http://www.cms.gov/Medicare/Quality-CMS-1614-P 141

Initiatives-Patient-Assessment-Instrument s/ESRDQIP/061_TechnicalSpecifications.html . In general, a readmission is considered “planned” under two scenarios. 1. The patient undergoes a procedure that is always considered planned (example, bone marrow transplant) or has a primary diagnosis that always indicates the hospitalization is planned (for example, maintenance chemotherapy). 2. The patient undergoes a procedure that may be considered planned if it is not accompanied by an acute diagnosis. For exam ple, a hospitalization involving a heart - valve procedure accompanied by a primary dia gnosis of acute myocardial infraction would be considered unplanned, whereas a hospitalization invol ving a heart-valve procedure accompanied by a primary diagnosis of diabetes would be considered planned (because acute myocardial infraction is a plausible alternative acute indication for hospitalization). The expected number of readmissions is calc ulated using hierarchi cal logistic modeling (HLM). This approach accounts for the hospital from which the patient was discharged and the patient case mix (as defined by factors such as age, sex, and patient comorbidities), as well as the national median performance of a ll dialysis facilities. The HLM is an appropriate statistical approach to measuring quality based on patient outcomes when patients are clustered within facilities (and therefore the pati ents’ outcomes are not statistica lly independent), and when the number of qualifying patients for the measure varies from facility to facility. The HLM approach is also currently used to calculate readmission and mortal ity measures that are used in several quality-reporting and VBP programs by CMS, such as the Heart Failure and Pneumonia Mortality measures in the Hospital IQR and Hospital VBP Programs. The proposed SRR measure is a point estima te—the best estimate of a facility’sCMS-161

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can collect a full 12 months of data and s till implement the PY 2017 payment reductions. Therefore, we propose to establish CY 2015 as th e performance period for PY 2017 ESRD QIP. We seek comments on this proposal. 4. Proposed Performance Standards, Achievemen t Thresholds, and Benchmarks for the PY 2017 ESRD QIP We are proposing to adopt performance st andards for the PY 2017 ESRD QIP measures similar to those we finalized for PY 2016 ( 78 FR 72211 through 72213). Section 1881(h)(4)(A) of the Act provides that “the S ecretary shall establish performa nce standards with respect to measures selected . . . for a performance period wi th respect to a year.” Section 1881(h)(4)(B) of the Act further provides that the “performance sta ndards . . . shall include levels of achievement and improvement, as determined appropriate by the Secretary.” We use the performance standards to establish the minimum score a facil ity must achieve to avoid a Medicare payment reduction. We use achievement th resholds and benchmarks to cal culate scores on the clinical

measures. a. Proposed Performance Standard s, Achievement Thresholds, and Benchmarks for the Clinical Measures in the PY 2017 ESRD QIP With the exception of the NHSN Bloodstream In fection clinical measure, we propose to set the performance standards, achievement thresholds, and benc hmarks for the PY 2017 clinical measures at the 50th, 15th, and 90th percentile, respectively, of national performance in CY 2013, because this will give us enough time to calculate and assign numerical values to the proposed performance standards for the PY 2017 program prior to the beginning of the performance period. We continue to believe that these standards will provide an incentive for facilities to continuously improve their performance, while not re ducing incentives to facilitiesCMS-1614-P 144

that score at or above the nationa l performance rate for the clinical measures. As stated in the CY 2014 ESRD PPS Final Rule (78 FR 72213 th rough 72215), CY 2014 is the first year for which we will have data for the NHSN Bloodstream Infection clinical measure. Accordingly, we propose to set the performance standard, achie vement threshold, and benchmark for the NHSN Bloodstream Infection clinical measure ba sed on the 50th, 15th, and 90th percentiles, respectively, of nationa l performance in CY 2014. We seek comments on these proposals. b. Estimated Performance Standards, Achievement Thresholds, and Benchmarks for the Clinical Measures Proposed for the PY 2017 ESRD QIP At this time, we do not have the necessary data to assign numer ical values to the proposed performance standards, achievement th resholds, and benchmarks for the clinical measures, because we do not yet have complete data from CY 2013. Nevertheless, we are able to estimate these numerical values based on the most recent data available. For all of the proposed clinical measures except the proposed S RR measure, this partial data comes from the period of January through December 2013. For th e proposed SRR measure, this partial data comes from the period of January through Decem ber 2012. In Table 25, we have provided the estimated numerical values for all of the propos ed PY 2017 ESRD QIP clinical measures except the NHSN Bloodstream Infection clinical measur e. We will publish updated values for the clinical measures, using data from the first part of CY 2014, in the CY 2015 ESRD PPS final rule.CMS-1614-P 145

TABLE 25: Estimated Numerical Values for the Performance Standards for the PY 2017 ESRD QIP Clinical Measures Using th e Most Recently Available Data
Measure Performance Standard Achievement Threshold Benchmark Vascular Access Type %Fistula 64.49% 52.43% 78.64% %Catheter 9.9% 18.36% 3.21% Kt/V Adult Hemodialysis 93.65% 86.97% 97.55% Adult Peritoneal Dialysis 87.50% 70.42% 95.74% Pediatric Hemodialysis 92.48% 79.55% 97.98% Hypercalcemia 1.32% 4.78% 0.00% NHSN Bloodstream Infection 50 th percentile of eligible facilities’ performance during CY 2014 15 th percentile of eligible facilities’ performance during CY 2014 90 th percentile of eligible facilities’ performance during CY 2014 Standardized Readmission Ratio 0.996 1.242 0.658

We believe that the ESRD QIP should not have lower performance standards than in previous years. In accordance with our statem ents in the CY 2012 ESRD PPS final rule (76 FR 70273), if the final numerical value for a perfor mance standard, achievement threshold, and/or benchmark is worse than it was for that measur e in the PY 2016 ESRD QIP, then we propose to substitute the PY 2016 performan ce standard, achievement threshold, and/or benchmark for that

measure. We seek comments on this proposal. c. Proposed Performance Standards for the PY 2017 Reporting Measures In the CY 2014 ESRD PPS Final Rule, we finalized performance standards for the Anemia Management, Mineral Metabolism, and ICH CAHPS reporting meas ures (78 FR 72213). We are proposing to continue to use these performance standards for these measures in the PY 2017 ESRD QIP. We seek comments on this proposal.CMS-1614-P 146

5. Proposal for Scoring the PY 2017 ESRD QIP Measures a. Scoring Facility Performance on Clin ical Measures Based on Achievement In the CY 2014 ESRD PPS Final Rule, we fi nalized a policy for scoring performance on clinical measures based on achievement (78 FR 72215). In determining a facility’s achievement score for each measure under the PY 2017 ESRD QIP, we propose to continue using this methodology for all clinical measures. Under this methodology, facilities receive points along an achievement range based on their performa nce during the proposed performance period for each measure, which we define as a scale between the achievement threshold and the benchmark. b. Scoring Facility Performance on Clin ical Measures Based on Improvement In the CY 2014 ESRD PPS Final Rule, we fi nalized a policy for scoring performance on clinical measures based on improvement ( 78 FR 72215 through 72216). In determining a facility’s improvement score for each measur e under the PY 2017 ESRD QIP, we propose to continue using this methodology for all clinical measures. Under this methodology, facilities receive points along an improveme nt range, defined as a scale running between the improvement threshold and the benchmark. We propose to define the improvement threshold as the facility’s performance on the measure during CY 2014. Th e facility’s improvement score would be calculated by comparing its performance on the measure during CY 2015 (the proposed performance period) to its performa nce rate on the measure during CY 2014. 6. Weighting the Total Performance Score We continue to believe that while the re porting measures are valuable, the clinical measures evaluate actual patient care and ther efore justify a higher co mbined weight (78 FR 72217). We are therefore not proposing to change our policy, finalized most recently in the CYCMS-1614-P 147

2014 ESRD PPS (78 FR 72217), to we ight clinical measures as 75 percent and reporting measures as 25 percent of the TPS. We are al so not proposing any changes to the policy that facilities must be eligible to receive a score on at least one reporting measure and at least one clinical measure to be eligible to receive a T PS, or the policy that a facility’s TPS will be rounded to the nearest integer, with half of an integer being rounded up. 7. Proposed Minimum Data for Scoring Measures for the PY 2017 ESRD QIP and Proposal for Changing Attestation Process for Patient Minimums For the same reasons described in the CY 2013 ESRD PPS final rule (77 FR 67510 through 67512), for PY 2017 we propose to only sc ore facilities on clinical and reporting measures for which they have a minimum numb er of qualifying patients during the performance period. Our current policy is that a facility mu st treat at least 11 qualifying patients during the performance period in order to be scored on a clinical measure (77 FR 67510 through 67511). We are not proposing any changes to this policy. However, with respect to the proposed SRR measure, we propose that facilities with fewer than 11 index discharges will not be eligible to receiv e a score on that measure. We considered proposing to adopt the 11 qualifying patient minimum that we use for the other clinical measures. We decided, however, to ba se facility eligibility for the measure on the number of index discharges attributed to a facility, because the measure calculations are determined by the number of index discharges, adju sted for patient case-mix. We decided to set the minimum number of index discharges at 11 b ecause this is consistent with reporting for the proposed SRR measure during the dry run conducted earlier this year, as well as with the implementation of outcome measures in the Hospital Readmission Reduction Program, which base case minimums on the number of index di scharges attributable to the facility.CMS-1614-P 148

Additionally, for the proposed SRR measure, we propose to apply the small-facility adjuster to facilities that treat 41 or fewer inde x discharges because we determined that this was the minimum number of index discharges needed to achieve an IUR of 0.4 (that is, moderate reliability) for the proposed SRR measure. Because the small-facility adjuster gives facilities the benefit of the doubt when measure scores can be unduly influenced by a few outlier patients, we believe that setting the threshol d at 41 index discharges will not unduly penalize facilities that treat small numbers of patients. In the CY 2014 ESRD PPS Final Rule, we fi nalized that the case minimum for the Mineral Metabolism and Anemia Management reporti ng measures is one, and that facilities that treat one qualifying patien t could attest to this in CROWNWeb in order to avoid being scored on the measures (78 FR 72197 through 72199 and 72220 through 72221). In the process of responding to questions from facilities about the attestation requirements for the PY 2015 program, however, we found that facilities were confused by this requirement. For this reason, we propose to remove the option for facilities to a ttest that they did not meet the case minimum for these measures. Accordingly, facilities that meet the case minimum of one qualifying patient would be scored on these measures, facilities w ith between 2 and 11 qualifying patients would be required to report data for all but one qualifying patient, and facili ties with 11 or more qualifying patients would be required to report data for all patients. Due to facility confusion with the attestation process, we also propose to remove the option for facilities to a ttest that they did not meet the case minimum for the ICH CAHPS survey reporting measure. As we stated above, we are not proposing any further changes to the 30 su rvey-eligible case minimum for this measure. We are proposing that the ESRD QIP program will determine facility eligibility for theseCMS-1614-P 149

measures based on available data submitted to CROWNWeb, in Medicare claims, and to other CMS administrative data sources. We seek comments on this proposal. We are proposing to continue our policies that govern when a newly opened facility would be eligible to be scored on measures as follows.

• Facilities with a CCN open date on or afte r July 1 of the performance period (for PY 2017, this would be July 1, 2015) are not eligib le to be scored on any reporting measures except the ICH CAHPS reporting measure.

• Facilities with a CCN open date on or after January 1 of the performance period (for PY 2017, this would be January 1, 2015) are not eligible to receiv e a score on the ICH CAHPS reporting measure in the PY 2017 program, due to the time it takes to contract with a CMS-approved third-party vendor to administer the survey.

• Facilities are eligible to r eceive a score on all of the clin ical measures except the NHSN Bloodstream Infection clinical measure if they have a CCN open date at any time before the end of the performance period.

• Facilities with a CCN open date after Janua ry 1 of the performance period (for PY 2017, this would be January 1, 2015) are not el igible to receive a score on the NHSN Bloodstream Infection clinical measure, due to the need to collect 12 months of data to accurately score the measure. We are also proposing to continue our policy that a facility will not receive a TPS unless it receives a score on at least one clinical measur e and at least one reporting measure. We note that as a result, facilities will not be eligible for a payment reduction under the PY 2017 ESRD QIP if they have a CCN open date on or after July 1, 2015.CMS-1614-P 150

We seek comments on these proposals. Table 26 displays the proposed patient mini mum requirements for each of the reporting measures, as well as the CCN open dates after whic h a facility will not be eligible to receive a score on a reporting measure. TABLE 26: Proposed Minimum Data Requirements for the PY 2017 ESRD QIP

Measure Minimum Data Requirements CCN Open Date Small Facility Adjuster Adult Hemodialysis Adequacy (Clinical) 11 qualifying patients N/A 11 – 25 patients Adult Peritoneal Dialysis Adequacy (Clinical) 11 qualifying patients N/A 11 – 25 patients Pediatric Hemodialysis Adequacy (Clinical) 11 qualifying patients N/A 11 – 25 patients Vascular Access Type: Catheter (Clinical) 11 qualifying patients N/A 11 – 25 patients Vascular Access Type: Fistula (Clinical) 11 qualifying patients N/A 11 – 25 patients Hypercalcemia (Clinical) 11 qualifying patients N/A 11 – 25 patients NHSN Bloodstream Infection (Clinical) 11 qualifying patients On or before January 1, 2015 11 – 25 patients SRR (Clinical) 11 index discharges N/A 11 – 41 index discharges ICH CAHPS (Reporting) Facilities with 30 or more survey-eligible patients during the calendar year preceding the performance period must submit survey results. Facilities will not receive a score if they do not obtain a total of at least 30 completed surveys during the performance period. Before January 1, 2015 N/A

Anemia Management (Reporting) Facilities with 11 or more qualifying patients must report data for all patients. Before July 1, 2015 N/ACMS-1614-P 151

Measure Minimum Data Requirements CCN Open Date Small Facility Adjuster Facilities with between 2 and 11 qualifying patients must report data on all but 1 qualifying patient. Facilities with 1 qualifying patient must report for that patient.

Mineral Metabolism (Reporting) Facilities with 11 or more qualifying patients must report data for all patients. Facilities with between 2 and 11 qualifying patients must report data on all but 1 qualifying patient. Facilities with 1 qualifying patient must report for that patient. Before July 1, 2015 N/A

8. Proposed Payment Reductions for the PY 2017 ESRD QIP Section 1881(h)(3)(A)(ii ) of the Act requires the Secretary to ensure that the application of the scoring methodology result s in an appropriate distributi on of payment reductions across facilities, such that facilities achieving the lowe st TPSs receive the largest payment reductions. For PY 2017, we are proposing that a facility wi ll not receive a payment reduction if it achieves a minimum TPS that is equal to or greater than th e total of the points it wo uld have received if:

• It performed at the performance sta ndard for each clinical measure;

• It received zero points for each clinical m easure that does not have a numerical value for the performance standard established through the rulemaking process before the beginning of the PY 2017 performance period; and

• It received 10 points (which is the 50 th percentile of facility performance on the PYCMS-1614-P 152

2015 reporting measures) for each reporting measure. We recognize that these c onditions are more stringent th an the conditions used to establish the minimum TPS in the PY 2016 ESRD QIP, because this proposal increases the number of points a facility w ould have to receive on each reporting measure from 5 to 10. The PY 2015 program is the most recent year for whic h we will have calculated final measure scores before the beginning of the proposed performan ce period for PY 2017 (i.e., CY 2015). We note that facility performance on the Anemia Management, Minera l Metabolism, NHSN Dialysis Event, and ICH CAHPS reporting m easures in the PY 2015 program is so high that the median score on each of the measures was 10 points. We are proposing to increase the number of points a facility would have to achieve for each reporting measure to the 50th percentile of facility performance on the PY 2015 reporting measures (i.e ., the average of the median scores for each reporting measure), because a score of 5 on each of these reporting measures is indicative of a below-average performance, and we want to incentiv ize facilities to provide above-average care. We seek comments on this proposal. Section 1881(h)(3)(A)(ii ) of the Act requires that facili ties achieving the lowest TPSs receive the largest payment re ductions. In the CY 2014 ESRD PPS Final Rule (78 FR 72223 through 72224), we finalized a payment reduction scale for PY 2016 and future payment years, such that for every 10 points a facility falls below the minimum TPS, the facility would receive an additional 0.5 percent reduction on its ESRD PPS payments, with a maximum reduction of 2.0 percent. We are not proposing any ch anges to this policy at this time. Because we are not yet able to calculate the performance standards for each of the clinical measures, we are likewise not able to ca lculate the minimum TPS at this time. Based on the estimated performance standards listed above, we estimate that a facility must meet or exceedCMS-1614-P 153

a minimum TPS of 58 for PY 2017. For all of the clinical meas ures except the NHSN Bloodstream Infection clinical measure, th ese data come from CY 2013. For the NHSN Bloodstream Infection clinical measure, we set th e performance standard to zero for purposes of this estimate, because we are not able to establ ish a numerical value for the performance standard through the rulemaking process before the begi nning of the PY 2017 performance period. We are proposing that facilities fa iling to meet the minimum TPS, as established in the CY 2015 ESRD PPS Final Rule, will receive payment reductions based on the estimated TPS ranges indicated in Table 27 below. TABLE 27: Estimated Payment Reduction Scal e for PY 2017 based on the Most Recently Available Data from CY 2013 Total Performance Score Reduction 100 – 58 0% 57 – 48 0.5% 47 – 38 1.0% 37 – 28 1.5% 27 – 0 2.0%

9. Proposal for Data Validation One of the critical elements of the ES RD QIP’s success is ensuring that the data submitted to calculate measure scores and TPSs are accurate. We began a pilot data-validation program in CY 2013 for the ESRD QIP, and we have procured the services of a data-validation contractor that is tasked with validating a national sample of faci lities’ records as they report CY 2014 data to CROWNWeb. Our first priority wa s to develop a methodology for validating data submitted to CROWNWeb under the pilot data-valida tion program, and this continues to be our goal. Once this methodology has been fully developed, we will propose to adopt it through the rulemaking process. For the PY 2016 ESRD QIP (78 FR 72223 through 72224), we finalized aCMS-1614-P 154

requirement to sample approximately 10 record s from 300 randomly selected facilities; these facilities will have 60 days to comply once they receive requests for reco rds. We are proposing to continue this pilot for the PY 2017 ESRD QIP. Under this continued validation study, we will sample the same number of records (approximate ly 10 per facility) from the same number of facilities (that is, 300) during CY 2015. If a facility is randomly se lected to participate in the pilot validation study but does not provide CMS w ith the requisite medical records within 60 days of receiving a request, then we propose to deduct 10 points from the facility’s TPS. Once we have developed and adopted a methodology fo r validating the CROWNWeb data, we intend to consider whether payment reductions under the ESRD QIP should be based, in part, on whether a facility has met our standards for data validation. We seek comments on this proposal. We are also proposing a feasibility study fo r validating data reported to CDC’s NHSN Dialysis Event Module for the NHSN Bloodstrea m Infection clinical measure. HAIs are relatively rare, and we are proposing that the feas ibility study would target records with a higher probability of including a dialysis event, because this would enrich the validation sample while reducing the burden on facilities . The methodology for this pr oposed feasibility study would resemble the methodology used by the Hospital I npatient Quality Reporting Program to validate the central line-associated bloodstream infection measure, the catheter-associated urinary tract infection measure, and the surgical site infection measure (77 FR 53539 through 535553). Specifically, we propose to randomly select nine facilities to participate in the feasibility study. A CMS contractor will send these facilities quart erly requests for lists of all positive blood cultures drawn from its patients during the quarter, including any positive blood cultures that were collected from the facility’s patients on the day of , or the day following, theirCMS-1614-P 155

admission to a hospital. Facilities will have 60 da ys to respond to quarterly requests for lists of positive blood cultures. A CMS contractor wi ll then develop a methodology for determining when a positive blood culture qualifies as a “ candidate dialysis even t,” and is therefore appropriate for further validation. Once the cont ractor determines a methodology for identifying candidate dialysis events, the contractor will analyze the records of patients who had a positive blood culture in order to determine if the facility reported dialysis events for those patients in accordance with the NHSN Dialysis Event Protocol. If the contractor determines that additional medical records are needed from a facility to va lidate whether the facili ty accurately reported the dialysis events, then the contractor will send a re quest for additional information to the facility, and the facility will have 60 days from the date of the letter to respond to the request. Overall, we estimate that, on average, quarterly lists will include two positive blood cultures per facility, but we recognize these estimates may vary considerably from facility to facility. If a facility is randomly selected to participat e in the feasibility study but do es not provide CMS with the requisite lists of positive blood cultures or the requisite medical records within 60 days of receiving a request, then we propose to de duct 10 points from th e facility’s TPS. The goals of the proposed feasib ility study will be five-fold: 1) to estimate the burden and associated costs to facilities of validating the NHSN Bloodstream Infection clinical measure; 2) to assess the costs to CMS to validate this m easure; 3) to develop a methodology for identifying candidate dialysis events from lists of positiv e blood cultures; 4) to develop a methodology for determining whether a facility accurately reported dialysis events under the NHSN Bloodstream Infection clinical measure; and 5) to reach some preliminary conclusions about whether facilities are accurately reporting data under the NHSN Bloods tream Infection clinical measure. Based on the results of this study, we will consider the f easibility of proposing in future rulemaking toCMS-1614-P 156

validate the NHSN Bloodstream Infection c linical measure for all facilities. We seek comments on this proposal. 10. Proposal to Monitor Acce ss to Dialysis Facilities Public comments on the proposal to adopt the Standardized Hospitalization Ratio measure in the PY 2014 ESRD QIP (76 FR 70267) expressed concerns th at “the measure may lead to ‘cherry-picking’ of pa tients based on their risk of hosp italizations, causing access to care issues for patients with more severe illness.” We share commenters’ concerns about the SHR measure, and we believe that these concerns eq ually apply to other outcome measures proposed for the ESRD QIP. We recogni ze that, in general, inadequate risk adjustment in outcome measure calculations can create an incentive for f acilities to deny services to sicker patients, because these patients’ illnesse s would not be properly accounted for in the risk-adjustment calculations. We believe that outcome measures proposed and adopted for the ESRD QIP properly risk adjust for patients with severe illnesses, but we remain concerned that misperceptions to the contrary might nega tively impact access to dialysis therapy. Since we are proposing to adopt the SRR c linical measure for the PY 2017 program, and below we are proposing to adopt the STrR c linical measure for the PY 2018 program, we propose to initiate a monitoring program focused on access to dialysis therapy. This program would compare dialysis data be fore and after the adoption of an outcome measure, looking for changes in admission and discharg e practices, as well as change s in rates and patterns of involuntary discharges. Specifical ly, this program would assess a nd analyze the ch aracteristics of beneficiaries admitted to dialys is centers (stratified by location, size, and setting) in order to determine when and if selective admission and discharge practices are coupled with negativeCMS-1614-P 157

patient attributes and trends over time. We believe this program will enable us to identify patterns that are indicative of dimi nished access to dialysis therapy. We seek comments on this proposal. 11. Proposed Extraordinary Circumstances Exception Many comments on the CY 2014 ESRD PPS pro posed rule included the recommendation to exempt a facility from all the requirements of the ESRD QIP clinical and reporting measures during the time the facility was forced to close temporarily due to a natural disaster or other extraordinary circumstances. In response to thes e comments, we agreed that “there are times when facilities are unable to submit required quality data due to extraordin ary circumstances that are not within their control, and we do not wish to penalize facilities for such circumstances or unduly increase their burden duri ng these times” (78 FR 72209). Section 1881(h)(3)(A)(i) of the Act states, “[T]he Secret ary shall develop a methodology for assessing the total performance of each provider of services and renal dialysis facility based on performance standards with respect to the measures sele cted under paragraph (2) for a performance period established und er paragraph (4)(D).” Given th e possibility that facilities could be unfairly penalized for circumstances that are beyond their control, we believe the best way to implement an extraordinary circumstances exception is under the authority of this section. We are therefore proposing to interpret section 1881(h)(3)(A)(i) of the Act to enable us to configure the methodology for assess ing facilities’ tota l performance such that we will not require a facility to submit, nor penalize a faci lity for failing to submit, data on any ESRD QIP quality measure data from any month in whic h a facility is granted an extraordinary circumstances exception. Under this policy, we propose that, in the even t of extraordinary circ umstances not withinCMS-1614-P 158

the control of the facility (such as a natural disast er), for the facility to receive consideration for an exception from all ESRD QIP requirements duri ng the period in which the facility was closed, the facility would need to submit a CMS Disa ster Extension/Exception Request Form through www.qualitynet.org within 90 calendar days of the date of the disaster or extraordinary circumstance. We are proposing that the f acility would need to provide the following information on the form:

• Facility CCN;

• Facility name;

• CEO name and contact information;

• Additional contact name a nd contact information;

• Reason for requesting an exception;

• Dates affected;

• Date facility will start submitting data agai n, with justification for this date; and

• Evidence of the impact of the extraordin ary circumstances, including but not limited to photographs, newspaper, and other media articles. Incomplete forms will be returned to the facil ity without further review of their content. We will evaluate the request and provide the facility with a response. If we determine that the facility was, in fact, closed for a period of time due to extraordinary circumstances, then we will exempt the facility from the ESRD QIP require ments for any month during which the facility was closed due to the extraordinary circumstance s. As such, a facility granted a temporary exception will be scored on each measure only for the months during a performance period not covered by the exception. For example, if a faci lity is granted an extraordinary circumstances exception for the time period betw een January 15 and February 15, 2015, then the facility willCMS-1614-P 159

not be required to report, and will not be pena lized for not reporting, data on any ESRD QIP measure data for January and February of CY 2 015. The effect of this proposal is that if a facility, because it has been granted an exception, cannot meet the reporting requirements that apply to a measure, the facility will not receive a score on the measure. For example, if a facility is granted an extraordinary circumstances excep tion for February 2015, then that facility would not be scored on the NHSN Bloodstream Infection clinical measure for th e applicable payment year, because this measure requires facilities to submit 12 months of data in order to avoid receiving zero points on the measure. This policy does not preclude us from granting exceptions to facilities that have not requested them when we determine that an extr aordinary circumstance (for example, a hurricane or other act of nature) affects an entire region or locale. If we make the determination to grant an exception to facilities in a region or locale, then we propose to communicate this decision through routine communication channels to facili ties, vendors, and Networks, including but not limited to issuing memoranda, emails, and notices on a CMS-appr oved Web site. We seek comments on this proposal. G. Proposed Requirements for the PY 2018 ESRD QIP 1. Proposal to Modify the Mineral Metabol ism Reporting Measure Beginning in PY 2018 In the CY 2013 ESRD QIP, we adopted a reporting measure focused on mineral metabolism, which was based in part on NQF #0255 (77 FR 67487 through 67487). In the CY 2014 ESRD PPS, we finalized two revisions to th e Mineral Metabolism reporting measure: (1) to include home peritoneal dialysis patients in the measure; and (2) to remove serum calcium reporting from the measure because of its repor ting under the Hypercalcemia clinical measure (78 FR 72197 through 72198). Accordingly, in orde r to meet the requirements for the MineralCMS-1614-P 160

Metabolism reporting measure, fac ilities currently must report serum phosphorus values for each qualifying patient treated at the fa cility on a monthly basis. Since the publication of the CY 2014 ESRD PPS final rule, members of the renal community requested an ad hoc NQF review of measure #0255, focusing in particular on whether the measure should be updated to allow for the reporting of plasma phosphorus data. The NQF Consensus Standards Approval Comm ittee (CSAC) reviewed the measure and recommended that the phosphorus reporting measur e (NQF #0255) be modified to allow for the reporting of plasma phosphorus data as an alte rnative to serum phosphor us data. Although our TEP reviewed this issue and concluded that measure #0255 should remain unchanged, we concur with the CSAC’s recommendation due to the CSAC ’s ad hoc review of lab data demonstrating the equivalency of plasma and serum measurem ents of phosphorus, as well as an additional concurrent internal review of the data by CMS and our measure development contractor. We are in agreement with the CSAC th at readings of phosphorus using either plasma or serum are appropriate for the measure. As the measure de veloper for NQF#255, we are also in the process of revising the specifications for that measure and plan to submit the revised measure specifications to the NQF for endorsement. We be lieve the change to these specifications is nonsubstantive because plasma readings are an alternative method of reporting on phosphorus data and, as we state above, are roughly equiva lent to serum phosphorus readings. We considered proposing to al low facilities to report pl asma phosphorus data for the Mineral Metabolism reporting measure in the PY 2017 program, but we have determined that it is not operationally feasible to configure the relevant data fields in CROWNWeb to accept plasma phosphorus readings prior to January 1, 2015, the beginning of the performance period for that program year. For this reason, we pr opose to modify the measure specifications for theCMS-1614-P 161

Mineral Metabolism reporting measur e to allow facilities to report either serum phosphorus data or plasma phosphorus data, beginning with the PY 2018 program. We further clarify that we are not proposing any other changes to the measur e specifications for the Mineral Metabolism reporting measure. 2. Proposed New Measures for the PY 2018 ESRD QIP and Future Payment Years For the PY 2018 ESRD QIP, we are proposing to continue to use all of the measures proposed for the PY 2017 ESRD QIP, with the exception of the ICH CAHPS reporting measure, which we are proposing to convert to a clinical m easure. We are also proposing to adopt five new measures. The proposed new measures include one new outcome measure evaluating transfusions in the ESRD population, one measure on pediatric peritoneal dialysis adequacy, one measure on pain assessment, one measure on clin ical depression screening, and one measure on healthcare personnel influenza v accination (see Table 28). TABLE 28: New Measures Proposed for the PY 2018 ESRD QIP

NQF# Measure Title
N/A Pediatric Peritoneal Dialysis Adequacy, a clinical measure Percentage of pediatric peritoneal dialysis patient-months with spKt/V greater than or equal to 1.8 (dialytic + residual).

0258 In-Center Hemodialysis Consumer Asse ssment of Providers and Systems Survey, 1 a clinical measure Proportion of responses to rating items grouped into three composite measures and three global ratings. N/A Standardized Transfusion Ratio, a clinical measure Risk-adjusted standardized transfusion ratio for dialysis facility patients.

N/A 2 Pain Assessment and Follow-Up, a reporting measure Percentage of adult patients with documentation of pain assessment through discussion with the patient including the use of a standardized tool(s) on each visit and documentation of a follow-up place when pain is present.
N/A 3 Depression Screening and Follow-Up, a reporting measure Percentage of adult patients screen ed for clinical depression using a standardized tool and follow-up plan is documented. N/A 4 NHSN Healthcare Personnel Influenza Vaccination, a reporting measure 1 The proposed dimensions of the ICH CAHPS survey for use in the PY 2018 ESRD QIP are: Nephrologists’ Communication and Caring, Quality of Dialysis Center Care and Operations, Providing Information to Patients, Overall Rating of the Nephrologists, Overall Rating of the Dialysis Center Staff, and Overall Rating of the Dialysis Facility. 2 We note that the NQF has previously endorsed a pain measure (NQF #0420) upon which this measure is based. 3 We note that the NQF has previously endorsed a depre ssion measure (NQF #0418) upon whic h this measure is based. 4 We note that the NQF has previously endorsed a vaccina tion measure (NQF #0431) upon whic h this measure is based.CMS-1614-P 162

a. Proposed Standardized Transfusio n Ratio (STrR) Clinical MeasureCMS-1614-P 163

Background We are concerned that the inclusion of eryt hropoiesis-stimulating agents (ESAs) in the ESRD PPS and the removal of the Hemoglobin Le ss than 10 g/dL clinical measure from the ESRD QIP measure set could resu lt in the underutilization of ESAs to manage anemia in ESRD patients, with the result that these patients have lower achieved hemoglobin levels and more frequently need red-blood-cell transfusions. In addition, patients with ESRD who are elig ible to receive a kidne y transplant and are transfused risk becoming sensitized to th e donor pool, thereby maki ng it less likely that a transplant will be successful. Blood transfusi ons also carry a small risk of transmitting bloodborne infections to the patient, and the patient could additionally develop a transfusion reaction. Furthermore, using infusion centers or hospitals to transfuse patie nts is expensive, inconvenient, and could compromise future vascular access. Overview of Measure The Standardized Transfusion Ratio (STrR) for all adult Medicare ESRD patients is a ratio of the number of observed eligible blood transfusion events occurring in patients dialyzing at a facility to the number of eligible transfus ions that would be expected from a predictive model that accounts for patient ch aracteristics within each facilit y. Eligible transfusions are those that do not have any claims pertaining to the comorbidities identified for exclusion in the 12 months immediately prior to the transfusion date. We plan to submit the STrR measure to NQF for review at the next available call for measures. Section 1881(h)(2)(B)(i) of the Act re quires that, unless the exception set forth in section 1881(h)(2)(B)(ii) of the Act applies, the measures specified for the ESRD QIP under section 1881(h)(2)(A)(iv ) of the Act must have been endorse d by the entity with a contract underCMS-1614-P 164

section 1890(a) of the Act (which is currently NQF). Under the exception set forth in section 1881(h)(2)(B)(ii) of the Act, in the case of a specified area or medical topic determined appropriate by the Secretary for which a feasible and practical measure has not been endorsed by the entity with a contract under section 1890(a) of the Act, the Secretary may specify a measure that is not so endorsed, so long as due consider ation is given to measures that have been endorsed or adopted by a consensus orga nization identified by the Secretary. We have given due consideration to endorse d measures, as well as those adopted by a consensus organization, and we are proposi ng this measure under the authority of 1881(h)(2)(B)(ii) of the Act. NQF has not endorsed and a consensus organization has not adopted a measure on transfusions. Because th e proposed STrR measure has the potential to decrease transfusions resulting from underutiliza tion of anemia medicatio ns, we believe it is appropriate to adopt the STrR in the PY 2018 ES RD QIP. We considered proposing to adopt the measure for the PY 2017, but we recognized that th is is a new measure, and wanted to give facilities more time to familiarize themselves w ith it. The Measure Application Partnership, in its February 1, 2013 Pre-Rulemaking Report, supported the direction of the measure, stating that it “addresses an important concept, but the establishment of guidelines for hemoglobin range is needed.” We have received public comments and input from a TEP that we convened on a prototype STrR measure, and finalized developm ent of the proposed STrR measure in September 2013. The resulting measure specifications did not include hemoglobin thresholds, as no input from the TEP or public comments supported movi ng forward with thresholds included in the measure. We therefore believe these efforts m eet the requirements for further development of the STrR prior to implementation in the ESRD QIP.CMS-1614-P 165

In the process of preparing to submit the measure for NQF review, we conducted analyses on the reliability of the STrR meas ure. The full analys is is available at: http://www.cms.gov/Medicare/Quality -Initiatives-Patient-AssessmentInstruments/ESRDQIP/061_Tec hnicalSpecifications.html . The STrR is not a simple average; instead, we estimate the IUR using a bootstrap ap proach, which uses a resampling scheme to estimate the within facility variation that cannot be dire ctly estimated by ANOVA. A small IUR (near 0) reveals that most of the variation of the measures between f acilities is driven by “random noise,” indicating the measure would not be a reliable characterization of the differences among facilities, wherea s a large IUR (near 1) indicates that most of the variation between facilities is due to the re al difference between facilities. We have determined that the average IUR for the STrR measure is 0.54, meani ng that about half of the variation in the measure can be attributed to between-facility differences, and about half to within-facility variation. This value of IUR indicates a moderate degree of reliability and is consistent with the reliability of other outcome measures in CM S quality reporting and VBP programs. We therefore believe that facili ties can be reliably scored on the proposed STrR measure. Data Sources Data for the measure come from various CMS-maintained data sources for ESRD patients including Program Medical Management and Information System (PMMIS/REMIS), Medicare claims, the CROWNWeb database, th e CMS Annual Facility Survey (Form CMS2744), Medicare dialysis and hospital payment r ecords, the CMS Medical Evidence Form (Form CMS-2728), transplant data from the OPTN, the Death Notification Form (Form CMS-2746), the Nursing Home Minimum Datase t, and the Social Security Death Master File. These dataCMS-1614-P 166

sources include all Medicare patients. Informati on on transfusions is obtained from Medicare Inpatient and Outpatient Claims SAFs. Outcome The outcome of interest for the STrR is blood transfusion events (defined as the transfer of one or more units of blood or blood produc ts into the recipien t’s blood stream) among Medicare ESRD patients dialyzing at the f acility during the incl usion time periods. Cohort The cohort for the STrR incl udes all adult Medicare ESRD dialysis patients who have been documented as having had ESRD for at least 90 days. Inclusion and Exclusion Criteria Patients will not be included in the STrR during the first 90 days of ESRD dialysis treatment. Starting with day 91 af ter onset of ESRD, a patient is at tributed to a facility once he or she has been receiving dialysis there for 60 days. When a patient transfers from one facility to another, we are proposing that the patient would continue to be attributed to the original facility for 60 days from the date of the transfer. Star ting on day 61, the patient would be attributed to the transferee facility. Patients would be exclude d from the measure for three days prior to the date they receive a transplant to avoid includi ng transfusions associated with the transplant hospitalization. We are also proposing to requi re that patients reach a certa in level of Medicare-paid dialysis bills to be included in the STrR, or that patients have Medicare-paid i npatient claims during the period. This require ment is intended to assure completeness of transfusion information for all patients included in the measure calculation by excluding non-Medicare patients and patients for whom Medicare is a seconda ry payer, because they are not expected toCMS-1614-P 167

have complete information on transfusion availabl e in the claims data. For each patient, a month is included as a month at risk for transfusion if th at month in the period is considered “eligible.” A month is considered eligible if it is within two months of a month in which a patient has $900 of Medicare-paid claims or at least one Medicare-paid inpa tient claim. The $900 amount represents approximately the tenth percentile of monthly di alysis claims per patient. In addition, a transfusion event is eligible for inclusion in the STrR measure if the patient did not present with certain comorbid conditions during the 12 month pe riod immediately prior to the date of the transfusion event. We ar e proposing to exclude th ese transfusion events because the identified comorbid conditions are as sociated with a higher risk of transfusion and require different anemia management practices th at the measure is not intended to address. Specifically, we are proposing that a transfusion event will be ex cluded from the measure if the patient, during the 12 month look back period, had a Medicare claim for: hemolytic and aplastic anemia; solid organ cancer (breast, prostate, lung, digestive tract a nd others); lymphoma; carcinoma in situ; coagulation disorders; mu ltiple myeloma; myelodysplastic syndrome and myelofibrosis; leukemia; head and neck cance r; other cancers (connective tissue, skin, and others); metastatic cancer; or sickle cell anemia. The specific diagnoses used to identify each of these conditions are listed in the proposed measure specifications, which are available at: http://www.cms.gov/Medicare/Quality -Initiatives-Patient-AssessmentInstruments/ESRDQIP/061_Tec hnicalSpecifications.html

. Risk Adjustment The denominator of the STrR uses expected transfusions calcula ted from a Cox model that is extended to handle repeated events. For computational purpos es, the proposed STrR measure adopts a model with piecewise-constant base line rates. A stage 1 model is fitted to theCMS-1614-P 168

national data with piecewise-c onstant baseline rates across faci lities. Transfusion rates are adjusted for: patient age; diabetes as a cause of ESRD; duration of ES RD; nursing home status; BMI at incidence; comorbidity index at incide nce; and calendar year. This model allows baseline transfusion rates to va ry between facilities, and applies the regression coefficients for the risk-adjustment model to each facility identically. This approach is robust to possible differences between facilities in the patient mix being treated. The second stage uses the riskadjustment factor from the first stage as an offs et. The stage 2 model then calculates the national baseline transfusion rate. The STrR measure includes the following risk adjustors, which are obtained from the following data sources: Risk Adjustor Data Source Age REMIS database Diabetes as cause of ESRD CMS Form 2728 BMI at incidence of ESRD CMS Form 2728 Comorbidity index CMS Form 2728 Nursing home status Nursing Home Minimum Dataset Duration of ESRD CMS Form 2728 More details on the risk-adjustment calculations , and the rationale for selecting these risk adjustors and not others, can be found at: http://www.cms.gov/Medicar e/Quality-InitiativesPatient-Assessment-Instruments/ESR DQIP/061_TechnicalSpecifications.html

. As indicated in the table above, the proposed STrR measure risk adjusts predominantly on the basis of patient characteri stics collected on CMS Form 2728, a nd we believe that this riskadjustment methodology is reliable and valid. NQF evaluates measures on the basis of four criteria: importance, scientific acceptability, feasibility, and usability. The validity and reliabi lity of a measure’s risk-adjustment calculations fall under the “scientific acceptabi lity” criterion, and Measure Ev aluation Criterion 2b4 specifiesCMS-1614-P 169

NQF’s preferred approach for ri sk adjusting outcome measures ( http://www.qualityforum.org/docs/measur e_evaluation_criteria.aspx#scientific ). This criterion states that patient comorbidities should only be included in risk-adjustment calculations if they are 1) present at the start of care and 2) not indica tive of disparities or defi ciencies in the quality of care provided. As indicated in the “Inclu sion and Exclusion Criteri a” subsection above, the proposed STrR clinical measure includes Medi care patients who have been documented as having had ESRD for at least 90 days and are no t excluded for other reasons. Accordingly, we believe that NQF Measure Evaluation Criterion 2b4 supports risk-adjus ting the proposed STrR measure on the basis of incident patient comorbidity data collected on CMS Form 2728, because these comorbidities are likely present at the star t of care. Moreover, co morbidities that develop after the 90th day of chronic dial ysis treatment, and are statistical ly associated with transfusions, can be reflective of the quality of care provided by the facility. Therefore, we do not believe that NQF Measure Evaluation Criterion 2b4 supports risk ad justing the proposed STrR measure on the basis of updated comorbidity data, because doing so may mask disparities or deficiencies in the quality of care provided, thereby obscuring asse ssments of facility performance. For these reasons, we believe that the risk-adjustment methodology for the proposed STrR measure is consistent with NQF guidelines for measure deve lopers. Testing that we have undertaken has confirmed the validity and reliab ility of the proposed STrR m easure using these data. We anticipate submitting the measure to th e NQF for endorsement in CY 2015. Full documentation of the STrR risk-adjustment methodology is available at: http://www.cms.gov/Medicare/Quality -Initiatives-Patient-AssessmentInstruments/ESRDQIP/061_Tec hnicalSpecifications.html

. Calculating the STrR MeasureCMS-1614-P 170

The STrR measure is calculated as the ratio of the number of observed transfusions to the number of expected transfusions. The ratio is greater than one for facilities that have more transfusions than would be expected for an averag e facility with similar cases, and less than one if the facility has fewer transfusions than would be expected for an averag e facility with similar cases. This ratio is calculated in terms of patient-years at risk. “Patient-year at risk” means that the denominator of the rate calculation is obt ained by adding exposure times of all patients until a censoring event (that is, death, transplant, or end of the time period) because each patient’s time at risk varies based on these censoring events. Time at risk is the time period in which each patient is eligible to have the transfusion event occur for the pur poses of the measure calculation, exclusive of all days that have claims pertaining to the exclusionary comorbidities identified within the previous 12 months. The predicted value from stage 1 of the mode l and the baseline rate from stage 2 of the model, as described above, are th en used to calculate the expect ed number of transfusion events for each patient over the period during which the patie nt is seen to be at risk for a transfusion

event. The STrR is a point estimate—the best estimate of a facility’s transfusion rate based on the facility’s case mix. For more detailed information on the calculation methodology, please refer to our Web site at: http://www.cms.gov/Medicare/Quality -Initiatives-Patient-AssessmentInstruments/ESRDQIP/061_Tec hnicalSpecifications.html

. We seek comments on this proposal to a dopt the proposed STrR clinical measure. b. Proposal to Adopt the Pediatric Peritoneal Di alysis Adequacy Clinic al Measure and Add the Proposed Measure to the Dialys is Adequacy Measure Topic Section 1881(h)(2)(A)(i) stat es that the ESRD QIP must evaluate facilities based onCMS-1614-P 171

measures of dialysis adequacy. Beginning w ith the PY 2018 ESRD QIP, we propose to add a new measure of pediatric peritoneal dialysis adequacy to the Dialysis Adequacy measure topic. If this proposal is finalized, th en the modified Dialysis Adequ acy measure topic would include four clinical measures on dialysis adequac y—(1) Adult Hemodialysis Adequacy; (2) Adult Peritoneal Dialysis Adequacy; and (3) Pediat ric Hemodialysis Adequacy; and (4) Pediatric Peritoneal Dialysis Adequacy. Approximately 900 pediatric patients in the United States receive peritoneal dialysis. 5 Although recent studies suggest improvement in mortality rates among pediatric patients receiving maintenance dialysis over time, mort ality in this patient population remains high. 6 Despite a lack of long-term outcome studies on pe diatric peritoneal dialysis patients, outcome studies performed in the adult ESRD population ha ve shown an association between the dose of peritoneal dialysis and clinical outcomes, 7 which could suggest that im proved quality of dialysis care in the fragile pediatric pati ent population may further improve survival in those patients. Section 1881(h)(2)(A)(iv) give s the Secretary authority to adopt measures for the ESRD QIP that cover a wide variety of topics. Secti on 1881(h)(2)(B)(ii) of the Act states that “In the case of a specified area or medical topic determ ined appropriate by the Secretary for which a feasible and practical measure has not been endo rsed by the entity with a contract under section 1890(a) of Act [in this case NQF], the Secretary may specify a measure that is not so endorsed so long as due consideration is gi ven to measures that have been endorsed or adopted by a

5 U.S. Renal Data System, USRD S 2012 Annual Data report: Atlas of Chronic Kidney Disease an d End-stage Renal Disease in the United States, National Institutes of Health, National Institute of Diabetes and Digestive and Kidney Diseases, Bethesda, M D, 2012. 6 U.S. Renal Data System, USRD S 2012 Annual Data report: Atlas of Chronic Kidney Disease an d End-stage Renal Disease in the United States, National Institutes of Health, National Institute of Diabetes and Digestive and Kidney Diseases, Bethesda, M D, 2012. 7 Paniagua R, Amato D, Vonesh E, et al. “Effects of increased peritoneal clearance on mortality rates in peritoneal dialysis: ADEMEX, a prospective, randomized, controlled trial.” Journal of the American Society of Nephrology: JASN (2002) 13:1307- 1320. PMID: 11961019; See also Lo WK, Lui SL, Chan TM, et al. “Minimal and optimal peritoneal Kt/V targets: Results of anuric peritoneal di alysis patient’s survival analysis.” Kidney international (2005) 67:2032-2038. PMID: 15840054.CMS-1614-P 172

consensus organization identified by the Secretar y.” We have given due consideration to endorsed measures, as well as those adopted by a consensus organization. Because no NQFendorsed measures or measures adopted by a c onsensus organization on pediatric peritoneal dialysis adequacy currently exist, we are propos ing to adopt the Pediatri c Peritoneal Dialysis Adequacy clinical measure under the authority of section 1881(h)(2)(B)( ii) of the Act. The Measure Application Partnership expressed conditional support for measure XCBMM, “Pediatric Peritoneal Dialysis Adequacy : Achievement of Target Kt/V” in its January 2014 Pre-Rulemaking Report, noting it would “cons ider this measure for inclusion in the program once it has been reviewed for endorsement.” However, we believe the measure is ready for adoption in the ESRD QIP because it has been fully tested for reliability and has received consensus support from the TEP that was tasked with developing it. We intend to submit this measure to the NQF for endorsement in late 2014 or early 2015. For PY 2018 and future payment years, we pr opose to adopt the Pe diatric Peritoneal Dialysis Adequacy clinical measure, which a ssesses the percentage of eligible pediatric peritoneal dialysis patient-months in which a Kt /V of greater than or equal to 1.8 was achieved during the performance period. Qualifying patien t-months are defined as months in which a peritoneal dialysis patient is under the age of 18 and has been receiving peritoneal dialysis treatment for 90 days or longer. Performance on this measure will be expressed as a proportion of patient-months meeting the measure threshold of 1.8, and the measure will be scored based on Kt/V data entered on Medicare 72x claims. The m easure is a complement to the existing Kt/V dialysis adequacy measures previously adopted in the ESRD QIP. Technical specifications for the proposed pediatric peritoneal dialysis adequacy clinical m easure can be found at: http://www.cms.gov/Medicare/Quality -Initiatives-Patient-Assessment-CMS-1614-P 173

Instruments/ESRDQIP/061_Tec hnicalSpecifications.html

. We seek comments on this proposal to adopt the Pediatric Peritoneal Dialysis Adequacy

measure. c. Proposed ICH CAHP S Clinical Measure Section 1881(h)(2)(A)(ii) of the Act states that the Secret ary shall specify, to the extent feasible, measures of patient satisfaction. Pa tients with ESRD are an extremely vulnerable population: They are completely reliant on ESRD providers for life-saving care, and they are often reluctant to express concerns about the care they receive from an array of staff, both professional and non-professional. Patient-centere d experience is an important measure of the quality of patient care, and it is a component of the 2013 NQS, which emphasizes patientcentered care by rating patient experience as a means for empowering patients and improving the quality of their care. Following a rigorous process, the ICH CAH PS Survey was developed to capture the experience of in-center hemodialysis patients. The NQF endorsed and th e Measures Application Partnership supported this quality measure (NQF #0258: CAHPS In-Center Hemodialysis Survey). The ICH CAHPS Survey captures the e xperience of in-center he modialysis patients on three dimensions: “nephrologists’ communication and caring;” “quality of dialysis center care and operations;” and “providing info rmation to patients.” Three glob al ratings are also part of the standardized ICH CAHPS Surv ey: rating of the nephrologist; rating of the staff; and rating of the facility. We believe that this measure enables patients to rate their experience of in-center dialysis treatment without fear of retri bution. Public reporting of resu lts from the ICH CAHPS survey, once enough data are available, will satisfy requ ests to provide consumers (patients and familyCMS-1614-P 174

members alike) with desired information on view points from patients. In addition, collecting and reporting ICH CAHPS survey results assist s facilities with their internal quality improvement efforts and external benchmarking w ith other facilities, a nd it provides CMS with information that can be used to monitor the experience of patie nts with ESRD. Starting with the PY 2014 program, we have taken steps to devel op the baseline data necessary to propose and implement NQF #0258 as a clinical measure in PY 2018. In the PY 2014 and PY 2015 programs, we adopted a reporti ng measure related to the ICH CAHPS survey, which required that facilities at test they had administered the survey according to the specifications set by the Agency for Healthcare Research and Quality (AHRQ). In the CY 2014 ESRD PPS final rule, we: 1) expanded the ICH CAHPS reporting measure to require facilities to submit (via CMS-approved vendors) their survey results to CMS; 2) increased the patient minimum for the measure from 11 to 30 survey-eligible patients; 3) required that facilities (via CMS-approved vendors) administer the survey according to speci fications set by CMS; and 4) required facilities (via CMS-approved vendors) to administer the survey twice during each performance period, and to report both sets of survey results by the date specified on http://ichcahps.org , starting in PY 2017 (78 FR 72193 through 72196). By CY 2016 (the proposed performance period for the PY 2018 ESRD QIP), we will have worked with dialysis facilities for four y ears to help them become familiar with the ICH CAHPS survey. By that time, we believe that faci lities will be sufficiently versed in the survey administration process to be reliably eval uated on the NQF-endorsed ICH CAHPS measure (NQF #0258). Because facilities (and CMS-a pproved vendors) will be familiar enough with the ICH CAHPS survey instrument to be reliably sc ored on the basis of their survey results, we believe it is reasonable to expa nd the ICH CAHPS reporting measure into a clinical measure forCMS-1614-P 175

the PY 2018 ESRD QIP. For these reasons, and because a clinical meas ure would have a greater impact on clinical practice by holding facilities accoun table for their actual performan ce, we propose to replace the ICH CAHPS reporting measure that we adopted in the CY 2014 ESRD PPS Final Rule with a new clinical measure for PY 2018 and future payment years. This proposed ICH CAHPS clinical measure is NQF #0258: CAHPS In-Center Hemodialysis Survey. We are not proposing to change the semiannual survey administrati on and reporting requirements. The proposed scoring methodology for the ICH CAHPS clinical measure is discussed below in section III.G.4.c. Technical specifications for the ICH CAHPS clinical measure can be found at: http://www.cms.gov/Medicare/Quality -Initiatives-Patient-AssessmentInstruments/ESRDQIP/061_Tec hnicalSpecifications.html

. We seek comments on this proposal. d. Proposed Screening for Clinical Depr ession and Follow-Up Reporting Measure Depression is the most common psychologi cal disorder in patients with ESRD. Depression causes suffering, a decr ease in quality of life, and impairment in social and occupational functions; it is also associated with increased health care costs. Current estimates put the depression prevalence rate as high as 20 percent to 25 percent in patients with ESRD. 8 Studies have also shown that depression and anxi ety are the most common comorbid illnesses in patients with ESRD. 9 Moreover, depressive affect and decreased perception of social support have been associated with higher rates of mo rtality in the ESRD population, and some studies

8 Kimmel PL, Cuckor D, Cohen SD, Peterson RA. Depression in end-stage renal disease patients: a critical review. Advances in Chronic Kidney Disease. 2007:14(4):328-34. 9 Feroze, U., Martin, D., Reina-Patton, A., Kalantar-Zadeh, K., & Kopple, J. D. (2010) . Mental health, depr ession, and anxiety in patients on maintenance dialysis. Iranian Journal of Kidney Diseases , 4(3), 173-80.CMS-1614-P 176

suggest that this association is as strong as that between medical risk factors and mortality. 10 Nevertheless, depression and anxiety remain under-recognized and under-t reated, despite the availability of reliabl e screening instruments. 11 Therefore, a measure that assesses whether facilities screen patients for de pression, and develop follow-up plan s when appropriate, offers an opportunity to improve the health of patients with ESRD. We are proposing to adopt a depression measure that is based on an NQF-endorsed measure (NQF #0418: Screening for Clinical De pression). NQF #0418 assesses the percentage of patients screened for clini cal depression using an age-appr opriate standardized tool and documentation of a follow-up plan where necessa ry. The Measures Application Partnership supported the use of NQF #0418 in the ESRD QIP in its January 2014 Pre-Rulemaking Report, because the measure “addresses a National Quality Strategy [NQS] aim not adequately addressed in the program measure set” and promotes pers on- and family-centered care. We are proposing to adopt a reporting measure based on this NQF-e ndorsed measure so that we can collect data that we can use in the future to calculate both achievement a nd improvement scores, should we propose to adopt the clinical version of this measure in future rulemaking. Although we recognize that we recently adopted the NHSN Bl oodstream Infection clinic al measure despite a lack of baseline data to calculate achievement and improvement scores, we believe that measure warranted special treatment in light of the fact that it addresses patien t safety. Because the proposed screening for clinical depression meas ure addresses quality of life and patient wellbeing, and not patient safety, we think it is appr opriate to adopt it as a reporting measure until

10 Cukor, D., Cohen, S. D., Peterson, R. A., & Kimmel, P. L. (2007). Psychosocial aspects of chronic disease: ESRD as a paradigmatic illness. Journal of the American Society of Nephrology , 18(12), 3042-3055; and Kimmel, P. L., Peterson, R. A., Weihs, K. L., Simmens, S. J., Alleyne, S., Cruz, I., & Veis, J. H. (2000). Multiple measurements of depression predict mortalit y in a longitudinal study of chr onic hemodialysis outpatients. Kidney International , 57(5), 2093-2098. 11 Preljevic, V. T., Østhus, T. B. H., Sa ndvik, L., Opjordsmoen, S., Nordhus, I. H., Os, I., & Dammen, T. (2012). Screening for anxiety and depression in dialysis patien ts: Comparison of the Hospital Anxiety and Depression Scale and the Beck Depression Inventory. Journal of Psychos omatic Research , 73(2), 139-144.CMS-1614-P 177

such time that we can collect the baseline data needed to score it as a clinical measure. Section 1881(h)(2)(B)(ii) of the Act states that “In the cas e of a specified area or medical topic determined appropriate by the Secretary for which a feasible and practical measure has not been endorsed by the entity with a contract under section 1890(a) [in this case NQF], the Secretary may specify a measure that is not so en dorsed as long as due cons ideration is given to measures that have been endorsed or adopted by a consensus organization identified by the Secretary.” Because we have given due consid eration to endorsed measures as well as those adopted by a consensus organization and determined it is not practical or feasible to adopt NQF #0418 as a clinical measure in the ESRD QIP at this time, we are proposing to adopt the Screening for Clinical Depression and Follow-Up Plan reporting measure under the authority of section 1881(h)(2)(B)(ii ) of the Act. For PY 2018 and future payment years, we propo se that facilities must report one of the following conditions in CROWNWe b, at least once per performa nce period, for each qualifying patient (defined below): 1. Screening for clinical depression is document ed as being positive, and a follow-up plan is documented 2. Screening for clinical depression documented as positive, and a follow-up plan not documented, and the facility possess documentati on stating the patient is not eligible 3. Screening for clinical depression documented as positive, the facility possesses no documentation of a follow-up plan, and no reason is given 4. Screening for clinical depression is document ed as negative, and a follow-up plan is not required 5. Screening for clinical depression not documented, but the facility possessesCMS-1614-P 178

documentation stating the patient is not eligible 6. Clinical depression screening not documented, and no reason is given For this proposed measure, qualifying patient s are defined as patients 12 years or older who have been treated at the facility for 90 days or longer. This proposed measure will collect the same data described in NQF #0418, but we ar e proposing to score facilities based on whether they successfully report the data, and not the measur e results. More specifically, facilities will be scored on whether they report one of the above conditions for each qualifying patient once before February 1 of the year directly following the performance period. Technical specifications for the Screening for Clinical De pression and Follow-Up reporting measure can be found at: http://www.cms.gov/Medicare/Quality-I nitiatives-Patient-AssessmentInstruments/ESRDQIP/061_Tec hnicalSpecifications.html

. We seek comments on these proposals. e. Proposed Pain Assessment and Follow-Up Reporting Measure Pain is one of the most common symptoms in patients with ESRD. 12 Studies have shown that pain is a significant problem for more than 50 percent of patients with ESRD, and up to 82 percent of those patients report m oderate to severe chronic pain. 13 Pain is commonly associated with quality of life in early- and late-stage chronic kidney disease pa tients, but it is not effectively managed in the ESRD patient popul ation and chronic pain often goes untreated. 14 Observational studies suggest that under-managed pain has the potential to induce or exacerbate

12 Cohen, S. D., Patel, S. S., Kh etpal, P., Peterson, R. A., & Kimmel, P. L. (2007). Pain, slee p disturbance, and quality of life in patients with chr onic kidney disease. Clinical Journal of the American Society of Nephrology , 2(5), 919-925. 13 Davison SN. Pain in hemodial ysis patients: prevalence, cau se, severity, a nd management. American Journal of Kidney Disease . 2003; 42:1239–1247 14 Davison, S. N. (2007). The prevalence and manageme nt of chronic pain in end-stage renal disease. Journal of Palliative Medicine , 10(6), 1277-1287.CMS-1614-P 179

comorbid conditions in ESRD, which may in turn adversely affect dialysis treatment. 15 Patients with ESRD frequently experien ce pain that has a debilitating impact on their daily lives, and research has shown a lack of effective pain manage ment strategies currently in place in dialysis facilities. 16 Therefore, a measure that assesses whethe r facilities regularly assess their patients’ pain, and develop follow-up plans as necessary, offers the possibil ity of improving the health and well-being of patients with ESRD. We are proposing to adopt a pain measur e that is based on an NQF-endorsed measure (NQF #0420: Pain Assessment and Follow-Up). NQF #0420 assesses the pe rcentage of patients with documentation of a pain assessment using a standardized tool, and documentation of a follow-up plan when pain is present. The Meas ures Application Partnership supported the use of NQF #0420 in the ESRD QIP in its January 2014 Pre-Rulemaking Report, because the measure “addresses a National Quality Strategy [NQS] ai m not adequately addressed in the program measure set” and promotes person- and family-c entered care. We are proposing to adopt a reporting measure based on this NQF-endorsed measure so that we can collect data that we can use in the future to calculate both achievement and improveme nt scores, should we propose to adopt the clinical version of this measure in future rulemaking. Although we recognize that we recently adopted the NHSN Bloodstream Infection clinical measure despite a lack of baseline data to calculate achievement and improvement scores, we believe that measure warranted special treatment in light of the fact that it addresses patient safety. Because the proposed screening for pain measure addresses quality of life and patient well- being, and not patient
15 De Castro C. (2013). Pain assessment and management in hemodialysis patients. CANNT Journal ; 23(3):29-32; Weisbord SD, Fried LF, Arnold RM, Fine MJ, Levenson DJ, et al. Prevalence, severity, and importance of physical and emotional symptoms in chronic hemodialysis patients. (2005) Journal of the American Society of Nephrology ; 16(8):2487-2494. 16 De Castro C. (2013). Pain assessment and management in hemodialysis patients. CANNT Journal ; 23(3):29-32; Wyne A, Rai R, Cuerden M, Clark WF, Suri RS. (2011). Opioid and benzodiazepine use in end-stage renal disease: a systematic review. Clinical Journal of the Amer ican Society of Nephrology . 6(2):326-333.CMS-1614-P 180

safety, we think it is appropriate to adopt it as a reporting measure until such time that we can collect the baseline data needed to score it as a clinical measure. Section 1881(h)(2)(B)(ii) of the Act states that “In the cas e of a specified area or medical topic determined appropriate by the Secretary for which a feasible and practical measure has not been endorsed by the entity with a contract under section 1890(a) of the Act [in this case NQF], the Secretary may specify a measure that is not so endorsed so long as due consideration is given to measures that have been endorsed or adopted by a consensus organization identified by the Secretary.” Because we have given due consid eration to endorsed measures, as well as those adopted by a consensus organization, and determined it is not practical or f easible to adopt those measures in the ESRD QIP, we are proposing to adopt the Pain Assessment and Follow-Up reporting measure under the authority of section1881(h)(2)(B)(i i) of the Act. For PY 2018 and future payment years, we propo se that facilities must report one of the following conditions in CROWNWe b, once every six months per performance period, for each qualifying patient (defined below): 1. Pain assessment using a standardized tool is documented as positive, and a follow-up plan is documented 2. Pain assessment documented as positive, a follow-up plan is not documented, and the facility possesses documentation that the patient is not eligible 3. Pain assessment documented as positive using a standardized tool, a follow-up plan is not documented, and no reason is given
4. Pain assessment using a standardized tool is documented as negative, and no follow-up plan required 5. No documentation of pain assessment, and the facility possesses documentation theCMS-1614-P 181

patient is not eligible for a pain as sessment using a standardized tool
6. No documentation of pain assessment, and no reason is given For this measure, a qualifying patient is defi ned as a patient aged 18 years or older who has been treated at the facility for 90 days or longer. This proposed measure will collect the same data described in NQF #0420, but we ar e proposing a few modifi cations to the NQFendorsed version. First, we are proposing that facilities must report da ta for each patient once every six months, whereas NQF #0420 requires facilities to report th e data based on each visit. We are proposing this modification because we agree with public comments reflected on the Measures Application Partnership’s January 201 4 Pre-Rulemaking Report, which stated that conducting a pain assessment every time a patient receives dialysis would be unduly burdensome for facilities. Second, we are proposing that c onditions covering the first six months of the performance period must be reported in CRO WNWeb before August 1 of the performance period, and that conditions coveri ng the second six months of th e performance period must be reported in CROWNWeb before Fe bruary 1 of the year direct ly following the performance period. We believe this reporti ng schedule will ensure regular monitoring and follow-up of patients’ pain without imposing an undue burden on facilities. Third, we are proposing to score facilities based on whether they successfully report the data, and not based on the measure results. Technical specifications for the Pain Assessment and Follow-Up reporting measure can be found at: http://www.cms.gov/Medicare/Quality -Initiatives-Patient-AssessmentInstruments/ESRDQIP/061_Tec hnicalSpecifications.html

. We seek comments on this proposal. f. Proposed NHSN Healthcare Personnel Influenza Vaccination Reporting Measure Infection is the second most common cause of death in patients with ESRD, followingCMS-1614-P 182

cardiovascular causes, 17 and influenza accounts for signifi cant morbidity and mortality in patients receiving hemodialysis. 18 Healthcare personnel (HCP ) can acquire influenza from patients and transmit influenza to patients and other HCP; decreasing tr ansmission of influenza from HCP to persons at high ri sk likely reduces influenza-rela ted deaths among persons at high risk for complications from influen za, including patients with ESRD. 19 Vaccination is an effective preventive measure against influenza that can prevent many illnesses, deaths, and losses in productivity. 20 In addition, HCP are considered high priorities for vaccine use. Achieving and sustaining high influenza vaccination coverage am ong HCP is intended to help protect HCP and their patients, and to reduce disease burden and hea lthcare costs. Results of studies in post-acute care settings similar to the ESRD facility set ting indicate that higher vaccination coverage among HCP is associated with lower all-cause mortality. 21 We therefore propos e to adopt an NHSN HCP Influenza Vaccination reporting measur e for PY 2018 and future payment years. We are proposing to use a measure that is based on an NQF-endorsed measure (NQF #0431: Influenza Vaccination Coverage Among Hea lthcare Personnel) of the percentage of qualifying HCP who a) received an influenza vaccinat ion; b) were determined to have a medical contraindication; c) declined in fluenza vaccination; or d) were of an unknown vaccination status. A “qualifying HCP” is defined as an employee, licensed independent practitioner, or adult

17 Soni R, Horowitz B, Unruh M. Immunization in end-stage renal disease: opportunity to improve outcomes. Semin, Dial. 2013 Jul-Aug;26(4):416-26. 18 Fiore AE, Shay DK, Haber P, et al. Prevention and control of influenza. Recommendations of the Advisory Committee on Immunization Practices (ACIP). MMWR Recomm Rep. 2007;56:1-54. 19 Pearson ML, Bridges CM, Harper SA. Influenza vaccina tion of health-care personnel: Recommendations of the Healthcare Infection Control Practices Advisory Committee (HICPAC) and the Advisory Committee on Immunization Practices (ACIP). MMWR. 2006:55:1-16. 20 Talbot TR, Bradley SE, Cosgrove SE, et al. Influenza vaccination of health care workers and vacci ne allocation for healthcare workers during vaccine shortages. Infect Control Hosp Epidemiol. 2005;26(11):882-90. 21 Carman WF, Elder AG, Wallace LA, et al. Effects of influe nza vaccination of health-car e workers on mortality of elderly people in long-term care: a randomized controlled trial. Lancet. 2000;355(9198):93-7; see also Potter J, Stott DJ, Roberts MA, et al. Influenza vaccina tion of health care worker s in long-term-care hospita ls reduces the mortality of elderly patients. J infect Dis. 1997;175(1):1-6.CMS-1614-P 183

student/trainee/volunteer who works in a facility for at le ast one day between October 1 and March 31. The Measures Application Partners hip supported the use of NQF #0431 in the ESRD QIP in its January 2014 Pre-Rulemaking Report b ecause the measure is NQF-endorsed for use in the dialysis facility care setting. We are pr oposing to adopt a reporti ng measure based on this NQF-endorsed measure so that we can collect data th at we can use in the fu ture to calculate both achievement and improvement scores, should we pr opose to adopt the clini cal version of this measure in future rulemaking. Although we recognize that we recently adopted the NHSN Bloodstream Infection clinical measure despite a l ack of baseline data to calculate achievement and improvement scores, we believe that measure wa rranted special treatment in light of the fact that it addresses patient safety. Because the proposed NHSN HCP Influenza Vaccination reporting measure addresses populati on health, and not patient safet y, we think it is appropriate to adopt it as a reporting measure until such time that we can collect the baseline data needed to score it as a clinical measure. Section 1881(h)(2)(B)(ii) of the Act states that “In the cas e of a specified area or medical topic determined appropriate by the Secretary for which a feasible and practical measure has not been endorsed by the entity with a contract under section 1890(a) [in this case, NQF], the Secretary may specify a measure that is not so en dorsed as long as due cons ideration is given to measures that have been endorsed or adopted by a consensus organization identified by the Secretary.” Because we have given due consid eration to endorsed measures as well as those adopted by a consensus organization, and determined it is not practical or f easible to adopt this measure in the ESRD QIP, we are proposing to adopt the NHSN Healthcare Personnel Influenza Vaccination reporting measure under the authority of section 1881(h)(2)( B)(ii) of the Act For PY 2018 and future payment years, we propose that facilities must submit, on anCMS-1614-P 184

annual basis, an HCP Influenza Vaccination Summary Form to CDC’s NHSN system, according to the specifications available in the NHSN Healthcare Personne l Safety Component Protocol ( http://www.cdc.gov/nhsn/PDFs/HPS-manual/vac cination/HPS-flu-v accine-protocol.pdf ). This proposed measure differs from NQF #0431 in that we are proposing to colle ct the same data but will score facilities on the basis of whether they su bmit this data, rather than on the percentage of HCP vaccinated. We propose that the deadline for reporting this information to NHSN be May 15th of each year. This date is consistent with the reporting deadline established by CMS for other provider types reporting HCP vaccination data to NHSN. Because the flu season typically spans from October to April, NHSN pr otocols submitted by May 15 would document vaccinations received during the preceding fl u season. For example, NHSN HCP Influenza Vaccination Summary Forms submitted by May 15, 2016, would contain data from October 1, 2015 to March 31, 2016, and would be used fo r the PY 2018 ESRD QIP; NHSN protocols submitted by May 15, 2017, would contain data from October 1, 2016 to March 31, 2017, and would be used for the PY 2019 ESRD QIP, and so on. Technical specifications for this measure can be found at: http://www.cms.gov/Medicare/Qualit y-Initiatives-Patient-AssessmentInstruments/ESRDQIP/061_Tec hnicalSpecifications.html

. We request comments on this proposal. Figure 2: Summary of Proposed PY 2018 MeasuresCMS-161

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Measures in the PY 2018 ESRD QIP For the same reasons stated in the CY 2013 ESRD PPS final rule (77 FR 67500 through 76502), we are proposing for PY 2018 to set the performance standa rds, achievement thresholds, and benchmarks based on the 50th, 15th, and 90th percentile, respec tively, of national performance in CY 2014 for all the clinical measures except for the proposed ICH CAHPS clinical measure. As finalized in the CY 2014 ESRD PPS Final Rule (78 FR 72213), facilities are not required to administer the ICH CAHPS survey (via a CM S-approved third-party vendor) on a semiannual basis until CY 2015, the proposed performance period for the PY 2017 ESRD QIP. We believe that ICH CAHPS data colle cted during CY 2014 will not be reliable enough to use for the purposes of establishing performa nce standards, achievement thresholds, and benchmarks, because facilities are only required to administer the survey once in CY 2014. Therefore, we propose to set the performan ce standards, achievement thresholds, and benchmarks based on the 50th, 15th, and 90th per centile, respectively, of national performance in CY 2015 for the proposed ICH CAHPS clinical measure. We seek comments on these proposals. b. Estimated Performance Standards, Achievement Thresholds, and Benchmarks for the Clinical Measures Proposed for the PY 2018 ESRD QIP At this time, we do not have the necessary data to assign numer ical values to the proposed performance standards for the clinical m easures, because we do not yet have data from CY 2014 or the first portion of CY 2015. We will publish values for the c linical measures, using data from CY 2014 and the first portion of CY 2015, in the CY 2016 ESRD PPS Final Rule. c. Proposed Performance Standards for the PY 2018 Reporting Measures In the CY 2014 ESRD PPS Final Rule, we finalized performance standards for theCMS-1614-P 187

Anemia Management and Mineral Metabolism re porting measures (78 FR 72213). We are not proposing any changes to this policy beyond the pr oposal to modify the reporting requirements for the Mineral Metabolism reporting measure, which appears above in Section III.G.1. For the Screening for Clinical Depression and Follow-Up reporting measure, we propose to set the performance standard as successfully re porting one of the a bove-listed clinical depression and follow-up screening conditions for each qualifying patient in CROWNWeb before the February 1 st directly following the performance period. For the Pain Assessment and Follow-Up reporting measure, we propose to set the performance standard as successfully reporting one of the above-listed pain assessment and follow-up conditions for each qualifying patien t in CROWNWeb twice annually: once before August 1 st for the first 6 months of the performa nce period, and once before the February 1 st directly following the performance period for th e last six months of the performance period. For the NHSN Healthcare Provider Influenza Vaccination reporting measure, we propose to set the performance standard as successf ully submitting the HCP Influenza Vaccination Summary Form to CDC’s NHSN system by May 15, 2017. We seek comments on these proposals. 4. Proposal for Scoring the PY 2018 ESRD QIP Measures a. Scoring Facility Performance on Clin ical Measures Based on Achievement In the CY 2014 ESRD PPS Final Rule, we fi nalized a policy for scoring performance on clinical measures based on achievement (78 FR 72215). In determining a facility’s achievement score for each measure under the PY 2018 ESRD QIP, we propose to continue using this methodology for all clinical measures except the ICH CAHPS clinical measure. Under this methodology, facilities receive points along an ac hievement range based on their performanceCMS-1614-P 188

during the proposed performance period for each m easure, which we define as a scale between the achievement threshold and the benchmark. b. Scoring Facility Performance on Clin ical Measures Based on Improvement In the CY 2014 ESRD PPS Final Rule, we fi nalized a policy for scoring performance on clinical measures based on improvement ( 78 FR 72215 through 72216). In determining a facility’s improvement score for each measur e under the PY 2018 ESRD QIP, we propose to continue using this methodology for all clinic al measures except the ICH CAHPS clinical measure. Under this methodology, facilities r eceive points along an improvement range, defined as a scale running between the improvement thres hold and the benchmark. We propose to define the improvement threshold as the facility’s performance on the measure during CY 2015. The facility’s improvement score w ould be calculated by comparing its performance on the measure during CY 2016 (the proposed performance peri od) to its performance rate on the measure during CY 2015. c. Proposal for Scoring the ICH CAHPS Clinical Measure For PY 2018 and future payment years, we propose the followi ng scoring methodology for the ICH CAHPS clinical measure. We propos e to score the measure on the basis of three composite measures and three global ratings. Composite Measures:

• Nephrologists’ Commun ication and Caring;

• Quality of Dialysis Center Care and Operations; and

• Providing Information to Patients. Global Ratings:

• Overall rating of the ne phrologists (Question 8)CMS-1614-P 189

• Overall rating of the dialys is center staff (Question 32)

• Overall rating of the dialysis facility (Question 35) The composite measures are groupings of ques tions that measure the same dimension of healthcare. (Groupings of questions a nd composite measures can be found at https://ichcahps.org/Portal s/0/ICH_Composites_English.pdf .) Global ratings questions employ a scale of 0 to 10, worst to best; each of the questions within a co mposite measure use either “Yes” or “No” responses, or response categories ranging from “Never” to “Always,” to assess the patient’s experience of care at a facility. Faci lity performance on each composite measure will be determined by the percent of patients who ch oose “top-box” responses (i.e., most positive or “Always”) to the ICH CAHPS survey questions in each domain. Examples of questions and topbox responses are displayed below: Q11: In the last 3 months, how often did the dialysis center staff explain things in a way that was easy for you to understand? Top-box response: “Always” Q19: The dialysis center staff can connect you to the di alysis machine through a graf t, fistula, or catheter. Do you know how to take care of your graft, fistula or catheter? Top-box response: “Yes” We propose that a facility will receive an achievement score and an improvement score for each of the composite measures and global ra tings in the ICH CAHPS survey instrument. For purposes of calculating achievement scores for the ICH CAHPS clinical measure, we propose to base the score on where a facility’s pe rformance rate falls relative to the achievement threshold and the benchmark for that measure. We propose that facilities will earn between 0 to 10 points for achievement based on where its perfor mance for the measure falls relative to the achievement threshold. If a facility’s performa nce rate during the performance period is:CMS-1614-P 190

• Equal to or greater than the benchmark, then the facility would receive 10 points for achievement;

• Less than the achievement threshold, then the facility would receive 0 points for achievement; or

• Equal to or greater than the achievement threshold, but below the benchmark, then the following formula would be used to derive the achievement score: [9 * ((Facility’s performance period rate – achievement threshold) / (benchmark – achievement threshold))] + .5, with all scor es rounded to the n earest integer, with half rounded up. For the purposes of calculating improveme nt scores for the ICH CAHPS clinical measure, we propose that the improvement threshol d will be defined as f acility performance in CY 2015, and further propose to base the score on where a facility’s performance rate falls relative to the improveme nt threshold and the benchmark for that measure. We propose that a facility can earn betw een 0 to 9 points based on how much its performance on the measure during the performance period improves from its performance on the measure during the baseline period. If a facility’s performance rate during the performance period is:

• Less than the improvement threshold, then the facility would receive 0 points for improvement; or

• Equal to or greater than the improvement threshold, but below the benchmark, then the following formula would be used to derive the improvement score: [10 * ((Facility performance period rate – Improvement threshold) / (Benchmark – Improvement threshold))] – .5, with all scores rounded to the nearest integer, with half rounded up.CMS-1614-P 191

We further propose that a facility’s ICH CA HPS score will be based on the higher of the facility’s achievement or improvement score for each of the composite measures and global ratings. Additionally, we propose that achieveme nt and/or improvement scores on the three composite measures and the three global ratings w ill be averaged together to yield an overall score on the ICH CAHPS clinical measure. The timing and frequency of administeri ng the ICH CAHPS survey is critical to obtaining reliable results. For example, if a facility did not conduct two semiannual surveys during a given performance period, then patien t experiences during th e 6-month period(s) covered by the missed survey(s) would not be cap tured. Additionally, if facilities (via CMSapproved vendors) do not report their ICH CAHPS su rvey results to CMS, then these results cannot be taken into account when establishing national performance standards for the measure, thereby diminishing the measure’ s reliability. Because timely survey administration and data reporting is critical to reliably scoring ICH CAHPS as a clinical measure in the ESRD QIP, we propose that a facility will receive a score of 0 on the measure if it does not meet the survey administration and reporting requirements finali zed in the CY 2014 ESRD PPS Final Rule (78 FR 72193 through 72196). We seek comments on these proposals to sc ore the ICH CAHPS clinical measure. d. Proposals for Calculating Facility Performance on Reporting Measures In the CY 2014 ESRD PPS Final Rule, we fi nalized policies for scoring performance on the Anemia Management and Mineral Metabolism reporting measures in the ESRD QIP (78 FR 72216). We are not proposing any changes to these policies beyond the proposals that were made beginning with the PY 2017 program, wh ich appear in sect ion III.F.7 above. With respect to the Screening for Clini cal Depression and Follow-up, Pain AssessmentCMS-1614-P 192

and Follow-Up, and NHSN Healthcare Provider Influenza Vaccination reporting measures, we propose that facilities will receive a score of 10 on the measures if they meet the proposed performance standards for the measures, and a scor e of 0 on the measure if they do not. We are proposing to score these reporting measures di fferently than the Anemia Management and Mineral Metabolism reporting measures because they require annual or semiannual reporting, and therefore scoring based on monthl y reporting rates is not feasible. We seek comments on these proposals. 5. Proposed Minimum Data for Scoring Measures for the PY 2018 ESRD QIP With the following exceptions discussed belo w, we are not proposing to change the minimum data policies for the PY 2018 ESRD QI P from that proposed above for the PY 2017 ESRD QIP. We are also proposing that the 30 survey-eligible patient minimum during the eligibility period and 30 survey complete mi nimum during the performance period that we proposed to adopt for the ICH CAHPS reporting measure will al so apply to the ICH CAHPS clinical measure. We have determined that the ICH CAHPS survey is satisfactorily reliable when a facility obtains a total of at least 30 completed survey s during the performance period. Therefore, even if a facility meets the 30 survey-eligible patient minimum during the eligibility period and the survey administrati on and reporting requirements, if the facility is only able to obtain 29 or fewer survey completes during the performance period, the facility will not be eligible to receive a score on th e ICH CAHPS clinical measure. We further propose the facilities with fewer than 10 patient-years at risk will not be eligible to receive a score on th e proposed STrR clinical measure. We considered adopting the 11-patient minimum requirement that we use for the other clinical measures. We decided, however, to base facilities’ eligib ility for the measure in terms of the number of patient-years atCMS-1614-P 193

risk, because facility performance rates are base d on the number of patient -years at risk, not the number of patients. Additionally, we decided to set the minimum data requirements at 10 patient-years at risk because, based on national average event rate s, this is the time required to achieve an average of 5 transfusion events. The 5 expected transfusion events requirement translates to a standard devi ation of approximately 0.45 if th e facility has rates exactly corresponding to the national averag e. In addition, 10 patient-years at risk is the threshold used in the Dialysis Facility Compare program, and we believe that public-reporting and VBP programs for ESRD should adopt consistent measure specifications where feasible. For the proposed STrR measure, we propose to apply the small-facility adjuster to facilities with 21 or fewer patien t-years at risk. We decided to base the threshold for applying the small-facility adjuster on the number of pa tient-years at risk, because facility performance rates are based on the number of patient-years at risk, not the number of patients. We are proposing to set the threshold at 21 patient-years at risk, because we determined that this was the minimum number of patient-years at risk needed to achieve an IUR of 0.4 (that is, moderate reliability) for the proposed STrR measure. Beca use the small-facility adjuster gives facilities the benefit of the doubt when meas ure scores can be unduly influen ced by a few outlier patients, we believe that setting the threshold at 21 qua lifying patient-years at risk will not unduly penalize facilities that treat sm all numbers of patients on the pr oposed STrR clinical measure. With these exceptions, we are not proposing to change the policy, finalized most recently in the CY 2014 ESRD PPS Final Rule (78 FR 72220 through 72221), that facilities must have at least 11 qualifying patients for th e entire performance period in or der to be scored on a clinical

measure. We currently have a policy, most recently fi nalized in the CY 2014 ESRD PPS final ruleCMS-1614-P 194

(78 FR 72197 through 72198 and 72220 through 72221) , to score facilities on reporting measures only if they have a minimum number of qualifying patients during the performance period. As discussed in Section III.F.7 above, we are proposing to modify the case minimum requirements for the Anemia Management and Mineral Metabolism reporting measures beginning with the PY 2017 ESRD QIP. We are not proposing a ny additional changes in the patient minimum requirements for the Anemia Management and Mineral Metabolism reporting measures in the PY 2018 program. For the Screening for Clinical Depression and Follow-Up and the Pain Assessment and Follow-Up reporting measures, we propose a case minimum of one qualifying patient. We believe this patient minimum requirement will enable us to gather a sufficient amount of data to calculate future performance standards, benchm arks, and achievement thresholds, should we propose to adopt clinical versions of these measures in the future. As discussed in Section III.G.2.f, we are not pr oposing that a facility will have to meet a patient minimum in order to receive a scor e on the NHSN Healthcare Provider Influenza Vaccination reporting measure. We believe it is standard practice for all HCP to receive influenza vaccinations and, as discussed above, HCP vaccination is likely to reduce influenzarelated deaths and complications among the ES RD population. Accordingly, we are proposing that all facilities, regardle ss of patient population size, wi ll be scored on the influenza vaccination measure. Under our current policy, we begin counting th e number of months for which a facility is open on the first day of the month after the facility ’s CCN open date. Only facilities with a CCN open date before July 1, 2016, are eligible to be scored on the Anemia Management and Mineral Metabolism reporting measures in the PY 2018 program. We are proposing to apply thisCMS-1614-P 195

finalized policy to the proposed Screening for Depression and Follow-Up and the Pain Assessment and Follow-Up reportin g measures. We further propos e that facilities with a CCN open date after January 1, 2016, will not be eligib le to receive a score on the NHSN Healthcare Personnel Influenza Vaccination reporting measur e in the PY 2018 program. Due to the time it takes for facilities to register with NHSN and become familiar with the NHSN Healthcare Personnel Safety Component Protocol , we do not believe it is reasona ble to expect facilities with CCN open dates after January 1, 2016, to submit an HCP Influenza Vaccination Summary Form to CDC’s NHSN system before the May 15, 2016, deadline. As finalized in the CY 2014 ESRD PPS Final Rule (78 FR 72220), facilities are generally eligible to receive a score on the clinical measures if their CCN open date occurs before the end of the performance period. However, facilities with a CCN open date after January 1 of the performance period are not eligible to rece ive a score on the NHSN Bloodstream Infection clinical measure, due to the need to collect 12 mo nths of data to accurately score the measure. We are now proposing that faciliti es with a CCN open date after January 1, 2016, will also not be eligible to receive a score on the ICH CAHPS clinical measure in the PY 2018 program. Due to the additional time needed to arrange to contra ct with CMS-approved third-party vendors, and for vendors to administer the survey twice and report the results to CMS, we do not believe facilities with CCN open dates after January 1, 2016, can reasonably be expected to meet the requirements associated with the proposed ICH CAHPS clinical measure for that performance period. As discussed in the Section III.G.7 below, we are continuing our policy that a facility will not receive a TPS unless it receives a score on at least one clinical measure and at least one reporting measure. We note that finalizing the above proposals would result in facilities notCMS-1614-P 196

being eligible for a payment re duction for the PY 2018 ESRD QIP if they have a CCN open date on or after July 1, 2016. We seek comments on these proposals. Table 29 displays the proposed patient minimum requirements for each of the measures, as well as the proposed CCN open dates after which a facility will not be eligible to receive a score on a reporting measure.CMS-1614-P 197

TABLE 29: Proposed Minimum Data Requirements for the PY 2018 ESRD QIP

Measure Minimum Data Requirements CCN Open Date Small Facility Adjuster Adult Hemodialysis Adequacy (Clinical) 11 qualifying patients N/A 11 – 25 patients Adult Peritoneal Dialysis Adequacy (Clinical) 11 qualifying patients N/A 11 – 25 patients Pediatric Hemodialysis Adequacy (Clinical) 11 qualifying patients N/A 11 – 25 patients Pediatric Peritoneal Dialysis Adequacy (Clinical) 11 qualifying patients N/A 11 – 25 patients Vascular Access Type: Catheter (Clinical) 11 qualifying patients N/A 11 – 25 patients Vascular Access Type: Fistula (Clinical) 11 qualifying patients N/A 11 – 25 patients Hypercalcemia (Clinical) 11 qualifying patients N/A 11 – 25 patients NHSN Bloodstream Infection (Clinical) 11 qualifying patients Before January 1, 2016 11 – 25 patients SRR (Clinical) 11 index discharges N/A 11 – 41 index discharges STrR (Clinical) 10 patient-years at risk N/A 10 – 21 patient-years at risk ICH CAHPS (Clinical) Facilities with 30 or more survey-eligible patients during the calendar year preceding the performance period must submit survey results. Facilities will not receive a score if they do not obtain a total of at least 30 completed surveys during the performance period. Before January 1, 2016 N/A

Anemia Management (Reporting) Facilities with 11 or more qualifying patients must report data for all patients. Facilities with between 2 and 11 qualifying patients must report data on all but 1 Before July 1, 2016 N/ACMS-1614-P 198

Measure Minimum Data Requirements CCN Open Date Small Facility Adjuster qualifying patient. Facilities with 1 qualifying patient must report for that patient.

Mineral Metabolism (Reporting) Facilities with 11 or more qualifying patients must report data for all patients. Facilities with between 2 and 11 qualifying patients must report data on all but 1 qualifying patient. Facilities with 1 qualifying patient must report for that patient. Before July 1, 2016 N/A

Depression Screening and Follow-Up (Reporting) One qualifying patient. Before July 1, 2016 N/A

Pain Assessment and FollowUp (Reporting) One qualifying patient. Before July 1, 2016 N/A

NHSN HCP Influenza Vaccination (Reporting) N/A Before January 1, 2016 N/A

6. Proposal for Calculating the C linical Measure Domain Score As the ESRD QIP evolves and we continue to adopt new clinical measures that track the goals of the NQS, we do not be lieve that the current scori ng methodology provides the program with enough flexibility to strengthen incentive s for quality improvement in areas where quality gaps continue to exist. Therefore, under the au thority of Section 1881(h)(3 )(A)(i) of the Act, we are proposing to revise the scoring methodology beginning with the PY 2018 ESRD QIP so that we assign measure scores on the basis of tw o domains: a Clinical Measure Domain and a Reporting Measure Domain. First, we propose to esta blish a Clinical Measure Doma in, which we define as an aggregated metric of facility performance on th e clinical measures and measure topics in theCMS-1614-P 199

ESRD QIP. Under this proposed approach, we would score individual clinical measures and measure topics using the methodolog y we finalize for that measure or measure topic. Clinical measures and measure topics would then be gr ouped into subdomains within the Clinical Measure Domain, according to quality categories. Within these subdomains, measure scores would be multiplied by a weighting coefficient, weighted measure scores would be summed together to determine subdomain scores, and th en subdomain scores would be summed together to determine a facility’s Clin ical Measure Domain score. This scoring methodology provides more flexibility to focus on quality improvement efforts, because it makes it possible to group measures according to quality categories and to weight each category acc ording to opportunities for quality improvement. We further propose to divide the clinical m easure domain into three subdomains for the purposes of calculating the Clin ical Measure Domain score:

• Safety

• Patient and Family Engagement/Care Coordination

• Clinical Care
We took several considerations into account when selecting these particular subdomains. First, safety, patient engagement, care coordinatio n, and clinical care are all NQS goals for which the ESRD QIP has proposed and/or finalized me asures. We are attempting to align all CMS quality improvement efforts with the NQS becau se its patient-centered approach prioritizes measures across our quality reporting and pay-for-performance programs to ensure that the measurement approaches in these programs, as a whole, can make meaningful improvements in the quality of care furnished in a variety of settings . We also believe that adopting an NQSbased subdomain structure for the clinical m easures in the ESRD QIP is responsive toCMS-1614-P 200

stakeholder requests that we align our meas urement approaches across HHS programs. Second, we are proposing to combine the NQS goals of Care Coordi nation and Patientand Caregiver-Centered Experience of Care in to one subdomain because we believe the two goals complement each other. “Care Coordina tion” refers to the NQS goal of promoting effective communication and c oordination of care. “Patie nt- and Caregiver- Centered Experience of Care” refers to the NQS goal of ensuring that each patient and family is engaged as a partner in care. In order to engage patients and families as partners, we believe that effective communication and coordination of care must coexis t, and that patient and family engagement cannot occur independently of effective commun ication and care coordination. We therefore believe that it is appropriate to combine measures of care coordination with those of patient and family engagement for the purposes of calculatin g a facility’s clinical measure domain score. For PY 2018 and future payment years, we pr opose to include the following measures in the following subdomains of the proposed clinical measure domain (see Table 30): TABLE 30: Proposed Subdomains in the Clinical Measure Domain Subdomain Measures and Measure Topics Safety Subdomain NHSN Bloodstream Infection measure Patient and Family Engagement/Care Coordination Subdomain ICH CAHPS measure SRR measure Clinical Care Subdomain STrR measure Dialysis Adequacy measure topic Vascular Access Type measure topic Hypercalcemia measure

We seek comments on these proposals to adopt a Clinical Measure Domain that includesCMS-1614-P 201

three subdomains (safety, patient and family enga gement/care coordination, and clinical care) for the purpose of calculating a facility’s clinical measure domain score for PY 2018. In deciding how to weight the proposed subdom ains that comprise the clinical measure domain score, we took the following considerati ons into account: (1) the number of measures and measure topics in a proposed subdomain; (2) how much experience faci lities have had with the measures and measure topics in a proposed subdomain; and (3) how well the measures align with CMS’s highest priorities for quality improvement for patients with ESRD. Because the proposed Clinical Care subdomain contains the largest number of measures, and facilities have the most experience with the measures in th is subdomain, we are proposing to weight the Clinical Care subdomain significantly higher than the other subdomains. Facilities have more experience with the NHSN Bloodstream Infection measure in the proposed Safety subdomain than they do with the SRR measure in the proposed Patient and Family Engagement/Care Coordination subdomain, but we are proposing to include a larger number of measures in the Patient and Family Engagement/Care Coordina tion subdomain. We are proposing to give the Patient and Family Engagement/Care Coordinati on subdomain slightly more weight than the Safety subdomain, because it includes two meas ures, whereas only one measure appears in the proposed Safety subdomain. In future rulemaking, we will consider revising these weights based on facility experience with the measures contained with in these proposed subdomains. For these reasons, we propose the following weights for the three subdomains in the clinical measure domain score for PY 2018: Subdomain Weight in the clinical measure domain score Safety 20% Patient and Family Engagement/Care Coordination 30% Clinical Care 50%CMS-1614-P 202

We seek comments on this proposal. In deciding how to weight measures and measure topics within a proposed subdomain, we took into account the same considerations we considered when deciding how to weight the proposed subdomains. Because the NHSN Bloodstr eam Infection clinical measure is the only measure in the proposed Safety subdomain, we are proposing to assign the entire subdomain weight to that measure. We additionally note that improving patient safety and reducing bloodstream infections in patients with ESRD is one of our highest priorities for quality improvement, so we believe it is appropriate to weight the NHSN Bloodstream Infection clinical measure at 20 percent of a facility’s Clinical Measure Domain Score. Because facilities have substantially more experience with the ICH CAHPS clinical measur e, as compared with the SRR clinical measure, we are proposing to give th e proposed ICH CAHPS measure twice as much weight as the proposed SRR measure. Additiona lly, we note that improving patients’ experience of care is as high a priority for CMS quality im provement efforts as improving patient safety, so we believe it is appropriate to assign the ICH CAHPS clinical measure the same weight as the NHSN Bloodstream Infection clinical measure. We are proposing to give the Dialysis Adequacy and Vascular Access Type measure topics the mo st weight in the Clin ical Care subdomain because facilities have substantially more experi ence with these measure topics, as compared to the other measures in the Clinical Care subdomai n. We are proposing to assign equal weights to the STrR and Hypercalcemia measures because PY 2018 would be the first program year in which facilities are measured on the STrR measur e, and because the clinical significance of the Hypercalcemia measure is diminished in the absence of other information about mineral metabolism (for example, a patient’s phosphorus a nd plasma parathyroid hormone levels), which would provide a more comprehensive assessmen t of mineral metabolism (78 FR 72217). ForCMS-1614-P 203

these reasons, we propose to use the following weighting system for calculating a facility’s Clinical Measure domain score: Measures/Measure Topics by Subdomain Measure Weight in the Clinical Measure Domain Score Safety Subdomain 20% NHSN Bloodstream Infection measure 20% Patient and Family Engagement/Care Coordination Subdomain 30%
ICH CAHPS measure 20% SRR measure 10% Clinical Care Subdomain 50% STrR measure 7% Dialysis Adequacy measure topic 18% Vascular Access Type measure topic 18% Hypercalcemia measure 7% We seek comments on this proposal for weightin g individual measures within the Clinical Measure Domain. 7. Proposal for Calculating the Reporting M easure Domain Score, the Reporting Measure Adjuster, and the TPS for the PY 2018 ESRD QIP Starting with the PY 2014 program, the ES RD QIP has used a scoring methodology in which the clinical measures receive substantially more weight than the reporting measures in the TPS, and the weighting coefficients for the two t ypes of measures total 1 00 percent of the TPS. We continue to believe it is appropriate to incorporate reporting measure scores in the TPS calculations because “reporting is an important component in quality improvement” (76 FR 70274); we also continue to believ e that clinical measures should carry substantially more weight than reporting measures because clinical measur es “score providers/facilities based upon actual outcomes” (76 FR 70275). These statements reflect the fact that clinical and reporting measures serve different functions in the ESRD QIP. Clin ical measures provide a direct assessment of the quality of care a facility provides, relative to either the facility’s past performance or standards ofCMS-1614-P 204

care nationwide. Reporting measures create an incentive for facilities to monitor significant indicators of health and illness, and they help facilities become familiar with CMS data systems. In addition, they allow the ESRD QIP to collect the robust clinical data needed to establish performance standards for clinical measures. As we continue to add reporting measures to the ESRD QIP measure set, it becomes increasingly challenging to not we ight them so heavily that they dilute the significance of the clinical measures, while still ensuring that we do not weight the reporti ng measures so lightly that facilities are not incentivized to meet the reporting measure requirements. Although we considered the possibility of abandoning the use of reporting measures, we determined that this is not feasible because doing so would make it impossible to calculate performance standards for many clinical measures that promise to promote high-quality care. We also considered the possibility of weighti ng the reporting measures such that each reporting measure comprised a smaller percentage of the T PS. We believe, however, that doing so would result in the reporting measures not carrying enough weight to provide facilities with an incentive to meet the reporting requirements, part icularly if additional reporting measures were added to the program. For example, if 5 reporting measures were adopted in the ESRD QIP, and the reporting measures collectively were weighted at 5 percent of a facili ty’s TPS (in order to preserve the significance of the clinical meas ures), then each reporting measure would only comprise 1 percent of a facility’s TPS. Under such conditions, we believe that facilities may choose not to meet the reporting measure require ments, because not doing so would have a negligible impact on their overall TPS. If enough facilities reached this determination, then we would not be able to establish reliable baselines, should we pr opose to adopt clinical measure versions of the reporting measures. For thes e reasons, we are proposi ng the following scoringCMS-161

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determined by its Clinical Measure Domain score if it receives full credit on the reporting measures; the TPS would be sligh tly decreased if the facility re ceived high (but not perfect) scores on the reporting measures; and the TPS would be significan tly decreased if it performed poorly on the reporting measures. For these reas ons, we propose to calculate a facility’s TPS by subtracting the facility’s RMA from its Clini cal Measure Domain scor e. Additionally, we propose to continue our policy to require a facility to be eligib le for a score on at least one reporting and one clinical measure in order to receive a TPS (78 FR 72217). In an effort to estimate the impact of this proposed change for the ESRD QIP’s scoring methodology, we conducted an analysis of how the proposed scoring methodology affected payment reduction distributions, based on data from CY 2012 and CY 2013. This analysis compared the scoring methodology proposed in this section and the previous section to the scoring methodology finalized for the PY 2016 program . In order to ensure that the analysis reliably estimated the impact on facilities ’ payment reductions, the proposed scoring methodology and the methodology finalized for the PY 2016 program were each applied to the PY 2016 measure set. The full analysis is available at: http://www.cms.gov/Medicare/QualityInitiatives-Patient-Assessment-Instrument s/ESRDQIP/061_TechnicalSpecifications.html . The results of this analysis are presented below in Table 31.CMS-1614-P 208

TABLE 31: Expected Impact of Proposed Scoring Methodology on the Distribution of Payment Reductions, Using Measures and Measure Weights Finalized for the PY 2016 ESRD QIP and Data from CY 2012 and CY 2013 Payment Reduction Finalized Scoring Methodology for PY 2016, Applied to Measures and Measure Weights Finalized in the PY 2016 Program Proposed Scoring Methodology for PY 2018, Applied to Measures and Measure

Weights Finalized in the PY 2016 Program Number of

Facilities Percent Number of Facilities Percent 0% 4,828 79.4 4,606 75.7 0.5% 884 14.5 739 12.2 1.0% 242 4.0 306 5.0 1.5% 69 1.1 108 1.8 2.0% 59 1.0 323 5.3

As illustrated in Table 31, we expect that 4.3 pe rcent more facilities (222 overall) would receive a payment reduction under the proposed methodology for PY 2018, as compared with the scoring methodology that we will use for the PY 2016 program. We therefore believe that adopting the scoring methodology proposed in this section and the previous section will not appreciably change the distribution of facility payment reductions, as is our intention. We seek comments on these proposals for ca lculating a facility ’s reporting measure domain score, to calculate the RMA, and to determine the TPS. Although we believe advantages are a fforded by adopting the scoring methodology proposed in this section and the pr evious section, we al so recognize that there may be advantages associated with maintaining consistency with previous years' scoring methodology. Accordingly, as an alternativ e to the scoring methodology propos ed in this section and the previous section, we are also seeking public comme nts on whether we should continue to use the same methodology we currently use to weight measures in the ESRD QIP and calculate aCMS-1614-P 209

facility’s TPS, with the exception that the clinic al and reporting measures would be weighted at 90 percent and 10 percent, respectively, of a facility’s TPS. 8. Example of the Proposed PY 2018 ESRD QIP Scoring Methodology In this section, we provide an example to illustrate the proposed scoring methodology for PY 2018 and future payment years. Figures 3 – 7 illustrate how to calculate the clinical measure domain score, the reporting measure domain score, the RMA, and the TPS. Note that for this example, Facility A, a hypothetical facility, has performed very well. Figure 1 illustrates the general methodology used to calculate domain scores for the clinical measure domain, as well as the example calculations for Facility A.CMS-161

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PY 2016 program. We seek comments on this proposal. Section 1881(h)(3)(A)(ii ) of the Act requires that facili ties achieving the lowest TPSs receive the largest payment re ductions. In the CY 2014 ESRD PPS Final Rule (78 FR 72223 through 72224), we finalized a payment reduction scale for PY 2016 and future payment years: For every 10 points a facility falls below the minimum TPS, the facility would receive an additional 0.5 percent reduction on its ESRD PPS payments for PY 2016 and future payment years, with a maximum reduction of 2.0 percent. We are not proposing any changes to this policy at this point. Because we are not yet able to calculate the performance standards for each of the clinical measures, we are also not able to calculate a proposed minimum TPS at this time. We will publish the minimum TPS, based on data from CY 2014 and the first part of CY 2015, in the CY 2016 ESRD PPS Final Rule. We seek comments on this proposal. H. Future Considerations for Stratifying ESRD QIP Measures for Dual-Eligible Beneficiaries CMS recognizes that individuals with both Medicare and Me dicaid (also known as “dualeligible beneficiaries”), comprise a relatively large proportion of Medicare enrollees with ESRD. Because ESRD programs have a long history of performance measurement linked with public reporting, and because there are a large number of dual-eligible beneficiaries receiving ESRD care, we are considering stratif ying ESRD QIP measures for Me dicare-Medicaid enrollees. Measure reporting under the ESRD QIP does not currently allow us to separately review results for dual-eligible beneficiaries or compar e those results with re sults achieved by other patients with ESRD, so it is not currently known if thei r experiences are bette r, worse, or theCMS-1614-P 215

same as other patients. Even the basic demogr aphics of dual-eligible beneficiaries receiving ESRD care are not well understood. After discussion of the pros and cons that included input from the ESRD provider community, the Measur es Application Partnership’s dual-eligible workgroup recommended that CMS take the first st ep in exploring the f easibility of requiring facilities to separately report ESRD QIP measures for Medicare-Medicaid enrollees by analyzing the composition of the dual-eligible bene ficiary population receiving ESRD care and determining potential ways in wh ich stratified reporting may furthe r quality improvement efforts. Furthermore, the Measures Application Partne rship recommended, in the context of measure development, that CMS explore whether other ri sk factors unique to th e dual-eligible population receiving ESRD care would pres ent significant hurdles to meas ure stratification along these lines. We are therefore seeking comments on whethe r it would be feasible to stratify ESRD QIP measures based on whether the beneficiary is a du al eligible. We are interested in whether stakeholders recommend stratifica tion and, if so, for what specific measures stakeholders would find stratification most compelling. We are particularly interested in public comments on whether Medicare-Medicaid stratified quality measures under the ESRD QIP should be report ed publicly, and how we should factor those measures into our scoring methodology. We seek comments on the meaningfulness of stratifying measures, and the feasibility a nd burden associated with reporting stratified

measures. IV. Technical Corrections for 42 Part 405 In the April 15, 2008, final rule “Conditions for Coverage for End-Stage Renal Disease Facilities,” (73 FR 20370) we re vised the health and safety sta ndards for Medicare-participating End-Stage Renal Disease (ESRD) facilities. This rule made the first comprehensive revisions toCMS-1614-P 216

the ESRD Conditions for Coverage (CfCs) since they were adopted in 1976. The original ESRD CfCs at 42 CFR Part 405 Subpart U were delete d and new conditions were issued at 42 CFR Part 494. Subpart U now only addresses ce rtain requirements for ESRD networks. As a part of these revisions, we intended to delete most of the terms and definitions set out in Part 405 Subpart U, and create new definitions in Part 494. This is discussed in the 2008 final rule and in the corresponding proposed rule (70 FR 6184), and is laid out in the final rule crosswalk (comparing the old CfCs with the new ones) at 73 FR 20451. While we intended to delete most of the definitions at Part 405 Subpart U, we inadvertently omitted the regulations text that w ould have made those changes. Subpart U, at §405.2102, still has 32 definitions, most of them unnece ssary and several of them obsolete. This creates confusion for ESRD stakehol ders, patients, and suppliers. We propose to make a technical correction that deletes the outdated terms and definitions at §405.2102. Specifically, we propose to delete these terms and definitions: agreement, arrangement, dialysis, end-stage renal disease (E SRD), ESRD facility, renal dialysis center, renal dialysis facility, self-d ialysis unit, special purpose renal dialys is facility, ESRD service, dialysis service, inpatient dialysis, outpati ent dialysis, staff-assisted dialys is, self-dialysis, home dialysis, self-dialysis and home dialysis training, furnishes directly, furn ishes on the premises, medical care criteria, medical care norms , medical care standards, medical care evaluation study (MCE), qualified personnel, chief executive officer, di etitian, medical record practitioner, nurse responsible for nursing service, phys ician-director, and social worker . We also propose to delete the term and definition for “ESRD network or ganization,” as it is duplicated w ithin § 405.2102 as “network organization.” We would retain th e terms and definitions for “network, ESRD,” and “network organization.” These changes are also outlined in Table 32 below.”CMS-1614-P 217

TABLE 32: Technical Corrections to §405.2102 Term Proposed Action Other FR Location Agreement Delete -- Arrangement Delete -- Dialysis Delete -- End-Stage Renal Disease (ESRD) Delete 406.13(b) ESRD facility introducto ry text Delete -- Renal dialysis center Delete -- Renal dialysis facility Delete 494.10 Self-dialysis unit Delete -- Special purpose renal dial ysis facility Delete 494.120 ESRD Network organi zation Delete -- ESRD service introductory text Delete -- Dialysis service Delete -- Inpatient dialysis Delete -- Outpatient dialysis Delete -- Staff-assisted dialysis Delete -- Self-dialysis Delete 494.10 Home dialysis Delete 494.10 Self-dialysis and home dial ysis training Delete -- Furnishes directly Delete 494.10 Furnishes on the premises Delete 494.180(d) Medical care crit eria Delete -- Medical care norms Delete -- Medical care standards Delete -- Medical care evaluation study (MCE) Delete -- Network, ESRD Retain N/A Network organization Retain N/A Qualified personnel Delete -- Chief executive officer Delete -- Dietitian Delete 494.140(c) Medical record practitioner Delete -- Nurse responsible for nursing service Delete 494.140(b) Physician-director Delete 494.140(a) Social worker Delete 494.140(d)

V. Methodology for Adjusting DMEPOS Payment Amounts using Information from Competitive Bidding Programs A. Background 1. Payment Basis for Certain DMEPOSCMS-1614-P 218

Section 1834(a) of the Act governs paymen t for durable medical equipment (DME) covered under Part B and under Part A for a home health agency and provides for the implementation of a fee schedule payment methodology for DME furnished on or after January 1, 1989. Sections 1834(a) (2) through (a)(7) of the Act set forth separate payment categories of DME and describe how the fee sc hedule for each of the following categories is established:

● Inexpensive or other r outinely purchased items,

● Items requiring frequent and substantial servicing,

● Customized items,

● Oxygen and oxygen equipment,

● Other covered items (other than DME), and

● Other items of DME ( capped rental items). Section 1834(h) of the Act governs payment for prosthetic devices, prosthetics, and orthotics (P&O) and sets forth fee schedule pa yment rules for P&O. Effective for items furnished on or after January 1, 2002, payment is also made on a national fee schedule basis for parenteral and enteral nutriti on (PEN) in accordance with the au thority under section 1842(s) of the Act. The term “enteral nutrition” will be us ed throughout this document to describe enteral nutrients supplies and equipment covered as pros thetic devices in accordance with section 1861(s)(8) of the Act and paid for on a fee sche dule basis and enteral nutrients under DMEPOS Competitive Bidding Program (CBP), as authoriz ed under section 1847(a)(2)(B) of the Act. Section 1842(o)(1)(D) of the Ac t mandates that payment for infusion drugs furnished through a covered item of DME on or after January 1, 2004, is equal to 95 pe rcent of the average wholesale price for such drug in effect on October 1, 2003.CMS-1614-P 219

For DMEPOS items subject to payment under 1834 of the Act (not subject to the CBP), the Medicare’s allowed payment amount is equal to the lesser of the actual charge for the item or the fee schedule amount for the item. The fee schedule amounts are based on average payments made under the previous payment methodology of reasonable charges, wh ich utilized supplier charges for furnishing items and services in lo cal areas throughout the nation to establish the Medicare allowed payment amounts for the items and services. The reasonable charge data used is from a specific period of time that varies slightly by payment class (for example, July 1986 through June 1987 for inexpensive DME). The f ee schedule amounts for most items are updated on an annual basis by covered item update factor s provided in the statut e for DME under section 1834(a)(14) of the Act, for P&O under section 1834( h)(4)(A) of the Act, a nd for enteral nutrition under section 1842(s)(1)( B) of the Act. The rules pertaining to the calculation of r easonable charges are lo cated at 42 CFR Part 405, Subpart E of our regulations. Under this general methodology, several factors were taken into consideration in determining the reasonable charge for an item. Each supplier’s “customary charge” for an item, or the 50th percentile of charges for an item over a 12-month period, was one factor used in determining the reasonable char ge. The “prevailing charge” in a local area, or the 75th percentile of su ppliers’ customary charges for the item in the locality, was also used in determining the reasonable charge. For PEN items and services only, the “lowest charge level (LCL)” was also taken into consideration and wa s based on the 25th percentile of all charges for an item. For the purpose of calculating prevailin g charges, a “locality” is defined at 42 CFR §405.505 and “may be a State (including the Di strict of Columbia, a territory, or a Commonwealth), a political or eco nomic subdivision of a state, or a group of states.” The regulation further specifie s that the locality “should include a cross section of the population withCMS-1614-P 220

respect to economic and other characteristics.” For PEN items and serv ices only, the entire nation was used as the locality for the purpose of calculating the LCL and prevailing charges. Effective for items furnished on or after October 1, 1985, an additional factor, the inflation-indexed charge (IIC) as cited at 42 CFR §405.509, was added to the factors taken into consideration in determining the r easonable charge for an item. The IIC is equal to the lowest of the customary charge, prevailing charge, LCL (if applicable), and IIC fr om the previous year updated by an inflation adjustment factor. To summarize, the reasonable charges for each item that were used to calculate the fee sc hedule amounts are equal to the lower of:

• the supplier’s actual charge on the claim;

• the supplier’s customary charge for the item;

• the prevailing charge in the locality for the item;

• the LCL in the locality for the item, if applicable; or

• the IIC. Under the reasonable charge payment me thodology, it is assumed that suppliers took all of their costs of furnishing various items and se rvices in various loca lities throughout the nation into account in setting the prices they charge for c overed items and services. We implemented the fee schedule payment methodologies for PENs at 42 CFR Part 414, Subparts C, and for DME prosthetic devices, prosthetics, orthotics, and surgical dressings at 42 CFR Part 414, Subpart D of our regulations. In ac cordance with section 1834(a)(10) of the Act, the Secretary may adjust DMEPOS fee schedule amounts in situa tions where it is determined that the amounts are not inherently reasonable. This “inherent reasonableness” authority for adjusting fee schedule payment amounts is gove rned by paragraphs (8 ) and (9) of sectionCMS-1614-P 221

1842(b) of the Act and implemented at 42 CFR Pa rt 405, Subpart E of our regulations. Finally, in the case of DMEPOS furnished on or afte r January 1, 2011, under section 1834(a)(1)(F)(ii) of the Act, the Secretary may (in beginning Janua ry 1, 2016, must) use information on the payment determined under the CBP in accordance with secti on 1847 of the Act to adjust the fee schedule payment amounts for DME that are not in a compet itive bidding area (CBA), and the inherent reasonableness authority does not apply. Adju stment of fee schedul e amounts based on CBP payment information (and the limitation on using i nherent reasonableness) is also authorized under section 1834(h)(1)(H)(i i) of the Act for certain orthotic s and section 1842(s)(3)(B) of the Act for enteral nutrition in non-competitive bid areas. 2. Fee Schedule Payment Methodologies Section 4062(b) of the Omnibus Budget R econciliation Act of 1987 (OBRA 87), Public Law 100-203, added section 1834(a) of the Act a nd mandated the implementation of local fee schedule amounts in 1989 for DME and P&O base d on the average of reasonable charges for items and services furnished in carrier service areas throughout th e United States. The carriers were (now Medicare administra tive contractors) responsible fo r processing claims for Part B items and services in accordance with section 1842( a) of the Act. The ca rrier service areas used in establishing the fee schedule amounts could not exceed an entire state. A few states were made up of two carrier service areas and the Stat e of New York had three carrier service areas. A carrier service area is not to be confused with a locality established for the purpose of calculating reasonable charges as described abov e. For example, although claims for items furnished in the State of Texas were proce ssed by a single carrier, for reasonable charge calculation purposes, Texas was divided into more th an 50 different localities. In 1993, the local fee schedule amounts for states with more than one carrier service area s were transitioned toCMS-1614-P 222

statewide fee schedule amounts. Th e reasonable charge data used to calculate th e statewide fee schedule amounts therefore reflected the average payment made under the supplier charge based reasonable charge payment methodology for items and services furnished throughout the state, including both rural and ur ban areas of the state. Section 4062(b) of OBRA 87 mandated that local fee schedule amounts for both DME and P&O be transitioned to regi onal fee schedule amounts as part of a multi-year phase in ending in 1993. Section 4152(b) of the Omnibus Budget Reconciliation Act of 1990 (OBRA 90), Public Law 101-508, eliminated the regional fee schedu le transition for DME and amended section 1834(a) of the Act to mandate that the local (statewide) fee schedule amounts be limited by a national ceiling (upper) limit, based on the medi an of the statewide fee schedule amounts, and a national floor (lower limit), base d on 85 percent of the median of the statewide fee schedule amounts. The fee schedule ceiling and floor lim its for DME were phased in from 1991 through 1993. The conversion to regional fee schedule amounts therefore never took place for DME and instead the statewide fee schedule amounts were limited so that they could not vary by more than 15 percent from the national ceili ng to the national floor. The fee schedule amounts for areas outside the contiguous United States are not subjec t to the national ceiling and floor limits. The transition to regional fee sche dule amounts was retained for P& O, although OBRA 90 changed the phase in schedule so that the regional fee schedule amounts were not fully phased in until January 1, 1994, rather than January 1, 1993. As expl ained in more detail below, the regional fee schedule methodology allows for regional geographi c variation in fee schedule payment amounts and a wider range in fees acr oss the nation than the fee sc hedule methodology used for DME which caps the local, statewide fee schedule amounts at the national median. That being said, we have not seen any problems associated with access to either P&O or DME in rural areas or anyCMS-1614-P 223

areas of the country since payments have been made based on these fee schedule methodologies. This has been the case even though the averag e reasonable charges used to compute the statewide fee schedule amounts include a comingli ng of reasonable charge data for items and services furnished in both urban and rural areas. In addition, we have not seen any problems with access to PEN in rural areas or any areas of the country since payments have been made based on national fee schedule amounts. 3. Regional Fee Schedule Payment Methodology for P&O The regional fee schedules for P&O are manda ted by section 1834(h)(2)(B) of the Act. The regional fee schedule amounts onl y apply to areas within the c ontiguous United States. The regional fee schedule amounts are calculated based on the weighted average (weighted by total Part B claims volume) of statewide fee schedul e amounts for states in each of the ten CMS Regional Office boundaries identified below. Th e statewide fee schedule amounts are based on average reasonable charges (statewide fees) fo r items furnished from July 1, 1986 through June 30, 1987. The ten CMS Regional Office boundaries are:

• Boston (Region One), including the six states of Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont;

• New York (Region Two), including the two states of New Jersey and New York;

• Philadelphia (Region Three) , including the five stat es of Delaware, Maryland, Pennsylvania, Virginia, West Virgin ia and the District of Columbia;

• Atlanta (Region Four), includi ng the eight states of Alab ama, North Carolina, South Carolina, Florida, Georgia, Kent ucky, Mississippi, and Tennessee;CMS-1614-P 224

• Chicago (Region Five), incl uding the six states of Illi nois, Indiana, Michigan, Minnesota, Ohio and Wisconsin;

• Dallas (Region Six), including the five stat es of Arkansas, Louisiana, New Mexico, Oklahoma and Texas;

• Kansas City (Region Seven), including the four states of Iowa, Kansas, Missouri and Nebraska;

• Denver (Region Eight), including the six st ates of Colorado, Montana, North Dakota, South Dakota, Utah and Wyoming;

• San Francisco (Region Nine), including th e three states of Arizona, California and Nevada; and

• Seattle (Region Ten), including the three states of Idaho, Oregon and Washington. As an example, the regional fee schedul e amounts for Region Nine are based on the weighted average of the statewide fees for Ariz ona, California, and Nevada. Since California accounts for the largest volume of Pa rt B claims in the region, th e California statewide fees are weighted more heavily in determining the region al fee schedule amounts than the statewide fees for Arizona or Nevada. Once all of the regi onal fee schedule amount s are established, the regional fee schedule amounts are further limited by a national ceili ng equal to 120 percent of the average of the regional fee sche dule amounts for all th e states and a national floor equal to 90 percent of the average of the regional fee schedule amounts for all the states. The national ceiling and floor limits for DM E and P&O set national parameters on how much the statewide or regional fee schedule amounts can vary. For DME, the upper payment limit or ceiling is based on the national median of the statewide fees, essen tially bringing half ofCMS-1614-P 225

the state fees down to the national median. The lower limit or floor is based on 85 percent of the national median and brings those state fees be low the floor amount up to the floor amount. In contrast, the national ceiling and floor parameters for P&O are based on 120 percent and 90 percent, respectively, of the av erage of the various regional fe e schedule amounts. Differences in reasonable charge based fees in various ge ographic regions of the country are maintained within the parameters of the national ceilings and floors for P&O. 4. DMEPOS Competitive Bi dding Programs Payment Rules Section 1847(a) of the Act, as amended by s ection 302(b)(1) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173), requires the Secretary to establish and impl ement CBPs in CBAs throughout the United States for contract award purposes for the furnishing of certain comp etitively priced DMEPOS items and services. The programs mandated by section 1847(a) of th e Act are collectively referred to as the “Medicare DMEPOS Competitive Bidding Program. ” Section 1847(a)(2) of the Act provides that the items and services to wh ich competitive bidding applies are:

• Off-the-shelf (OTS) orthotics for which paym ent would otherwise be made under section 1834(h) of the Act;

• Enteral nutrients, equipment and supplies desc ribed in section 1842(s )(2)(D) of the Act;
and

• Certain DME and medical supplies, which ar e covered items (as defined in section 1834(a)(13) of the Act) for which payment would otherwise be made under section 1834(a) of the Act. The DME and medical supplies category includes items used in infusion and drugs (other than inhalation drugs) and supplies used in conjunction with DME, but excludes class III devicesCMS-1614-P 226

under the Federal Food, Drug, and Cosmetics Act a nd Group 3 or higher comp lex rehabilitative power wheelchairs and related accessories when furnished with such wheelchairs. Sections 1847(a) and (b) of the Act specif y certain requirements and conditions for implementation of the Medicare DMEPOS CBP. On July 15, 2008, the Medicare Improvements for Patients and Providers Act (MIPPA) was enacted. Section 154 of the MIPPA amende d section 1847 of the Act to make certain limited changes to the Medicare DMEPOS CBP, including a revised timeframe for phasing in the programs. On March 23, 2010, the Affordable Care Act was enacted. Section 6410(a) of the Affordable Care Act amended section 1847(a)(1 ) of the Act, mandating the phase in of 21 additional Metropolitan Statistical Areas (MSAs). Section 1847(a) of the Act requires that the DMEPOS CBP be phased in so that competition under the programs occurs in 9 of the largest Metropolitan Stat istical Areas (MSAs) in 2009, 91 additional large MSAs in 2011, and add itional areas after 2011 (or, in the case of national mail order for items and services, af ter 2010). Section 1847(a) (1)(D)(ii) of the Act provides discretion to subdivide MSAs a nd through notice and comment rulemaking we subdivided the New York-Northern New Jers ey-Long Island, NY-NJ-PA; Los Angeles-Long Beach-Santa Ana, CA; and Chicago-Naperville-J oliet, IL-IN-WI MSAs. The final rule was published in the Federal Register on November 29, 2010 (75 FR 73454) and divided the New York-Northern New Jersey-Long Island, NY-NJ-PA MSA into six CBAs. In addition, the Los Angeles-Long Beach-Santa Ana, CA MSA was divided into two CBAs and the ChicagoNaperville-Joliet, IL-IN-WI MSA was divided in to four CBAs (75 FR 73460). Altogether thisCMS-1614-P 227

created a total of 100 CBAs for the competitions o ccurring in the 91 MSAs in 2011, or a total of 109 CBAs for the competitions oc curring in 100 MSAs in 2009 and 2011. Finally, section 1847(a)(1)(D)(iii) of the Act sp ecifies that competitions occurring before 2015 for items and services other than national ma il order, may not include rural areas or MSAs with a population of less than 250,000.

In addition to the national mail order program for diabetic supplies, the product categories (PCs) that have been phased in thus far in 100 Round 2 CBAs and 9 Round 1 CBAs include the following: Round 2 CBAs (contract period July 1, 2013, thru June 30, 2016)

• Oxygen, oxygen equipment, and supplies

• Standard (Power and Manual) wheelchair s, scooters, and re lated accessories

• Enteral nutrients, equipment, and supplies

• Continuous Positive Airway Pressure (CPAP) devices and Respiratory Assist Devices (RADs) and related supplies and accessories

• Hospital beds and related accessories

• Walkers and related accessories

• Negative Pressure Wound Therapy pumps and related supplies and accessories

• Support surfaces (Group 2 ma ttresses and overlays) Round 1 CBAs (contract period January 1, 2014, thru December 31, 2016)

• Respiratory Equipment and Rela ted Supplies and Accessories

o includes oxygen, oxygen equipment, and supplie s; CPAP devices and RADs and related supplies and accessories; and standard nebulizersCMS-1614-P 228

• Standard Mobility Equipment and Related Accessories

o includes walkers, standard power and ma nual wheelchairs, scooters, and related accessories

• General Home Equipment and Re lated Supplies a nd Accessories

o includes hospital beds and related accessories, group 1 and 2 support surfaces, transcutaneous electrical nerve stimulati on (TENS) devices, commode chairs, patient lifts, and seat lifts

• Enteral Nutrients, Equipment and Supplies

• Negative Pressure Wound Therapy Pumps and Related Supplies and Accessories

• External Infusion Pumps and Supplies

In addition, contracts and SPAs were in effect in the 9 Round 1 CBAs from January 1 2011 thru December 31, 2013, for the items listed below whic h are not included in current Round 1 or 2
PCs:

• Complex Rehabilitative Power Wheelchair s and Related Accessories (Group 2)

• Adjustable Wheelchair Seat Cushions 5. Adjusting Payment Amounts using Information from the DMEPOS Competitive Bidding Program Section 1834(a)(1)(F)(ii) of th e Act provides authority for using information from the DMEPOS CBPs to adjust the DME payment amo unts for covered items furnished on or afterCMS-1614-P 229

January 1, 2011, in areas where competitive biddi ng is not implemented for the items. Similar authority exists at section 1834( h)(1)(H)(ii) of the Act for OT S orthotics, and at section 1842(s)(3)(B) of the Act for ente ral nutrition. Section 1834(a)(1)(F) also requires adjustments to the payment amounts for all DME items subject to competitive bidding furnished in areas where CBPs have not been implemented on or after January 1, 2016. For items furnished on or after January 1, 2016, section 1834(a)(1)(F)(i ii) requires us to continue to make such adjustments to DM E payment amounts where CBPs have not been implemented, as additional covered items are phased in or informa tion is updated as contracts are recompeted. Section 1834(a)(1)(G) of the Ac t requires that the methodology used to adjust payment amounts for DME and OTS orthotic s using information from the CBPs be promulgated through notice and comment rulemaking, which is the purpose of this proposed rule. Section 1834(a)(1)(G) of the Act also require s that we consider the “costs of items and serv ices in areas in which such provisions [sections 1834(a)(1)(F )(ii) and 1834(h)(1)(H)(ii)] would be applied compared to the payment rates for such items and services in competitive acquisition [competitive bidding] areas.” We are proposi ng to apply the same methodology for making adjustments to the payment amounts for enteral nu trition as authorized by section 1842(s)(3)(B) of the Act. 6. Diversity of Costs As mentioned above, under secti on 1834(a)(1)(G) of the Act we must consider the costs of furnishing items and services in areas where pr ices will be adjusted compared to the payment rates for the items and services furnished in CBAs. We belie ve that the methodology for using the single payment amounts (SPAs) as a basis for adjusting payment rates in other areas needs toCMS-1614-P 230

ensure that adjusted payment amounts in an area are adequate to cover the unique costs of furnishing the items and services in those areas. The SPAs are based on the median of successful bids for furnishing items and services in MSAs, which are mainly urban areas, from suppliers with costs and charac teristics that may or may not be similar to suppliers in other areas . In addition, under the DMEPOS CBP, many low population density areas within MS As were excluded from the CBAs as authorized by statute, making the geographic bidding areas smaller and mo re densely populated than they would have been if the initial MSA boundaries had been retained for bidding purposes. Regarding the size of suppliers submitting the bids used to generate the SPAs compared to the size of suppliers in areas where price ad justments based on the SPAs would occur, it is important to note that small suppliers are given special considerations under the CBP and that a majority of contracts are offered to small supp liers. Section 1847(b)(6)(D) of the Act requires that, in developing procedures relating to bidding a nd the awarding of contracts, CMS "take appropriate steps to ensure that small suppliers of items and services have an opportunity to be considered for participation in the program." We have establ ished a number of provisions to ensure that small suppliers are given an opportu nity to participate in the DMEPOS CBP. For example, under 42 CFR §414.414(g)(1)(i), we have established a 30 percent target for small supplier participation; thereby, en suring efforts are made to award at least 30 percent of contracts to small suppliers. Also, CMS worked in coor dination with the Small Business Administration (SBA) to develop an appropriate definition of a "small supplier" for this program. Under 42 CFR §414.402, a small supplier is one that genera tes gross revenues of $3.5 million or less in annual receipts, including Medicare and non- Medicare revenue. Under 42 CFR §414.418, small suppliers may join together in "networks" in or der to submit bids that meet the various programCMS-1614-P 231

requirements. For contracts taking effect on July 1, 2013 in Round 2, in 100 CBAs throughout the country, 63 percent of all c ontract suppliers are small supp liers, with only 10 percent of contract suppliers being new to the areas. In addition, for contracts taking effect on January 1, 2014 in the Round 1 Recompete, in the 9 initial CBA s, 58 percent of all c ontract suppliers are small suppliers, with only 3 percen t of contract suppliers being new to the areas. Therefore, the majority of bids used in establishing the SPAs come from small supplie rs with a history of furnishing the items in the CBAs. Prior to awarding contracts, ea ch supplier is carefully screened to ensure that it is accredited under applicable Medicare quality sta ndards and meets rigid financial standards, specific Medicare supplier enrollme nt requirements, and applicable state licensing standards. Each bid is screened to ensure that it is a bona fide bid, and th ose that fail are excluded from the competition. Approximately 94 percent of bids screened as part of the Round 2 and Round 1 Recompete competitions were determined to be bona fide. The invoices and purchase orders submitted by bidding suppliers to support their bids reflected prices already paid by the supplier (that is, prior to becoming a cont ract supplier) and for the most pa rt did not reflect large volume purchasing discounts. Once non-bona fide bids are excluded, supplie rs are ranked in order based on bid amounts, and the median of bids from the number of suppliers determined to be necessary to meet projected demand are used to establis h the SPAs. The projec ted demand for items and services in a CBA is intentionally overstated for the purpose of ensuring that contracts are awarded to more than a sufficient number of supplie rs to serve the beneficiaries in the area. The establishment of the demand level is explained in detail in the competitive bidding final rule (Medicare Program; Competitive Acquisition for Certain DMEPOS and Other issue) published April 10, 2007 (72 FR 18039). Thus, the SPAs are higher than they would otherwise be ifCMS-1614-P 232

demand was not overstated because the high demand generally results in an increase in the number of contract suppliers which in most cas es increases the median bid amount. CMS also conducts its review of supplier capacity and expansion plans duri ng the bid evaluation process. If a supplier is new to an area, new to a PC, or submits estimated capacity that represents substantial growth over current levels, CMS may conduct a more detailed evaluation of that supplier's expansion plan to verify the supplier's ability to provide items and services in the CBA on day one of the contract period. If a bidder's financial data and expansion plan do not support the supplier's estimated capacity, CMS will adjust the capacity to the supp lier's historic level, which would be zero for a new supplier. CMS us es the estimated capacity information and the bid amounts to determine the arra y of winning suppliers in a CBA. Under Round 2 and the Round 1 Recompete competitions, 92 percent of suppliers accepted contract offers at the SPAs set through th e competitions. In addition, CMS reviewed all contract suppliers based on financ ial standards when evaluating thei r bids. This process includes review of tax records, credit reports, and other financial data, which leads to the calculation of a score, similar to processes used by lenders wh en evaluating the viabil ity of a company. All contract suppliers met the financial standards established for the program. From January 1, 2011, when the initial R ound 1 contracts and SPAs took effect, to present, we have seen no indica tion that beneficiaries have been denied access to necessary items and services subject to the programs in CBAs as a result of the SPAs. In addition, we have been closely monitoring inquiries as well as real time claims and health outcomes data and have seen no negative impacts on access to items and servi ces under the program. Therefore, the SPAs appear to be sufficient to cover the costs of the suppliers furnishing items in the 109 CBAs. In previous legislation, which we will di scuss below, the Congress mandated that theCMS-1614-P 233

costs of furnishing DME in different geographic regions of the country be studied. Section 135 of the Social Security Act Amendments of 1994, Public Law 103-432, required an examination of the geographic variations in DME supplier costs in order to determine whether the fee schedules are reasonably adjust ed to account for any geographic differences. Jing Xing Health and Safety Resources, Inc. provided assistance to the Health Care Financing Administration, now CMS, in conducting this study. The project entitled "Durable Medical Equipment Supplier Product and Service Cost Study", was comple ted under Contract Number HCFA 500-95-0044 and submitted to the agency in June 1996. As pa rt of the study, a Federal Advisory Panel was convened, a formal meeting with representatives of the DME industry was held, and a literature review was conducted. The general consensus among industry representatives and government agencies that participated in the study was that there is no conclusive evidence that urban and rural costs differed significantly or that the co sts of furnishing DME items and services were higher in urban areas versus ru ral areas or vice versa. The 109 CBAs where competitive bidding has been phased in include a wide range of different size urban areas with surrounding countie s, and suppliers take the costs of furnishing items and services in these different areas into account when submitting bids under the programs. They include one CBA (Honolulu, HI) that is not within the contiguous Unites States and CBAs that range in population size from approximate ly 300 thousand to 10 million (See Table 33). There are 7 CBAs with a population of less than 500,000, 42 CBAs with a population of more than 500,000, but less than 1 million, 27 CBAs with a population of more than 1 million, but less than 2 million, 19 CBAs with a population of 2 to 4 million, and 14 CBAs with a population of over 4 million.CMS-1614-P 234

TABLE 33: CBA POPULATION SIZE CBA Population Los Angeles County CBA 9,453,357 Nassau-Brooklyn-Queens-Ric hmond County Metro CBA 6,630,278 Dallas-Fort Worth-Arlington, TX 6,554,334 Central-Chicago Metro CBA 6,179,455 Houston-Sugar Land-Baytown, TX 6,152,650 Philadelphia-Camden-Wilmington, PA-NJ-DE-MD 5,995,992 Washington-Arlington-Alex andria, DC-VA-MD-WV 5,662,358 Miami-Fort Lauderdale-Pompano Beach, FL 5,604,979 Atlanta-Sandy Springs-Marietta, GA 5,293,136 Boston-Cambridge-Quincy, MA-NH 4,595,431 San Francisco-Oakland-Fremont, CA 4,407,286 Detroit-Warren-Livonia, MI 4,256,579 Phoenix-Mesa-Glendale, AZ 4,251,146 Riverside-San Bernardino-Ontario, CA 4,157,332 Seattle-Tacoma-Bellevue, WA 3,522,509 Northern NJ Metro CBA 3,473,815 Minneapolis-St. Paul-Bloomington, MN-WI 3,326,864 San Diego-Carlsbad-San Marcos, CA 3,118,844 Orange County CBA 3,067,829 Southern NY Metro CBA 3,015,460 Bronx-Manhattan NY CBA 2,983,009 St. Louis, MO-IL 2,844,160 Tampa-St. Petersburg-Clearwater, FL 2,810,479 Baltimore-Towson, MD 2,751,529 Denver-Aurora-Broomfield, CO 2,568,221 Pittsburgh, PA 2,361,317 Portland-Vancouver-Hillsboro, OR-WA 2,259,089 San Antonio-New Braunfels, TX 2,223,779 Orlando-Kissimmee-Sanford, FL 2,176,846 Sacramento--Arden-Arcade--Roseville, CA 2,174,556 Cincinnati-Middl etown, OH-KY-IN 2,121,660 Cleveland-Elyria-Mentor, OH 2,074,790 Kansas City, MO-KS 2,050,306 Las Vegas-Paradise, NV 1,967,341 San Jose-Sunnyvale-Santa Clara, CA 1,898,173 Columbus, OH 1,844,571 Charlotte-Gastonia-Rock Hill, NC-SC 1,832,391 Austin-Round Rock-San Marcos, TX 1,813,495CMS-1614-P 235

CBA Population Indianapolis-Carmel, IN 1,764,136 Virginia Beach-Norfolk-Newport News, VA-NC 1,673,547 Nashville-Davidson--Murfreesboro--Franklin, TN 1,607,708 Providence-New Bedford-Fall River, RI-MA 1,603,029 Milwaukee-Waukesha-West Allis, WI 1,570,548 Suffolk County CBA 1,488,017 South-West-Chicago-Metro CBA 1,464,818 Jacksonville, FL 1,371,407 North East NY CBA Metro 1,363,882 Memphis, TN-MS-AR 1,309,806 Louisville/Jefferson County, KY-IN 1,277,282 Oklahoma City, OK 1,276,642 Richmond, VA 1,262,088 Hartford-West Hartford-East Hartford, CT 1,214,313 Raleigh-Cary, NC 1,190,534 Northern-Chicago Metro CBA 1,187,661 New Orleans-Metairie-Kenner, LA 1,182,382 Salt Lake City, UT 1,158,617 Buffalo-Niagara Falls, NY 1,133,325 Birmingham-Hoover, AL 1,121,219 Rochester, NY 1,062,561 Tucson, AZ 1,004,374 Honolulu, HI 962,112 Fresno, CA 949,093 Tulsa, OK 945,366 Bridgeport-Stamford-Norwalk, CT 922,063 Albuquerque, NM 896,202 Omaha-Council Bluffs, NE-IA 883,233 Albany-Schenectady-Troy, NY 866,077 New Haven-Milford, CT 862,551 Dayton, OH 839,984 Oxnard-Thousand Oaks-Ventura, CA 830,680 Allentown-Bethlehem-Easton, PA-NJ 826,740 El Paso, TX 826,163 Baton Rouge, LA 811,243 Bakersfield-Delano, CA 810,348 Worcester, MA 800,404 McAllen-Edinburg-Mission, TX 799,023 Grand Rapids-Wyoming, MI 783,733 Columbia, SC 767,793CMS-1614-P 236

CBA Population Greensboro-High Point, NC 746,685 Little Rock-North Little Rock-Conway, AR 710,371 North Port-Bradenton-Sarasota, FL 708,687 Indiana-Chicago Metro CBA 706,110 Knoxville, TN 705,446 Springfield, MA 698,926 Akron, OH 687,788 Stockton, CA 685,542 Greenville-Mauldin-Easley, SC 683,793 Charleston-North Charleston-Summerville, SC 682,539 Syracuse, NY 671,076 Poughkeepsie-Newburgh-Middletown, NY 665,524 Colorado Springs, CO 665,484 Toledo, OH 649,956 Wichita, KS 634,116 Boise City-Nampa, ID 634,037 Cape Coral-Fort Myers, FL 631,611 Lakeland-Winter Haven, FL 602,671 Augusta-Richmond County, GA-SC 570,656 Scranton--Wilkes-Barre, PA 556,282 Youngstown-Warren-Boardman, OH-PA 553,382 Palm Bay-Melbourne-Titusville, FL 550,416 Jackson, MS 544,285 Chattanooga, TN-GA 533,309 Deltona-Daytona Beach-Ormond Beach, FL 501,906 Visalia-Porterville, CA 439,968 Flint, MI 435,877 Asheville, NC 434,665 Beaumont-Port Arthur, TX 397,872 Ocala, FL 323,229 Huntington-Ashland, WV-KY-OH 289,474 Source: U.S. Census Bureau, Populat ion Division, 2012 Population Estimates Population estimates for MSAs and counties were adjusted to reflect CBA boundaries

7. Advanced Notice of Proposed Rulemaking CMS issued an Advance Notice of Proposed Rulemaking (ANPRM): Medicare Program;CMS-1614-P 237

Methodology for Adjusting Payment Amounts for Certain Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) using Information From Competitive Bidding Programs. The ANPRM was published in the Federal Register on February 26, 2014 (79 FR 10754) and solicited comments on se veral aspects to consider in developing the proposed methodology to adjust DMEPOS fee schedul e amounts or other payment amounts in noncompetitive areas based on DMEPOS competitiv e bidding payment information. Specific questions related to this topic were presented in the notice, including:

• Do the costs of furnishing various DMEPOS items and services vary based on the geographic area in which they are furnished?

• Do the costs of furnishing various DMEPOS ite ms and services vary based on the size of the market served in terms of population and/ or distance covered or other logistical or demographic reasons?

• Should an interim or different methodology be used to adjust payment amounts for items that have not yet been included in all CBPs (for example, items such as TENS devices that have only been phased into the nine Round 1 areas thus far)? The comment period for the ANPRM ended on March 28, 2014, and CMS received approximately 185 comments from suppliers, ma nufacturers, professional, state and national trade associations, physicians, phys ical therapists, beneficiaries and their caregivers, and one state government office. Commenters generally agreed that costs do vary by geographic regi on and that costs in rural and non-contiguous areas ar e higher than costs in urban ar eas. However, few commenters offered specific proposals or suggestions for addressing these costs differences and the suggestions that were provided we re vague (for example, use the 75th percentile of SPAs ratherCMS-1614-P 238

than the national median SPA). Several commente rs stated that the cost s of furnishing DMEPOS items and services in different regions of the country do vary . One commenter representing many suppliers said that there exists no reliab le cost data. Anothe r commenter representing many manufacturers and suppliers listed several key va riables or factors that influence the cost of furnishing items and services in different areas that should be c onsidered, but the commenter did not provide information on how valid and reliable information related to these factors could be obtained. This commenter stated that information of all bids submitted under the programs should also be considered and not just the bids of winning suppliers. Some commenters expressed concern that the SPAs assume a significant increase in volume to offset lower payment amounts. Some commenters suggested that the price adjustments be phased in rather than making full, one-time adjustments. B. Proposed Provisions We propose establishing three methodologies for adjusting DMEPOS fee schedule amounts in areas where CBPs have not been esta blished for these items and services based on SPAs established in accordance with the paymen t rules at §414.408. Use of SPAs that may be established in accordance with the special paym ent rules proposed in section V to adjust DMEPOS fee schedule amounts in areas where CBPs have not been established for these items and services would be addressed in future notice and comment rulemaking. One proposed methodology is described in subsection 1 below a nd would utilize region al adjustments limited by national parameters for items bid in more than 10 CBAs throughout the country. A second proposed methodology is described in subsection 2 below and would be used for lower volume items or other items that were bid in no mo re than 10 CBAs for various reasons. A third proposed methodology is described in subsection 5 and would be used for mail order itemsCMS-1614-P 239

furnished in the Northern Marian a Islands. We are also proposing rules that would apply to all of these proposed methodologies. 1. Proposed Regional Adjustments Limited by National Parameters CBPs are currently in place in 100 of the la rgest MSAs in the country for items and services that make up over 80 pe rcent of the total allowed charges for items subject to the DMEPOS CBP. SPAs are currently used in 109 CBAs that include areas in every state throughout the country except for Alaska, Main e, Montana, North Dakota, South Dakota, Vermont, and Wyoming. The number of CBAs, as listed in Table 33 that are fully or partially located within a given state ra nge from one to twelve. The Honolulu CBA was phased in under Round 2 of the program. Suppliers submitting bids for furnishing items and services in these areas have received extensive educ ation that they should factor all costs of furnishing items and services in an area as well as ov erhead and profit into their bids. For items and services that are subject to co mpetitive bidding and ha ve been included in more than 10 CBAs throughout the country, we propose to adjust the fee schedule payment amounts for these items and services using a methodology that is modeled closely after the regional fee schedule payment meth odology in effect for P&O to allow for variations in payment based on bids for furnishing items and services in different parts of the country. Under the proposed methodology, adjusted fee schedule amount s for areas within the contiguous United States would be determined based on regiona l SPAs or RSPAs limited by a national floor and ceiling. The RSPA would be esta blished using the aver age of the SPAs for an item from all CBAs that are fully or partially located in the region. The adjusted payment amount for the item would be equal to its RSPA but not less than 90 percent and not more than 110 percent of theCMS-1614-P 240

national average, which is the average of the RSPAs weighted by the num ber of states in the region. We believe modeling the proposed methodol ogy on the regional fee schedule payment methodology for P&O is appropriate because the regional fee schedule payment methodology for P&O allows for variations in Medicare f ee schedule amounts based on supplier charges for furnishing items and services in different regions of the count ry. The regional fee schedule payment methodology for P&O adjusts the Medicare a llowed payments for entire regions of the country, including low population dens ity or rural areas, based pr imarily on supplier information for furnishing items and services in urba n areas. The regional fee schedule payment methodology for P&O has been fully phased in si nce 1994 in the contiguous United States and has not resulted in any barriers to access since then in any specific region of the country in which it has been applied. The DME and P&O fee sche dule amounts are based in a part on statewide average reasonable charges calculated using supplie r charges for furnishing items and services in localities throughout each stat e. Supplier charges for furnishing items in rural areas of the state are combined with charges for furnishing items in urban areas of the state, which represents the bulk of the charges since the vast majority of be neficiaries in each stat e reside in urban areas rather than rural areas. Although the fee schedu le payments are based heavily on charges for furnishing items and services in urban areas, this has not affected access to items and services in rural areas that are paid based on these fee schedule amounts. We considered modeling the proposed methodology on the fee schedule payment methodology for DME which establishes an upper limit on all fee schedule amounts based on the median of the state fee schedule amounts; howev er, this methodology does not allow for regional variations in fee schedule amounts, allows for 0 percent variati ons in state fee schedule amountsCMS-1614-P 241

above the national median amount, and only allows for up to 15 percent variation in state fee schedule amounts below the national median amount. The statewide average reasonable charges for DME are updated by an annual covered item u pdate factor and are th en limited by a national ceiling and floor based on the median of the stat ewide amounts and 85 percent of the median of the statewide amounts. The DME fee schedule methodology allows for no variation in payment whatsoever above the national median statew ide amount. The maximu m variation in fee schedule amounts that is allowed is 15 percent below the national median statewide amount. By contrast, the regional fee schedule methodology for P&O allows for regional variation in fee schedule payment amounts by as much as 10 percent below the national average amount and 20 percent above the national averag e amount. Similarly, the fee sche dules for enteral nutrition are based on national average reasonable charges, and therefore, do not allow for any regional variation in fee schedule amounts. We believe that the model whereby regional fee schedule amounts for P&O are based on supplier charges for furnishing items and services within each region should be adopted when using SPAs to ad just fee schedule payment amounts in a way that reflects bidding in different regi ons of the country. The region al adjusted amounts are based on supplier bids for furnishing items and services within each region, as explained below. a. Regional Payment Adjustments Rather than adjusting state, regional, or national fee sc hedule amounts or infusion drug payment amounts based on all bids for an item in all CBAs across the co untry or based on all bids for an item in all CBAs within each state, we propose to adjust the payment amounts based on the average of bids for an item in CBAs that ar e fully or partially located in different regions of the country. In the first step of the pr oposed methodology we propose to calculate RSPAs or the average of the SPAs for an item and service in different regions of th e country. In keepingCMS-1614-P 242

with the example established by the P&O regi onal fee schedule payment methodology, this would allow variation in payment amounts for diffe rent regions of the country. For the purpose of establishing the boundaries for the regions, we propose us ing 8 regions developed for economic analysis purposes by the Bureau of Ec onomic Analysis (BEA) within the Department of Commerce. These regions are proposed ba sed on research and analysis conducted by the BEA indicating that the states in each region share economic ties. Further information can be obtained at https://www.bea.gov/regional/defini tions/nextpage.cfm?key=Regions The information provided at this link states that: BEA Regions are a set of Geographic Areas th at are aggregations of the states. The following eight regions are de fined: Far West, Great Lake s, Mideast, New England, Plains, Rocky Mountain, Southeast, and Sout hwest. The regional classifications, which were developed in the mid-1950s, are based on the homogeneity of the states in terms of economic characteristics, such as the industr ial composition of the labor force, and in terms of demographic, social, and cultural char acteristics. For a brief description of the regional classification of states used by BEA, see U.S. Department of Commerce, Census Bureau, Geographic Areas Reference Manua l, Washington, DC, U.S. Government Printing Office, November 1994, pp. 6-18;6-19. Therefore, we propose to revise the definition of region in §414.202 to mean a region developed for economic analysis purposes by the Bureau of Economic Analysis (BEA) within the Department of Commerce for the purpose of calculating regional single payment amounts (RSPAs); the definition of region for the purposes of the P&O regional fee schedule would also continue to apply for those items and services not adjusted based on prices in competitively bid areas. According to the BEA, the regional clas sifications are based on the homogeneity of theCMS-1614-P 243

states in terms of economic characteristics, such as the industrial composition of the labor force, and in terms of demographic, social, and cultura l characteristics. The contiguous areas of the United States that fall under the 8 BEA regions u nder our proposal are listed in Table 34 below. Further information can be obtained at http://www.bea.gov/ TABLE 34: Bureau of Econom ic Analysis Regions Region Name States/Areas (count) 1 New England Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont (6) 2 Mideast Delaware, District of Columbia, Maryland, New Jersey, New York, and Pennsylvania (6) 3 Great Lakes Illinois, Indiana, Michig an, Ohio, and Wisconsin (5) 4 Plains Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota (7)

5 Southeast Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, and West Virginia (12) 6 Southwest Arizona, New Mexi co, Oklahoma, and Texas (4) 7 Rocky Mountain Colorado, Idaho, Montana, Utah, and Wyoming (5) 8 Far West California, Nevada, Or egon, and Washington (4)

We are soliciting public comments on whet her different regional boundaries (e.g. CMS regions or Census Divisions) s hould be considered that would better reflect potential regional differences in the costs of furnishing items a nd services subject to the DMEPOS CBP. In addition to the CMS regions listed in section A.3 above, other establis hed regional boundaries include those defined by the Un ited States Census Bureau in the Department of Commerce for the purpose of reporting and analyz ing census data. The Census Bureau uses 4 regions that are further divided into 9 divisions. Th e Census divisions are as follows:

• New England (Division 1); including the 6 states Connecticut, Maine,CMS-1614-P 244

Massachusetts, New Hampshire, Rhode Island and Vermont.

• Middle Atlantic (Division 2); including th e 3 states New Jersey, New York and Pennsylvania.

• East North Central (Division 3); including th e 5 states Illinois, Indiana, Michigan,
Ohio and Wisconsin.

• West North Central (Divisi on 4); including the 7 states Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota.

• South Atlantic (Division 5); including the 9 states Delawa re, District of Columbia, Florida, Georgia, Maryland, North Caroli na, South Carolina, Virginia and West Virginia.

• East South Central (Divis ion 6); including the 4 states Alabama, Kentucky, Mississippi and Tennessee.

• West South Central (Divis ion 7); including the 4 stat es Arkansas, Louisiana, Oklahoma, and Texas.

• Mountain (Division 8); incl uding the 8 states Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah and Wyoming.

• Pacific (Division 9); includi ng the 5 states Alaska, Calif ornia, Hawaii, Oregon and Washington. Table 35 below lists the states and number of CBAs located in each of the CMS regions, BEA regions, and census divisions.CMS-1614-P 245

TABLE 35: States and Number of Current CBAs per CMS Region, BEA Region, and Census Division
10 CMS Regions 9 Census Divisions 8 BEA Regions Region States CBAs Division St ates CBAs Region States CBAs Boston CT,ME,MA, NH,RI,VT 7 New England CT,ME,MA, NH,RI,VT 7 New England CT,ME,MA, NH,RI,VT 7 New York NJ,NY 13 Middle Atlantic NJ,NY,PA 15 Mideast DE,DC,MD, NJ,NY,PA 17 Phila. DE,DC,MD, PA,VA,WV 9

Atlanta AL,FL,GA, KY,MS,NC, SC,TN 28 South Atlantic DE,DC,FL, GA,MD,NC, SC,VA,WV 30 Southeast AL,AR,FL, GA,KY,LA, MS,NC,SC, TN,VA,WV 34

East South Central AL,KY,MS, TN 7
Chicago IL,IN,MI, MN,OH,WI 19 East North Central IN,IL,MI, OH,WI 19 Great Lakes IL,IN,MI, OH,WI 19

Dallas AR,LA,NM, OK,TX 14 West South Central AR,LA,OK, TX 13 Southwest AZ,NM,OK, TX 11

Kansas

City IA,KS,MO, NE 4 West North Central IA,KS,MN, MO,NE,ND, SD 5 Plains IA,KS,MN, MO,NE,ND, SD 5

Denver CO,MT,ND, SD,UT,WY 3 Mountain AZ,CO,ID, N M,MT,UT, NV,WY 8 Rocky Mountain CO,ID,MT, UT,WY 4
San Fran. AZ,CA,NV 16 Pacific CA,OR,WA 15 Far West CA,NV,OR, WA 16 Seattle ID,OR,WA 3

The regional fee schedule amounts for P&O ar e based on the average of the statewide fees for P&O, weighted by total Part B claims for paid claims with dates of service from July 1, 1991, thru June 30, 1992, which results in fees for stat es with a greater volume of Part B claims having more influence on the regional fee schedu le amounts than states with a smaller volume of Part B claims. We believe this aspect of the regional fee schedule payment methodology forCMS-1614-P 246

P&O tends to favor more heavily populated states. The statewid e fees for larger, more urban states where the most Medicare claims are pr ocessed, for example, Massachusetts for Region 1, play a larger role in determining the regional pric e than the statewide fees for smaller, more rural states in the region, for example, Vermont. Tabl e 36 below shows the relative weighs applied to the statewide fees used in calculating the regional P&O fees for the CMS Boston Region or Region 1. TABLE 36: P&O Regional Fee Weights – CMS Re gion 1 (Boston) (Weighted by Total Paid Claims for Dates of Service fr om July 1, 1991, thru June 30, 1992) State Total Part B Claims Percent of Total for Region MA 11,710,121 48% CT 6,288,638 26% RI 2,251,892 9% ME 2,012,385 8% NH 1,571,936 6% VT 759,242 3% Region 24,594,214

As can be seen in this ta ble, the regional P&O fees for the Boston Region are weighted heavily in favor of the statew ide fees and average reasonable charges from 1986/87 for the more heavily populated urban states of Massachusetts and Connecticut with a greater utilization of Part B items and services, whereas the fees for more rural States like Vermont and Maine have a very minor impact in determining the regional fe es. In contrast, we are proposing that the RSPAs be calculated based on a simple averag e of the SPAs for CBAs in each region, withoutCMS-1614-P 247

weighting in favor of larger, more heavily populated CBAs. Using the New England BEA Region that is comprised of the same 6 stat es that make up the CMS Boston Region as an example, the proposed RSPA for this region woul d be based on the average of the SPAs for the following 7 CBAs, with estimated 2012 population in parentheses:

• Boston-Cambridge-Quincy, MA-NH (4,640,802)

• Providence-New Bedford-Fa ll River, RI-MA (1,601,374)

• Hartford-West Hartford-East Hartford, CT (1,214,400)

• Bridgeport-Stamford-Norwalk, CT (933,835)

• Worcester, MA (923,762)

• New Haven-Milford, CT (862,813)

• Springfield, MA (625,718) Therefore, rather than weighting the aver age of the SPAs in favor of more heavily populated CBAs, we propose that the RSPA be base d on the simple average of the SPAs for the CBAs in the region, with the SPA for the much smaller Springfield, MA CBA and the SPA for the much larger Boston-Cambridge-Quincy, MA- NH Springfield, MA CBA contributing equally toward calculation of the RSPA . We believe this approach would result in adjustments that factor in the regional costs associated with fu rnishing items and services in the New England region of the country, while not giving undue weight to the costs of furnis hing items and services in larger markets.

b. National Parameters As explained above, the regional fee schedul e amounts for P&O are limited by a national ceiling equal to 120 percent of th e average of the regi onal fee schedule amounts for all the states and a national floor equal to 90 percent of th e average of the regional fee schedule amounts forCMS-1614-P 248

all the states. This limits the range in the regional fee schedule amounts from highest to lowest to no more than 30 percent, 20 percent above the national average a nd 10 percent below the national average. By contrast, the fee sche dule payment methodology for DME only allows for a variation in statewide fees of 15 percent below the median of st atewide fees for all the states. The national limits to the fee schedule amounts fo r P&O and DME have not resulted in a barrier to access to items and services in any part of the country. We believe this reflects the fact that the costs of furnishing DMEPOS items and services do not vary significantly from one part of the country to another and that national limits on regional prices is warranted. We therefore propose to limit the variation in the RSPAs using a national ceiling and floor in order to prevent unnecessarily high or low regiona l amounts that vary significantly from the national average prices for the items and servic es. The national ceiling and floor limits would be based on 110 percent and 90 percent, respectively, of the averag e of the RSPAs applicable to each of the 48 contiguous states and the District of Columbia (that is, the aver age of RSPAs is weighted by the number of contiguous states incl uding the District of Columbia per region). We propose that any RSPA above the national ceiling would be brought down to the ceiling and any RSPA below the national floor would be brought up to the floor . We propose that th e national ceiling would exceed the average of the RSPAs by the same per centage that the national floor would be under the average of the RSPAs. This allows for a maximum variation of 20 percent from the lowest RSPA to the highest RSPA. We believe that a variation in payment amounts both above and below the national average price should be allo wed, and we believe that allowing for the same degree of variation (10 percent) above and below the national av erage price is more equitable and less arbitrary than allowing a higher degree of variation (20 percen t) above the national average price than below (10 percent), as in th e case of the national ceiling and floor for theCMS-1614-P 249

P&O fee schedule, or allowing fo r only 15 percent variation below the national average price, as in the case of the national ceiling and floor for the DME fee schedule. c. Rural and Frontier State Adjustments Under the DMEPOS CBP, the statute prohi bits competitions before 2015 in new CBAs that are rural areas or MSAs with a population of less than 250,000. Even if competitions were to begin in these areas in 2015, it is very unlik ely that the SPAs from these areas would be computed and finalized by January 1, 2016. Th erefore, we propose that the proposed RSPAs initially be based solely on information from existing programs implemented in 100 MSAs, which are generally comprised of more densely p opulated, urban areas than areas outside MSAs. We therefore believe that the in itial RSPAs would not directly account for unique costs that may be associated with furnishing DMEPOS in stat es that have few MSAs and are predominantly rural or cover large geographic ar eas and are sparsely populated. However, in keeping with the discussion above, we do not believe that the cost of furnishing DMEPOS in these areas should deviate significantly from the national average price established based on supplier bids for furnishing items and services in diffe rent areas throughout the country. As explained above, the DMEPOS fee sche dule amounts are based primarily on supplier charges for furnishing items and services in urba n areas and this has not resulted in problems associated with access to these items and servi ces in rural areas or la rge, sparsely populated areas. Nonetheless, for the purpose of ensuring a ccess to necessary items and services in states that are more rural or sparsely populated than others, we propos e that the adjusted fee schedule amounts for states that are more rural than urban and defined as “rural st ates” or states where a majority of the counties are sparsely populated and defined as “frontie r states” would be no lower than the national ceiling amou nt discussed in section b above.CMS-1614-P 250

We propose in §414.202 that a rural state be defined as a state where more than 50 percent of the population lives in rural areas within the state as determined through census data, since a majority of the general population of the state lives in rural area s, it is likely that a majority of DMEPOS items and services are furnishe d in rural settings in the state. This is in contrast to other states where the majority of the general population of the state lives in urban areas, making it more likely that a majority of DMEPOS items and services are furnished in urban settings or in MSAs. We believe that fo r states where a majority of the general population lives in rural areas, adjustment s to the fee schedule amounts should be based on the national ceiling amount if the RSPA is lower than th e national ceiling amount. This higher level of payment would provide more assurance that access to items and services in states within a region that are more rural than urban is preserved in the event that costs of furnishing DMEPOS items and services in rural areas is higher than the costs of furnishing DMEPOS items and services in urban areas. We propose in §414.202 that a frontier state , would be defined as a state where at least 50 percent of counties in the stat e have a population density of 6 pe ople or less per square mile. In such states, the majority of counties where DMEPOS items and services may be needed are very sparsely populated and suppliers may therefor e have to drive consid erably longer distances in furnishing these items and services as opposed to other states where the beneficiaries live closer to one another. The designa tion of states as frontier states or frontier areas is currently used under Medicare Part A to make adjustments to the wage index for hospitals in these remote areas in order to ensure access to services in these areas. The de finition of frontier state that is proposed above for the purpose of implementi ng section 1834(a)(1)(F) an d (G) of the Act is consistent with the current definition in secti on 1886(d)(3)(E)(iii) (II) and (III) of the Act and 42CMS-1614-P 251

CFR 412.64(m) of the regulations related to implementation of the hospital wage index adjustments and prospective payment system for hosp itals under Part A. We believe that states designated as frontier states have a significant amount of area that is sparsely populated and are more likely to be geographically removed from (t hat is, a considerable driving distance from) areas where population is more concentrated. However, we solicit comments on alternative definitions of frontier states. Based on the 2010 Census data, states designa ted as rural would include Vermont, Maine, West Virginia, and Mississippi. Other than one CBA that is fully located in Mississippi, one CBA that is partially located in Mississippi, a nd two CBAs that are par tially located in West Virginia, the RSPAs would not include SPAs that reflect the costs of furnishing items and services in these states based on where the CBAs are currently located. Current frontier states include North Dakota, South Dakota, Montana, and Wyoming, and the RSPAs would not include SPAs that reflect the costs of furnishing items and services in any of thes e states based on where the CBAs are currently located. We propose that the designation of rural and frontier states could change as the U.S. Census information changes. We propose that when a state that is not designated as a rural state or frontier becomes a rural state or frontier state based on new, updated information from the U.S. Census Burea u, that adjustments to the fee schedule amounts in accordance with the proposed provision of this section would take effect as soon as such changes can be implemented. Likewise, we propose that at any time a state that is designated as a rural state or frontier no longer meets the proposed definition in this section for rural state or frontier state based on new, updated information fr om the U.S. Census Bureau, that adjustments to the fee schedule amounts in accordance with th e proposed provision of th is section would take effect as soon as such changes can be implem ented. We propose that the changes to the stateCMS-1614-P 252

designation would occur based on the decennial Census. The decennial Census uses total population of the state to determine whether the state is pr edominately rural or frontier. The U.S. Census Bureau also uses current population estimates every 1, 3, and 5 years through the American Community Survey but only samples a small percentage of the population every year, not the total population. Therefore, we propose that the designation of a rural or frontier state occur approximately every 10 years when the total population data is available. For the current proposed fee schedule adjustments, we propose to use the 2010 Census Data. The next update would reflect the 2020 Census Data and any changes in the designation of a rural or frontier state and corresponding fee schedule changes would be implemente d after the 2020 Census Data becomes available. For this and subsequent upd ates, we propose to in clude a listing of the qualifying rural and frontier States in program guidan ce that is issued quarter ly and to provide at least 6 months advance notice of any adjustments. Some of the comments received on the ANPRM indicated that the costs of furnishing DMEPOS items and services in rural areas is si gnificantly higher than the costs of furnishing DMEPOS items and services in urban areas. Ot her commenters suggested that the adjustments to the payment amounts based on information from CBPs be phased in to give suppliers time to adjust to the new payment levels. Although we believe that the costs of furnishing items and services in rural areas are different than the cost s of furnishing items and services in urban areas, there is no evidence to support a stat ement that the difference in cost s is significant. However, in order to proceed cautiously on this matter in the interest of ensuring ac cess to covered DMEPOS items and services, we are proposing to phase in the price adjustments, as explained below, so that we can monitor the impact of the adjustments as they are gradually phased in. In summary, we propose that adjustments to payment amounts for areas within differentCMS-1614-P 253

regions of the contiguous United States would be based on the un-weighted average of SPAs from CBAs that are fully or pa rtially located within these regions. The regional amounts would be limited by a national ceiling and floor and th e adjusted payment amounts for all states designated as rural or frontier st ates would be equal to the nati onal ceiling. In addition, we are soliciting public comments on whether payment in ru ral areas of states that are not designated as rural or frontier states sh ould be set differently. d. Areas Outside the Co ntiguous United States Given the unique costs of furnishing DMEPOS items and services in remote, isolated areas outside the contig uous United States such as Alaska , Guam, Hawaii, Puerto Rico, the United States Virgin Islands and other areas, we propose that any SPAs from programs in these areas be excluded from the calculation of the RSPA s in section a. In addition, we propose that the adjustments to the fee sche dule amounts for areas outside the contiguous United States would not be based on the RSPAs. Rather, we propose th at the adjustments to the fee schedule amounts for these areas be based on the higher of the average of SPAs for CBAs in areas outside the contiguous United States (for example, Honolul u) or the national ceiling limit applied to the payment adjustments for areas within the contigu ous United States. We believe that, to the extent that SPAs from non-c ontiguous areas are available, th ese amounts should be used in making adjustments to the payment amounts for ot her areas outside the contiguous United States since the challenges and costs of furnishing DMEP OS items and services in all remote, isolated areas is similar. We also believe that the paym ent adjustments for these areas, like those for the proposed rural and frontier states, should not be lower than the national ceiling established for items and services furnished in the contiguous United States. Areas outside the contiguous United States generally have higher shipping f ees and other costs. We believe the SPAs inCMS-1614-P 254

Honolulu and other areas outside the contiguous United States refl ect these costs and could be used to adjust the fee schedule amounts for these areas without limiting access to DMEPOS items and services. However, in the event that the national ceiling limit described in section b above is greater than the average of the SPAs for CBPs in areas outside the contiguous United States, we propose that the higher national ceiling amount be used in adjusting the fee schedule amounts for areas outside the co ntiguous United States in orde r to better ensure access to DMEPOS items and services. We are soliciting commen ts on these proposals. 2. Methodology for Items and Services Included in Limited Number of Competitive Bidding Programs In some cases, there may not be a sufficien t number of CBAs and SPAs available for use in computing RSPAs, and therefore, a di fferent methodology for implementing section 1834(a)(1)(F)(ii) of the Act would be necessary. For items and services that are subject to competitive bidding and have been included in CB P in no more than 10 CBAs, we propose that payment amounts for these items in all non-comp etitive bidding areas be adjusted based on 110 percent of the average of the SPAs for the areas where CBPs are implemented. Using a straight average of the SPAs rather than a weighted average of the SPAs gives SPAs for the various CBAs equal weight regardless of the size of the CBA. We believe this avoids giving undo weight to SPAs for more heavily populated area s. We are proposing the additional 10 percent adjustment to the average of the SPAs to accoun t for unique costs such as delivering items in remote, isolated locations, but w ould make this a uniform adjust ment for program simplification purposes. This issue is discu ssed in more detail below. Under the DMEPOS CBP, there may be items and services for which implementation ofCMS-1614-P 255

CBPs could generate significant savings for th e beneficiary and/or program, but which are furnished infrequently in most MSAs. In so me cases, such items and services could be combined with other items and services under la rger PCs or included in mail order competitions, to the extent that these are feasible options. For example, combining infrequently used traction equipment and frequently used hospital beds in the same product for bidding purposes would ensure that any beneficiary that needs traction equipment in the CBA would have access to the item from the suppliers also contracted to furnis h hospital beds in the ar ea. This would make it feasible to include traction equipment in numerous MSAs throughout the country and would allow use of the RSPA methodology described above. However, if a PC was established just for traction equipment for bidding purpo ses, the volume of items furn ished in certain MSAs may not be sufficient to generate viable competitions under the program because there may be a limited number of suppliers intere sted in competing to furnish the items in local areas. Nonetheless, if significant savings for the benefi ciary and/or program are possibl e for the equipment, we are mandated to phase the items in under the DMEPOS CBP. In addition, for lower volume items within la rge PCs, such as wheelchair accessories, we propose to include these items in a limited number of local competitions rather than in all CBAs to reduce the burden for suppliers submitting bids under the programs as a whole. In these cases, for the purposes of implementing secti on 1834(a)(1)(G) of the Act, we propose that payment amounts for these items in all areas wher e CBPs are not implemented be adjusted based on 110 percent of the average of the SPAs for the areas where CBPs are implemented. We are proposing the additional 10 percent adjustment to the national average price to account for unique costs in certain areas of the country su ch as delivering items in remote, isolated locations. For example, the PC for standard mobility in the 9Round 1 CBAs includes 25 HCPCSCMS-1614-P 256

codes for low volume wheelchair accessories that are not included in the PC for standard wheelchairs, scooters, and related accessories in the 100 Round 2 CBAs. We propose that payment amounts for these items in areas where CBPs are not implemented be adjusted based on 110 percent of the average of the SPA s for the 9Round 1 areas where CBPs are implemented. Alternatively, we could include these low volume items in all PCs in all 109 CBAs and suppliers would need to develop bid amounts and enter bids for these 25 codes for low volume items such as toe loop holders, shoc k absorbers and IV hangers. Including these 25 Healthcare Common Procedure Coding System ( HCPCS) codes for low volume wheelchair accessories in the PCs under the 9 Round 1CBAs means that suppliers submitting bids for wheelchairs have 25 bid amounts to develop and enter per CBA for these items, or a total of 225 bid amounts to develop and enter for these low vol ume items if bidding for wheelchairs in all 9 Round 1 CBAs. In contrast, including these co des in the PCs under al l 109CBAs means that suppliers submitting bids for wheelchairs have 2,725 bid amounts to develop and enter for these low volume items, if biding for wheelchairs in all 109 CBAs. We believe that adjusting fee schedule amounts based on SPAs from 10 or fewe r CBAs achieve the savings mandated by the statute for these items while greatly reducing th e burden on suppliers and the program in holding competitions for these items in all 109 CBAs across the country. Finally, if contracts and SPAs for low volum e items included in a limited number of CBAs expire and the items are not included in fu ture CBPs, we propose to use the information from the past competitions to adjust the payment amounts for these items nationally based on 110 percent of the average of the SPAs for the areas where CBPs were implemented. Even though the SPAs may no longer be in effect, we be lieve it is reasonable to use the information to reduce excessive payment amounts for items and servic es as long as the SPAs did not result in aCMS-1614-P 257

negative impact on access to quality items and services while th ey were in effect and as long as the amounts are adjusted to account for increases in costs over time. For example, 4 codes for adjustable wheelchair seat cushions were includ ed in the Round 1 Rebid, with SPAs that were approximately 25 percent below the fee schedu le amounts being in effect in 9 CBAs from January 2011 thru December 2013. These items we re not bid in future rounds due to the low volume of use relative to other wheelchair seat cushions. During the course of the 3-year contract period when the SPAs were in effect in the 9 areas, there were no reports of access problems and there were no negativ e health outcomes as a result of including these items under CBPs. For the future, savings for these items could be achieved by including them in future competitions or by using the previous SPAs, up dated by an economic update factor to account for increases in costs. If the decision is made not to include these items in future competitions, we believe savings can and shoul d still be obtained based on information from the previous competitions. We are soliciting commen ts on these proposals. 3. Adjusted Payment Amounts for Accessories used with Different Types of Base Equipment There may be situations where the same acce ssory or supply identified by a HCPCS code is used with different types of base equipment, and the item (HCPCS code) is included in one or more PCs under competitive bidding for use with some , but not all of the different types of base equipment it is used with. Fo r these situations, we propose to use the weighted average of the SPAs from CBPs and PCs where the item is incl uded for use in adjusting the payment amounts for the item (HCPCS code). We believe that it would be unnecessarily burdensome to have different fee schedule amounts for the same item (HCP CS code) when it is used with similar, butCMS-1614-P 258

different types of base equipment. We believe that the costs of furnishing the accessory or supply should not vary significantly based on the t ype of base equipment it is used with. Therefore, we seek public comments on addressing situations where an accessory or supply identified by a HCPCS code is included in one or more PCs under competitive bidding for use with more than one type of base equipmen t. In these situations , we propose to calculate the SPA for each CBA by weighting the SPAs fr om each PC in that CBA by national allowed services. This would result in the calculation of a single SPA for the item for each CBA. The single SPA per code per CBA would then be used in applying the payment adjustment methodologies proposed above. For example, HC PCS code Exxx1 describes a tray used on a wheelchair. Exxx1 was included in a PC for manua l wheelchairs in all CBAs and in a separate, second PC for power wheelchairs in all CBAs. SPAs for Exxx1 under the manual wheelchair PC are different than the SPAs for Exxx1 under the power wheelchair PC. Under the proposal, national al lowed services would be used to compute a weighted average of the SPAs for Exxx1 in each of the CBAs. So, rather than having 2 different SPAs for the same code in the same CBA, we would have 1 SPA for the code for the CBA. If the item is included in only one PC, we propose to use the SPA s for the item from that PC in applying the payment adjustment methodologies proposed above. We are soliciting commen ts on these proposals. 4. Adjustments to Single Payment Amount s that Result from Unbalanced Bidding Within the HCPCS there are instances where there are multiple codes for an item that are distinguished by the addition of a hierarchal feature(s). For exam ple, one code may describe an enteral nutrition infusion pump with an alarm an d another code may descri be a less sophisticated pump without an alarm. Under competitive bi dding, the code with th e higher utilization wouldCMS-1614-P 259

receive a higher weight and the bid for this item would have a greater impact on the composite bid and competitiveness of the s upplier’s overall bid for the PC within the CBP than the bid for the less frequently used alternative. This can result in unbalanced bidding where the bids and SPAs for the item without the additional features is higher than the bids and SPAs for the item with the additional features due to the fact that th e item with the features is utilized more than the item without the features and th erefore receives a hi gher weight. We believe that it is not inherently reasonable for payment amounts for equipm ent with fewer features or functionality to be higher than payment amounts for equipment with additional featur es or functionality. For example, HCPCS code B9000 describes an enteral nutrition infusion pump without alarm, whereas code B9002 describes an enteral nutrition infusion pump with alarm. Both codes have identical fee schedule amounts. Base d on paid claims data, only 176 Medicare beneficiaries received the pump without the alarm in 2012, whereas 52,531 Medicare beneficiaries received the pump with the alarm in 2012. Both pumps are included in the PC for enteral nutrients, supplies, and equipment. As a result of the significantly higher utilization of code B9002, this code received a much higher item weight under the CBP than code B9000, and, as a result, a supplier could s ubmit a much higher bid for B9000 than for B9002 with virtually no impact on their composite bid. Under Round 2, unbalanced bidding resulted in SPAs for code B9000 without the alarm being 6 percent higher on average than the SPAs for code B9002 with alarm. Unbalanced bidding also occurred under Round 2 in the case of standard power wheelchairs, with SPAs for infrequently used Group 1, standard weight power wheelchairs (codes K0815 and K0816) being 16 percent higher on average than the SPAs for the much more frequently used Group 2 versions (codes K0822 and K0823). Based on paid claims data, only 474 Medicare beneficiaries rece ived Group 1 power wheelchairs described by codes K0815 andCMS-1614-P 260

K0816 in 2012, whereas 196,968 Medicare beneficiar ies received higher performing Group 2 power wheelchairs described by codes K0822 a nd K0823 in 2012. The long term solution for avoiding cases of unbalanced bidding is to elim inate duplicate codes in the HCPCS. For the purpose of implementing section 1834(a)(1)(G) of the Act, a nd in making adjustments to payment amounts under sections 1834(a)(1)(F)(ii) , 1834(h)(1)(H)(ii), and 1842(s)(3)(B) of the Act, we propose that the payment amounts for infr equently used codes that describe items and services with fewer features than codes with more features be adjusted so that they are no higher than the payment amounts for the more frequently used codes with more features. For example, the adjusted fee schedule amounts for code B9000 w ould be set so that they are no higher than the adjusted fee schedule amounts for code B 9002. We believe that without this provision, unbalanced bidding could result in fee schedule amounts for items that essentially represent lower levels of service being higher than fee schedule amounts for items representing higher levels of service, based on bids being higher for infrequently used items with lower weights and less features than bids for fre quently used items with higher we ights and more features. This could result in beneficiar ies receiving the item with fewer features and functionality simply because the supplier has a financial incentive to furnish that item. Th is is especially important in light of the fact that use of the inherent reasonableness author ity provided by s ection 1842(b)(8) and (9) of the Act cannot be used to further ad just payment amounts that are adjusted based on the mandate of section 1834(a)(1 )(F)(ii) and the authority provid ed by sections 1834(h)(1)(H)(ii) and 1842(s)(3)(B) of the Act. We seek public comments on this issue and our proposed provision to address this issue. 5. National Mail Order Program - Northern Mariana Islands While Section 1847(a)(1)(A) of th e Act provides that CPBs be established throughout theCMS-1614-P 261

United States, the definition of United States at sec tion 210(i) of the Act does not include the Northern Mariana Islands. We therefore prev iously determined that the Northern Mariana Islands are not considered an area eligible for inclusion under a national mail order CBP. For the purpose of implementing the requirements of section 1834(a)(1)(F)(ii) of the Act, we are proposing that the payment amounts established u nder a national mail order CBP would be used to adjust the fee schedule amounts for mail order it ems furnished to beneficiaries in the Northern Mariana Islands. We propose that the adjust ed fee schedule amounts would be equal to 100 percent of the amounts established under the national mail order CBP. We are soliciting commen ts on these proposals. 6. Updating Adjusted Payment Amounts In accordance with section 1834(a) (1)(F)(iii) of the Act, th e adjusted payment amounts for DME must be updated as additional items ar e phased in or information is updated. We propose to add regulation text i ndicating that we would revise the adjusted payment amounts for DME, enteral nutrients, supplies, and equipment, and OTS orthot ics each time a SPA is updated following one or more new competitions, which ma y occur at the end of a contract period, as additional items are phased in, or as new programs in new areas are phased in. This is required by section 1834(a)(1)(F)(iii) for DM E. Since we believe it is r easonable to assume that updated information from CBPs would better reflect curr ent costs for furnishing items and services, we are proposing regulations to re quire similar updates for ente ral nutrients, supplies, and equipment, and OTS orthotics. As we indicated above, if the only SPAs av ailable for an item are those that were established under CBP that are no longer in effe ct, we propose to use these SPAs to adjust payment amounts using the methodologies descri bed above and we propose to do so followingCMS-1614-P 262

application of inflation adjustme nt factors. We propose that the inflation adjustment factor would be based on the percentage change in th e Consumer Price Index for all Urban Consumers (CPI-U) from the mid-point of th e last year the SPAs were in effect to the month ending 6 months prior to the date the initial payment ad justments would go into effect. The adjusted payment amounts would continue to be updated ever y 12 months using the percentage change in the CPI-U for the 12-month period ending 6 mont hs prior to the date the updated payment adjustments would go into effect. Use of the CPI-U as the update factor is consistent with how pricing amounts for DMEPOS have been upda ted since October 1, 1985, when the CPI-U was used in calculating the IIC for use in calcula ting reasonable charges. The CPI-U was used in updating reasonable charge data for use in calcul ating the initial fee schedule amounts and is used in determining the covered item update factors at sections 1834(a)(14), 1834(h)(4)(A), 1834(i)(1)(B), 1842(s)(1)(B) of the Act. If CBPs are subsequently established for the item, we propose that the SPAs established under these pr ograms would be used in applying the payment adjustment methodologies described above. If finalized, the payment amounts that would be adjusted in accordance with sections 1834(a)(1)(F)(ii) and (iii) of the Act for DME, s ection 1834(h)(2)(H)(ii) of the Act for orthotics, and section 1842(s)(2)(B) of the Ac t for enteral nutrients, supplies, and equipment shall be used to limit bids submitted under future competitions of the DMEPOS CBP in accordance with regulations at §414.414(f). Secti on 1847(b)(2)(A)(iii) pr ohibits the awarding of contracts under a CBP unless we are sure that total payments made to contract suppliers in the CBA are less than the payment amounts that would otherwise be made . In order to assure savings under a CBP, the fee schedule amount that would otherwise be paid is used to limit the amount a supplier may submit as their bid for furnishing the item in th e CBA. If finalized, the payment amounts thatCMS-1614-P 263

would be adjusted in accordance with sections 1834(a)(1)(F)(ii) and (iii ) of the Act for DME, section 1834(h)(2)(H)(ii ) of the Act for orthotics, and secti on 1842(s)(2)(B) of th e Act for enteral nutrients, supplies, and equipment would be the payment amounts that would otherwise be made if payments for the items and services were not made through implementation of a CBP. Therefore, the adjusted fee schedule amounts would become the new bid limits. We are soliciting commen ts on these proposals. 7. Summary of Proposed Methodologies To summarize, under the pr oposed methodology in subsection 1 above which applies to items and services included in more than 10 CBAs, adjusted fee schedule amounts would be determined based on RSPAs limited by a nationa l floor and ceiling. The RSPA would be established using the average of the SPAs for an item from all CBAs that are fully or partially located in the region. The payment amount for the item, with limited exceptions for areas outside the contiguous United States, would be e qual to its RSPA but not less than 90 percent and not more than 110 percent of the national average, which is the average of the RSPAs weighted by the number of states in the re gion. The proposed methodology is modeled closely after the regional fee schedule payment methodology in effect today for P&O. For the purpose of establishing the regional boundaries, we propose to use 8 regions developed by the Bureau of Economic Analysis (BEA) within the Department of Commerce: New England, Mideast, Great Lakes, Plains, Southeast, Southwest, Rocky Mountain, and Far West. For rural and frontier states, we propose that the payment amount would be 110 percent of the national average. For areas outside the contig uous United States, the payment amo unt would be the greater of the average of the SPAs in the non-contiguous areas or 110 percent of the national average. As described in subsection 2 above, we propose a different methodology for low volume items withCMS-1614-P 264

a limited number of SPAs. In addition, we prop ose to apply update factors to SPAs no longer in effect to adjust fee schedule amounts if no other data is available. Finally, we propose that adjustments would be made to account for SPAs fo r lower levels of service that are higher than SPAs for higher levels of service. A summary of the proposed methodologies is provided in Table 37 below. TABLE 37 - Summary of Proposed Methodolo gies for Adjusting Payment in Non-Bid Areas Proposed Methodology Calculations 1) Adjustments for Items Included in More than 10 CBAs* Regional Adjustments Limited by National Parameters for Items Furnished Within the Contiguous United States Adjusted payment equal to the RSPA (calculated using the un-weighted average of SPAs from CBAs that are fully or partially located with a BEA region) limited by a national floor and ceiling. The national ceiling and floor would be set at 110 percent and 90 percent, respectively, of the national weighted RSPA average (average of the RSPAs applicable to each of the 48 contiguous states and DC). Adjustments for Rural and Frontier States Adjusted payment for designated States based on 110 percent of the national weighted RSPA average Adjustments for Items Furnished Outside the Contiguous United States Adjusted payment for non-contiguous areas (e.g., Alaska, Guam, Hawaii) based on the higher of the average of SPAs for CBAs in areas outside the contiguous U.S. or 110 percent of the national weighted RSPA average applied to adjustments within the contiguous U.S. 2) Adjustments for Lower Volume or Other Items Included in 10 or Fewer CBAs* Adjusted payment based on 110 percent of the un-weighted average of the SPAs for the areas where CBPs are implemented for contiguous and non-c ontiguous areas of the United States. 3) Adjustments for Items Where the Only Available SPA is from a CBP No Longer in Effect Payment based on adjusted payment determined under 1) or 2) above and adjusted on an annual basis based on the CPI-U update factors from the mid-point of the last year the SPAs were in effect to the month ending 6 months prior to the date the initial payment adjustments would go intoCMS-1614-P 265

Proposed Methodology Calculations effect.

4) Adjustments for Accessories Used with Different Types of Base Equipment Adjustments for Accessories Included in One CBP Product Category SPAs for the item from that one Product Category would be used in determining the adjusted payment amounts under methodologies 1) or 2) Adjustments for Accessories Included in One or More CBP Product Category A weighted average of the SPAs for the item in each CBA where the item is included in more than one Product Category would be used to determine the adjusted payment amounts under methodologies 1) or 2) 5) Payment Adjustments to Northern Mariana Islands Using the National Mail Order SPAs Fee schedule amounts adjusted to equal the SPAs under the national mail order CBP *Note: We are also proposing to adjust the SPAs for a lower level of service item to not exceed the SPAs of a higher level of service item prior to applying the methodologies in 1) and 2) above in instances where the SPA for the lower level of service item exceeds the higher level of service item.

VI. Proposed Payment Methodologies and Payment Rules for Durable Medical Equipment and Enteral Nutrition Furnished under the Competitive Bidding Program A. Background The payment rules for DME have change d significantly over the years since 1965, resulting in the replacement of the original monthly rental pa yment methodology with lump sum purchase and capped rental payment rules, as well as separate payment for repairs, maintenance and servicing, and replacement of expensive acce ssories for beneficiary-owned equipment. In our experience, these payment ru les have been burdensome to administer and have added program costs associated with expensive wheelch air repairs and payment for loaner equipment, and have significantly increased costs associ ated with frequent replacement of expensive accessories at regular intervals for items such as CPAP devices. We estimate that separate payments for CPAP accessories have increa sed annual expenditures by approximately $200CMS-1614-P 266

million. In some cases, the costs associated with maintaining DME owned by beneficiaries equals or exceeds any savings that might be genera ted from capping rental payments. In the case of repairs, suppliers are not manda ted to service the equipment they furnish once title transfers to the beneficiary – any supplier can provide these services. This c ould create a hardship for the beneficiary since they must find a supplier willing to repair the equipment and their separate coinsurance payments could be subs tantial if the repair services are extensive. According to § 414.408(h)(3) of our regulations, payment on a capped re ntal basis also results in the restart of periods of continuous use for capped rental it ems, and according to § 414.408(i)(2) of our regulations, an extension in the rental cap periods for oxygen equipment when a beneficiary transitions from a non-contract supp lier to a contract s upplier at the start of a new CBP. These issues were discussed in th e February 26, 2014, ANPRM noted a bove (79 FR 10758). It is not clear, however, the extent to which the capped rental requirement, combined with separate payments for supplies, accessories, repairs, a nd program administration, overall results in net savings or net costs to the Medica re program, particularly if we examine the effects of the policy on specific DME items and services. Under the Social Security Amendments of 1965 (P.L. 89-97) enacted on July 30, 1965, Medicare Part B covered only re ntal of DME items. The Social Security Amendments of 1967 (P.L. 90–248), approved January 2, 1968, revised th e statute to provide authority for making payment for DME on a purchase basis as well as on a rental basis. On May 12, 1972, the Government Accountability Office (GAO) issued a report to the Congr ess entitled “Need for Legislation to Authorize More Economical Wa ys of Providing Durable Medical Equipment under Medicare” (B-164031(4), May 12, 1972) that led to Social Security Amendment (section 245) in 1972. Section 245 of the Social Secu rity Amendments of 1972 (Public Law 92-603)CMS-1614-P 267

enacted on October 30, 1972, modified the payment provisions for specific equipment items to LCL of reasonable charges to contain the costs of DME. This law allowed the Department of Health and Human Services (HHS) to experi ment with reimbursement approaches and implement any purchase approach found to be feasible and economical in order to avoid prolonged rental payments for expensive DME. Furthermore, section 16 of the MedicareMedicaid Anti-Fraud and Abuse Amendments (Public Law 95-142), enacted on October 25, 1977, amended section 1833(f) of the Act to read as follows: In the case of durable medical equipment to be furnished an indivi dual as described in section 1861(s)(6), the Secretar y shall determine, on the basi s of such medical and other evidence as he finds appropria te (including certification by the attending physician with respect to expected duration of need), whether the expected duration of the medical need for the equipment warrants a presumption that purchase of the equipment would be less costly or more practical than rental. If the Secretary determines that such a presumption does exist, he shall require th at the equipment be purchased, on a lease-purchase basis or otherwise, and shall make payment in accord ance with the lease- purchase agreement (or in a lump sum amount if the equipment is purchased other than on a lease-purchase basis); except that the Secretary may authorize the rental of the equipment notwithstanding such determina tion if he determines that the purchase of the equipment would be inconsistent with th e purposes of this title or w ould create an undue financial hardship on the individual who will use it. This law required HHS to make lease-purch ase decisions on a case-by-case basis based on whether purchase would be less costly or more practical than rental and reimburse on the basis of a lump-sum purchase or a lease/purchase arrangement. To implement the change in theCMS-1614-P 268

law, HHS issued final regulations (45 FR 44287) on July 1, 1980. This regulation provided that the purpose of the lease purchase payment arrangement for new and used DME was to reduce program costs caused by long and costly rental s of the equipment and reduce beneficiary expenses for annual deductibles and coinsurance for unnecessarily long rentals. However, the regulations were not implemented until 1985 because of uncertainty as to whether they would result in program savings. During the same tim e period, amidst growing concerns by the agency about prolonged and excessive rentals, Williams College under a grant administered by HCFA (now CMS) issued a report entitled “Determi nants of Current and Future Expenditures on Durable Medical Equipment by Medicare and its Program Beneficiaries” on April 1983. This report estimated the excess rentals at about 14 percent of rental payments. Following this report, a GAO report titled “Procedures for avoiding ex cess rental payments for durable medical equipment should be modified” issued on July 30, 1985, showed that exce ss rentals represented about 54 percent of the amounts allowed for lowe r cost items ($120 or less) and 34 percent for higher cost items. In the GAO report, excess rent al payments represented the difference between total Medicare rental payments for an item of equipment and Medicare reimbursement for the item if it had been purchased. GAO data showed substantially fewer short-term rentals than Williams' data (22 percent versus 64 percent for episodes lasting 1 or 2 months) and substantially more long-term rentals (33 percent. versus 8 per cent for episodes lasting more than 12 months). GAO concluded that savings would result fo r reimbursing low-cost items on a purchase basis because about two-thirds of the rented items in its study costing $100 or less would have been cheaper to buy. GAO also found that sufficien t data was not available to reliably predict when purchasing a high cost item would be less costly than renti ng it. The report indicated that purchase price was reached by about month 7, w ith additional monthly rental payments beyondCMS-1614-P 269

month 7 resulting in excess rental payments cost thereafter. Because of the uncertainty with respect to the high-cost items, GAO recommended alternative reimbursement approaches such as adjustment of the rental rate and requirements that suppliers accept whatever percentage is adopted. The report further discussed HHS and supp lier comments on the GAO report draft. HHS also commented that the cap propos al did not address the issues associated with ownership of DME after the maximum amount of the cap had b een reached. The supplier comments included recommendations from National Association of Medical Equipment Suppliers (NAMES) proposal for considering alternative methods th at limited rental payments after a specified number of months such as 24 months for non-oxygen-related DME items (wheelchairs and hospital beds). At the end of the 2-year period, any item still being rented would be subject to a monthly maintenance fee in lieu of rental base d on 30 percent of the latest allowable rental charge. Title to the items would remain with the supplier, and th e item would be returned when no longer needed. Section 4062 of the Omnibus Budget Rec onciliation (OBRA) Act of 1987 (Public Law 100-203), was enacted on December 22, 1987. This legislation added section 1834 (a) to the Act, which mandated payment categories and ru les for DME that dictated whether payment would be made on a rental and/or purchase basis for items in each category. These changes were intended to align payment rates and achieve savings in the Medicare program. The new payment categories mandated by section 1834(a) of the Ac t were promulgated via regulation at §414.210. Sections 1834(a) (2) th rough (a) (5) and 1834(a) (7) of the Act set forth separate payment categories of DME and describe how the fee sc hedule for each of the following categories is established: Inexpensive or other routinely purchased items; Items requiring frequent andCMS-1614-P 270

substantial servicing; Custom ized items; Oxygen and oxygen equipment; and Other items of DME or capped rental items. Section 13543 of the Omnibus Budget Reconc iliation Act (OBRA) of 1993 (Public Law 103-66), was enacted on August 10, 1993, and amended section 1834 (a) to reclassify nebulizers, CPAP devices, aspirators or suction pumps, and in termittent assist or respiratory assist devices from the category of items requiring frequent and substantial servici ng to the capped rental payment category. It also mandated separate pa yment for accessories used in conjunction with these items. Section 4315 of the Balanced Budget Act of 1997 (P.L. 105-33), enacted on August 5, 1997, added section 1842(s) to the Act, to authorize a fee schedule for PEN, which was promulgated via regulations at § 414.100 (66 FR 45173, August 28, 2001). In 42 CFR Part 414, Subpart C of the regulations, govern payment on a fee schedule basis for PEN nutrients, equipment and supplies. Payment for PEN items and services is made in a lump sum for nutrients and supplies that are purchased and on a monthly basis for equipment that is rented. Section 1847 of the Act establishes the Medicare DMEPOS Competitive Bidding Program (CBP) (“Competitive Bidding Program”) . Under the CBP, Medicare sets payment amounts for selected DMEPOS items and services furnished to beneficiaries in CBAs based on bids submitted by qualified suppliers and accepte d by Medicare. For competitively bid items, these new payment amounts, referred to as “single payment amounts,” replace the fee schedule payment amounts. Section 1847(b)(5) of th e Act provides that Medicare payment for competitively bid items and services is made on an assignment-related basis equal to 80 percent of the applicable SPA amount, le ss any unmet Part B deductible. Payment errors and increased costs can occu r as a result of pa ying separately for equipment, repairs, accessories, and routine maintenance and servicing associated withCMS-1614-P 271

beneficiary ownership of DME after the 13-mont h capped rental period or initial lump sum purchase, which have increased the risk for im proper payments. The findings published in the August 2010 OIG report (OEI-07-08-00550) titled “A re view of claims for capped rental durable medical equipment” reveal that from 2006 to 2008, Medicare erroneously paid separately for these services. Medicare paid $2.2 million for routine maintenance and servicing of capped rental DME; from 2006 to 2008, Medicare erroneous ly allowed nearly $4.4 million for repairs for beneficiary-owned capped rent al DME that failed to meet payment requirements; and in 2007, Medicare allowed nearly $27 million for repair claims of beneficiar y-owned capped rental DME that failed to meet payment requirements. Based upon our experience, the ownership of equipment by beneficiary after lump sum purchase or after the end of 13 months capped re ntal period leads to complicated administrative procedures. The program must keep track of se parate payment, coverage, medical necessity, and other rules for a number of related codes for re placement supplies and acce ssories used with the base equipment as well as labor and parts associated with repairi ng patient-owned equipment. In addition, claims processing systems must count rental months and contractors must identify when legitimate breaks in continuous use occur a nd can result in the star t of new capped rental periods. This leads to costly and complicated claims processing systems edits for processing millions of claims for these items and services. Payment on a purchase or capped rental basis results in the need to process and pay separate ly for numerous items that are not DME but are related to furnishing DME such as repair of equipment or replacement of supplies and accessories used with patient-owned equipmen t necessary for the effective use of DME. B. Proposed Provisions We believe that we have general authority under section 1847(a) a nd (b) of the Act toCMS-1614-P 272

establish payment rules for DME and enteral nutriti on equipment that are different than the rules established under section 1834(a) of the Act for DME, section 1842(s) for enteral nutrients, supplies, and equipment, and, section 6112(b) of Omnibus Budget Reconciliation (OBRA) Act of 1989 (Public Law 101-239) for enteral pumps. We believe that lump sum purchase and capping rentals for certain DME and enteral nut rition may no longer be necessary to achieve savings under the program when competitive bidding can be used to establish a reasonable monthly payment. We also believe that paymen t on a continuous rental basis – that is, ongoing monthly payments not subject to a cap – could he lp to ensure that medically necessary DME and enteral nutrition equipment is kept in good working order for the entire duration of medial need and would make it easier for beneficiaries to cha nge from one supplier to another since the new supplier would not be faced with a finite numbe r of rental payments. Currently, there is no requirement that a supplier take responsibility for repairing equipment once it is owned by a beneficiary, which may cause difficulties for the beneficiary to find a supplier to undertake such services. We believe that continuous rental pa yment would eliminate su ch issues because the supplier of the rented equipment would always be responsible for keeping the equipment in good working order. We do not believe that continuou s monthly rental payments for DME and enteral nutrition would negatively imp act access to items and servic es and could potentially be implemented in a manner that does not increase program expenditures since suppliers would be paid based on bids for furnishing the same ge neral items and services they would otherwise provide. In addition, since Medi care payment for rental of DME and enteral nutrition equipment include payment for maintenance an d servicing of the rented equi pment, the suppliers would be directly responsible for meeting the monthly needs of the beneficiary in terms of keeping the rented equipment in good working order.CMS-1614-P 273

As indicated in section IV above, CMS issued an ANPRM: Medicare Program; Methodology for Adjusting Payment Amounts for Certain Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) using Information From Competitive Bidding Programs on February 26, 2014 (79 FR 10754). As part of this ANPRM, comments were solicited on whether payment on a bundled, cont inuous rental basis for DME and enteral nutrition should be adopted under the DMEPOS CBP. Some commenters were concerned that services such as replacement of CPAP masks and equipment re pairs would not be provided if they were not paid for separately. Some commenters supported bundling payments for oxygen and enteral nutrition. Some commenters sugges ted that the bundling methodology be tested first before it is utilized on a wide scale basis. Thirteen commenters that included beneficiaries, beneficiary advocacy organizati ons, occupational therapists, a nd physical therapists raised concerns that access to items such as highly configured wheelchairs and speech generated devices might be disrupted under a continuous monthly bundled rental payment that includes equipment rental, replacement accesso ries and repairs. They felt that payment on a rental basis would result in patients losing access to these devices when they entered institutions such as hospitals and skilled nursing facilities where sepa rate payment for DME is prohibited by section 1861(n) of the Act. For items that continue to be paid for on a lump sum purchase basis or a capped rental basis where ownership of equipm ent transfers to the beneficiar y following the capped rental period, we solicited comments on whether the supp lier of the equipment should be responsible for repairing the equipment following transfer of title. Some commenters were opposed to the idea of making contract supplie rs of purchased equipment re sponsible for ongoing repairs of equipment following transfer of title to the beneficiary. They stated that it would be a significantCMS-1614-P 274

burden on suppliers to provide ongoing maintenance of equipment they furnished on a purchase basis, especially if the bene ficiary moved out of the area. After carefully cons idering comments received in response to the ANPRM, we are proposing to update the regulations to include proposed special payment rules described below that would be utilized in pa ying claims for certain DME or enteral nutrition under a limited number of CBPs. As explained in more detail in the sections that follow below, we propose to revise the regulation by adding a new section at 42 CFR § 414.409 w ith special payment rules to replace specific payment rules at § 414.408 for thes e items and services in these CBPs. We also propose to revise § 414.412 regardin g submission of bids for furnishing items and services paid in accordance with these special payment rules. We seek comments on these proposals. We propose to phase-in the special payment ru les described in sections 1 and 2 below in a limited number of areas for a limited number of ite ms initially to determin e whether it is in the best interest of the Medicare program and its beneficiaries to phase these rules in on a larger scale based on evaluation of the ru les’ effects on Medicare program costs, and quality of/access to care. In order to monitor the impact of phasi ng in the special payment rules in no more than 12 CBAs, we propose that, at a mini mum, we would utilize evaluation criteria that are consistent with the current evaluation criteria for monitoring the impact of the CBP on utilizers of items and services in CBAs. To evaluate the quality of care for beneficiaries affected by the special payment rules, we propose that, at a minimum, we would utilize health status outcomes based criteria that would measur e specific indicators such as mortality, morbidity, hospitalizations, emergency room and other appl icable indicators uni que to each product category. To evaluate beneficiar y access to necessary items and services we propose that, at a minimum, we would monitor utilization trends for each product category and track beneficiaryCMS-1614-P 275

complaints related to access issues. To evaluate the cost of the program , we propose that, at a minimum, we would analyze the claims data fo r allowed services and allowed cost for each product category and the associated accessories, s upplies and repair cost in the 12 CBAs and the comparator CBAs. We propose to analyze th e effect of the proposed payment rules on beneficiary cost sharing. We propose that in any competition wher e these rules are applied, suppliers and beneficiaries would receive adva nce notice about the rules at th e time the competitions that utilize the rules are announced. The combined, total number of CBAs where the proposed rules in either section 1 or 2 would a pply would be limited to twelve. In other words, it would not be twelve CBAs for the rules in section 1 and an ad ditional twelve CBAs for the rules in section 2, but 12 CBAs total. In addition, we propose that the PCs listed below would be phased in to include one or more of the CBAs that would number no more than tw elve total. In addition, if a determination is made to phase-in these rules on a larger scale in a dditional areas and for additional items based on program evaluation re sults regarding cost, qua lity, and access, the process for phasing in the rules a nd the criteria for determining wh en the rules would be applied would be addressed in future notice and comme nt rulemaking. This rulemaking would also address how the methodology for using these SPAs to adjust fee schedule amounts would need to be revised. The Affordable Care Act (Patient Protecti on and Affordable Care Act of 2010, P.L. 111- 148 (March 23, 2010), Sec. 3021) establishes the Ce nter for Medicare an d Medicaid Innovations (CMMI) which is authorized to test models to reduce Medicare and Medicaid expenditures while preserving or improving quality for beneficiaries of those two programs. The provision includes appropriations of $10 billion for fiscal years 2011 through 2019. We solicit comments on theCMS-1614-P 276

option for testing the above special payment rules for DME and enteral nutrition using the CMMI demonstration authority in no more th an 12 CBAs that would allow us to test and evaluate the special payment rules on a wider sc ale and determine whether the special payment rules reduce Medicare expenditure while pres erving or improving the quality for Medicare beneficiaries. Regardless of the authority used to phase in or test these special payment rules, we would undertake rigorous evaluation to determine the rules’ eff ects on program costs, quality, and access. We seek comments on the specific proposals below. 1. Payment on a continuous rental basis for select items We propose to revise the regulation at 42 CFR § 414.409 to allow for payment on a continuous monthly rental basis under future co mpetitions in no more than 12 CBAs for one or more of the following categories of items a nd services: enteral nutrition, oxygen and oxygen equipment, standard manual wheelchairs, standa rd power wheelchairs, CPAP and respiratory assist devices, and hospital beds. We believe that 12 CBAs represents a limited number of CBAs yet would allow testing in different regions of the country. We propose that the SPAs established under the special payment rules woul d be based on bids submitted and accepted for furnishing rented DME and enteral nutrition on a monthly basis. We propose that the SPAs would represent a monthly payment for each month that rented DME or enteral nutrition is medically necessary. The SPA for the monthly re ntal of DME would include payment for each item and service associated with the rental equipment including the ongoing maintenance and servicing of the rental equipment, and replacem ent of supplies and accessor ies that are necessary for the effective use of the equipment. In th e case of enteral nutri tion, we propose that the monthly SPA would include payment for all nutrie nts, supplies and equipment. Suppliers wouldCMS-1614-P 277

be responsible for furnishing al l items and services in the applicable CBA needed each month based on the physician’s order. For example, in addition to furnishing the CPAP device, the supplier would be responsible for furnishing the acce ssories used with the device such as masks, tubing, headgear, humidifiers, etc., as well as all maintenance and servicing of the equipment. For wheelchairs, the supplier woul d be responsible for furnishing the type of wheelchair and all options and accessories used with the wheelchair that are needed by the patient, as well as well as all maintenance and servicing of the equipm ent. For hospital beds, the supplier would be responsible for furnishing the type of hospital bed and all accessories used with the hospital bed (for example, mattresses, side rails, trapeze bars , etc.) needed by the patient, as well as all maintenance and servicing of the equipment. As discussed in more de tail below, phasing in these rules would help us determine the impact on Medicare expenditures as well as beneficiary access to items and services and other possible costs and benefits. We seek comments on this proposal. a. Enteral nutrition We propose to implement future competitions for enteral nutrition in no more than 12 CBAs, where payment would be based on bids submitted for furnishing all enteral nutrients, supplies, and equipment needed on a monthly basi s. We propose that the suppliers would submit a single bid for each CBA for furnis hing all items and services rela ted to furnishing such enteral nutrients, supplies, and equipmen t in the applicable CBA needed by a beneficiary on a monthly basis. We are soliciting comments on whether al ternatives to submitting a single bid for enteral nutrition should be considered, such as having separate categories base d on mode of delivery (syringe fed, pump fed, or gravit y fed) or separate categories based on the type of nutrients delivered. We selected the cate gory of enteral nutrition because we believe that payment on aCMS-1614-P 278

separate, piecemeal basis for daily supplies, calories of nutrients furnished, and monthly rental of equipment the pumps is unnecessary and overly co mplex. For example, for a pump-fed patient, the beneficiary must choose whether they wish to rent the pump or purchase the pump. If the beneficiary chooses to rent th e pump, the supplier is required to continue furnishing the pump until the capped rental period is over, but then is allowed to bill for maintenance and servicing of the pump once every 6 month, but only if maintena nce and servicing is needed and furnished. The supplier must also submit claims for daily s upply kits as well as feeding tubes furnished in addition to billing for every 100 ca lories of enteral nutrient furnis hed. Finally, the supplier must bill for the pole used to hold the pump; however , the monthly rental payments for the pole are not subject to the cap on rentals that the statut e specifically requires fo r the pump and this is confusing. In addition, issues have been rais ed regarding replacement parts and supplies for beneficiary-owned enteral nutriti on infusion pumps when the manuf acturer elects to discontinue the brand and model of pump ow ned by the beneficiary. Neither the beneficiary nor the supplier is able to obtain supplies that the manufacturer no longer sell s and the Medicare rules would generally not allow for the purch ase of a new pump since this would be duplicate equipment. We seek comments on this proposal. b. Oxygen and oxygen equipment We propose to implement future competitions for oxygen and oxygen equipment in no more than 12 CBAs, where payment would be based on bids submitted for furnishing all oxygen and oxygen equipment needed on a monthly basis. We propose that the suppliers would submit a single bid for each CBA for furnishing all item s and services needed on a monthly basis, including all rented equipment and related acces sories such as regulators, flowmeters, nasal cannulas, masks, tubing, humidifier bottles, tank stands and carts, and transtrachea l catheters, asCMS-1614-P 279

well as well as all maintenance and servicing of the equipment and delivery of oxygen contents. We selected the category of oxygen and oxygen equi pment because we believe the rental cap for oxygen equipment generates very little savi ngs under CBPs. A small percentage of beneficiaries, approximately 25 percent based on our review of Medicare claims, reach the 36- month cap, which is extended by as much as 9 m onths at the start of a CBP, and the SPAs for oxygen contents furnished after th e cap are roughly the same as the SPAs for furnishing oxygen and oxygen equipment during the 36-month rental cap period. In addition, recent issues related to suppliers abandoning bene ficiaries after the rental cap has resu lted in the need to pay for lost oxygen and oxygen equipment, eliminating any savi ngs the rental cap might have achieved. Although section 1834(a)(5)(F)(ii)(I) of the Act mandates that the supplier receiving payment for the 36 th month of continuous use must continue to furnish the oxygen and oxygen equipment for any period of medical need for th e duration of the reasonable usef ul lifetime of the equipment, certain suppliers have failed to continue providing oxygen and oxygen equipment despite this requirement. Section 414.226 provides that for oxygen and oxygen equipment, Medicare payments are modality neutral, with the exception that the portable oxygen equipment add-on payment for oxygen generating portable equipment (OGPE) is hi gher than the add-on payment for liquid and gaseous portable oxygen equipment. The Medi care monthly payment for oxygen and oxygen equipment includes payment for stationary eq uipment (concentrators, liquid, or gaseous stationary equipment) as well as payment for oxygen contents (stationary and portable). The add-on payment is only for the portable oxygen e quipment and does not include payment for the portable oxygen contents. This f act is often confused and the portable oxygen add-on payment is erroneously viewed as a payment for portable oxygen contents as we ll as portable oxygenCMS-1614-P 280

equipment. In a majority of cases, benefi ciaries receive both stat ionary oxygen and oxygen equipment and portable oxygen and oxygen equipment, so having a separate add-on payment for portable oxygen equipment only seems unnece ssary. Under our proposal, for oxygen and oxygen equipment payment under the select CBPs, we propose to eliminate the 36-month cap on equipment payments and eliminate separate add-on payments for portable equipment and separate payment for oxygen contents. Unde r our proposal, the contract suppliers would continue to be responsible fo r furnishing equipment consiste nt with the requirements in §414.420. We seek comments on this proposal. c. Standard manual wheelchairs We propose to implement future competiti ons for standard manual wheelchairs in no more than 12 CBAs, where payment would be based on bids submitted for furnishing standard manual wheelchairs and all accesso ries used in conjunction with the wheelchairs on a monthly basis. We propose that the suppliers would s ubmit a single bid for each HCPCS code describing the wheelchair for each CBA for furnishing the wheelchair and all accessories and services needed on a monthly basis. We are soliciting on this proposal as well as comments on whether all standard manual wheelchairs should be desc ribed under one HCPCS code in order to simplify bidding and claims processing pr ocedures. The current HCPCS codes for standard manual wheelchairs include standard, hemi (low seat ), lightweight, high stre ngth lightweight, heavy duty, and extra heavy duty wheelchairs de scribed by codes K0001 thru K0004, K0006, and K0007 in the HCPCS. In view of comments to the ANPRM expressing concern regarding beneficiary impact of bundled arrangements for users of highly configur ed manual wheelchairs, we are requesting comment on what safeguards and monitoring approaches we should use toCMS-1614-P 281

ensure that access to these items is not disrup ted for individuals transi tioning between settings and/or residing in remote areas. We seek comments on this proposal. d. Standard power wheelchairs We propose to implement future competitions for standard power wheelchairs in no more than 12 CBAs, where payment would be based on bids submitted for furnishing standard power wheelchairs and all accessories used in conjunction with the wheelchairs on a monthly basis. We propose that the suppliers would submit a si ngle bid for each HCPCS code describing the wheelchair for each CBA for furnishing the wheelch air and all accessories (including batteries) and services needed on a monthly basis. We are soliciting comments on whether all standard power wheelchairs should be described under on e HCPCS code in order to simplify bidding and claims processing procedures. The current HCPCS codes for standard power wheelchairs include all group 1 and group 2 power wheelchai rs that cannot accommodate rehabilitative accessories and features described by codes K 0813 thru K0829 in the HCPCS. In view of comments to the ANPRM expressing concern regarding beneficiary impact of bundled arrangements for users of highly configured ma nual wheelchairs, we are requesting comment on what safeguards and monitoring approaches we shoul d use to ensure that access to these items is not disrupted for individuals tr ansitioning between settings and/ or residing in remote areas. We selected the categories of standard manua l and power wheelchairs because we believe that payment on a separate, piecemeal basis fo r hundreds of various wheelchair options and accessories is unnecessary and overly complex. In addition, issues have been raised regarding access to repair of beneficiary-owned wheelchai rs following the 13-month capped rental period. For example, there are hundreds of codes for various wheelchair accessories and separate payment for each of these items in addition to the payment for the wheelchair. The separateCMS-1614-P 282

billing, processing and payment of these claims would not be necessary given that the supplier can factor the costs of ac cessories into their bid for furnishing the rented equipment. In addition, the beneficiary’s needs may change such that th e beneficiary needs a diffe rent type of accessory from the one that was initially furnished by the supplier. Under the curr ent rules, the accessory may not be covered if it is simila r to the one that was already pa id for by Medicare. If payments for all types of accessories are included in an ongoing, monthly rental amo unt for the wheelchair, the beneficiary can receive othe r accessories included in the pr ogram, provided such accessories are medically necessary. We seek comments on this proposal. e. CPAP and respirat ory assist devices We propose to implement future competitions for CPAP and respirator y assist devices in no more than 12 CBAs, where payment would be based on bids submitted for furnishing the CPAP or respiratory assist device and supplies, accessories, and servic es needed on a monthly basis. We propose that the suppliers would s ubmit a single bid for each device for each CBA for furnishing all items and services needed on a mont hly basis. We are so liciting comments on our proposal as well as whether all CPAP and respir atory assist devices should be described under one HCPCS code in order to simplify bidding and claims processing procedures. We selected the category of CPAP and respiratory assist de vices because we believe the cost of paying separately for the expensive accessories used with these devices may exceed the amount of savings achieved from capping the rental paymen ts for the equipment. We seek comments on this proposal. f. Hospital beds We propose to implement future competitions for hospital beds in no more than 12CMS-1614-P 283

CBAs, where payment would be based on bids submitted for furnishing hospital beds and all accessories used in conjunction with the hospital beds on a monthly basis. We propose that the suppliers would submit a single bid for each HCPCS code describing the hospital bed for each CBA for furnishing the hospital be d and all accessories and services needed on a monthly basis. We are soliciting comments on whether all hosp ital beds should be described under one HCPCS code in order to simplify bidding and claims proc essing procedures. We selected the category of hospital beds to allow us to determine the impact of the continuous monthly rental payment rule under CBP on beneficiary access, utili zation rate and cost for an item that currently does not have beneficiary access issues or issues related to excessive cost for repair and accessories. We seek comments on this proposal. g. Transition rules We propose to revise the regulation at 42 CFR §414.409 to the include supplier transition rules for enteral nutrition, oxygen and oxygen equipment, standard manual wheelchairs, standard power wheelchairs, CPAP and respir atory assist devices, and hospital beds that would be paid in accordance with the rules proposed in this section. We also propose to revise the regulation at 42 CFR §414.408 to provide a cross reference to proposed §414.409. We propose that changes in suppliers from a non-contract supplier to a cont ract supplier at the beginning of the CBP where the proposed payment rules would apply would simp ly result in the cont ract supplier taking on responsibility for meetin g all of the beneficiary’s monthly needs while receiving payment for each month of service. We developed these pro posed rules based on that fact that for capped rented DME and oxygen and oxygen equipment, si nce rental caps would not apply under the proposed rules, there would be no need to re start or extend capped re ntal periods when a beneficiary transitions from a non- contract supplier to a contract supplier. We propose thatCMS-1614-P 284

supply arrangements for oxygen and oxygen equipmen t, and rental agreements for standard manual wheelchairs, standard power wheelchairs, CPAP devices, respiratory assist devices, and hospital beds entered into before the start of a CBP and application of the payment rules proposed in this section would be allowed to conti nue so long as the supplier agrees to furnish all necessary supplies and accessories used in conjun ction with the rented equipment and needed on a monthly basis. We propose that non-contract suppliers in thes e cases would have the option to continue rental agreements; however, we propose th at as part of the process of allowing the rental agreements to continue, the grandfathe red supplier would be paid based on the payment rules proposed in this section and based on th e SPAs established under the CBPs incorporating the proposed rules. We solicit comments on this proposed process. We propose that in the event that a benefi ciary relocates from a CBA where the rules proposed in this section apply to an area wher e rental cap rules appl y, that a new period of continuous use would begin for the capped rental item, enteral nutrition equipment, or oxygen equipment as long as the item is determined to be medically necessary. We believe these rules that would result in a new period of continuous use are necessary to safeguard beneficiary access to covered items and services and plan to cl osely monitor the impact these rules have on beneficiary cost sharing before phasing in these rules in more than a limited number of CBAs. We seek comments on these proposals. h. Beneficiary-owned equipment We propose that separate payment for all repairs, maintenance and servicing, and replacement of supplies and accessories for beneficiary-owned DME or enteral nutrition equipment would cease in the CBAs where the paym ent rules proposed under this section are inCMS-1614-P 285

effect. We propose that if the beneficiary has a medical need for the equipment, the contract supplier would be responsible for furnishing new e quipment and servicing th at equipment. This option would ensure that beneficiaries continue to receive medically necessary equipment, including the supplies, accessories, maintenance and servicing that may be needed for such equipment. Please note that this would not apply to items which are not paid on a bundled, continuous rental basis. We propose to revise the regulati ons at § 414.409 to specify that any beneficiary who owns DME or en teral nutrition equipment and con tinues to have a medical need for the items should these rules ta ke effect in a CBA where they reside, would have the option to obtain new equipment, if medically necessary, and relate d servicing from a c ontract supplier. We are requesting comment as to whether a transitional process should be considered when claims are selected for review to determine whether they are reasonable and necessary and other safeguards are required to ensure timely delive ry of the replacement DME so that individuals’ mobility and ability to live inde pendently is not adversely impacted by delays. While this could potentially increase beneficiary co st sharing, it would eliminate issu es associated with repair of beneficiary-owned equipment. We plan to closely monitor the impact of this proposed provision, should it be finalized. We seek comments on this proposal, including is sues related to the ab ility of low income beneficiaries to afford additional cost sharing, an d how best to monitor be neficiary impact within the 12 CBAs in which these new rules would be phased in. 2. Responsibility for repair of beneficiary- owned power wheelchairs furnished under CBPs We propose to revise the regulation at 42 CFR § 414.409 to add a new payment rule that would apply to future competitions for standard power wheelchairs in no more than 12 CBAs where payment is made on a capped rental basis and not on the basis of the rules proposed underCMS-1614-P 286

§1 above. In these CBPs, we propose that contra ct suppliers for power wheelchairs would be responsible for all necessary repairs and mainte nance and servicing of any power wheelchairs they furnish during the contract period under the CBP, including repair s and maintenance and servicing of power wheelchairs after they have transferred ti tle to the equipment to the beneficiary. We propose that this responsibility would end when the reasonable useful lifetime established for the power wheelchair expires, me dical necessity for the power wheelchair ends, the contract period ends, or th e beneficiary relocates outside the CBA. We propose that the contract supplier would not receive separate pa yment for these services and would factor the costs of these services into their bids. We believe that based on existing maintenance and servicing requirements, suppliers could project the cost of co ntinuing to repair and service equipment of various ages once title to the equi pment has transferred to the beneficiary. As indicated above, under existing rule s, the supplier that transfers title to the equipment to the beneficiary after the 13 month peri od of continuous use is not he ld responsible for repairing the equipment they furnish after the beneficiary take s over ownership of the equipment. Therefore, we believe the propose rule would safeguard th e beneficiary and better ensure that the beneficiary continues to have e quipment in good working order to meet their needs. We propose that the contract supplier woul d not be responsible for repairi ng power wheelchairs they did not furnish. We propose that services to repair be neficiary-owned equipment furnished prior to the start of the contract period would be paid in accordance with the standa rd payment rules at § 414.210(e). We seek comments on this proposal. 3. Phasing in the proposed payment rules in CBAsCMS-1614-P 287

We propose that the CBAs where the proposed ru les in §§ 1 or 2 above would be applied would be for MSAs with a general populati on of at least 250,000 and a Medicare Part B enrollment population of at least 20,000 that are not already included in Round 1 or 2. Based on 2012 population estimates from the Census Bureau and 2011 Medicare enrollment data, there are approximately 80 MSAs that would satisfy this cr iteria. Selecting MSAs not already included in Round 1 or 2 would allow competitions and rules associated with these competitions to begin after the final rule would take effect in areas that are comparable to existing CBAs. We propose that the boundaries of the CBAs wo uld be established in accordance with the rules set forth at §§ 414.406 and 414.410. We propose that additional CBPs for the items identified in §§ 1 and 2 above be established in “comparator” CBAs c oncurrent with CBPs where the proposed rules would be applied. Payment for items and servic es in the comparator CBAs would be made in accordance with the existing payment rules in § 414.408. We propose that these additional comparator CBAs and CBPs be established to facili tate our analysis of th e effect of the payment rules proposed in sections 1 and 2 above compared to the effect of the ex isting payment rules in § 414.408. We propose that for each CBP where eith er the rules in section 1 or 2 above are implemented, a comparator CBA and CBP woul d be established. We propose that the comparator CBAs be selected so that they are located in the same state as the CBA where the special payment rules would apply and are sim ilar to the CBAs in which the proposed payment rules would be implemented based on a combina tion of factors that could include geographic location (region of the country ), general population, benefici ary population, patient mix, and utilization of items. We are pr oposing to establish the comparator CBAs and CBPs to enable us to review the impact of the proposed payment ru les on expenditures, quality, and access to itemsCMS-1614-P 288

and services in order to dete rmine whether to pursue future rulemaking to expand the proposed payment rules to additional areas and or items. We seek comments on this proposal. 4. Submitting bids for items paid on a continuous rental basis In accordance with section 1847(b)(2)(A)(iii) of the Act, before contracts can be awarded, a determination must be made that the total amounts to be paid to contract suppliers under a CBP are expected to be less than the to tal amounts that would otherwise be paid. In accordance with §414.414(f) of the regulations, unde r the DMEPOS CBP, bids amounts for an item or service are limited to the fee schedule am ount that would otherwise be paid for the item or service. We propose that in order to apply the proposed re ntal payment rules, we would establish the bid limits for en teral nutrition, oxygen and oxygen equipment, standard manual wheelchairs, standard power wheelchairs, and hosp ital beds that would be paid in accordance with the proposed payment ru les in sections 1 and 2 a bove based on average monthly expenditures per beneficiary in an area for the it ems and services related to furnishing the DME. For example, the bid limit for the continuous monthl y rental of a standard manual wheelchair in a CBA would be based on the total payment amo unts per month in the area for the wheelchair, repair, maintenance and servicing of the wheelchai r, and accessories used with the wheelchair, divided by the unduplicated number of beneficiarie s receiving these items and services. We propose to revise § 414.412 to specify that the supplier’s bid for furnishing enteral nutrition, oxygen and oxygen equipment, standard manual wheelchairs, standard power wheelchairs, and hospital beds on a continuous monthly rental basi s could not be higher th an the average monthly payment made in the area for the items and services prior to the start of the competition. In the case of CPAP devices and respiratory assist devices, these items were paid on a bundled,CMS-1614-P 289

continuous rental fee schedul e basis from 1989 thru 1993, based on the rules mandated by section 4062(b) of OBRA 87, prior to the cha nge by section 13543 of OBRA 93 that moved them from the payment class for items requiring frequent and substant ial servicing to the payment class for capped rental items. Paym ent on a bundled, continuous rental fee schedule basis was mandated by OBRA 87 from 1989 thru 1993. The fee schedule for 1993 is the most current fee schedule where payment was based on a bundled, continuous rental basis. We propose to revise § 414.412 to specify that the supplier’s bid for furnishing CPAP devices and respiratory assist devices on a continuous monthly rental basis could not be higher than the 1993 fee schedule amounts for these items, increased by the covered item update factors provided for these items in section 1834(a)(14) of the Act. We seek comments on this proposal. We seek public comments on phasing in th e proposed rules described in section 1 through 4 above. VII. Scope of Hearing Aid Coverage Exclusion A. Background Section 1862(a)(7) of the Act states notw ithstanding any other provision of title XVIII, no payment may be made under part A or part B fo r any expenses incurred for items or services “where such expenses are for . . . hearing aids or examinations therefor. . . .” This policy is codified in the regulation at 42 CFR 411.15(d), which specifically st ates that hearing aids or examination for the purpose of prescribing, fitting, or changing hearing aids are excluded from Medicare coverage. At the time of passage of the Social Security Amendments of 1965 (Public Law 97, 89 th Congress), which added the Medicare coverage exclusion for heari ng aids at section 1862(a)(7) of the Act, all hearing aids utilized functional air a nd/or bone conduction pathways to facilitate hearing.CMS-1614-P 290

In general, to be covered by Medicare, an it em or service must fall within one or more benefit categories contained within Part A or Part B, and must not be otherwise excluded from coverage. With regard to secti on 1862(a)(7) of the Act, we consider that a hearing aid provides assistance or "aid" to hearing th at already exists via a functioni ng ear. Cochlear implants were the first hearing device that was not considered a hearing aid and met th e benefit category of a prosthetic device. Prosthetic devices are a Medicare benefit category defined at section 1861(s)(8) of the Act which, in part, states a "pro sthetic devices (other than dental) which replace all or part of an internal body organ." A cochle ar implant is considered a prosthetic device primarily because it replaces the function of the co chlea. A cochlear implant device differs from a hearing aid in that it is an electronic instru ment, part of which is implanted surgically to directly stimulate auditory nerve fibers, and part of which is worn or carried by the individual to capture, analyze and code sound. Both cochlear devices and brain stem implants, which function in a similar manner, create the perception of sound ra ther than aid hearing that already exists. We interpret the statute as excluding devices that provide aid to extant hearing (or hearing aids) rather than devices that create the perception of sound and hearing, give n that devices with technology that utilize either air or bone conduction via mechanical stimulation to aid extant hearing were primarily utilized when the st atute was written. Moreover, we believe that prosthetic hearing devices are no t “hearing aids” given that such devices do more than “aid” in hearing and instead replace the function of an internal body orga n (i.e., a part of the ear). Historically, CMS has periodically addresse d the scope of the Me dicare hearing aid coverage exclusion through pr ogram instructions and nati onal coverage policies or determinations. We briefly discuss the releva nt changes that have occurred over time with regard to Medicare coverage and payment of hearing devices.CMS-1614-P 291

Cochlear implants were the first device covered for Medicare payment for adult beneficiaries in October 1986, when no other h earing device was being covered under Medicare, and such coverage was supported by the Offi ce of Health Technology Assessment’s “Public Health Service Assessment of Cochlear Implan t Devices for the Profoundly Hearing Impaired”, dated June 30, 1986 found at https://archive.org/stream/c ochlearimplantd00feig/cochlearimp lantd00feig_djvu.txt. Medicare coverage was restricted to cochlear implants th at treated patients w ith post lingual, profound, bilateral, sensorineural deafness who are stimulab le and who lack the unaided residual auditory ability to detect sound. Effective January 1, 2003, we cl arified that the hearing aid exclusion broadly applied to all hearing aids that utilized f unctional air and/or bone conduction pa thways to facilitate hearing (see section 15903, Hearing Aid Excl usion, Medicare Carriers Manual, Part 3 – Claims Process (HCFA-Pub. 14-3), which was later moved to se ction 100, Hearing Aids and Cochlear Implants, of Chapter 16, of the Medicare Benefit Policy Manual, CMS-Pub. 100-02). Any device that does not produce at its output an electr ical signal that directly stimulates the auditory nerve is a hearing aid for purposes of coverage under Me dicare. Devices that produce air conduction sound into the external auditory canal, device s that produce sound by m echanically vibrating bone, or devices that produce s ound by vibrating the cochlear flui d through stimulation of the round window are considered hearing aids a nd excluded from Medicare coverage. Effective April 4, 2005, Medicare's national co verage policy for cochlear implants was modified through the NCD process (see section 65 -14 of the Medicare Coverage Issues Manual (HCFA-Pub. 6), which was later moved to se ction 50.3, Cochlear Implantation, of Chapter 1, Part 1 of the Medicare National Coverage Determinations Manual (CMS-Pub. 100-03)). OurCMS-1614-P 292

findings under the NCD, in part, state that "CMS has determined that cochlear implants fall within the benefit category of prosthetic devi ces under section 1861(s)(8) of the Social Security Act." Medicare is a defined benefit program. An item or device must not be statutorily excluded and fall within a benefit category as a prerequi site to Medicare covera ge. We believe that prosthetic hearing devices are no t “hearing aids” given that such devices do more than “aid” in hearing and instead replace the function of an internal body orga n (i.e., a part of the ear). Additional changes, regarding coverage criter ia, have been made to NCD 50.3 over time, however, the NCD decision regard ing benefit category and Medica re coverage for cochlear implantation has remained consistent. The NCD states that a cochlear implant device is an electronic instrument, part of which is implanted surgically to stimulate auditory nerve fibers, and part of which is worn or carried by the individual to capture, analyze, and code sound. Cochlear implant devices are available in singl e-channel and multi-channel models. The purpose of implanting the device is to pr ovide awareness and identificati on of sounds and to facilitate communication for persons who are modera tely to profoundly hearing impaired. The regulations at 42 CFR §419.66 were revise d to add new requirements, effective January 1, 2006, for transitional pass-through payments for medical devices. The auditory osseointegrated device, referred to as a bone an chored hearing aid (BAHA), was determined to be a new device category according to the ne w requirements for transitional pass-through payment. Medicare coverage was also expanded to cover auditory osseointegrated and auditory brainstem devices as prosthetic devices. Current ly, section 100 of Chap ter 16 of the Medicare Benefit Policy Manual (CMS P ub. 100-02) reads as follows: Hearing aids are amplifying devices that compensate for impaired hearing. Hearing aids include air conduc tion devices that provide acou stic energy to the cochleaCMS-1614-P 293

via stimulation of the tympanic membrane with amplified sound. Th ey also include bone conduction devices that provide mechanical en ergy to the cochlea via stimulation of the scalp with amplified mechanical vibration or by direct contact with the tympanic membrane or middle ear ossicles. Certain devices that produce perception of sound by replacing the function of the middle ear, cochlea, or auditory nerve are payable by Medicare as prosthetic devices. These devices are indicated onl y when hearing aids are medi cally inappropriate or cannot be utilized due to congenital malformations, chronic disease, severe sensorineural hearing loss or surgery. The following are considered prosthetic devices: • Cochlear implants and auditory brainstem implants, that is, devices that replace the function of cochlear struct ures or auditory nerve and provide electrical energy to auditory nerve fibers and other neural tissue via implanted electrode arrays. • Osseointegrated implants, that is, devices implanted in the skull that replace the function of the middle ear and provide mechani cal energy to the cochlea via a mechanical transducer.
B. Current Issues We have received several benefit category de termination requests in recent years for the consideration of non-implanted, bone conduction hearing aid devi ces for single-sided deafness, as prosthetic devices under the Me dicare benefit. We have rece ived similar requests for several other types of implanted and non-im planted devices as well. In response to these requests, we have re-examined the scope of the statutory heari ng aid exclusion. Currently, we consider all air or bone conduction hearing device s, whether external, internal, or implanted, including, but notCMS-1614-P 294

limited to, middle ear implants, osseointegra ted devices, dental anchored bone conduction devices, and other types of exte rnal or non-invasive devices th at mechanically stimulate the cochlea, as hearing aids. All of these devices provide tradit ional "aid" to hearing and are excluded in accordance with section 1862(a)(7) of the Act. In order for an item to be covered by Medicare, it must fall into a Medicare benefit category and not be statutorily excluded. Not only are these devices statutorily excluded they do not fall in a benefit categor y. Specifically, they do not meet the statutory definiti on of a prosthetic device found at section 1861(s)(8) of the Act which, in part, states a "prosthetic devices (other than dental) which replace all or part of an internal body organ." They do not replace the func tion of an internal body organ and thus are not considered prosthetic devices unde r Medicare payment policy. In regard to BAHA, it is a bone conduction hearing aid device that is osseointeg rated. There are currently only two hearing devices that are not st atutorily excluded and are a covered Medicare it em that fall into the prosthetic benefit category; namely, the cochlear implant and the auditory brainstem device. These two devices meet the defini tion of a prosthetic device in th at they replace the function of the inner ear consistent with th e definition of prosthetic device s described in section 1861(s)(8) of the Act . C. Proposed Provisions After further considering the statutory Medi care hearing aid excl usion under section 1862(a)(7) of the Act, and re-examining the different types of external and implanted devices, we propose to interpret the term “hearing aid” to in clude all types of air or bone conduction hearing aid devices, whether external, in ternal, or implanted, includin g, but not limited to, middle ear implants, osseointegrated devices, dental anchor ed bone conduction devices, and other types of external or non-invasive devices that mechanical ly stimulate the cochlea. We believe, based onCMS-1614-P 295

our understanding of how such devices function, that such devices are hearing aids that are not otherwise covered as prosthetic devices, in that they do not replace all or part of an internal body
organ. Therefore, we propose to modify the regu lation at §411.15(d)(1) to specify that the hearing aid exclusion encompasses all types of air conduction and bone conduction hearing aids (external, internal, or implanted). Osseoi ntegrated devices such as the BAHA are bone conduction hearing aids that mechanically stimulat e the cochlea; therefore, we believe that the hearing aid exclusion applies to these devices and propose that Medicare should not cover these devices, consistent with our inte rpretation of section 1862(a)(7) of the Act. In addition, an NCD was issued for cochlear implant devices with th e result that this determination and recent requests to expand coverage of hearing devices raises serious questions about the intent and scope of the Medicare coverage ex clusion for hearing aids. It is for these reasons that we are addressing the hearing aid cove rage exclusion in notice and comment rulemaking, and believe that the BAHA device qualifies as a hearing ai d because it functions like other bone conduction hearing aids that are subject to the Medicare st atutory coverage exclusion for hearing aids. We continue to believe that the hearing aid exclusion does not apply to brain stem implants and cochlear implants because these de vices directly stimulat e the auditory nerve, replacing the function of the inne r ear rather than ai ding the conduction of sound as hearing aids do. Therefore, we are not proposing any changes to our current policy about brain stem implants and cochlear implants and how such implants fa ll outside of the hearing aid statutory exclusion (that is, such devices would fa ll outside the Medicare coverage exclusion for hearing aids and remain covered subject to the Medicare NCD 50.3 found at https://www.cms.gov/Regulationsand-Guidance/Guidance/Manuals /downloads/ncd103c1_Part1.pdf ). We propose, however, toCMS-1614-P 296

modify § 411.15(d)(2) to specifically note that such devices do not fall within the hearing aid exclusion. We seek public comment on this proposal. VIII. Definition of Minimal Self-Adjustme nt of Orthotics Under Competitive Bidding A. Background Section 1847 (a)(1)(A) of the Act mandates the impleme ntation of CBPs throughout the United States for awarding contracts for furnishing competitively priced items and services, including OTS orthotics described in section 1847(a)(2)(C ) of the Act (leg, arm, back or neck braces described in section 1861(s)(9) of the Ac t for which payment would otherwise be made under section 1834(h)) which require minimal self -adjustment for appropriate use and do not require expertise in trimming, bending, molding, asse mbling, or customizing to fit the individual. The regulation at 42 CFR §414.402 currently defines “minimal self-adjustment” as “an adjustment that the beneficiary, caretaker for the beneficiary, or suppl ier of the device can perform and does not require the se rvices of a certified orthotist (that is, an individual who is certified by either the American Board for Certifi cation in Orthotics and Pr osthetics, Inc., or the Board for Orthotist/Prosthetist Cer tification) or an individual who has specialized training." This current definition was proposed in the 71 FR 25669 (May 1, 2006) Notice for Proposed Rulemaking (NPRM) but did not include the term "individual with specia lized training." The definition was finalized in the 72 FR 18022 (April 10, 2007) Final Rule with the term "individual with specialized training" adde d after receiving comments th at disagreed with the May 2006 definition and pointed out that occupational therapists, physical therapists, and physicians are licensed and trained to provide orthotics.
B. Current IssuesCMS-1614-P 297

Since adoption of the minimal self-adjustmen t definition there has been some concerns raised by industry and other stakeholders rega rding who is considered an individual with specialized training. We have had many inquiries and comments that this term is too ambiguous and left open for interpretation. In order to identify OTS orthotics for the purpose of implementing CBPs for these items and services in accordance with the statute, we need a clearer distinction between OTS orthotics and those that require more th an minimal self-adjustment and expertise in custom fitting. In doing so, we believe it is essentia l to identify the credentials and training a supplier needs to have in order to be considered a supplier with expertise in custom fitting; therefore, we believe the term "individual with specialized training" must be clarified. We believe these professionals must have speciali zed training equivalent to a certified orthotist for the provision of custom fitted orthotic devices such that these professionals satisfy requirements concerning higher education, con tinuing education requirements, licensing, and certification/registration requireme nts so that they meet a minimum professional skill level in order to ensure the highest standard of car e and safety for Medicare beneficiaries. This would also help to prev ent any supplier without expertis e in custom fitting orthotics from potentially circumventing the competitive bidding process by furnishing custom fitting they are not qualified to provide in the event that th ey are not awarded a cont ract for furnishing OTS orthotics in their service area as th e custom fitted devices are not stat utorily included in the CBP. In addition, for claims processing and paym ent system purposes under the CBP, we need to identify OTS orthotics, which we accomplish with codes in the HCPCS. The HCPCS codes are used on claims to identify the items and serv ices furnished to the beneficiary, that is, to identify orthotics that are furnished OTS and s ubject to the CBP and to identify orthotics that have been custom fitted by supplie rs with expertise. On February 9, 2012, CMS issued initialCMS-1614-P 298

guidance identifying specific HCPCS codes cons idered OTS orthotics and provided a 60-day comment period posted at http://www.cms .gov/Medicare/Medicare-Fee-for-ServicePayment/DMEPOSFeeSched/OTS_Orthotics.html. We received 185 comments. There was no general consistency between the various co mmenters on which specific HCPCS codes the commenters believed were appr opriately deemed OTS. Ma ny commenters expressed their support for the proposed list while others made numerous useful recomm endations to improve the OTS list. We considered each comment and performed a t horough review of the individual HCPCS codes and devices included in the codes to assess appropriate orthotic categorization. Through this process we identified HCPCS codes th at described items that we believe are never furnished OTS, HCPCS codes that described items that are alwa ys furnished OTS, and HCPCS codes that described items that may or may not be furnished OTS, depending on whether more than minimal fitting and adjustment of a partic ular device by an expert is necessary for a particular patient. In order to address this issu e we decided to create HC PCS codes for items that may or may not be custom fitted, depending on indi vidual patient’s needs, into separate codes that described the item when it has been furnis hed OTS and when it has been custom fitted. The new HCPCS codes were published and became ef fective January 1, 2014 and are published athttp://www.cms.gov/Medicare/Medicare-Fee-for-ServicePayment/DMEPOSFeeSched/O TS_Orthotics.html. C. Proposed Provisions Prefabricated orthotics are either furnished OTS or with custom fitting and are identified in the HCPCS. As noted above, with regard to minimal self-adjustment, § 414.402 in part identifies an individual with e xpertise in fitting as a certified orthotist or an individual with specialized training. Recently a DME Medicare Administrative Contractor ( MAC) Web SiteCMS-1614-P 299

Article entitled "Correct Coding - Defi nitions used for Off-the-Shelf versus Custom Fitted Prefabricated Orthotics (Braces) – Revised," was published March 27, 2014, and included: a physician, a treating practitioner, , an occupational therapist, or physical therapist in compliance with all applicable Federal and State licensu re and regulatory requirements. The DME MAC published this article following the change in 2014 HCPCS codes for OTS and custom fitted orthotics as an education tool for Medicare enro lled DMEPOS suppliers. We believe physicians, treating practitioners, occ upational therapists, and physical therapists are considered "individuals with specialized training" that po ssess training equivalent to a cer tified orthotist for the provision of custom fitted orthotic devices through th eir individual degree programs and continuing education requirements. In addition, physicians, treating practitioners, oc cupational therapists, and physical therapists possess equivalent or hi gher educational degrees, continuing education requirements, licensing, and certifi cation and/or registration requi rements. We believe these professionals meet a minimum professional skill leve l in order to ensure th e highest standard of care and safety for Medicare beneficiaries. E ach of these professionals has undergone medical training in various courses such as kinesiology and anatomy. For example, through coursework the named medical professionals gain a c linical understanding of the human body, proper alignment, normal range of motion, agonist a nd antagonist relationship, and biomechanics necessary to modify a custom fitted orthotic device properly. Clinical providers such as assistants, fitters , and manufacturer representatives that work under the supervision of the indi vidual with specializ ed training must do so as required under their governing body Code of Ethics and superv ision standards as well as state licensure requirements. These individuals are not consider ed to have specialized training for the purposesCMS-1614-P 300

of providing custom fitting; therefore, orth otics adjusted by these individuals but not by individuals with speciali zed training would still be considered OTS. The current regulation of ortho tic provision in the U.S. is in consistent between individual States. There are currently 17 States that require licensure in P&O. In States that do require licensure for the provision of or thotics, individual states do no t all recognize certified orthotic fitters and do not provide licensure for this level of provider. This inconsistency also prompts us to provide clarification on the individuals who are recognized as having specialized training for the purposes of determining what constitutes minimal self-adjustment of OTS orthotics. We propose to update the defini tion of minimal self-adjustmen t in § 414.402 to codify an individual with specialized training includes: a physician defined in section 1861(r) of the Act, a treating practitioner defined at section 1861(aa)(5) (physician assist ant, nurse practitioner, or clinical nurse specialist), an occupational therapist define d at 42 CFR § 484.4, or physical therapist defined at 42 CFR § 484.4, who is in comp liance with all applicable Federal and State licensure and regulatory requireme nts for reasons discussed above. We seek comments on this proposal. IX. Revision to Change of Ownership Rules to Allow Contract Suppliers to Sell Specific Lines of Business A. Background Section 1847(a) of the Act, as amended by section 302(b)(1) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173), requires the Secretary to establish and impl ement CBPs in CBAs throughout the United States for contract award purposes for the furnishing of certain comp etitively priced DMEPOS items and services. The programs mandated by section 1847(a) of th e Act are collectively referred to as theCMS-1614-P 301

“Medicare DMEPOS Competitive Bidding Progra m.” The 2007 DMEPOS competitive bidding final rule (Medicare Program; Competitive Ac quisition for Certain DMEPOS and Other Issues published in the Federal Register on April 10, 2007 (71 FR 17992)), required CBPs for certain Medicare Part B covered items of DMEPOS th roughout the United States. The CBP, which was phased in over several years, util izes bids submitted by qualified s uppliers to establish applicable payment amounts under Medicare Part B for certain DMEPOS items for beneficiaries receiving services in designated CBAs. CMS awards contracts to those suppliers who meet all of the competitive bidding requirements and whose composite bid amounts fall at or below the pivotal bid (the bid at which the capacity provided by qualified suppliers meets the demand for the item). These qualified suppliers will be offered a competitive bidding contract for that PC, provided there are a sufficient number of qualified suppliers (there must be at a minimum of 2) to serve the area. Contracts are awarded to multiple suppliers for e ach PC in each CBA and will be re-competed at least once every 3 years. CMS specifies the duration of the contract s awarded to each cont ract supplier in the Request for Bid Instructions. We also conduct extensive bidder education where we inform bidders of the requirements and obligations of contract suppliers. E ach winning supplier is awarded a single contract that includes all winning bids for all applicable CBAs and PCs. A competitive bidding contract cannot be subdivided. For example, if a cont ract supplier breaches its contract, the entire contract is subject to termination. In th e Physician Fee Schedule final rule published on November 29, 2010, we stated that “on ce a supplier’s contract is terminated for a particular round due to breach of contract unde r the DMEPOS CBP, the contract supplier is no longer a DMEPOS contract supp lier for any DMEPOS CBP PC for which it was awarded underCMS-1614-P 302

that contract. This termination applies to all areas and PCs because there is only one contract that encompasses all CBAs and PCs for which th e supplier was awarded a contract.” (75 FR 73578) A competitive bidding contract cannot be sol d. However, CMS may permit the transfer of a contract to an entity that merges with or acquires a compe titive bidding cont ract supplier if the new owner assumes all rights, obligations, and liabilities of the competitive bidding contract pursuant to regulations at 42 CFR §414.422(d). For the transfer of a contract to be consid ered, the CHOW must in clude the assumption of the entire contract, including all CBA s and PCs awarded under the contract. B. Proposed Provisions We propose to revise § 414.422(d) to permit transfer of part of a competitive bidding contract under specific circumstances. We believe requiring a transfer of the entire contract to a successor entity in all circumstances may be overly restrictive, and may be preventing routine merger and acquisition activity. To maintain integrity of the bidding process we award one contract that includes all the CBA/PCs combinations for wh ich the supplier qualifies for and accepts as a contract supplier. This proposed rule would establish an exce ption to the prohibition against transferring part of a contract by allowing a contract supplier to sell a distinct company (for example, an affiliate, subsidiary, sole proprietor, corporation, or partnership) which furnishes one or more specific PCs or serves one or more specific CBAs and transfer the portion of the contract initially serv iced by the distinct company, in cluding the PC(s), CBA(s), and location(s), to a qualified successor entity who meets all competitive bidding requirements (i.e., financial standards, licensing, a nd accreditation). The proposed exception would not apply to existing contracts but would apply to contracts issued in all futu re rounds of the program, startingCMS-1614-P 303

with the Round 2 Recompete. As required in § 414.422(d) we are also requiring a contract supplier that wants to sell a distinct compa ny which furnishes one or more specific PCs or serves one or more specific CBAs to notify CMS 60 days before the anticipated date of a change of ownership. If documentation is required to de termine if a successor entity is qualified that documentation must be submitted within 30 days of anticipated change of ownership, pursuant to § 414.422(d)(2)(ii). We propose that CMS would th en modify the contract of the original contract supplier by removing the affected PC (s), CBA(s) and locations from the original contract. For CMS to approve th e transfer, we propose that severa l conditions would have to be met. First, we propose that every CBA, PC, an d location of the company being sold must be transferred to the new owner. Second, we propose that all CBAs and PC's in the original contract that are not explici tly transferred by CMS must rema in unchanged in that original

contract for the duration of the contract period unless transferred by CMS pursuant to a subsequent CHOW. Third, we propose that all requirements in 42 CFR § 414.422 (d)(2) must be met. Fourth, we propose that the sale of the co mpany must include all of the company’s assets associated with the CBA and/or PC(s). Fina lly, we propose that CMS must determine that transferring part of the original contract will not result in di sruption of service or harm to beneficiaries. No transfer will be permitted for purposes of this program if we determine that the new supplier does not meet the competitiv e bidding requirements (such as financial requirements) and does not possess all applicable licenses and accreditation for the product(s). In order for the transfer to occu r, the contract supplier and succ essor entity must enter into a novation agreement with CMS and the successor enti ty must accept all rights, responsibilities and liabilities under the competitive bidding cont ract. Part of a novation agreement requires successor entity to “seamlessly continue to service beneficiaries.” We believe that theseCMS-1614-P 304

proposed conditions are necessary for proper admi nistration of the program, to ensure that payments are made correctly and also to ensure continued contract accountability and viability along with continuity of service and access to beneficiaries. We specifically invite comments on whether more or different condi tions would be appropriate. In addition, we are proposing to update the current CHOW regul ation, § 414.422(d) to clarify the language to make it easier to comprehend. The proposed changes reformat the regulation so that the requirements applicable to successor entities and new entities are listed separately. These proposed change s to the regulation are technical, and not subs tantive in nature. CMS seeks comments on all changes proposed for § 414.422. X. Proposed Changes to the Appeals Pro cess for Termination of Competitive Bidding Contract We propose to modify the DMEPOS CBP's appeals process for termination of competitive bidding contracts under § 414.423. First, we propose to modify the effective date of termination in the termination notice CMS sends to a contract supplier f ound to be in breach of contract. Currently, the regulation at 42 CFR 41 4.423(b)(2)(vi) indicates that the effective date of termination is 45 days from the date of the notification letter unless a timely hearing request “has been” filed or corrective action plan “has been” submitted within 30 days of the effective date of the notification letter (emphasis added) . We propose to change these references to provide additional clarification. This cha nge would emphasize that the contract will automatically be terminated if the supplier does not time file a hearing request or submit corrective action plan. This proposed change is also being addressed at 42 CFR § 414.423(l). We propose deleting the lead-in sentence, as it do es not properly lead in to the first paragraph. Additionally, we propose inserting language from the lead-in sentence in the second paragraph toCMS-1614-P 305

indicate that the contract s upplier, “whose contract has b een terminated,” must notify beneficiaries of the termination of their cont ract. Second, we propose to modify the deadline by which a supplier whose competitive bidding contract is being terminated must notify affected beneficiaries that it is no l onger a contract supplier. Cu rrent regulations at 42 CFR § 414.423(l)(2)(i) require a contra ct supplier to provide this notice within 15 days of receipt of a final notice of termination. We propose to chan ge the beneficiary notification deadline to no later than 15 days prior to the effective date of termination. This proposed change is intended to provide beneficiaries with the protection of adva nced notice prior to a contract supplier being terminated from the CBP so they have sufficient time to plan/coordinate th eir current and future DMEPOS needs. XI. Technical Change Related to Submitting Bids for Infusion Drugs under the DMEPOS Competitive Bidding Program The standard payment rules for drugs admi nistered through infusi on pumps covered as DME are located at section 1842(o)(1)(D) of the Act, and mandate that payment for infusion drugs furnished through a covere d item of DME on or after Ja nuary 1, 2004, is equal to 95 percent of the average whol esale price for such drug in effect on October 1, 2003. The regulations implementing secti on 1842(o)(1)(D) of th e Act are located at 42 CFR § 414.707(a), under Subpart I of Part 414. S ection 1847(a)(2)(A) of the Act mandates the establishment of CBPs for covered items defined in section 1834(a )(13), for which payment would otherwise be made under section 1834(a), includ ing items used in infusion and drugs (other than inhalation drugs) and supplies used in c onjunction with DME. Section 1847(b)(2)(A)(iii ) of the Act prohibits the awarding of contract s under a CBP unless the total am ounts to be paid to contract suppliers are expected to be less than would ot herwise be paid. The regulations implementingCMS-1614-P 306

section 1847(b)(2)(A)(iii) of the Act with respect to item s paid on a fee schedule basis under Subparts C and D of Part 414 are located at 42 CFR § 414.412(b)(2), and sp ecify that “the bids submitted for each item in a PC cannot exceed th e payment amount that would otherwise apply to the item under Subpart C or Subpart D of this part.” In addition, the re gulations regarding the conditions for awarding contracts under the DM EPOS CBP at 42 CFR § 414.414(f) state that “a contract is not awarded under this subpart unless CMS determines that the amounts to be paid to contract suppliers for an item under a CBP are e xpected to be less than the amounts that would otherwise be paid for the same item under subpart C or subpart D.” The regulations implementing of section 1847(b)(2)( A)(iii) of the Act did not a ddress payments for drugs under subpart I, which was an overs ight. We therefore propose to revise §§ 414.412(b)(2) and 414.414(f) to include a reference to drugs paid u nder subpart I in addition to items paid under subparts C or D. We propose to revise § 414.412( b)(2) to specify that the bid amounts submitted for each drug in a PC cannot exceed the payment limits that would otherwise apply to the drug under subpart I of part 414. This concerns certain infusion drugs with payment limits equal to 95 percent of the average wholesale price for the drug in effect on October 1, 2003, in accordance with §414.707(a)(3). See http://www.ecfr.gov/cgi-bin/textidx?c=ecfr&SID=7065f17b411e37b3788b6e7fcce21f 89&rgn=div8&view=text&node=42:3.0.1. 1.1.9.1.3&idno=42 We propose to revise § 414.414(f) to specify that a cont ract is not awarded under this subpart unless CMS determ ines that the amounts to be paid to contract suppliers for infusion drugs provided with respect to external infusion pumps under a CBP are expected to be less than the amounts that would otherwise be paid to suppliers for the same drug under subpart I of part 414. We seek comments on this proposal. XII. Accelerating Health Information ExchangeCMS-1614-P 307

HHS believes all patients, their families, a nd their healthcare providers should have consistent and timely access to their health inform ation in a standardized format that can be securely exchanged between the patient, providers, and others involved in the patient’s care. (HHS August 2013 Statement, “Principles and St rategies for Accelerating Health Information Exchange).” The Department is committed to ac celerating health information exchange (HIE) through the use of electronic hea lth records (EHRs) and other types of health information technology (HIT) across the broader care continuu m through a number of in itiatives including: 1) alignment of incentives and payment adju stments to encourage provider adoption and optimization of HIT and HIE se rvices through Medicare and Me dicaid payment policies, 2) adoption of common standards and certification requirements for interoperable HIT, 3) support for privacy and security of pa tient information across all HIE-focused initiatives, and 4) governance of health information networks. Th ese initiatives are designed to encourage HIE among health care providers, including professional s and hospitals eligible for the Medicare and Medicaid EHR Incentive Programs and those w ho are not eligible for the EHR Incentive programs, and are designed to improve care de livery and coordination across the entire care continuum. For example, the Transition of Care Measure #2 in Stage 2 of the Medicare and Medicaid EHR Incentive Programs requires HIE to share summary records for at least 10 percent of care transitions. In addition, to increase flex ibility in ONC's regulator y certification structure and expand HIT certification, ONC has proposed a voluntary 2015 Edition EHR Certification rule to more easily accommodate HIT certification fo r technology used by all health care settings to facilitate greater HIE acr oss the entire care continuum. We believe that HIE and the use of certifie d EHRs can effectively and efficiently help ESRD facilities and nephrologist s improve internal care delive ry practices, support managementCMS-1614-P 308

of patient care across the continuum, and support the reporting of electronical ly specified clinical quality measures (eCQMs). More information on the 2015 Edition EHR certif ication rule can be found at: http://healthit.gov/policy-res earchers-implementers/stan dards-and-certificationregulations XIII. Collection of Information Requirements A. Legislative Requirement fo r Solicitation of Comments Under the Paperwork Reduction Act of 1995, we are required to provi de 60-day notice in the Federal Register and solicit public comment before a co llection 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 co llection requirement shoul d be approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995 re quires that we solicit comment on the following issues:

● The need for the information collection and its usefulness in carrying out the proper functions of our agency.

● The accuracy of our estimate of the information collection burden.

● The quality, utility, and clarity of the information to be collected.

● Recommendations to minimize the inform ation collection burden on the affected public, including automate d collection techniques. B. Requirements in Regulation Text In section II.F of this proposed rule, we ar e proposing changes to regulatory text for the ESRD PPS in CY 2015. However, the changes th at are being proposed do not impose any new information collection requirements. C. Additional Information Collection RequirementsCMS-1614-P 309

This proposed rule does not impose any new information collection requirements in the regulation text, as specified above . However, this proposed rule does make reference to several associated information collections that are not di scussed in the regulation text contained in this document. The following is a discussi on of these information collections. 1. ESRD QIP The information collection requirements asso ciated with the ESRD QIP are currently approved under OMB control number 0938-0386. a. Data Validation Requirements for the PY 2017 ESRD QIP Section III.F.9 in this proposed rule outlines our data validation proposals for PY 2017. Specifically, we propose to randomly sample records from 300 facilities as part of our continuing pilot data-validation progra m. Each sampled facility would be required to produce approximately 10 records, and the sampled fac ilities will be reimbursed by our validation contractor for the costs associated with copyi ng and mailing the requested records. The burden associated with these validati on requirements is the time and e ffort necessary to submit the requested records to a CMS contractor. We estim ate that it will take each facility approximately 2.5 hours to comply with this requirement. If 300 facilities are asked to submit records, we estimate that the total combined annual bur den for these facilities will be 750 hours (300 facilities x 2.5 hours). According to the Bureau of Labor Statistics, the mean hourly wage of a registered nurse is $33.13/hour. Since we antici pate that nurses (or ad ministrative staff who would be paid at a lower hourly wage) would su bmit this data, we estimate that the aggregate cost of the CROWNWeb data validation would be $24,847.50 (750 hours x $33.13/hour) total or $82.83 ($24,847.50 / 300 facilities) per f acility in the sample. Under the proposed feasibility study for valida ting data reported to the NHSN DialysisCMS-1614-P 310

Event Module, we propose to randomly select nine facilities to provide CMS with a quarterly list of all positive blood cultures drawn from their patients during the quarter, including any positive blood cultures collected on the day of, or the da y following, a facility patient’s admission to a hospital. A CMS contractor will re view the lists to determine if dialysis events for the patients in question were accurately reported to the NHSN Dial ysis Event Module. If we determine that additional medical records are needed to validate dialysis events, facilities will be required to provide those records within 60 da ys of a request for this inform ation. We estimate that the burden associated with this feasibility study will be the time and effort necessary for each selected facility to compile and submit to CMS a quarterly list of positive blood cultures drawn from its patients. We estimate that it will ta ke each participating facility approximately two hours per quarter to comply with th is submission. If nine facilitie s are asked to provide lists, we estimate the quarterly burden for these facilities would be 72 hours per year (9 facilities x 2 hours/quarter x 4 quarters/year). Again, we estimat e the mean hourly wage of a registered nurse to be $33.13/hour, and we anticipate nurses (or administrative staff who would be paid at a lower hourly wage) would be responsible for preparing and submitting the list. Because we anticipate nurses (or administrative staff w ho would be paid at a lower hourly rate) would compile and submit these data, we estimate that the aggregat e annual cost of the feas ibility study to validate NHSN data would be $2,385.36 (72 hours x $33.13/ hour) total or $265.04 per facility ($2,385.36 / 9 facilities). b. Proposed NHSN Healthcare Personnel Influenza Vaccination Reporting Measure for PY 2018 We are proposing to include, beginning with the PY 2018 ESRD QIP, a measure requiring facilities to report he althcare personnel influenza vaccination data to NHSN. The NHSN is a secure, Internet-based surveillance system which is maintained and managed byCMS-1614-P 311

CDC. Many dialysis faciliti es already submit NHSN Bloodstream Infection clinical measure data to NHSN. Specifically, we are proposing to require facilities to submit on an annual basis an HCP Influenza Vaccination Summary Form to NHSN, according to the specifications available in the NHSN Healthcare Personnel Sa fety Component Protocol. We estimate the burden associated with this measure to be the time and effort necessary for facilities to complete and submit the HCP Influenza Vaccination Summary Form on an annual basis. We estimate that approximately 5,996 facilities will treat ESRD pa tients in PY 2018. We estimate it will take each facility approximately 75 minutes to collect and submit the data necessary to complete the Healthcare Personnel Influenza Va ccination Summary Form on an annual basis. Therefore, the estimated total annual burden associated w ith reporting this measure in PY 2018 is 7,495 hours [(75/60) hours x 5,996 facilities]. Again, we estimat e the mean hourly wage of a registered nurse to be $33.13, and we anticipate nurses (or admini strative staff who would be paid at a lower hourly wage) would be responsible for this reporting. In total, we believe the cost for all ESRD facilities to comply with the reporting requirements associat ed with the NHSN Healthcare Personnel Influenza Vaccination reporting measure would be approximately $248,309 (7,495 hours x $33.13/hour) total, or $41.37 ($248,309 / 5,996 facilities) per facility. XIV. Response to Comments Because of the large number of public comments we normally receive on Federal Register documents, we are not able to acknowledge or respond to them individually. We will consider all comments we receive by the date and time specified in the DATES section of this preamble, and, when we proceed with a subse quent document, we will respond to the comments in the preamble to that document. XV. Economic AnalysesCMS-1614-P 312

A. Regulatory Impact Analysis 1. Introduction We examined the impacts of this propos ed rule as required by Executive Order 12866 (September 30, 1993, Regulatory Planning a nd Review) and Executive Order 13563 on Improving Regulation and Regulat ory Review (January 11, 2011) . Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approach es that maximize net benefits (including potential economic, environmental, public health and safety eff ects, distributive impacts, and equity). Executive Order 13563 emphasizes th e importance of quantifying both costs and benefits of reducing costs, harmonizing rules, an d promoting flexibility. This rule has been designated economically significant under se ction 3(f)(1) of Executive Order 12866. Accordingly, the rule has been reviewed by the Office of Management and Budget. We have prepared a Regulatory Impact Analysis that to the best of our ability presents the costs and benefits of the proposed rule. We solicit commen ts on the regulatory impact analysis provided. 2. Statement of Need This rule proposes a number of routine update s for renal dialysis services in CY 2015 and proposes several policy changes to the ESRD PPS. The rout ine updates include proposed updates to the wage index values, the wage inde x budget-neutrality adjustment factor, and the outlier payment threshold amounts. The proposed policy changes to the ESRD PPS include the revisions to the ESRDB market basket, changes in the CBSA delineations, changes to the laborrelated share, clarifications in the low-volume payment adjustment, and additions and corrections to the ICD-10 codes that will be used for the comorbidity payment adjustment when compliance with ICD-10 is required beginning October 1, 2015. In addition, this rule implements sectionsCMS-1614-P 313

1881(b)(14)(F)(i) and (I), as amended by secti on 217 (b)(1) and (2) of PAMA, under which the drug utilization adjustment tran sition is eliminated and a 0.0 percent update to the ESRD PPS base rate is imposed in its place. This rule also implements the delay in payment for oral-only drugs used for the treatment of ESRD under th e ESRD PPS until January 1, 2024 as required by section 217(a) of PAMA. Failure to publish this proposed rule w ould result in ESRD facilities not receiving appropriate payments in CY 2015. This rule proposes to implement requirements for the ESRD QIP by proposing to adopt measure sets for the PYs 2017 and 2018 programs, as directed by section 1 881(h) of the Act. Failure to propose requirements for the PY 2017 ESRD QIP would prevent continuation of the ESRD QIP beyond PY 2016. In addition, proposi ng requirements for the PY 2018 ESRD QIP provides facilities with more tim e to review and fully understand new measures before their implementation in the ESRD QIP. This proposed rule proposes to establis h a methodology for adjusting DMEPOS payment amounts using information from the Medicare DMEPOS CBP. The proposed rule would also phase in special payment rules for certain DME a nd enteral nutrition in a limited number of areas under the Medicare DMEPOS CBP. This proposed rule also propos es to clarify the Medicare hearing aid coverage exclusion und er section 1862(a)(7). In a ddition, this proposed rule would modify the definition of minimal self-adjus tment at §414.402 to indicate what specialized training is needed by suppliers to provide custom fitting services if they are not certified orthotists. Finally, if finalized, this proposed rule would provide clar ification of the CHOW under the Medicare DMEPOS CBP. 3. Overall ImpactCMS-1614-P 314

We estimate that the proposed revisions to th e ESRD PPS will result in an increase of approximately $30 million in payments to ES RD facilities in CY 2015, which includes the amount associated with updates to outlier threshold amounts, updates to the wage index, changes in CBSA delineations, and the labor-related share. For PY 2017, we estimate that the proposed requirements related to the ESRD QIP will cost approximately $27 thousand total, and the paym ent reductions will result in a total impact of approximately $16 million across all facilities. For PY 2018, we estimate that the proposed requirements related to the ESRD QIP will co st approximately $248 thousand total, and the payment reductions will result in a total im pact of approximately $6.4 million across all facilities, resulting in a total im pact from the proposed ESRD QIP of approximately $6.6 million. We estimate that the proposed methodol ogy for adjusting DMEPOS payment amounts using information from DMEPOS CBPs would save over $7 billion over FY 2016-2020. The savings would be primarily achieved from the reduced payment amounts for items and services. We estimate the special payment rules would not have a negative impact on beneficiaries and suppliers, or on the Medicare program. Cont ract suppliers are responsible for furnishing items and services needed by the beneficiary, and the cost to suppliers for furnishing these items and services generally would not change based on whether or not the equipment and related items and services are paid for separately unde r a capped rental payment method. Because the supplier’s bids would reflect the cost of furn ishing items in accordance with the new payment rules, we expect the overall sa vings generally would be the same as they are under the current payment rules. Furthermore, as indicated above , the special payment rules would be phased in under a limited number of areas first to determ ine impact on the program, beneficiaries, and suppliers, including their effects on cost, quality, and access before expanding to other areas afterCMS-1614-P 315

notice and comment rulemaking, if supported by eval uation results. We believe that the special payment rules would give beneficiaries more c hoice and flexibility in changing suppliers. We estimate the proposed clarificati on of the statutory Medicare h earing aid coverage exclusion leading to withdrawal of coverage for bone anchored hearing aid (B AHA) devices would not have a significant fiscal impact on the Medi care program because the Medicare program expenditure for BAHA paid under Medicare during the period CY2005 through CY 2013 was less than 9,000,000 per year. This proposed regulation would provide guidance as to coverage of DME with regard to the statutor y exclusion. The proposed rule pr oposes to specify that cochlear implants and brain stem implants are not hearin g aids subject to the statutory exclusion and therefore, proposes no change to the current Medicare coverage status for these items. We estimate that the proposed clarification of the definition of minimal self-adjustment would have no significant impact on program expe nditures or access to orthotics. This proposed clarification would impact suppl iers furnishing custom fitted or thotics that do not have the expertise necessary to make more than minimal ad justments to an orthotic that a beneficiary or caregiver could be trained to ma ke. The impact on these few supp liers will vary according to the caseload of custom fitted orthotics provided by an individual supplier. However, we believe the majority of custom fitted devices are currently bei ng furnished by an individual with expertise. We estimate clarifying the CHOW under th e Medicare DMEPOS CBP would have no significant impact to DMEPOS suppliers. B. Detailed Economic Analysis 1. CY 2015 End-Stage Renal Disease Prospective Payment System a. Effects on ESRD Facilities To understand the impact of the changes aff ecting payments to different categories ofCMS-1614-P 316

ESRD facilities, it is necessa ry to compare estimated payments in CY 2014 to estimated payments in CY 2015. To estimate the impact among various types of ESRD facilities, it is imperative that the estimates of payments in CY 2014 and CY 2015 contain similar inputs. Therefore, we simulated payments only for those ESRD facilities for which we are able to calculate both current pa yments and new payments. For this proposed rule, we used the D ecember 2013 update of CY 2013 National Claims History file as a basis for Me dicare dialysis treatments and payments under the ESRD PPS . We updated the 2013 claims to 2014 and 2015 using various updates. Th e updates to the ESRD PPS base rate are described in section II.B of this proposed rule. Table 38 shows the impact of the estimated CY 2015 ESRD payments compared to es timated payments to ES RD facilities in CY
2014.CMS-1614-P 317

TABLE 38: IMPACT OF PROPOSED CHANGES IN PAYMENTS TO ESRD FACILITIES FOR CY 2015 PROPOSED RULE

Facility Type Number of Facilities A Number of Treatments (in millions) B Effect of 2015 Changes in Outlier Policy C Effect of 2015 Changes in Wage Indexes,

CBSA designationsand LaborRelated Share D Effect of 2015 Changes in payment rate update E Effect of Total 2015 changes F All Facilities 5,996 39.1 0.3% 0.0% 0.0% 0.3% Type Freestanding 5,520 36.6 0.3% 0.0% 0.0% 0.3% Hospital based 476 2.5 0.3% 0.2% 0.0% 0.5% Ownership Type Large dialysis organization 4,150 27.5 0.3% -0.1% 0.0% 0.2% Regional chain 871 5.9 0.2% 0.2% 0.0% 0.4% Independent 582 3.6 0.2% 0.2% 0.0% 0.4% Hospital based 1 393 2.1 0.3% 0.1% 0.0% 0.4% Geographic Location Rural 1,212 5.9 0.3% -0.8% 0.0% -0.5% Urban 4,784 33.3 0.3% 0.1% 0.0% 0.4% Census Region East North Central 979 5.8 0.3% -0.3% 0.0% 0.0% East South Central 497 2.9 0.3% -1.2% 0.0% -0.9% Middle Atlantic 661 4.8 0.3% 0.9% 0.0% 1.1% Mountain 352 1.9 0.2% -0.1% 0.0% 0.1% New England 177 1. 3 0.3% 1.3% 0.0% 1.5% Pacific 2 710 5.4 0.2% 1.5% 0.0% 1.7% Puerto Rico and Virgin Islands 42 0.3 0.3% -3.9% 0.0% -3.6% South Atlantic 1,333 9.1 0.3% -0.6% 0.0% -0.3% West North Central 438 2.0 0.3% -0.2% 0.0% 0.0% West South Central 807 5.6 0.3% -0.6% 0.0% -0.3% Facility Size Less than 4,000 treatments 3 1,086 2.7 0.3% -0.3% 0.0% 0.0% 4,000 to 9,999 treatments 2, 226 10.5 0.3% -0.3% 0.0% 0.0% 10,000 or more treatments 2,523 25.7 0. 3% 0.1% 0.0% 0.4% Unknown 161 0.3 0.3% -0.1% 0.0% 0.2% Percentage of Pediatric PatientsCMS-1614-P 318

Facility Type Number of Facilities A Number of Treatments (in millions) B Effect of 2015 Changes in Outlier Policy C Effect of 2015 Changes in Wage Indexes,

CBSA designationsand LaborRelated Share D Effect of 2015 Changes in payment rate update E Effect of Total 2015 changes F Less than 2% 5,885 38.7 0.3% 0.0% 0.0% 0.3% Between 2% and19% 48 0.4 0.3% 0.0% 0.0% 0.2% Between 20% and 49% 12 0.0 0.1% -0.4% 0.0% -0.3% More than 50% 51 0.0 0.0% 0.2% 0.0% 0.3% 1 Includes hospital-based ESRD facilit ies not reported to have large dial ysis organization or regional chain ownership. 2 Includes ESRD facilities locate d in Guam, American Samoa, a nd the Northern Mariana Islands. 3 Of the 1,086 ESRD facilities with less than 4,000 treatments, approx imately 422 would be expected to qualify for the low-volume adjustment in 2015. This esti mate is based on actual claims for 2013 plus the number of hospital-based facilities that may newly qualify with a change in policy. The low-volumeadjustment is mandated by Congress, and is not applied to pediatric patients. The impact to these lowvolume facilities is a 0.4 percent decrease in payments. Note: Totals do not necessarily equal the sum of ro unded parts, as percentages are multiplicative, not additive.
Column A of the impact table indicates th e number of ESRD facilities for each impact category and column B indicates th e number of dialysis treatmen ts (in millions). The overall effect of the proposed changes to the outlier payment policy descri bed in section II.B.4 of this proposed rule is shown in column C. For CY 2015, the impact on all ESRD facilities as a result of the changes to the outlier paym ent policy will be a 0.3 percent increase in estimated payments. The estimated impact of the changes to outlier payment policy ranges from a 0.0 percent to a 0.3 percent increase. Nearly all ES RD facilities are anticipated to experience a positive effect in their estimated CY 2015 payments as a result of the proposed outli er policy changes. Column D shows the effect of the wage index, new CBSA delineations, and labor-related share on ESRD facilities and reflects the CY 2015 wage index values for the ESRD PPS payments. Facilities located in the census region of Puerto Rico and the Virgin Islands would receive a 3.9 percent decrease in estimated payments in CY 2015. Si nce most of the facilities inCMS-1614-P 319

this category are located in Puerto Rico, the decr ease is primarily due to the change in the laborrelated share. The other categories of types of facilities in the impact table show changes in estimated payments ranging from a 3.9 percent decrease to a 1.5 percen t increase due to the update of the wage indexes, CBSA de lineations and labor-related share. Column E shows the effect of the ESRD PP S payment rate update of 0.0 percent as required by section 1881(b)(14)(F) and (I) as amended by section 217 of PAMA Column F reflects the overall impact (that is, the effects of the proposed outlier policy changes, the proposed wage index, the proposed CBSA delineations, the proposed labor-related share, and the effect of the payment rate update . We expect that overa ll ESRD facilities will experience a 0.3 percent increase in estimated payments in 2015. ESRD facilities in Puerto Rico and the Virgin Islands are expected to receive a 3.6 percent decrease in their estimated payments in CY 2015. This larger decrease is primarily due to the negative impact of the change in the labor-related share. The other categories of type s of facilities in the im pact table show impacts ranging from a decrease of 0.9 percent to in crease of 1.7 percent in their 2015 estimated payments. b. Effects on Other Providers Under the ESRD PPS, ESRD fac ilities are paid directly fo r the renal dialysis bundle and other provider types such as laboratories, DME suppliers, and pharmacies, may no longer bill Medicare directly for renal di alysis services. Rather, eff ective January 1, 2011, such other providers can only furnish renal dialysis servic es under arrangements w ith ESRD facilities and must seek payment from ESRD facilities rather than Medicare. Under the ESRD PPS, Medicare pays ESRD facilities one payment for renal dialysis services , which may have been separately paid to suppliers by Medicare prior to the implem entation of the ESRD PPS. Therefore, in CYCMS-1614-P 320

2015, we estimate that the proposed ESRD PPS w ill have zero impact on these other providers. c. Effects on the Medicare Program We estimate that Medicare spending (total Medicare program payments) for ESRD facilities in CY 2015 will be approximately $9.1 billion. This estimate takes into account a projected increase in fee-for-ser vice Medicare dialysis benefici ary enrollment of 3.2 percent in
CY 2015. d. Effects on Medicare Beneficiaries Under the ESRD PPS, beneficiaries are res ponsible for paying 20 percent of the ESRD PPS payment amount. As a result of the project ed 0.3 percent overall in crease in the proposed ESRD PPS payment amounts in CY 2015, we estima te that there will be an increase in beneficiary co-insurance payments of 0.3 percen t in CY 2015, which translates to approximately $10 million. e. Alternatives Considered For this proposed rule, we proposed to implement a 50/50 blended wage index for CY 2015 that would apply to all ESRD facilities. Specifically, the proposal would transition all ESRD facilities experiencing an impact, or not, due to the implementation of the new CBSA delineations. We considered proposing to im plement the new CBSA delineations without a transition; however we decided to mitigate the im pact this change would have on ESRD facilities that may experience a decrease in payments due to the change. In addition, for CY 2015 we proposed to implement a revised 50.673 percent laborrelated share using a 2-year transition. This pr oposal would transition all ESRD facilities from the current labor-related share of 41.737 percen t to the revised labor-related share of 50.673 percent. We considered proposing to implemen t the labor-related share without a transition;CMS-1614-P 321

however we decided to mitigate the impact this change would have on ESRD facilities that may experience a decrease in payments due to the change. 2. End-Stage Renal Disease Quality Incentive Program a. Effects of the PY 2017 ESRD QIP The ESRD QIP provisions are intended to pr event possible reductions in the quality of ESRD dialysis facility services provided to beneficiaries as a result of payment changes under the ESRD PPS. The methodology that we are propos ing to use to determin e a facility’s TPS for PY 2017 is described in section III.F.5 of this proposed rule. Any reductions in ESRD PPS payments as a result of a facility’s performa nce under the PY 2017 ESRD QIP would affect the facility’s reimbursement rates in CY 2017. We estimate that, of the total number of dialys is facilities (including those not receiving a TPS), approximately 20 percent or 1,227 of th e facilities would likely receive a payment reduction in PY 2017. Facilities that do not receive a TPS ar e not eligible for a payment reduction. In conducting our impact assessment, we have assumed that there will be an initial count of 5,996 dialysis facilities paid under the ESRD PPS. Table 39 shows the overall estimated distribution of payment reductions resu lting from the PY 2017 ESRD QIP.CMS-1614-P 322

TABLE 39: Estimated Distribution of PY 2017 ESRD QIP Payment Reductions.

Payment Reduction Number of Facilities Percent of Facilities 0.0% 4,484 78.5% 0.5% 887 15.5% 1.0% 264 4.6% 1.5% 58 1.0% 2.0% 18 0.3% Note: This table excludes 285 facilities that we estimate will not receive a payment reduction because they will not report enough data to receive a Total Performance Score.
To estimate whether or not a facility would r eceive a payment reduction in PY 2017, we scored each facility on achievement and improvement on se veral measures we have previously finalized and for which there were available data from CROWNWeb and Medicare claims. Measures used for the simulation ar e shown in Table 40.

TABLE 40: Data Used to Estimate PY 2017 ESRD QIP Payment Reductions
Measure Period of Time Used to Calculate Achievement Thresholds, Performance Standards, Benchmarks, and Improvement Thresholds Performance Period

Vascular Access Type % Fistula Jan 2012 – Dec 2012 Jan 2013 – Dec 2013 % Catheter Jan 2012 – Dec 2012 Jan 2013 – Dec 2013 Kt/V Adult HD Jan 2012 – Dec 2012 Jan 2013 – Dec 2013 Adult PD Jan 2012 – Dec 2012 Jan 2013 – Dec 2013

Pediatric HD Jan 2012 – Dec 2012 Jan 2013 – Dec 2013 Hypercalcemia May 2012 – Dec 2012 Jan 2013 – Dec 2013 SRR Jan 2011 – Dec 2011 Jan 2012 – Dec 2012

Clinical measure topic areas with less than 11 cases for a facility were not included in that facility’s Total Performance Score. Each facility’s Total Performance Score was comparedCMS-1614-P 323

to the estimated minimum Total Performance Score and the payment reduction table found in section III.F.8 of this proposed rule. Facility reporting meas ure scores were estimated using available data from CY 2013. Facilities were requ ired to have a score on at least one clinical and one reporting measure in order to rece ive a Total Performance Score. To estimate the total payment reductions in PY 2017 for each facility resulting from this proposed rule, we multiplied the total Medicare pa yments to the facility during the one year period between January 2013 and December 2013 by the facility’s estimated payment reduction percentage expected under the ESRD QIP, yi elding a total payment reduction amount for each facility: (Total ESRD payment in Januar y 2013 through December 2013 times the estimated payment reduction percentage). For PY 2017, the total payment reductio n for the 1,227 facilities estimated to receive a reduction is appr oximately $11.9 million ($11,873,127). Further, we estimate that the total costs associated with the collection of information requirements for PY 2017 described in section VIII.1.a of this propo sed rule would be approximately $27 thousand for all ESRD facilities. As a result, we estim ate that ESRD faciliti es will experience an aggregate impact of approximately $11.9 million ($27,232 + $11,873,127 = $11,900,359) in PY 2017, as a result of the PY 2017 ESRD QIP. Table 41 below shows the estimated impact of the finalized ESRD QIP payment reductions to all ESRD facilities for PY 2017. The table estimates the distribution of ESRD facilities by facility size (both among facilities considered to be small entities and by number of treatments per facility), geography (both urban/rura l and by region), and by f acility type (hospital based/freestanding facilities). Given that the ti me periods used for these calculations will differ from those we are proposing to use for the PY 2017 ESRD QIP, the actual impact of the PY 2017 ESRD QIP may vary significantly from the values provided here.CMS-1614-P 324

TABLE 41: Impact of Proposed QIP Paymen t Reductions to ESRD Facilities in PY 2017

Number of Facilities Number of Treatments

2013 (in millions) Number of Facilities with QIP

Score Number of Facilities Expected to Receive a Payment Reduction Payment Reduction (percent change

in total ESRD

payments) All Facilities 5,996 39.1 5,711 1,227 -0.14% Facility Type: 5,520 36.6 5,289 1,093 -0.13% Freestanding Hospital-based 476 2.5 422 134 -0.24% Ownership Type: 4,150 27.5 3,995 786 -0.12% Large Dialysis Regional Chain 871 5.9 836 169 -0.14% Independent 582 3.6 534 157 -0.22% Hospital-based (non-chain) 393 2.1 346 115 -0.25% Facility Size: 5,021 33.5 4,831 955 -0.12% Large Entities Small Entities 1 975 5.7 880 272 -0.23% Rural Status: 1,212 5.9 1,167 187 -0.10% 1) Yes 2) No 4,784 33.3 4,544 1,040 -0.15% Census Region: 792 5.8 770 160 -0.14% Northeast Midwest 1,341 7.7 1,276 314 -0.16% South 2,527 17.5 2,460 504 -0.12% West 1,015 7.1 966 159 -0.10% US Territories 2 321 1.0 239 90 -0.33% Census Division: 979 5.8 909 249 -0.19% East North Central East South Central 497 2.9 475 92 -0.12% Middle Atlantic 661 4.8 632 139 -0.16% Mountain 352 1.9 335 55 -0.10% New England 177 1.3 168 29 -0.13% Pacific 710 5.4 671 119 -0.11% South Atlantic 1,333 9.1 1,279 314 -0.15% West North Central 438 2.0 417 81 -0.12%CMS-1614-P 325

Number of Facilities Number of Treatments

2013 (in millions) Number of Facilities with QIP

Score Number of Facilities Expected to Receive a Payment Reduction Payment Reduction (percent change

in total ESRD

payments) West South Central 807 5.6 783 125 -0.10% US Territories 2 42 0.3 42 24 -0.42% Facility Size (# of total treatments) 1,086 2.7 928 211 -0.17% Less than 4,000 treatments 4,000-9,999 treatments 2,226 10.5 2,174 423 -0.12% Over 10,000 treatments 2,523 25.7 2,514 557 -0.14% Unknown 161 0.3 95 36 -0.38% 1 Small Entities include hospital-based and satellite facilities and non-chain facilities based on DFC self-reported status. 2 Includes Puerto Rico and Virgin Islands. 3 Based on claims and CROWNWeb data through December 2013.
b. Effects of the PY 2018 ESRD QIP The methodology that we are proposing to use to determine a facility’s TPS for the PY 2018 ESRD QIP is described in sections III.F.6 a nd III.F.7 of this proposed rule. Any reductions in ESRD PPS payments as a result of a fac ility’s performance under the PY 2018 ESRD QIP would apply to ESRD PPS payments ma de to the facility in CY 2018. We estimate that, of the total number of dialys is facilities (including those not receiving a TPS), approximately 16 percent or 919 of the f acilities would likely receive a payment reduction in PY 2018. Facilities that do not receive a TPS are not eligible fo r a payment reduction. In conducting our impact assessment, we have assumed that there will be 5,996 dialysis facilities paid through the PPS. Table 42 shows the overall estimated di stribution of payment reductions resulting from th e PY 2018 ESRD QIP.CMS-1614-P 326

TABLE 42: Estimated Distribution of PY 2018 ESRD QIP Payment Reductions

Payment Reduction Number of Facilities Percent of Facilities 0.0% 4,989 84.4% 0.5% 729 12.3% 1.0% 132 2.2% 1.5% 35 0.6% 2.0% 23 0.4% Note: This table excludes 88 facilities that we estimate will not receive a payment reduction because they will not report enough data to receive a Total Performance Score.
To estimate whether or not a facility would r eceive a payment reduction in PY 2018, we scored each facility on achievement and improvement on se veral measures we have previously finalized and for which there were available data from CROWNWeb and Medicare claims. Measures used for the simulation ar e shown in Table 43.

TABLE 43: Data Used to Estimate PY 2018 ESRD QIP Payment Reductions

. Measure Period of Time Used to Calculate Achievement Thresholds, Performance Standards, Benchmarks, and Improvement Thresholds Performance Period

Vascular Access Type % Fistula Jan 2012 – Dec 2012 Jan 2013 – Dec 2013 % Catheter Jan 2012 – Dec 2012 Jan 2013 – Dec 2013 Kt/V Adult HD Jan 2012 – Dec 2012 Jan 2013 – Dec 2013 Adult PD Jan 2012 – Dec 2012 Jan 2013 – Dec 2013

Pediatric HD Jan 2012 – Dec 2012 Jan 2013 – Dec 2013 Pediatric PD Jan 2012 – Dec 2012 Jan 2013 – Dec 2013 Hypercalcemia May 2012 – Dec 2012 Jan 2013 – Dec 2013 SRR Jan 2011 – Dec 2011 Jan 2012 – Dec 2012 STrR Jan 2011 – Dec 2011 Jan 2012 – Dec 2012

Clinical measure topic areas with less than 11 cases for a facility were not included inCMS-1614-P 327

that facility’s Total Performance Score. Each facility’s Total Performance Score was compared to an estimated minimum Total Performance Sc ore and an estimated pa yment reduction table that were consistent with the pr oposals outlined in Section III.G.9 of this proposed rule. Facility reporting measure scores were es timated using available data fr om CY 2013. Facilities were required to have a score on at least one clinical and one reporting measure in order to receive a Total Performance Score. To estimate the total payment reductions in PY 2018 for each facility resulting from this proposed rule, we multiplied the total Medicare pa yments to the facility during the one year period between January 2013 and December 2013 by the facility’s estimated payment reduction percentage expected under the ESRD QIP, yi elding a total payment reduction amount for each facility: (Total ESRD payment in Januar y 2013 through December 2013 times the estimated payment reduction percentage). For PY 2018, th e total payment reduc tion for all of the 919 facilities expected to receive a reduction is approximately $7 million ($6,958,521). Further, we estimate that the total costs associated with the collection of information requirements for PY 2018 described in Section VIII.1.b of this propo sed rule would be approximately $248 thousand for all ESRD facilities. As a result, we estim ate that ESRD faciliti es will experience an aggregate impact of approximately $7.2 million ($248,309 + $6,958,521 = $7,206,830) in PY 2018, as a result of the PY 2018 ESRD QIP. Table 44 below shows the estimated impact of the finalized ESRD QIP payment reductions to all ESRD facilities for PY 2018. The table details the distribution of ESRD facilities by facility size (both among facilities considered to be small entities and by number of treatments per facility), geography (both urban/rura l and by region), and by f acility type (hospital based/freestanding facilities). Given that the ti me periods used for these calculations will differCMS-1614-P 328

from those we propose to use for the PY 2018 ESRD QIP, the actual impact of the PY 2018 ESRD QIP may vary significantly from the values provided here. TABLE 44: Impact of Proposed QIP Paymen t Reductions to ESRD Facilities for PY 2018

Number of Facilities Number of Treatments

2013 (in millions) Number of Facilities with QIP

Score Number of Facilities Expected to Receive a Payment Reduction Payment Reduction

(percent change in total ESRD payments) All Facilities 5,996 39.1 5,908 919 -0.10% Facility Type: 5,520 36.6 5,455 818 -0.09% Freestanding Hospital-based 476 2.5 453 101 -0.17% Ownership Type: 4,150 27.5 4,115 580 -0.08% Large Dialysis Regional Chain 871 5.9 858 127 -0.10% Independent 582 3.6 561 123 -0.15% Hospital-based (non-chain) 393 2.1 374 89 -0.19% Facility Size: 5,021 33.5 4,973 707 -0.08% Large Entities Small Entities 1 975 5.7 935 212 -0.16% Rural Status: 1,212 5.9 1,190 139 -0.07% 1) Yes 2) No 4,784 33.3 4,718 780 -0.10% Census Region: 792 5.8 784 111 -0.08% Northeast Midwest 1,341 7.7 1,318 226 -0.10% South 2,527 17.5 2,517 337 -0.07% West 1,015 7.1 1,008 109 -0.06% US Territories 2 321 1.0 281 136 -0.43% Census Division: 979 5.8 952 202 -0.13% East North Central East South Central 497 2.9 493 67 -0.09% Middle Atlantic 661 4.8 650 106 -0.10% Mountain 352 1.9 349 43 -0.08% New England 177 1.3 172 21 -0.09%CMS-1614-P 329

Number of Facilities Number of Treatments

2013 (in millions) Number of Facilities with QIP

Score Number of Facilities Expected to Receive a Payment Reduction Payment Reduction

(percent change in total ESRD payments) Pacific 710 5.4 703 90 -0.08% South Atlantic 1,333 9.1 1,315 232 -0.10% West North Central 438 2.0 426 53 -0.07% West South Central 807 5.6 806 90 -0.07% US Territories 2 42 0.3 42 15 -0.25% Facility Size (# of total treatments) 1,086 2.7 1,032 215 -0.16% Less than 4,000 treatments 4,000-9,999 treatments 2,226 10.5 2,225 277 -0.07% Over 10,000 treatments 2,523 25.7 2,523 352 -0.07% Unknown 161 0.3 128 75 -0.59% 1 Small Entities include hospital-based and satellite facilities and non-chain facilities based on DFC self-reported status. 2 Includes Puerto Rico and Virgin Islands. 3 Based on claims and CROWNWeb data through December 2013.

3. DMEPOS Provisions a. Effects of the Proposed Methodology for Adjusting DMEPOS Payment Amounts using Information from Competitive Bidding Programs We estimate that the proposed methodol ogy for adjusting DMEPOS payment amounts using information from DMEPOS CBPs would save over $7 billion over FY 2016 through 2020. The savings would be primarily achieved from pri ce reductions for items. Therefore, most of the economic impact is expected from the reduced pr ices. We estimate that approximately half of the DMEPOS items and services furnished to Medicare beneficiaries are furnished to beneficiaries residing outside ex isting CBAs. (See Table 45.)CMS-1614-P 330

TABLE 45: Impact of Pricin g Items in Non-Competitive Areas Using Competitive Bidding Pricing

FY Impact on the federal government in dollars (to the nearer ten million) Impact on beneficiary cost sharing in dollars (to the nearer ten million) 2016 -880 -270 2017 -1,430 -470 2018 -1,520 -510 2019 -1,630 -540 2020 -1,750 -580

Although these transfers create ince ntives that very lik ely cause changes in the way society uses its resources, we lack data with which to esti mate the resulting social costs or benefits. b. Effects of the Proposed Special Payment Methodologies and Payment Rules for Durable Medical Equipment and Enteral Nutrition Fu rnished under the Competitive Bidding Program We believe that the proposed special paymen t rules would not have a significant impact on beneficiaries and suppliers. Contract supp liers are responsible for furnishing items and services needed by the beneficiary, and the cost to suppliers for furnishing these items and services does not change based on whether or not the equipment and related items and services are paid for separately under a capped rental payment method. Because the supplier’s bids would reflect the cost of furnishing items in acco rdance with the new payment rules, we expect the overall savings would be generally the same as they are under the current payment rules. Furthermore, as indicated above, we are proposin g that the alterative payment rules would be phased in under a limited number of areas first to determine impact on the program, beneficiaries, and suppliers. If supported by evaluation results, a decision to expand the proposed special payment rules to other areas would be addressed in future rulemaking.CMS-1614-P 331

c. Effects of the Proposed Clarification of th e Scope of the Medicare Hearing Aid Coverage Exclusion This proposed rule proposes to clarify the sc ope of the Medicare coverage exclusion for hearing aids and proposes to no l onger cover BAHAs. However, if finalized, this proposed rule would have no significant fiscal impact on the Medicare progra m, because Medicare program expenditures for BAHAs during the period CY2005 through CY 2013 have been insignificant. This proposed clarification would provide clear guidance about cove rage of DME with regard to the statutory hearing aid exclus ion. The proposed regulation, if finalized, would explicitly except cochlear implants and brain stem implants from the hearing aid exclusion, and therefore, Medicare coverage for thes e devices would continue. We estimate that the proposed clarification of the scope of the Medi care hearing coverage exclusion would save Medicare approximately $80 million dollars over five years beginning in January 1, 2015 through September 30, 2019. The sa vings would be primarily achieved from removing coverage of the BAHA device. (See Table 46.)
TABLE 46: Clarification of the Statutor y Medicare Hearing Aid Coverage Exclusion FY Impact to the Federal Government (rounded to the nearer $10 millions) 2015 -10 2016 -10 2017 -20 2018 -20 2019 -20

d. Effects of the Proposed Definition of Mi nimal Self-Adjustment of Orthotics Under Competitive Bidding The proposed rule would modify the definiti on of minimal self-adjustment to indicate that it means an adjustment that the beneficiary, caretaker for the benefici ary, or supplier of theCMS-1614-P 332

device can perform and does not require the services of a certified orthotist (that is, an individual certified by either the American Board for Certifi cation in Orthotics and Pr osthetics, Inc., or the Board for Orthotist/Prosthetist Certification) or a physician as defined in section 1861(r) of the Act , a treating practitioner means a physician assi stant, nurse practitione r, or clinical nurse specialist as defined in section 1861(aa)(5) of the Act, an occupational ther apist as defined in 42 CFR 484.4, or physical therapist as defined in 42 CFR 484.4 in compliance with all applicable Federal and State licensure a nd regulatory requirements. We estimate that the proposed clarification of the definition of minimal self-adjustment wo uld have no significant impact on program expenditures or access to orthotics. This proposed clarification would impact suppliers furnishing custom fitted orthotics that do not have the expertise necessary to make more than minimal adjustments to an orthotic that a bene ficiary or caregiver coul d be trained to make. e. Effects of the Proposed Revision to Change of Ownership Rules to Allow Contract Suppliers to Sell Specific Lines of Business This rule would clarify the change of owne rship rules so as to not interfere with the normal course of business for DME suppliers. Th is rule would establish an exception under the CHOW rules to allow transfer of part of a competitive bidding c ontract when a contract supplier sells a distinct line of busin ess to a qualified successor en tity r under certain specific circumstances. This clarification would impact businesses in a positive way by allowing them to conduct everyday transactions without interf erence from our rules and regulations. C. Accounting Statement As required by OMB Circ ular A-4 (available at http://www.whitehouse.gov/omb/circul ars_a004_a-4), in Table 47 be low, we have prepared anCMS-1614-P 333

accounting statement showing the classification of the transfers and costs associated with the various provisions of this proposed rule.CMS-1614-P 334

Table 47. Accounting Statement: Classification of Estimated Transfers and Costs/Savings ESRD PPS for CY 2015 Category Transfers Annualized Monetized Transfers $ 30 million From Whom to Whom Federal government to ESRD providers Category Transfers Increased Beneficiary Co-insurance Payments $ 10 million From Whom to Whom Benefi ciaries to ESRD providers ESRD QIP for PY 2017 Annualized Monetized Transfers -$11.9 million From Whom to Whom Federal government to ESRD providers Category Costs Annualized Monetized ESRD Provider Costs $27 thousand ESRD QIP for PY 2018 Annualized Monetized Transfers -$7 million From Whom to Whom Federal government to ESRD providers Category Costs Annualized Monetized ESRD Provider Costs $248 thousand Pricing Items in Non-competitive Areas Using Competitive Bidding Pricing Category Transfer Annualized Monetized Transfer on Beneficiary Cost Sharing Estimates Year Dollar Discount Rate Period Covered -$464.5 million 2014 7% 2016 – 2020 -$469.9 million 2014 3% 2016 - 2020 From Whom to Whom Benefici aries to Medicare providers Transfers
Annualized Monetized

Transfer Payments Estimates Year Dollar Discount Rate Period Covered -$1,415.4 million 2014 7% 2016 - 2020 -$1,430.5 million 2014 3% 2016 - 2020 From Whom to Whom Federal gov ernment to Medicare providers. Clarification of the Statutory Medic are Hearing Aid Coverage Exclusion Category Transfers Annualized Monetized Transfer Payments Estimates Year Dollar Discount Rate Period Covered -$15.6 million 2014 7% 2015 - 2019 -$15.8 million 2014 3% 2015 - 2019 From Whom to Whom Federal gov ernment to Medicare providers.CMS-1614-P 335

XVI. Regulatory Flexibility Act Analysis The Regulatory Flexibility Act (Septemb er 19, 1980, Pub. L. 96-354) (RFA) requires agencies to analyze options for regulatory relief of small entities, if a rule has a significant impact on a substantial number of small entities. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and sma ll governmental jurisdictions. Approximately 16 percent of ESRD dialysis facilities are considered small entities according to the Small Business Administration’s (SBA) size standards, which classifies small businesses as those dialysis facilities having total revenues of less than $35.5 million in any 1 year. Individuals and States are not included in the de finitions of a small entity. Fo r more information on SBA’s size standards, see the Small Business Administration’s Web site at http://www.sba.gov/content/small-busi ness-size-standards (Kidney Di alysis Centers are listed as 621492 with a size standard of $35.5 million). We do not believe ESRD facilities are opera ted by small government entities such as counties or towns with populations of 50,000 or less, and therefore, they are not enumerated or included in this estimated RFA analysis. Individu als and States are not in cluded in the definition of a small entity. For purposes of the RFA, we estimate that approximately 16 percen t of ESRD facilities are small entities as that term is used in th e RFA (which includes small businesses, nonprofit organizations, and small governmental jurisdiction s). This amount is based on the number of ESRD facilities shown in the ow nership category in Table 38. Using the definitions in this ownership category, we consider th e 582 facilities that ar e independent and the 393 facilities that are shown as hospital-based to be small entitie s. The ESRD faciliti es that are owned and operated by LDOs and regional chains would have total revenues of more than $35.5 million inCMS-1614-P 336

any year when the total revenues for all locat ions are combined for each business (individual LDO or regional chain), and are not, ther efore, included as small entities. For the ESRD PPS updates proposed in this ru le, a hospital-based ESRD facility (as defined by ownership type) is estimated to rece ive a 0.4 percent increase in payments for CY 2015. An independent facility (as defined by owne rship type) is also estimated to receive a 0.4 percent increase in payments for CY 2015. We estimate that of the 1,217 ES RD facilities expected to re ceive a payment reduction in the PY 2017 ESRD QIP, 275 of thos e facilities would be ESRD sm all entity faci lities. We present these findings in in Table 39 (“Estima ted Distribution of PY 2017 ESRD QIP Payment Reductions”) and Table 41 (“Impact of Proposed QIP Payment Reductions to ESRD Facilities for PY 2017”) above. We estimate that the payment reductions will average approximately $9,353 per facility across the 1,217 facilities receiving a payment reduction, and $8,698 for each small entity facility. Using our estimates of facility performance, we also estimated the impact of payment reductions on ESRD small entity facilities by comparing the total payment reductions for the 275 small entity facilities with the aggregate ESRD payments to all small facilities. We estimate that ther e are a total of 885 small facilitie s, and that the aggregate ESRD PPS payments to these facilities woul d decrease 0.23 percent in PY 2017. We estimate that of the 1,320 ESRD facilities expected to re ceive a payment reduction in the PY 2018 ESRD QIP, 282 are ESRD small entity facilities. We present these findings in Table 39 (“Estimated Distribution of PY 2018 ESRD QIP Payment Reductions”) and Table 41 (“Impact of Proposed QIP Payment Reductions to ESRD Facilities for PY 2018”) above. We estimate that the payment reductions will aver age approximately $7,119 per facility across the 895 facilities receiving a payment reduction, and $6,294 for each small entity facility. Using ourCMS-1614-P 337

estimates of facility performance, we also es timated the impact of payment reductions on ESRD small entity facilities by compari ng the total estimated payment reductions for 209 small entity facilities with the aggregate ESRD payments to all small entity facilities. We estimate that there are a total of 975 small entity fa cilities, and that the aggregate ESRD PPS payments to these facilities would decreas e 0.16 percent in PY 2018. We expect that the proposed methodology for adjusting DMEPOS payment amounts using information from DMEPOS CBPs would have a significant impact on a substantial number of small suppliers. Although suppliers furnishing items and services outside CBAs do not have to compete and be awarded contracts in order to continue furnishing these items and services, the payment amounts for these items and servic es would be reduced using the methodology established as a result of the proposed rule. The statute requires that the methodology for adjusting payment amounts take into considerati on the costs of furnishing items and services in areas where the adjustments will occur and these considerations are discussed in the preamble (refer to section IV(A )(5) of the preamble). The proposed methodology for making payment adjustments would allow for adjustments based on bids in different geographic regions to reflect regional variation in costs of furnishing items and services and the national floor for adjustments in states with unique costs. We believe that s uppliers would be able to continue furnishing items and services to beneficiaries in areas outside the CBAs after the reductions in the payment amounts are applied without a significant change in the rate at which th ey accept assignment of Medicare claims for these items and services . Because section 1834(a) (1)(F)(ii) of the Act mandates that payment amounts for DME subject to competitive bidding be adjusted in areas where CBPs are not implemented, the only alterna tive we can consider other than paying based on adjusted fee schedule amounts is to implement CBPs in all areas. However, this approachCMS-1614-P 338

would have an even greater impact on small suppliers. We expect the proposed special payment ru les for DME and enteral nutrition would not have a significant impact on sma ll suppliers. We believe that th ese rules would benefit affected suppliers since payment for rental of DME and enteral nutrition infusion pumps would no longer be capped and suppliers would reta in ownership to the equipment. We expect that the proposal to modify th e definition of minimal self-adjustment of orthotics would not have a signi ficant impact on small suppliers. According to the Medicare Pricing, Data Analysis and Coding (PDAC) Co ntractor from FY 2010 through FY 2013 there were approximately 6,000 DMEPOS suppliers wi th a provider tran saction access number (PTAN) registered with the National Supplier Clearinghouse to supply orthotics. In addition, there are a limited number of a pplicable HCPCS codes (approximate ly 77) that require a skilled individual's expertise. We believe that the ma jority of businesses prov iding orthotics already employ a “skilled individual.” However, for th ose few businesses that do not already have a skilled individual providing custom fitted orthotic s they could comply with the proposed changes to the definition and requirements by hiring a skil led individual. For example, according to the Bureau of Labor Statistics Occupational Empl oyment Statistics May 2013 the median pay for a certified orthotist was $30.27 an hour. The impact will vary according to the caseload of custom fitted orthotics provided by an individual supplier. We expect that although the proposal which clarifies the scope of the Medicare statutory exclusion for hearing aids would withdraw th e coverage for BAHAs, it would not have a significant impact on small supplie rs since the volume of allowed services for bone anchored hearing aids covered by Medicare is very small (less than 2,000 nationwide) and would not account for a large percentage of any individual supplier’s total revenue.CMS-1614-P 339

We expect that the proposed revisions to CH OW rules to allow contract suppliers to sell specific lines of business provision would have a positive impact on suppliers and no significant negative impact on small suppliers. Therefore, the Secretary has determined that this proposed rule w ould have a significant economic impact on a substantial number of sm all entities. We solicit comment on the RFA analysis provided. In addition, section 1102(b) of th e Act requires us to prepare a regulatory impact analysis if a rule may have a significant impact on the ope rations of a substantial number of small rural hospitals. Any such regulatory impact analysis must conform to the provisions of section 603 of the RFA. For purposes of section 1102(b) of th e Act, we define a small rural hospital as a hospital that is located outside of a metropolitan statistical area and has fewer than 100 beds. We do not believe this proposed rule will have a si gnificant impact on opera tions of a substantial number of small rural hospitals because most dial ysis facilities are frees tanding. While there are 145 rural hospital-based di alysis facilities, we do not know how many of them are based at hospitals with fewer than 100 beds. However, overall, the 145 rural ho spital-based dialysis facilities will experience an estimated 0.1 percen t decrease in payments. As a result, this proposed rule is not estimated to have a signific ant impact on small rural hospitals. Therefore, the Secretary has determined that this proposed rule will not have a significant impact on the operations of a substantial number of small rural hospitals. XVII. Unfunded Mandates Reform Act Analysis Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) (Pub. L. 104-4) also requires that agencies assess anticipated co sts and benefits before issuing any rule whose mandates require spending in any 1 year $100 m illion in 1995 dollars, updated annually forCMS-1614-P 340

inflation. In 2013, that threshold is approximate ly $141 million. This proposed rule does not include any mandates that would impose spending co sts on State, local, or Tribal governments in the aggregate, or by the priv ate sector, of $141 million. XVIII. Federalism Analysis Executive Order 13132 on Federalism (August 4, 1999) establishes certa in requirements that an agency must meet when it promulgates a proposed rule (and subseq uent final rule) that imposes substantial direct requirement costs on State and local governments, preempts State law, or otherwise has Federalism implications. We have reviewed this proposed rule under the threshold criteria of Executive Order 13132, Federa lism, and have determined that it will not have substantial direct e ffects on the rights, roles, and responsi bilities of States , local or Tribal governments. XXI. Congressional Review Act This proposed rule is subject to the Congressional Review Act provisions of the Small Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 et seq.) and has been transmitted to the Congress and the Comptroller General for review. In accordance with the provisions of Executive Order 12866, this proposed rule was reviewed by the Office of Management and Budget. XX. Files Available to the Public via the Internet The Addenda for the annual ESRD PPS pr oposed and final rulemakings will no longer appear in the Federal Register . Instead, the Addenda will be available only through the Internet and is posted on the CMS website at http://www.cms.gov/ESRD Payment/PAY/list.asp In addition to the Addenda, limited data set (LDS) files are available for purchase at http://www.cms.gov/Research-Statis tics-Data-and-Systems/Files-for-CMS-1614-P 341

Order/LimitedDataSets/EndSta geRenalDiseaseSystemFile.html

. Readers who experience any problems accessing the Addenda or LDS files, s hould contact Stephanie Frilling at (410) 786-
4507.CMS-1614-P 342

List of Subjects 42 CFR Part 405 Administrative practice a nd procedure, Health facilities, H ealth professions, Kidney diseases, Medical devices, Medicare, Reporti ng and recordkeeping requiremen ts, Rural areas, and X-rays 42 CFR Part 411 Kidney diseases, Medicare, Physician Referral, and Reporting and recordkeeping requirements 42 CFR Part 413 Health facilities, Kidney di seases, Medicare, Reporting and recordkeeping requirements. 42 CFR Part 414 Administrative practice a nd procedure, Health facilities, Heal th professions, Kidney diseases, Medicare, and Reporting and r ecordkeeping requirementsCMS-1614-P 343

For the reasons set forth in the preamble, the Centers for Medicar e & Medicaid Services proposes to amend 42 CFR chapter IV as follows: PART 405—FEDERAL HEALTH INSURA NCE FOR THE AGED AND DISABLED 1. The authority for part 405 continues to read as follows: Authority : Secs. 205(a), 1102, 1861, 1862(a), 1869, 1871, 1874, 1881, and 1886(k) of the Social Security Act (42 U.S. C. 405(a), 1302, 1395x, 1395y(a), 1395ff, 1395hh, 1395kk, 1395rr and 1395ww(k)), and sec. 353 of the P ublic Health Service Act (42 U.S.C. 263a). § 405.2102 [Amended] 2. Section 405.2102 is amended by removing a ll the definitions, w ith the exception of two definitions, “Network, ESRD”, and “Network organization”. Part 411—EXCLUSIONS FROM MEDICARE AND LIMITATIONS ON MEDICARE PAYMENT
3. The authority citation for part 411 continues to read as follows: Authority: Secs. 1102, 1860D-1 through 1860D-42, 1871, and 1877 of the Social Security Act (42 U.S.C. 1302, 1395w -101 through 1395w-152, 1395hh, and 1395nn). 4. Section 411.15 is amended by revising paragraph (d) to read as follows: § 411.15 Particular services excluded from coverage

. * * * * (d) Hearing aids or examinations for the purpose of prescribing, fitting, or changing hearing aids. (1) Scope. The scope of the hearing aid exclusion encompasses all types of air conduction and bone conduction he aring aids (external, in ternal, or implanted).CMS-1614-P 344

(2) Devices not subject to the hearing aid exclusion. Cochlear implants and auditory brainstem implants that replace th e function of cochlear structures or auditory nerve and provide electrical energy to auditory nerve fibers and othe r neural tissue via impl anted electrode arrays. These devices produce the perception of sound and do not meet the definition of hearing aid.
* * * * * PART 413—PRINCIPLES OF REASONABLE COST REIMBURSEMENT; PAYMENT FOR END-STAGE RENAL DISEASE SERVI CES; OPTIONAL PROSPECTIVELY DETERMINED PAYMENT RATES FOR SKILLED NURSING FACILITIES 5. The authority citation for part 41 3 is revised to read as follows: Authority: Secs. 1102, 1812(d), 1814(b), 1815, 1833(a) , (i), and (n), 1861(v), 1871, 1881, 1883 and 1886 of the Social Security Act (42 U.S.C. 1302, 1395d(d), 1395f(b), 1395g, 1395l(a), (i), and (n), 1395x( v), 1395hh, 1395rr, 1395tt, and 1395 ww); and sec. 124 of Pub.L. 106-113 (113 Stat. 1501A-332), sec. 3201 of Pub.L. 112-96 (126 Stat. 156), sec. 632 of Pub. L. 112-240 (126 Stat. 2354), and sec. 217 of Pub.L. No. 113-93. § 413.174 [Amended] 6. In § 413.174, paragraph (f)(6) is amended by removing “January 1, 2016” and by adding in its place “January 1, 2024.” 7. Section 413.232 is amended revising paragr aphs (b) introductory text and (f) and adding paragraph (h) to read as follows: §413.232 Low-volume adjustment. * * * * * (b) Definition of low-volume facility. A low-vol ume facility is an ESRD facility that, as determined based on the documentation submitted pursuant to paragraph (h) of this section:CMS-1614-P 345

* * * * * (f) Except as provided in para graph (g) of this section, to receive the low-volume adjustment an ESRD facility must provide an attestation statement, by November 1st of each year preceding the payment year, to its Medicare Administrative Contractor that the facility meets all the criteria establishe d in this section. Fo r calendar year 2012, the attestation must be provided by January 3, 2012. For calendar year 2015, the attestation must be provided by December 31, 2014.
* * * * * (h) To receive the low-volume adjustment, an ESRD facility must include in their attestation provided pursuant to paragraph (f) of this section a statement that the ESRD facility meets the definition of a low-volume facility in paragraph (b) of this section. To determine eligibility for the low-volume adjustment, the Medicare Administrative Contractor (MAC) on behalf of CMS relies upon as filed or final se ttled 12-consecutive month cost reports for the 3 cost reporting years preceding the payment year to verify the number of treatments, except that: (1) In the case of a hospital-based ESRD facility as defined in § 413.174(c), the MAC relies upon the attestation submitted pursuant to pa ragraph (f) of this section and may consider other supporting data in addition to the total tr eatments reported in each of the 12-consecutive month cost reports for the 3 cost reporting years preceding the payment year to verify the number of treatments that were furnished by the indivi dual hospital-based ESRD facility seeking the adjustment; and (2) In the case of an ESRD facility that has undergone a change of ownership that does not result in a new Provider Tran saction Access Number for the ESRD facility, the MAC relies upon the attestation and when the ch ange of ownership results in two non-standard cost reportingCMS-1614-P 346

periods (less than or greater th an 12-consecutive months), does one or both of the following for the 3 cost reporting years preceding the payment year to verify the number of treatments: (i) Combines the two non-standard cost report ing periods of less than 12 months to equal a full 12-consecutive mo nth period; and/or (ii) Combines the two non-standard cost re porting periods that in combination may exceed 12-consecutive months and prorates the data to equal a full 12-consecutive month period. § 413.237 [Amended] 8. In § 413.237, paragraph (a)(1)(iv) is am ended by removing “January 1, 2016” and adding in its place “January 1, 2024.” PART 414—PAYMENT FOR PART B MEDI CAL AND OTHER HEALTH SERVICES 9. The authority citation for part 414 continues to read as follows : Authority: Secs. 1102, 1871, and 1881(b)(l) of the So cial Security Act (42 U.S.C. 1302, 1395hh, and 1395rr(b)(l)). 10. Section 414.105 is added to read as follows: §414.105 Application of Competitive Bidding Information and Limitation of Inherent Reasonableness Authority (a) For enteral nutrients, equipment and supplies furnished on or after January 1, 2011, the fee schedule amounts may be adjusted based on information on the payment determined as part of implementation of the programs under s ubpart F using the methodologies set forth at §414.210(g). (b) In the case of such adjustments, the ru les at §405.502(g) and (h) of this chapter shall not be applied. Subpart D—Payment for Durable Medical Equipm ent and Prosthetic and Orthotic DevicesCMS-1614-P 347

11. The heading for subpart D is re vised to read as set forth above. 12. Section 414.202 is amended by: A. Adding the definition of “Frontier state”. B. Revising the definition of “Region”. C. Adding the definition of “Rural State”. The additions and revision read as follows: § 414.202 Definitions

. * * * * * Frontier state means a state where at least 50 percent of counties in the state have a population density of 6 people or less per square mile.
* * * * * Region means, for the purpose of implem enting § 414.210(g), geographic areas defined by the Bureau of Economic Analysis in the United States Department of Commerce for economic analysis purposes, and, for the purpos e of implementing § 414.228, those contractor service areas administered by CMS regional offices. Rural State means a state where more than 50 percent of the population is rural as determined through census data. 13. Section 414.210 is amended by revising para graph (a) and adding paragraph (g) to read as follows: § 414.210 General payment rules

. (a) General rule. For items furnished on or after January 1, 1989, except as provided in paragraphs (c) , (d), and (g) of this section, Medicare pays for durable medical equipment,CMS-1614-P 348

prosthetics and orthotic s, including a separate payment fo r maintenance and servicing of the items as described in paragraph (e) of this sec tion, on the basis of 80 percent of the lesser of— (1) The actual charge for the item; (2) The fee schedule amount for the item, as determined in accordance with the provisions of §§ 414.220 through 414.232
* * * * * (g) Application of Compet itive Bidding Information and Limitation of Inherent Reasonableness Authority
. For items furnished on or after January 1, 2011, the fee schedule amounts may be adjusted based on information on the payment determined as part of implementation of the programs under subpart F, of this part, excluding information on the payment determined in accordance with the special payment rules at § 414.409. In the case of such adjustments, the rules at § 405.502(g) a nd (h) of this chapter shall not be applied (1) Payment adjustments for areas within th e contiguous United States using information from competitive bidding programs

. For an item or service su bject to the programs under subpart F, that payment amount for such item or services for areas within the contiguous United States shall be established as follows: (i) CMS determines a regional price for each state in the contiguous United States and the District of Columbia equal to the un-weighted average of the single payment amount for an item or service established in accordance with § 414.416 for competitive bidding areas that are fully or partially located in the same region where the state or District of Columbia is located. (ii) CMS determines a national average price equal to the average of the regional prices determined under paragraph (g )(1)(i) of this section.CMS-1614-P 349

(iii) A regional price determined under pa ragraph (g)(1)(i) of th is section cannot be greater than 110 percent of the national average price determined under paragraph (g)(1)(ii) of this section nor less than 90 pe rcent of the national average pr ice determined under paragraph (g)(1)(ii) of this section. In addition, a re gional price determined under paragraph (g)(1)(i) of this section for a state designated as a rural or frontier state cannot be le ss than 110 percent of the national average price determined under paragraph (g)(1)(ii) of this section. (2) Payment adjustments for areas outs ide the contiguous United States using information from competitive bidding programs. For an item or service subject to the programs under subpart F, the fee schedul e amounts for areas outside the contiguous United States are adjusted based on the greater of— (i) The average of the single payment amount s for the item or service for CBAs outside the contiguous United States. (ii) 110 percent of the national average pri ce for the item or service determined under paragraph (g)(1)(ii) of this section. (3) Payment adjustments for items and services included in no more than ten competitive bidding programs

. Notwithstanding paragraph (g)(1) of this section, for an item or service that is included in ten or fewer competitive bidding prog rams as defined at § 414.402, the fee schedule amounts applied for all areas within and outside the contiguous Un ited States are adjusted based on 110 percent of the un-weighted average of the single payment am ounts for the item or service. (4) Payment adjustments using data on items and services included in competitive bidding programs no longer in effect

. In the case where adjustments to fee schedule amounts are made using any of the methodologies described, if the adjustments are based solely on single payment amounts from competitive bidding programs that are no longer in effect, the adjustedCMS-1614-P 350

fee schedule amounts shall be incr eased on an annual basis using th e percentage change in the Consumer Price Index for all Urban Consumers (CP I-U) from the mid-point of the last year the single payment amounts were in effect to the mont h ending 6 months prior to the date the initial payment adjustments would go into effect. Follo wing the initial adjustment to the fee schedule amounts, the adjusted fee schedule amounts would continue to be updated every 12 months using the percentage change in the CPI-U for the 12- month period ending 6 months prior to the date the updated payment adjustme nts would go into effect. (5) Adjusted payment amounts for accessories used with different types of base equipment. In situations where a HCPCS code th at describes an item used with different types of base equipment is included in more than one product category in a CBA under competitive bidding, a weighted average of the single paymen t amounts for the code is computed for each CBA, weighted based on national allowed servic es for the code when used with different equipment. The weighted average single paymen t amount per code per CBA would then be used in applying the payment adjustment me thodologies proposed in this section. (6) Payment adjustments consistent with items and services furnished

. In the case where payment amounts are established under subpart F of this part for an item or service that are greater than the payment amounts established under subpart F of this part for a higher level item or service (i.e., one with additi onal features or functionality), the payment amounts for the lower level of service are adjusted so that they are no greater than the payment amounts for the higher level of service before making payment adju stments using any of the methodologies above. (7) Payment adjustments for mail order items furn ished in the Northern Mariana Islands. The fee schedule amounts for mail order items furnis hed to beneficiaries in the Northern MarianaCMS-1614-P 351

Islands are adjusted so that they are equa l to 100 percent of the single payment amounts established under a national mail or der competitive bidding program. (8) Updating adjusted fee schedule amounts. The adjusted fee schedule amounts are revised each time a single payment amount for an item or service is updated following one or more new competitions and as other items are ad ded to programs established under subpart F of this part.
14. Section 414.402 is amended by revising the defi nition of “Minimal self-adjustment” to read as follows: §414.402 Definitions. * * * * * Minimal self-adjustment means an adjust ment the beneficiary, caretaker for the beneficiary, or supplier of the de vice can perform and does not require the services of a certified orthotist (that is, an individua l certified by either the American Board for Certification in Orthotics and Prosthetics, Inc., or the Board for Orthotist/Prosthe tist Certification), or a physician as defined in 1861(r) of the Act, a treating practitioner which means a physician assistant, nurse practitioner, or clinical nurse specialist as defined in section 1861(aa)(5) of the Act, an occupational therapist as defined in §484.4 of this chap ter, or physical therapist as defined in §484.4 of this chapte r who are in compliance with a ll applicable Federal and State licensure and regulatory requirements.
* * * * * 15. Section 414.408 is amended by adding paragraph (l) to read as follows: § 414.408 Payment rules. * * * * *CMS-1614-P 352

(l) Exceptions for certain items and services paid in accordance with special payment rules

. The payment rules in paragraphs (f) thru (i ), (j)(2), (j)(3), (j)(7), and (k) of this section do not apply to items and services paid in accordance with the special payment rules at § 414.409. 16. Section 414.409 is added to read as follows: § 414.409 Special payment rules. (a) Payment on a bundled, continuous rental basis

. (1) In no more than 12 CBAs, in conjunction with competitions that begin on or after January 1, 2015, payment is made on a bundled, continuous monthly rental basis for enteral nutrients, supplies and equipment, oxygen and oxygen equipment, standard manual wheelchai rs, standard power wheelchairs, CPAP and respiratory assist devices, and hospital beds. The CBAs and competitions where these payment rules apply are announced in advance of each comp etition, with the payment rules in this section used in lieu of the payment rules at §414.408(f) thru (i), (j)(2), (j)(3), (j)( 7), and (k). The single payment amounts are established based on bids submitted and accepted for furnishing rented DME and enteral nutrition on a monthly basis for each month of medical need during the contract period monthly single payment amount would include payment for all nutrients, supplies and equipment. (2) Payment is made on a continuous monthly re ntal basis for DME. The single payment amount for the monthly rental of DME includes pa yment for the rented equipment, maintenance and servicing of the rented equipment, and repl acement of supplies and a ccessories necessary for the effective use of the rented equipment. Separa te payment for replacement of equipment, repair or maintenance and servicing of equipment, or for replacement of accessories and supplies necessary for the effective use of equipmen t is not allowed under any circumstances.CMS-1614-P 353

(3) Payment is made on a monthly basis fo r enteral nutrition. The single payment amount includes payment for all nutrients, supplies and equipment. Separate payment for replacement of equipment, repair or maintenance and servicing of equipment, or for replacement of accessories and supplies necessary for the eff ective use of equipment is not allowed under any circumstances. (b) Payment for grandfathered DME items paid on a bundled, continuous rental basis

. Payment to a supplier that elects to be a grandf athered supplier of DME furnished in CBPs where these special payment rules apply is made in accordance with § 414.408(a)(1). (c) Supplier transitions for DME and ente ral nutrition paid on a bundled, continuous rental basis

. Changes from a non-contract supplier to a contract supplier at the beginning of a CBP where payment is made on a bundled, cont inuous monthly rental basis results in the contract supplier taking on respons ibility for meeting a ll of the monthly needs for furnishing the covered DME or enteral nutrition. In the event that a benefici ary relocates from a CBA where these special payment rules apply to an area where rental cap rules apply, a new period of continuous use begins for the capped rental item, enteral nutrition equipment, or oxygen equipment as long as the item is determined to be medically necessary. (d) Responsibility for repair and maintenance and servicing of power wheelchairs. In no more than 12 CBAs where payment for power wheel chairs is made on a capped rental basis, for power wheelchairs furnished in conjunction with competitions that begin on or after January 1, 2015, contract suppliers that furnish power wheel chairs under contracts awarded based on these competitions shall continue to repair power wheelch airs they furnish following transfer of title to the equipment to the beneficiary. The responsibility of the contract supplier to repair, maintain and service beneficiary-owned pow er wheelchairs does not apply to power wheelchairs that theCMS-1614-P 354

contract supplier did not furnish to the benefici ary. For power wheelchairs that the contract supplier furnishes during the contra ct period, the responsibility of th e contract supplier to repair, maintain and service the power wheelchair once it is owned by the beneficiary continues until the reasonable useful lifetime of the equipment e xpires, coverage for the power wheelchair ends, or the beneficiary relocates outside the CBA wh ere the item was furnished. The contract supplier may not charge the beneficiary or the pr ogram for any necessary repairs or maintenance and servicing of a beneficiary-owned power wheel chair it furnished during the contract period. 17. Section 414.412 is amended by revising pa ragraph (b)(2) and adding paragraphs (b)(3) through (5) to read as follows: § 414.412 Submission of bids under a competitive bidding program. * * * * * (b) * * * (2) The bids submitted for each item or drug in a product category cannot exceed the payment amount that would otherwise apply to th e item under Subpart C, Subpart D, or Subpart I of this part. (3) The bids submitted for enteral nutrition, oxygen and oxygen equipment, standard manual wheelchairs, standard power wheelchairs, and hospital beds paid in accordance with the special payment rules at § 414.409(a) cannot exceed the average monthly payment for the bundle of items and services that woul d otherwise apply to the item under subpart C or subpart D of this part. (4) The bids submitted for continuous positive airway pressure (CPAP) devices and respiratory assist devices paid in accordance with the special payment rules at § 414.409(a)CMS-1614-P 355

cannot exceed the 1993 fee schedule amounts for th ese items, increased by the covered item update factors provided for these items in section 1834(a)(14) of the Act. (5) Suppliers shall take into consideration the special payment rules at § 414.409(d) when submitting bids for furnishing power wheelchairs under competitions where these rules apply.
* * * * * 18. Section 414.414 is amended by revising para graph (f) to read as follows: -- §414.414 Conditions for awarding contracts. * * * * * (f) Expected savings. A contract is not awarded under this subpart unless CMS determines that the amounts to be paid to contract suppliers for an item or drug under a competitive bidding program are expected to be less than the amounts that would otherwise be paid for the same item under subpart C or subpa rt D or the same drug under subpart I based on 95 percent of the average wholesal e price in effect on October 1, 2003.
* * * * * 19. Section 414.422 is amended by revising pa ragraph (d) to read as follows: §414.422 Terms of contracts. * * * * * (d) Change of ownership. (1) A contract s upplier must notify CMS if it is negotiating a change in ownership no later than 60 days before the anticipated date of the change. (2) CMS may transfer a contract to an entity that merges with, or acquires, a contract supplier if the entity meets the following requirements: (i) A successor entity---CMS-1614-P 356

(A) Meets all requirements applicable to cont ract suppliers for the applicable competitive bidding program; (B) Submits to CMS the documentation described under § 414.414(b) through (d) if documentation has not previously been submitted by the successor entity or if the documentation is no longer sufficient for CMS to make a financ ial determination. A successor entity is not required to duplicate previously submitted information if the previously submitted information is not need to make a financial determination. Th is documentation must be submitted no later than 30 days prior to the anticipated effective date of the change of ownership; and (C) Submits to CMS, at least 30 days before the anticipated effectiv e date of the change of ownership, a signed novation agreement accepta ble to CMS stating that it will assume all obligations under th e contract; or (ii) A new entity --- (A) Meets the requirements of (d)(2)(i) (A) and (B) of this section; and (B) Contract supplier submits to CMS, at le ast 30 days before the anticipated effective date of the change of ownership, its final draft of a novation agreement as described in paragraph (d)(2)(iii) of this section for CMS review. The ne w entity submits to CMS, within 30 days after the effective date of the change of ownershi p, an executed novation agreement acceptable to
CMS. (3) Except as specified in paragraph (d)(4 ) of this section, CM S transfers the entire contract, including all product ca tegories and competitive bidding areas, to a new entity. (4) For contracts issued in the Round 2 Reco mpete and subsequent rounds in the case of a CHOW where a contract supplie r sells a distinct company, (e.g., an affiliate, subsidiary, sole proprietor, corporation, or partne rship) that furnishes a specific product category or services aCMS-1614-P 357

specific CBA, CMS may transfer the portion of th e contract performed by that company to a successor, if the following conditions are met: (i) Every CBA, product category, and locati on of the company being sold must be transferred to the new qualified owner who meets all competitive bidding requirements; i.e. financial, accredit ation and licensure; (iii) All CBAs and product categories in the or iginal contract that are not explicitly transferred by CMS remain unchanged in that orig inal contract for the duration of the contract period unless transferred by CMS pur suant to a subsequent CHOW; (iv) All requirements of paragraph (d)(2) of this sec tion are met; and (v) The sale of the distin ct company includes all of th e contract supplier’s assets associated with the CBA and/ or product category(s); and (vi) CMS determines that transfer of part of the original contract will not result in disruption of service or harm to beneficiaries.

* * * * * 20. Section 414.423 is amended by revising paragra phs (b)(1)(vi), (l)(2) introductory text, and (l)(2)(i) to read as follows: § 414.423 Appeals Process for Termination of Competitive Bidding Contract.

* * * * * (b) * * * (1) * * * (vi) The effective date of termination is 45 days from the date of the notification letter unless a timely hearing request is filed or a co rrective action plan (CAP) is submitted within 30CMS-1614-P 358

days of the date on th e notification letter.
* * * * * (l) * * * (2) A contract supplier whose contract has b een terminated must notify all beneficiaries who are receiving rented competitive bid items or competitive bid items received on a recurring basis, of the termination of their contract. (i) The notice to the beneficiar y from the supplier whose contr act is terminated must be provided no later than 15 days prior to the effective date of termination.
* * * * *CMS-1614-P

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

Dated: June 24, 2014.

_________________________ Marilyn Tavenner, Administrator, Centers for Medicare & Medicaid Services.

Approved: June 27, 2014.

_____________________________ Sylvia M. Burwell, Secretary, Department of Health and Human Services.

BILLING CODE 4120-01-PCMS-1526-P

. [FR Doc. 2014-15840 Filed 07/02/2014 at 4:15 pm; Public ation Date: 07/11/2014]